delivered the opinior. of the court:
Plaintiffs, Lease Resolution Corporation (LRC), the successor general partner of a limited partnership, and Datronic Equipment Income Fund XVII (the Fund), the limited partnership, appeal from the dismissal with prejudice of their third amended complaint. On December 15, 1995, LRC and the Fund filed a complaint against defendants Dennis Larney, Midland Capital Corporation (Midland), and Edmund J. Lopinski, Jr., the officers and agents of the former general partner, alleging that they had converted funds belonging to the Fund. The circuit court dismissеd plaintiffs third amended complaint with prejudice, finding that the cause of action was time-barred and that plaintiffs had failed to allege sufficient facts to invoke the adverse domination doctrine. In this case we are asked to decide whether Illinois will recognize the adverse domination doctrine. We find that it will.
In 1989, Datronic was the general partner of the Fund, which it managed pursuant to a limited partnership agreement. Limited partnership interests in the Fund were offered as investments to the general public. The limited partners of the Fund were passive investors who took no part in the management of the Fund. The Fund was in the business of acquiring, managing, operating, and disposing of equipment leases. The Fund had no employees of its own.
Midland provided consulting and other services to Datronic in connection with the acquisition of equipment leases and equipment lease portfolios. Larney was the sole shareholder and president of Midland. Larney also served as a director of Datronic until his resignation on December 31, 1988. Lopinski was chairman of the board and president of Datronic.
At all relevant times, the board of directors of Datronic (the Board) was comprised of three directors. Lopinski, by virtue of his ownership of approximately 95% of the stock of Datronic, appointed all of the directors. From December 31, 1988, through September 30, 1989, the Board consisted of Lopinski, Stephen S. Buckley, and Gary G. Gebis. On September 30, 1989, Gebis resigned from the Board, questioning the proрriety of various Datronic transactions, including the Bank of California (BankCal) transaction. On December 12, 1989, Lopinski appointed Edmund C. Lipinski to the Board. From December 12, 1989, until May 1, 1992, the Board was comprised of Lopinski, Buckley, and Lipinski.
Plaintiffs alleged that during the period of December 12, 1989, to May 1, 1992, the Board “was not an independent body” and “was, in effect, a ‘rubber stamp’ for the corporate decisions of Lopinski.” Plaintiffs further alleged that Lipinski executed corporate resolutions and other сorporate documents when directed to do so by Lopinski, without questioning the propriety of such actions.
In early 1989, Larney and Lopinski icated and, on behalf of the Fund, negotiated for the acquisition of in equipment loan portfolio from BankCal. Larney, acting on behalf of die Fund, bid $40,077,196.06 for the purchase of the loan portfolio. O: June 16, 1989, Larney met with BankCal representatives to negotia 3 the details of the transaction. At that time, BankCal offered a 6 b discount on the purchase pricе if Datronic purchased the portfolic without recourse. Datronic, on behalf of the Fund, accepted the disci ant offer and entered into a sale and purchase agreement with Bank1 al for the acquisition of the loan portfolio. The initial purchase price c ' $40,077,196.06 was reduced by 6% or $2,404,631.76 to $37,672,564.30
Datronic, with the knowledge of L rney and Lopinski, caused $40,077,196.06 belonging to the Fund to ae deposited into an account in Datronic’s name at BankCal. BankCal then withdrew $37,672,564.30 from the account аs con¡ ideration for the sale of the loan portfolio, leaving $2,404,631.76 of 1 ne Fund’s money remaining in the account.
Plaintiffs allege that the $2,404,631.76 remaining in the account was converted by Datronic, Lopinski, ai .d Larney for their own use and benefit. On August 8, 1989, Midlanc received a consulting fee of $601,157.94 from Datronic. This money vas paid out of the allegedly converted funds. On that same date, Buc Ikley was paid $100,000 from the allegedly converted funds.
Plaintiffs allege that in October 198$ and again on December 20, 1989, Larney falsely reрresented to att jrneys and auditors for Datronic and the Fund that the $2,404,631 76 retained by Datronic as a result of the BankCal transaction was í fee and not a discount. On December 18, 1989, a corporate resolution was adopted by the Board approving a May 1, 1989, agreement between Datronic and Midland. Pursuant to this agreement, Midland would receive a commission of l1/2% of the purchase price of all lease portfolios purchased by Datronic or its affiliates.
On May 2, 1992, both Lopinski and Lipinski rеsigned from the Board. On May 18, 1992, a class action lawsuit entitled Ventre v. Datronic Rental Corp., 92 C — 3289, was filed in the United States District Court for the Northern District of Illinois (the Ventre action) on behalf of 35,000 investors in the various limited partnerships managed by Datronic, including the Fund. The Ventre action was brought against Datronic and several of Datronic’s officers, including Lopinski and Lipinski, alleging Racketeer Influenced and Corrupt Organizations Act (RICO) (18 U.S.C. §§ 1962(c), (d) (1994)) claims, violations of federal securities laws, and fraud. On Ma*ch 4, 1993, the district court approved a partial settlement of the Ventre action, which provided, inter alia, that LRC would be substituted for Datronic as the general partner of the Fund with full authority to manage its funds and affairs.
Following its appointment as general partner, LRC, through its accountants and attorneys, investigated various transactions involving the Fund. As a result of this investigation, a complaint was filed against Midland, Larney, and Lopinski in the circuit court of Cook County on October 12, 1994. Count I of the complaint sought a judicial aсcounting of the fees paid to Midland and Larney. Count II alleged a scheme to defraud in connection with the diversion of $2.4 million of the Fund’s money in the BankCal transaction.
Midland and Larney filed a combined motion to dismiss the October 12, 1994, complaint arguing that the state court did not have subject matter jurisdiction over the lawsuit. On May 18, 1995, Judge Edwin Berman entered an order dismissing the complaint without prejudice and directing the case to be transferred to the United States District Court for the Northern District of Illinois, Eastern Division. The order further provided that, “should the District Court decline to exercise jurisdiction the cause shall be returned to this court, all parties shall have the right to assert any and all claims, defenses or motions that are presently pending.” The claims against Larney and Midland were promptly refiled in federal court. On December 5, 1995, the federal court action against Larney and Midland was dismissed without prejudice for want of federal jurisdiction.
The two-count complaint in the case sub judice was filed on Dеcember 15, 1995. Count I sought damages for conversion, and count II sought a judicial accounting of the fees paid to Midland and Larney. On February 13, 1997, the circuit court dismissed the complaint on limitations grounds but allowed plaintiffs leave to file an amended complaint to more fully plead the adverse domination doctrine. Plaintiffs filed their amended complaint on March 13, 1997, which was dismissed as time-barred because plaintiffs failed to allege sufficient facts to invoke the adverse domination doctrine. On October 15, 1997, the circuit court entered an order denying plaintiffs’ motion for leave to file a second amended complaint because the proposed complaint failed to allege sufficient facts to invoke the adverse domination doctrine.
On October 31, 1997, plaintiffs filed a one-count third amended complaint alleging conversion. Larney and Midland filed a motion to dismiss pursuant to section 2 — 619(a)(5) of the Code of Civil Procedure (the Code) (735 ILCS 5/2 — 619(a)(5) (West 1996)) contending that the actiоn was barred by the five-year statute of limitations for conversion actions and that the third amended complaint failed to allege facts that would invoke the adverse c 'mination doctrine. On June 17, 1998, the circuit court dismissed tl : third amended complaint with prejudice.
On appeal plaintiffs contend that: ( ) the circuit court erred in finding that under these facts the statute if limitations was not tolled by the adverse domination doctrine; (2) t e circuit court erred in failing to find that the defendants were eqc sably estopped from raising the statute of limitations defense; (3) the fircuit court erred in applying the reasonable time rule; and (4) the ircuit court erred in finding that plaintiffs’ December 15, 1995, com] aint did not relate back to plaintiffs’ October 12, 1994, complaint.
Plaintiffs contend that their Deceml ;r 15, 1995, complaint was timely filed because of the application of he adverse domination doctrine. Specifically, they contend that th statute of limitations was tolled during the period when the Boa 1 was dominated and controlled by wrongdoers (Lopinski and Lipii ski).
Adverse domination is an equitabl doctrine that tolls the statute of limitations for claims by a corpor. ion against its officers and directors while the corporation is controll I by those wrongdoing officers or directors. Resolution Trust Corp. v. Grant,
No Illinois court has ever address d or recognized the adverse domination doctrine. Illinois has, howev r, recognized the discovery rule. Where the discovery rule applies, tl ¿ relevant statute of limitations is tolled until the plaintiff knows or easonably should know that he has been injured and that his injury we : wrongfully caused. Hermitage Corp. v. Contractors Adjustment Co.
When the plaintiff is a corporation it can only learn that it has been injured through its agents. Genera Ly, аn agent’s knowledge is imputed to the principal. However, if the gent’s interests are adverse to those of the principal, the agent’s kmr ledge is not imputed to the principal. Kinzer v. Fidelity & Deposit Co.,
Logical application of the discc rery rule and agency law principles leads to recognition of the adv< rse domination doctrine. As the court in Chapman noted:
“[T]he adverse domination doctrine is simply a common sense application of the discovery rule to a corporate plaintiff. If a company’s board of directors is the only body which can bring a lawsuit on behalf of the company, and the board of directors are the only members of the company with the knowledge the company has a cause of action, and the members of the board of directors are the potential defendants in that cause of action, it is simply unreasonable to expect those individuals to sue themselves. For purposes of the discovery rule, therefore, the company does not know of its cause of actiоn until the wrongdoing board of directors no longer controls it.” Chapman,895 F. Supp. at 1078 .
Two Illinois Appellate Court decisions support adoption of the adverse domination doctrine. In Auer v. Wm. Meyer Co.,
In Robert P. Butts & Co. v. Estate of Butts,
“[W]here directors of a corporation violate a trust in a situation where the directors are in complete control of the affairs, and where no notice of the violation has reached a minority stockholder, the statute of limitations is not a bar to the assertion of the rights of such minority stockholder. Claimant was a family company charged with a public trust. Until the collapse of the claimant company or the death of the decedent, there was no one to assert the truth.” Butts,
The decisions in Butts and Auer teach that, under trust principles, if a director puts his personal goals above those of the company and the company suffers as a result, the statute of limitations will not bar the company from recovering from the director as long as the company had no knowledge of the director’s nefarious actions. Although not relying on trust principles, the adverse domination doctrine similarly teaches that if a director takes an action that harms the corporation and the corporation is unaware of the acti a, the statute of limitations will not bar the corporation from recover lg from the director. While not directly on point, Auer and Butts sugg st an acceptance by Illinois courts of the basic equitable principles uni ¡rlying the adverse domination doctrine.
We now expressly adopt the adverse animation doctrine as part of the Illinois discovery rule. Having done so, we must address two issues: (1) How completely must the wrongd ers dominate their corporation in order to trigger the adverse domin tion doctrine? and (2) How culpable must a director’s conduct be be ire he will be considered a wrongdoer?
There are two theories regarding vhat constitutes sufficient domination so that the doctrine will app r, the complete domination theory and the majority domination tl iory. Under the complete domination theory, a plaintiff who seeks ) toll the statute of limitations must show “full, complete and exck ive control in the directors or officers charged.” Resolution Trust Corp. v. Franz,
In Franz, the Federal District Court : r the Northern District of Illinois held that, if faced with the questio , our supreme court would adopt the majority domination theory of i .e adverse domination doctrine. The Franz court noted that this thei ry is the majority rule. The court further noted that a culpable major! ' of the board could control nonculpable directors and also most likеly ontrol the sources of information and funding necessary to pursue t." 3 rights of the corporation. In light of this ability to control, the Fram court reasoned that it may be extremely difficult, if not impossible, foi the corporation to discover and pursue its rights while a majority of Tongdoers retains control. We find the reasoning of Franz to be perst isive.
There are three theories as to the Bvel of culpability required before a director is considered a wrongdoei The “intentional wrongdoing” theory plаces the culpability thresh Id at intentional conduct. Federal Deposit Insurance Corp. v. Henderson,
Wе expressly adopt the adverse domination doctrine and hold that in order to avail itself of the doctrine a plaintiff must establish that a majority of the directors were wrongdoers during the period the plaintiff seeks to toll the statute, in that they exhibited at least recklessness or gross negligence.
We must now turn to the facts of the case at hand and determine whether plaintiffs have pled sufficient facts to support application of the adverse domination doctrine. In ruling upon a motiоn to dismiss brought pursuant to section 2 — 619 of the Code (735 ILCS 5/2 — 619 (West 1996)), a court must accept as true all well-pled facts in the complaint and draw all inferences from those facts that are favorable to the plaintiff. Mayfield v. Acme Barrel Co.,
We take the following well-pled facts as true for purposes of defendants’ motion to dismiss. On August 8, 1989, when the alleged conversion occurred, the Board consisted of Gebis, Buckley, and Lopinski. On September 30, 1989, Gebis resigned from the Board questioning the propriety of the BankCal transaction and the 6% discount. Lipinski was appointed to the Board on December 12, 1989, to replacе Gebis. From December 12, 1989, until May 1, 1992, the Board consisted of Lopinski, Lipinski, and Buckley. Lopinski and Lipinski were wrongdoers who participated in a scheme to convert $2.4 million and then cover up the conversion. Lopinski and Lipinski comprised a majority of the Board from December 12, 1989, until their resignation on May 1, 1992.
Generally, the adverse domination doctrine tolls the statute of limitations so long as the corporation remains under the control of the same wrongdoers against whom the cause of аction exists. See Resolution Trust Corp. v. Scaletty,
Defendants contend that the adverse lomination doctrine is inapplicable in this case because the statute c limitations began to run on September 30, 1989, when a disinterestec majority of the Board, Gebis and Buckley, had knowledge of the al ;ged conversion. Plaintiffs contend that despite Gebis’ knowledge of he alleged conversion, a majority of the Board was dominated by wi ngdoers from December 12, 1989, until May 1, 1992, making it impos; ble for plaintiffs to pursue a cause of action. We must decide whether he adverse domination doctrine can remove a cause of action from t a statute of limitations for a period of time after the statute has alrea-i / started to run.
We have found no cases that have ad ressed this question. The Illinois legislature has, however, recogniz d other situations where a statute of limitations can begin to run, 1 tolled for a period of time, and then begin to run again. See 735 1 .CS 5/13 — 208 (West 1996) (statute of limitations is tolled for period >f time after cause of аction accrues that defendant resides out of sta • and is not subject to jurisdiction in Illinois).
Courts that have adopted the t verse domination doctrine have held that it creates a rebuttable prumption that knowledge of the injury will not be available to the Corporation as long as the corporation is controlled by wrongdoing c leers and directors. Resolution Trust Corp. v. Smith,
We find that there is a question of fact regarding whether Gebis, a departing director, had the ability and motivation to act for the corporation. Once Gebis left the Board he could do nothing to cause the Board to take action. At that point, the Board was dominated by wrongdoers who could not be expected to sue themselves or their co-conspirators. Regardless of whether Gebis knew of the conversion, the corporation, dominated by wrongdoers, was not in a position to bring a claim. Defendants’ section 2 — 619 motion to dismiss should not have been granted when material facts were in dispute. See Mayfield,
The adverse domination doctrine is meant to protect corporate plaintiffs who are unable to learn of or pursue their causes of action because of wrongdoing defendants. That is precisely the situation we are faced with here. Despite Gebis’ knowledge of the conversion, plaintiffs were unable to pursue their cause of action because Gebis resigned and the Board was then dominated and controlled by wrongdoers. We should not allow these wrongdoers to further benefit from their tortious behavior by avoiding suit through their subsequent domination of the Board. Therefore, we find that the adverse domination doctrine can remove a cause of action from the statute of limitations for the period of time that the corpоrate plaintiff is dominated by wrongdoers after the statute has started to run.
We find that the statute of limitations in this case was tolled from December 12, 1989, when Lipinski was appointed to the Board, until May 1, 1992, when Lopinski and Lipinski resigned from the Board, and that the plaintiffs’ December 15, 1995, complaint was timely filed. The trial court erred in dismissing plaintiffs’ third amended complaint as time barred.
In dismissing the third amended complaint the circuit court, relying on Hermitage Corp. v. Contractors Adjustment Co.,
Pursuant to the reasonable time rule, the discovery rule does not toll the statute of limitations where the plaintiff discovers his cause of action within the limitations period and still has a reasonable period of time left within which to file the suit. Hermitage,
Defendants’ reliance on Anderson v. Wagner,
Because of our disposition of the aboi issues, we need not discuss plaintiffs’ other contentions.
Accordingly, for the reasons set fortl above, the judgment of the circuit court of Cook County is reversed and this cause is remanded for further proceedings.
Reversed and remanded.
HOFFMAN, EJ„ and SOUTH, J., con ar.