The questions presented in this case have been certified to us by the United States Court of Appeals for the Ninth Circuit under the Uniform Certification of Questions of Law Act, ORS 28.200
et seq.,
and ORAP 12.20.
See generally Western Helicopter Services v. Rogerson Aircraft,
We take the facts from the Ninth Circuit certification order:
“Family Federal Savings & Loan Association (Family Federal) was a federally insured thrift headquartered at Dallas, Oregon. On January 10, 1990, the Office of Thrift Supervision determined that Family Federal was insolvent. The Office, therefore, appointed the Resolution Trust Corporation [(RTC)] as receiver for Family Federal, and on that date, RTC purchased all of Family Federal’s claims against its directors and officers. Over three years later, on September 8,1993, RTC, as successor in interest to Family Federal, filed this action against Kenneth Smith, Richard Hoffman, Robert Bateman, William Dalton, Jack Darley, Stanley Hammer, and Robert Lorence. It alleged causes of action for negligence, breach of fiduciary duty, and breach of contract. [1]
“In January of 1984, Smith, Dalton, Darley, Hammer and Lorence were members of the board of directors of Family Federal. Bateman became a member in 1984, after the death of another member. At all relevant times, they constituted the majority of the board of directors of Family *424 Federal. Hoffman was * * * Family Federal’s Loan Manager at all relevant times.
“In January of 1984, the Board of Directors approved the purchase of a $2,000,000 participation in a $31,000,000 loan to finance construction of a hotel, and by May of that year the directors and officers were aware of difficulties which had come to light; it then appeared that the loan had been ill advised.
“In May of 1985, the directors agreed to fund $2,900,000 of time share loan paper, which involved time share units located at Indian Wells Resort. That also turned out to be a poor investment, which was criticized by federal examiners as early as April of 1986.
“Stephen Way, who did not participate in those transactions, became a director in August of 1987. Before that, he had been an officer and had attended board meetings from at least November 1983 forward. Other officers also attended board meetings throughout that time.”
F.D.I.C. v. Smith,
RTC’s claims are based on defendants’ approval of the multi-million dollar investments described above. RTC’s complaint alleges negligence, breach of fiduciary duty, and breach of contract, but does not accuse defendants of acting in their own interests or allege fraud or intentional misconduct.
RTC is a federal entity that is asserting a claim against the officers and directors of Family Federal. It received the claim by assignment upon being appointed as receiver for Family Federal. When a federal entity attempts to assert a claim under such circumstances, the court must conduct a two-step analysis to determine what statute of limitations applies.
See, e.g., F.D.I.C. v. Dawson,
After RTC filed its action, defendants moved for summary judgment on the ground that RTC’s claims were barred by Oregon’s two-year statute of limitations contained in ORS 12.110(1).
3
The district court denied defendants’ motion, concluding that, in this case, Oregon would recognize the doctrine of “adverse domination” and would hold that, under that doctrine, accrual of the claims was delayed until RTC took control of Family Federal in 1990, making RTC’s complaint timely under an applicable three-year federal statute of limitations.
Resolution Trust Corp. v. Smith,
Because Oregon appellate courts have not previously decided the issue whether Oregon recognizes the doctrine of adverse domination, the Ninth Circuit certified the following two questions to this court:
“(1) Under Oregon law[,] does the doctrine of adverse domination delay the running of the statute of limitations for causes of action based upon negligence? Does it do so for causes of action based upon breach of fiduciary duty? Does it do so for causes of action based upon breach of contract?
“(2) If the doctrine of adverse domination does apply to any or all of the mentioned causes of action, what version is *426 applied, the disinterested majority version or the single disinterested director version?”
Smith,
Before turning to an analysis of Oregon law, some background information is helpful. The doctrine of adverse domination has gained currency in recent years in the context of litigation against directors and officers of insolvent financial institutions. The doctrine serves either to delay the accrual of a claim by a corporation against its directors and officers, or, in the alternative, to toll the running of the applicable statute of limitations. The doctrine is premised on the theory that it is impossible for the corporation to bring the action while it is controlled, or “dominated,” by culpable officers and directors. Courts applying the doctrine of adverse domination have reasoned that corporations act only through their officers and directors, and those officers and directors cannot be expected to sue themselves or to initiate any action contrary to their own interests.
4
See, e.g., Hecht v. Resolution Trust,
333 Md 324, 340,
Courts that apply the doctrine of adverse domination have developed two versions of the doctrine, the “disinterested majority” version and the “single disinterested director” version. The versions differ with respect to the degree of control or domination considered necessary to delay accrual
*427
of a claim or to toll the otherwise applicable statute of limitations. Under the disinterested majority version, a plaintiff benefits from a presumption that the cause of action does not accrue or the statute of limitations does not run so long as the culpable directors remain in the majority,
i.e.,
until the corporation has a disinterested majority of nonculpable directors.
See, e.g., Resolution Trust Corp. v. Scaletty,
257 Kan 348, 351-52,
In contrast, under the single disinterested director version of the doctrine, statutes of limitations are tolled only so long as there is no director with knowledge of facts giving rise to possible liability who could have induced the corporation to bring an action. Under that version, a plaintiff has the burden of showing that the culpable directors had full, complete, and exclusive control of the corporation, and must negate the possibility that an informed director could have induced the corporation to sue.
Scaletty,
257 Kan at 352,
With that background in mind, we turn now to the first certified question, which we repeat here for convenience:
“Under Oregon law does the doctrine of adverse domination delay the running of the statute of limitations for causes of action based upon negligence? Does it do so for causes of action based upon breach of fiduciary duty? Does it do so for causes of action based upon breach of contract?”
*428
We begin our analysis with the primary issue,
viz.,
whether Oregon recognizes the doctrine of adverse domination. In considering that question, the federal district court treated adverse domination as a corollary to Oregon’s “discovery” rule, a rule of interpretation of statutes of limitation that has the effect of tolling the commencement of such statutes under certain circumstances.
5
See Huff v. Great Western Seed Co.,
Like the district court, we also use the discovery rule as a starting point in our analysis. In general terms, a cause of action does not accrue under the discovery rule until the claim has been discovered or, in the exercise of reasonable care, should have been discovered.
Gaston v. Parsons,
“the statute of limitations begins to run when the plaintiff knows or in the exercise of reasonable care should have known facts which would make a reasonable person aware of a substantial possibility that each of the three elements * * * exists.”
*429
Gaston and Doe concern an individual’s knowledge or discovery that he or she may have a claim. If the principles discussed in those cases also pertain to the corporate context, then they do so by analogy. To complete the analogy, then, we must determine when, under Oregon law, a corporation can be deemed to “know” that it has a claim.
A potential corporate plaintiff is not a sentient being and, therefore, cannot “know,” be aware of, or discover anything, except through the agency of its officers, directors, and employees. A corporation generally is charged with knowledge of facts that its agents learn within the scope of their employment.
State Farm Fire v. Sevier,
Oregon courts long have recognized such an “adverse interest” exception. As the court stated in
Saratoga Inv. Co. v. Kern,
*430 Defendants argue that a director’s good faith actions in approving a loan, with the belief that he or she is acting in the best interests of the bank, cannot reasonably be characterized as being “so adverse as to practically destroy the relationship.” Rather, according to defendants, a director’s acts must constitute intentional misconduct, self-dealing, or fraud in order to rise to that level. We do not believe that the principle variously described in Saratoga and the Restatement is (or should be) so limited.
The “subject matter” to be considered when evaluating the degree of the director’s adverse interest is the decision whether to make a claim, not the underlying acts that gave rise to that claim. The culpable directors’ interest in bringing a claim against themselves certainly is adverse to that of the corporation. In Saratoga terms, at least as to that issue, the agent/principal relationship is nonexistent. Of course, in a corporate mismanagement case, the wrongdoers, who are running the corporation, necessarily possess personal knowledge of the facts that would support a claim against them. Realistically, however, the corporation has neither meaningful knowledge nor the ability to act on such knowledge, until the wrongdoing directors and officers no longer control it. We conclude that knowledge of the wrongdoing directors or officers of facts that would give rise to legal liability to the corporation on the part of those directors or officers will not be imputed to the corporation so long as those directors or officers control the corporation. 6
Based on the foregoing, we hold that Oregon recognizes the adverse domination doctrine, which is analogous to Oregon’s discovery rule in the context of a claim by a corporation against its former directors and officers for their alleged mismanagement of corporate affairs. The question remains whether this court would apply that doctrine to claims of the kind asserted here, viz., negligence, breach of fiduciary duty, and breach of contract.
This court has applied the discovery rule to negligence actions subject to the statutes of limitations expressed
*431
at ORS 12.110(1) and ORS 12.010.
7
See, e.g., U.S. Nat’l Bank v. Davies,
With respect to whether the doctrine of adverse domination applies in the context of a breach of contract action, it does not appear from the facts reported in the Ninth Circuit’s certification order, quoted at
We turn to the second certified question:
“If the doctrine of adverse domination does apply to any or all of the mentioned causes of action, what version is applied, the disinterested majority version or the single disinterested director version?”
*432 As noted, the “disinterested majority” version of the adverse domination doctrine creates a rebuttable presumption that a corporation does not have a full and fair opportunity to bring claims against its directors during the time that culpable directors constitute a majority of the board. Defendants may overcome that presumption by showing that some person or group had both sufficient knowledge and power to bring an action against the majority of the board. The single disinterested director version, by contrast, places the burden on the corporate plaintiff to show that no one was in a position to bring an action on behalf of the corporation.
We conclude that the “disinterested majority” version of the doctrine more closely mirrors human nature. Because a board composed of a majority of culpable directors will rarely, if ever, facilitate the assertion of claims against its members, it is appropriate that those directors bear the burden of proving otherwise. Other courts reaching this conclusion have reasoned similarly:
“As long as the majority of the board of directors are culpable they may continue to operate the association and control it in an effort to prevent action from being taken against them. While they retain control they can dominate the non-culpable directors and control the most likely sources of information and funding necessary to pursue the rights of the association. As a result, it may be extremely difficult, if not impossible, for the corporation to discover and pursue its rights while the wrongdoers retain control.”
Federal Sav. and Loan Ins. Corp. v. Williams,
Defendants argue that the foregoing approach does not comport with the currently accepted approach to the discovery rule. According to defendants, because
“Oregon places the burden on the plaintiff to submit facts showing why initiation of the action was delayed based on the discovery rule[,] * * * it follows that a plaintiff trying to delay the statute of limitations on adverse domination *433 grounds should likewise bear the burden to plead and prove the reason for delay.”
Defendants conclude that only the single disinterested director version of the adverse domination doctrine follows that principle. That conclusion, however, is not compelled by defendants’ premise: A plaintiff still would be required to plead and prove facts -showing that it was adversely dominated, i.e., that the board was composed of a majority of culpable directors, under the disinterested majority version of the adverse domination doctrine.
We conclude that Oregon applies the doctrine of adverse domination to causes of action based on negligence and breach of fiduciary duty. We decline to address whether the doctrine of adverse domination applies to causes of action based on breach of contract. We further conclude that Oregon applies the disinterested majority version of the doctrine in contexts in which it is applicable.
Certified questions answered.
Notes
1 This action originally was brought by the Resolution Trust Corporation (RTC), the predecessor in interest to the Federal Deposit Insurance Corporation (FDIC). FDIC statutorily succeeded RTC when RTC ceased to exist in 1995. See 12 USC § 1441 a(m)(l) (accomplishing the changeover). For purposes of simplicity and consistency, we refer to RTC throughout this opinion.
When a federal entity becomes conservator of a financial institution, acquiring the assets of that institution, 12USC § 1821(d)(14) of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 provides that the entity will have three additional years from the date of conservatorship or accrual, whichever is later, in which to file suit on a tort claim and six additional years in which to file suit on a contract claim.
ORS 12.110(1) provides, in part:
“An action * * * for any injury to the * * * rights of another, not arising on contract, and not especially enumerated in this chapter, shall be commenced within two years; provided that in an action at law based upon fraud or deceit, the limitation shall be deemed to commence only from the discovery of the fraud or deceit.”
A minority of courts that have considered this issue have declined to recognize the doctrine of adverse domination, concluding that the doctrine is inconsistent with applicable state law tolling doctrines and policies of strictly construing statutes of limitations.
See, e.g., Resolution Trust Corp.
v.
Armbruster,
Other courts that have considered this issue have treated the matter similarly.
See, e.g., Resolution Trust Corp. v. Chapman,
We address the issue of when a corporation is deemed to be “controlled” by those individuals in connection with our response to the Ninth Circuit’s second question.
See
ORS 12.110(1) is quoted at
ORS 12.010 provides:
“Actions shall only be commenced within the periods prescribed in this chapter, after the cause of action shall have accrued, except where a different limitation is prescribed by statute.”