USACM Liquidating Trust v. Deloitte & Touche

Summarized by Eryk Escobar , Department of Justice
12 years 10 months ago

Citation:

D.C. No. 2:08-cc-00461-PMP-PAL (Not for Publication)

Tag(s):

Ruling:

The United States Court of Appeals for the Ninth Circuit (the “Court”) affirmed the District Court’s summary judgment in favor of defendant Deloitte & Touche, LLP (“Deloitte”). The Court held that the District Court properly applied the sole actor rule as articulated under Nevada law. That rule “imputes an agent’s actions to the principal corporation even if the agent totally abandons the corporation’s interest when the corporation and its agent are indistinguishable from each other.” See Glenbrook Capital Ltd. P’ship v. Dodds (In re Amerco Derivative Litig.), 252 P.3d 681, 695-6 (Nev. 2011) (internal citations omitted). The Court also affirmed summary judgment in favor of Deloitte on the ground that the two-year extension of applicable limitations periods under 11 U.S.C. § 108(a) was not applicable. The ineligibility of the two-year extension under § 108 rendered the plaintiff’s claim untimely. Finally, the Court held that the District Court properly declined to apply the adverse domination doctrine because Nevada has not adopted that doctrine.

Procedural context:

On April 13, 2006, USA Commercial Mortgage Company (“USACM”) filed for relief under chapter 11 of Title 11 of the United States Code. USACM’s confirmed chapter 11 plan created a bankruptcy litigation trust (the “Trust”) for purposes of pursuing USACM’s claims for the benefit of holders of allowed unsecured claims in USACM’s bankruptcy. On April 11, 2008, the Trust sued USACM’s former outside auditor, Deloitte. The Trust alleged that Deloitte wrongfully issued unqualified audit opinions for fiscal years 2000 and 2001, concealing the misappropriations of USACM’s funds through two allegedly fraudulent schemes perpetrated by Thomas Hantges (“Hantges”) and Joseph Milanowski (“Milanowski”). Hantges and Milanowski were the owners and controllers of USACM. The alleged misappropriations caused USACM to sustain millions of dollars in losses.

Facts:

The evidence before the District Court showed that Hantges and Milanowski controlled and dominated USACM. They were the majority shareholders, owning collectively at least 83% of the stock. Prior to 2001, Hantges and Milanowski were the only two directors. Other actors within USACM perceived Hantges and Milanowski as the relevant decision-makers, whose actions could not be overridden. For these reasons, the District Court imputed Hantges and Milanowski’s misconduct to USACM. The evidence also showed that the applicable state law statutes of limitation expired well before the petition date, rendering § 108(a) inapplicable. The evidence showed that USACM would have discovered Deloitte’s failure to report and/or cover-up Hantges and Milanowski’s fraudulent schemes by no later than 2001, 2002 and 2003 (three different dates controlled depending on the cause of action). Based on those dates, the pertinent state law statutes of limitation expired on June 2003, November 2004 and January 2006, respectively. As the petition date was April 13, 2006, section 108(a) was not triggered.

Judge(s):

Wallace and Ikuta, Circuit Judges, and Garbis, Senior District Judge

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