The opinion of the court was delivered by: MARJORIE O. RENDELL
On May 25, 1990, the Office of Thrift Supervision of the Department of the Treasury ("OTS") closed Horizon Financial F.A. ("Horizon") and appointed the Resolution Trust Corporation ("RTC") as Horizon's receiver. In that capacity, on June 5, 1992, the RTC filed this action seeking damages against Horizon's former directors and officers
and its general counsel, the law firm of Stuckert and Yates and its partners (collectively, the "Attorney Defendants")
. In a Memorandum and Order dated June 8, 1993, Judge Giles (to whom the case was then assigned) dismissed several of the RTC's claims. Consequently, what remains are causes of action for gross negligence against the directors and officers and tort claims of malpractice, breach of fiduciary duty and aiding and abetting against the Attorney Defendants.
Now before me is a motion for summary judgment, based on the statute of limitations, filed on behalf of Peter J. Farmer and Gregor Meyer (the "Inside Director Defendants") and the Attorney Defendants (collectively the "IDA Defendants"). In addition to the parties' extensive briefing, I held a hearing on May 27, 1994 at which I heard both testimony and oral argument. For the reasons that follow, I will deny the IDA Defendants' motion for summary judgment.
Horizon was a federally insured, federally chartered mutual savings and loan association subject to the regulation and oversight of the Federal Home Loan Bank Board ("FHLBB"). On October 21, 1982 the FHLBB required Horizon to enter into a consent resolution (the "Consent Resolution"), whereby the board of directors of Horizon agreed, among other things, to obtain the written approval of the Federal Savings and Loan Insurance Corporation ("FSLIC") before Horizon would enter into any significant transaction, and to resign from the board if requested by the FSLIC. Horizon's difficulties continued when, on February 18, 1986, the FHLBB required Horizon to enter into a supervisory agreement (the "Supervisory Agreement") which required, among other things, that Horizon limit its liability growth to an annualized rate not greater than fifty percent and exert its best efforts to bring an infusion of capital into the institution. Horizon operated pursuant to the terms of the Consent Resolution and the Supervisory Agreement until June 7, 1989, when the FHLBB determined that Horizon was insolvent and appointed the FSLIC as Horizon's conservator. On August 9, 1989, pursuant to FIRREA, Congress abolished the FSLIC, 12 U.S.C. § 1437(a)(1), and created the RTC to manage failed savings and loan institutions. 12 U.S.C. § 1441a(b)(1). Thus, on May 25, 1990, when the OTS closed Horizon, it appointed the RTC as receiver. In that capacity, the RTC acquired all rights, titles, powers and privileges of Horizon, including the right to bring this action. 12 U.S.C. § 1441a(b)(4) and 12 U.S.C. § 1821(d)(2)(A)(i).
The RTC alleges that each defendant in "their various capacities, made, authorized and permitted numerous imprudent loans and, by their wrongful acts and omissions, caused Horizon substantial damage and loss" (Amended Complaint P 38). The RTC alleges that the director and officer defendants were grossly negligent in that, among other things, they: failed to institute adequate loan policies and procedures; failed to institute adequate internal controls over lending officers; failed to monitor adequately the activities of lending officers; failed to conduct proper credit analysis and investigation; failed to establish policies and procedures despite criticisms of federal regulators; violated federal statutes rules and regulations; failed adequately to monitor loans; and failed to become sufficiently familiar with the savings and loan industry in general (Amended Complaint P 68(a)-(j)). As against the Attorney Defendants, the RTC alleges that they breached their duties to the bank in that, among other things, they: failed to properly document loans; failed to become adequately familiar with legal issues relating to the banking industry in general and Horizon's business in particular; failed adequately to supervise Stuckert and Yates attorneys who worked on Horizon matters; failed to advise Horizon that its lending policies and procedures were inadequate; failed to advise Horizon that its internal controls over lending officers were inadequate; failed to advise Horizon that its credit analysis and investigation were inadequate; and failed to advise Horizon that certain loan agreements did not adequately protect its rights (id. at P 84(a)-(i)).
Beginning in June 1984 and continuing through January 1985, Horizon purchased automobile and second mortgage consumer loan portfolios from three lending institutions: Sentry Acceptance Corporation, Bankers Service Corporation and Landbank Equities (collectively the "SBL portfolio") (Amended Complaint PP 39-47; Horizon Commitment with Sentry Acceptance Corporation dated June 21, 1984, Exhibit 2 of Appendix to Defendants' Memorandum in Support of Defendants' Motion for Summary Judgment, hereinafter cited as "Defendants' Appendix"; Horizon Commitment with Bankers Service Corporation dated January 17, 1985, Defendants' Appendix Exhibit 5). Problems with the SBL portfolio surfaced almost immediately (see memorandum written by Michael Callahan, a Horizon loan officer, included as part of the FHLBB Report of Examination as of December 15, 1984 at p. A0035031-36, Defendants' Appendix Exhibit 4). In the cover letter to its Report of Examination as of December 15, 1984 -- sent to Horizon's board on June 13, 1985 -- the FHLBB expressed its concerns to Horizon's board regarding these loans:
We express to the board our serious concern at the precarious financial condition of the institution, as evidenced by continuing losses and the low sustaining power of current net worth. The difficulties encountered in the purchase of automobile loans from Sentry Acceptance Corporation . . . are also of concern, as the institution can little afford additional losses of any kind at this time.
(Defendants' Appendix Exhibit 4).
B. The Brokers South Transactions
In the fall of 1985, Horizon began to sell the SBL portfolio to Brokers South, Inc. ("Brokers South"), with Horizon providing all of the financing (FHLBB Report of Examination dated February 21, 1989, p. 12, 13, attached as Exhibit "J" to Memorandum of Law of Plaintiff Resolution Trust Corporation in Opposition to Defendants' Motion for Summary Judgment, hereinafter cited as "Plaintiff's Memorandum"). Brokers South was an affiliation of used-car dealerships operated throughout the southern United States, marketing cars primarily to low-income individuals (Amended Complaint P 50). On October 31, 1985, Horizon entered into the first of three credit facilities with Brokers South. The transaction consisted of Brokers South using a portion of the $ 4.3 million loan to make a partial acquisition of the SBL portfolio from Horizon, with the remainder to be used to finance Brokers South's operations (Loan Committee Minutes dated November 22, 1985, Defendants' Appendix Exhibit 10).
On December 6, 1985, Horizon closed its second credit facility to Brokers South (see Loan Committee Minutes dated December 13, 1985, Defendants' Appendix Exhibit 10). This loan was structured similar to the first and increased Brokers South's line of credit from $ 2 to $ 4 million (see Committee Action Work Sheet, dated December 9, 1985, Defendants' Appendix Exhibit 11). Again, Brokers South used a portion of the loan proceeds to acquire more of the SBL portfolio from Horizon. In early July 1986, Horizon made its third and final loan to Brokers South.
In September 1987, the Brokers South credit was restructured due to its difficulty in paying off its loans with Horizon (FHLBB Report of Examination, dated February 21, 1989, p. 12.13, Exhibit "J" to Plaintiff's Memorandum). Despite this restructuring Brokers South could still not meet its obligations. By January 1988 Brokers South was in default under the Restructuring Agreement (see id. at p. 12.14).
In their motion for summary judgment, the IDA Defendants argue that the RTC's claims with respect to all of these underlying transactions are time barred. In response, the RTC contends that the statute of limitations had not run on its claims and, that even if I conclude it had, the doctrine of adverse domination applies and operates to toll the statute. The IDA Defendants adamantly contest this assertion. They argue that I should not adopt the doctrine of adverse domination because no Pennsylvania court has ever recognized it. Moreover, they argue that even assuming the Pennsylvania courts would adopt the doctrine of adverse domination it should not apply in this case because from the time of the 1982 Consent Resolution the FHLBB controlled Horizon. Finally, the Attorney Defendants assert that even if I toll the statute of limitations with respect to the claims against the Inside Director Defendants, I should not apply the doctrine of adverse domination to the claims against them. They reason that this doctrine should only be used to toll the statute of limitations with respect to directors and officers who control an institution.
II. Summary Judgment Standard
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). An issue is "genuine" only if there is a sufficient evidentiary basis on which a reasonable jury could find for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). A factual dispute is "material" only if it might affect the outcome of the suit under governing law, id. at 248, and all inferences must be drawn, and all doubts resolved, in favor of the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655, 8 L. Ed. 2d 176, 82 S. Ct. 993 (1962); Gans v. Mundy, 762 F.2d 338, 341 (3d Cir.), cert. denied, 474 U.S. 1010, 88 L. Ed. 2d 467, 106 S. Ct. 537 (1985).
On a motion for summary judgment, the moving party bears the initial burden of identifying for the Court those portions of the record that it believes demonstrate the absence of dispute as to any material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). To defeat summary judgment, the non-moving party "may not rest upon the mere allegations or denials of [its] pleading, but [its] response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). If that evidence is, however, "'merely colorable' or is 'not significantly probative,' summary judgment may be granted." Equimark Commercial Finance Co. v. C.I.T. Financial Services Corp., 812 F.2d 141, 144 (3d Cir. 1987) (quoting, in part, Anderson, 477 U.S. at 249-50). The non-moving party must demonstrate the existence of evidence that would support a jury finding in its favor. See Anderson, 477 U.S. at 248-49.
Under Pennsylvania law, the burden is on the plaintiff to plead and prove facts which would serve to toll the statute of limitations. Harper v. Superior Tool and Die Co., 1987 U.S. Dist. LEXIS 9217, 1987 WL 18414 (E.D. Pa. Oct. 7, 1987). "Where the nonmoving party will bear the burden of proof at trial on a dispositive issue," the nonmoving party must go "beyond the pleadings" and produce summary judgment evidence designating "'specific facts showing that there is a genuine issue for trial.'" Celotex, 477 U.S. at 324 (quoting Fed.R.Civ.P. 56(e)). Thus, the RTC bears the burden of producing some summary judgment evidence in support of its tolling argument. See Federal Deposit Ins. Corp. v. Shrader & York, 991 F.2d 216, 220 (5th Cir. 1993).
FIRREA provides a three-year federal statute of limitations for claims the RTC brings as receiver. 12 U.S.C. § 1821(d)(14).
In interpreting this statute, however, courts have held that it does not revive stale state law claims that the RTC acquired. Randolph v. Resolution Trust Corp., 995 F.2d 611, 619 (5th Cir. 1993); Fed. Deposit Ins. Corp. v. Regier Carr & Monroe, 996 F.2d 222, 225-26 (10th Cir. 1993); Fed. Deposit Ins. Corp. v. McSweeney, 976 F.2d 532, 534 (9th Cir. 1992), cert. denied, 124 L. Ed. 2d 658, 113 S. Ct. 2440 (1993); Cf. Fed. Deposit Ins. Corp. v. Hinkson, 848 F.2d 432, 434 (3d Cir. 1988) (applying the general federal limitations statute, 28 U.S.C. § 2415). Thus, I must undertake a two-step analysis to resolve the statute of limitations defense. First, I must determine whether the applicable Pennsylvania limitations period had expired before the FSLIC acquired the state law causes of action the RTC now asserts.
Second, if the state statute had not yet expired, I must determine whether the applicable three-year federal limitations period expired between the date the FSLIC acquired the causes of action and the date the RTC filed this suit. See, e.g., Fed. Deposit Ins. Corp. v. Dawson, 4 F.3d 1303, 1307 (5th Cir. 1993).
In the present case, the second prong of this analysis (whether the FIRREA limitations period expired) is not in dispute. It is uncontroverted that the RTC filed its claims against the defendants in time to meet the three-year FIRREA statute of limitations. Thus, the only issue is whether the applicable state statute of limitations had expired before Horizon assigned its claims against the defendants to the FSLIC when it was placed in conservatorship on June 7, 1989. To answer this question I must traverse many issues which I will group under three general headings: (A) which ...