This cause is before the Court regarding the jury
instructions to be given. The parties are in disagreement over
three main issues: (1) the standard of care applicable to the
Defendants; (2) the applicable statute of limitations; and (3)
circumstances in which the applicable statute of limitations is
Plaintiff contends that the applicable standard of care is
that which a reasonably prudent director of a similar bank
would have exercised under the circumstances. The Defendants,
on the other hand, contend that Defendants Hicks, Spinner,
Whitmyer, and Young were entitled to rely on the judgments of
Defendant Greenwood and on the appearance that he was properly
discharging his duties unless facts were brought to their
attention that should have led them to believe that Defendant
Greenwood was not properly discharging his duties. Further,
Defendants contend that Defendant Greenwood is not responsible
for an error in judgment even if the judgment was a poor one.
Defendants contend that where matters of judgment are involved,
Plaintiff cannot succeed unless it can establish that Defendant
Greenwood had no reasonable basis for making the disputed
Briggs v. Spaulding,
, 165-66, 11 S.Ct. 924,
935-36, 35 L.Ed. 662 (1891) (cited in Federal Deposit Insurance
Corp. v. Butcher, 660 F. Supp. 1274 (E.D.Tenn. 1987)). Thus, it
is clear that Defendants Hicks, Spinner, Whitmyer, and Young
were not entitled to rely completely on the judgments of
Defendant Greenwood and on the appearance that he was properly
discharging his duties. Directors have a duty to exercise that
degree of care which a reasonably prudent director of a similar
bank would have exercised under the circumstances. Included in
this is a duty to exercise reasonable supervision over officers
of the bank.
It is undeniable that Defendant Greenwood is not responsible
for mere errors in judgment. The business judgment rule is a
longstanding and widely accepted rule of law. The business
judgment rule, however, presupposes that a director has
exercised proper care, skill, and diligence. Thus, Defendant
Greenwood was also required to exercise the degree of care that
would be exercised by a reasonably prudent director of a
similar bank under the circumstances.
II—Applicable Statute of Limitations
Plaintiff contends that this cause of action sounds in
contract. If this is the case, the applicable statute of
limitations is found in 28 U.S.C. § 2415(a) which provides a
six year statute of limitations for actions brought by an
agency of the United States that are founded upon an express
contract or a contract implied in fact or law.
Plaintiff's argument that this cause of action sounds in
contract is three-fold. First, Plaintiff argues that the
assumption of the duties of directorship in a bank is an
agreement to honestly, diligently, and properly direct the
business of the bank. Hughes v. Reed,6 46 F.2d 435, 440-41
(10th Cir. 1931). Pursuant to 12 U.S.C. § 73, each director of
a national bank takes an oath "that he will, so far as the duty
devolves on him, diligently and honestly administer the affairs
of such association, and will not knowingly violate or
willingly permit to be violated any of the provisions of [the
National Bank Act]." Plaintiff argues that this oath creates an
Second, Plaintiff argues that directors implicitly agree to
properly and faithfully perform their duties and failure to
perform these duties gives rise to an action sounding in
contract. Curtis v. Phelps, 208 F. 577 (N.D.N.Y. 1913).
Finally, Plaintiff simply argues that it has long been held
that the liability of a bank director for breach of duty to the
bank sounds in contract. Hughes v. Reed, 46 F.2d 435 (10th Cir.
1931); Boyd v. Schneider, 131 F. 223, 226 (7th Cir. 1904);
Federal Savings & Loan Insurance Corp. v. Burdette, 696 F. Supp. 1196,
1201 (E.D.Tenn. 1988); United States v. Douglas,
626 F. Supp. 621, 623 (E.D.Va. 1985).
Defendants contend that this cause of action sounds in tort.
If this is the case, then the applicable statute of limitations
is found in 28 U.S.C. § 2415(b) which provides a three year
statute of limitations for tort actions brought by an agency of
the United States.
Defendants first contend that no express contract is created
by the oath taken by the directors pursuant to 12 U.S.C. § 73.
In support, Defendants cite McNair v. Burt, 68 F.2d 814, 816
(5th Cir. 1934), and Federal Deposit Insurance Corp. v. Former
Officers and Directors of Metropolitan Bank, 705 F. Supp. 505
(D.Or. 1987). Second, Defendants argue that the plain language
of the oath shows that it is breached only when directors
knowingly violate the National Bank Act. The United States
Supreme Court has held that the oath is only breached by
intentional wrongdoing. Bowerman v. Hamner, 250 U.S. 504, 39
S.Ct. 549, 63 L.Ed. 1113 (1918). Third, Defendants argue that
the director's oath does not justify creating an implied
contract but even if an implied contract is found, the contract
limitation period should not be applied when the alleged
contract simply requires a party to conform to its common law
duty. Several courts have ruled that where a contract imposes
no separate and independent duty other than that imposed by the
common law, the tort statute of limitations applies. United
Bank of Switzerland v. H.S. Equities, 423 F. Supp. 927 (S.D.N Y
1976); Securities-Intermountain v. Sunset Fuel, 289 Or. 243,
259, 611 P.2d 1158 (1980). See also Sugarman v. Sugarman,
797 F.2d 3, 14 (1st Cir. 1986); Mack v. American Fletcher National
Bank, 510 N.E.2d 725, 738-39 (Ind. App. 1987).
The Court finds that the cause of action in the case at bar
sounds in tort. Thus, the three year tort statute of
limitations found in 28 U.S.C. § 2415(b) applies. The
complaint filed in this case alleges that Defendants breached
their duties of due care and diligence by committing various
negligent acts or omissions. These are elements of a
cause of action in tort. Furthermore, as the Court has ruled
herein, Defendants were subject to a duty to exercise the
standard of care that would be exercised by a reasonably
prudent director of a similar bank under the circumstances.
This is a tort standard of care. Finally, the conclusion that
Plaintiff's cause of action sounds in tort is supported by the
comments to the second restatement of torts. "A fiduciary who
commits a breach of his duty as a fiduciary is guilty of
tortious conduct to the person for whom he should act."
Restatement 2d of Torts §§ 874, comment B (1979).
III—Tolling of Statute of Limitations
 The final point of contention between the parties is the
circumstances under which the applicable statute of limitations
may be tolled. Plaintiff contends that the statute of
limitations is tolled so long as the wrongdoers constitute a
majority of the board of directors. This is the so-called
"adverse domination" theory. Defendants contend that if there
is a single director or shareholder who has access to
information about any of the material facts upon which a cause
of action can be based, there can be no tolling unless the
accused parties actively concealed information or unless
ownership of the corporation was so structured that there was
exclusive ownership by the culpable parties. We find that the
adverse domination theory is the law that should be applied.
The rationale for this principle is that control of the board
by wrongdoers precludes the possibility for filing suit since
these individuals cannot be expected to sue themselves or
initiate action contrary to their own interests. Furthermore,
the adverse domination theory better recognizes the realities
of a shareholder's position. Finally, the adverse domination
theory has been applied by many courts that have recently
considered this issue. It has recently been applied in FDIC v.
Bird, 516 F. Supp. 647 (D.P.R. 1981); FSLIC v. Williams,
599 F. Supp. 1184 (D.Md. 1984); FDIC v. Buttram, 590 F. Supp. 251
(N.D.Ala. 1984); FDIC v. Dempster, 637 F. Supp. 362 (E.D.Tenn.
1986); FDIC v. Berry, 659 F. Supp. 1475 (E.D.Tenn. 1987); FDIC
v. Hudson, 673 F. Supp. 1039 (D.Kan. 1987); FDIC v.
Butcher, 660 F. Supp. 1274 (E.D.Tenn. 1987).
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