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FDIC v. MCSWEENEY

September 4, 1991

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Central Savings and Loan Association, Plaintiff,
v.
DANIEL T. MCSWEENEY, FREDERICK C. STALDER, JAMES MARKS, Defendants



The opinion of the court was delivered by: KEEP

 JUDITH N. KEEP, CHIEF UNITED STATES DISTRICT JUDGE

 FACTUAL BACKGROUND

 On April 10, 1987, the Federal Savings and Loan Insurance Corporation (the "FSLIC") became receiver for the Central Savings and Loan Association ("Central") a failed thrift. Claiming that former Central directors breached their fiduciary duty, the FSLIC's statutory successor, the Federal Deposit Insurance Corporation (the "FDIC"), *fn1" filed the instant suit on April 5, 1991 seeking to recover a portion of the $ 80,000,000 in losses incurred by Central.

 Two defendants, Daniel T. McSweeney and Frederick C. Stalder, move to dismiss the action in its entirety. Defendants claim that: (1) the FDIC's action is time-barred because the statute of limitation governing the action expired prior to the time the FDIC became Central's receiver, and (2) the FDIC's complaint fails to plead a gross default in duty so as to appropriately maintain an action under the terms of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), Pub. L. No. 101-73, 103 Stat. 183. The FDIC contends that defendants apply the wrong statute of limitation and misread the pleading requirements imposed by FIRREA.

 DISCUSSION

 Defendants' motions are based on Fed. R. Civ. P. 12(b)(6), alleging that the FDIC's complaint fails to state a claim upon which relief may be granted. A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that plaintiff can prove no set of facts which would entitle him to relief. Church of Scientology of California v. Flynn, 744 F.2d 694, 696 (9th Cir. 1984). In this regard, the court must treat all of plaintiff's allegations as true. Experimental Engineering, Inc. v. United Technologies Corp., 614 F.2d 1244, 1245 (9th Cir. 1980).

 A. Statute of Limitation

 The complaint alleges that defendants engaged in various negligent acts through 1984 which constituted a breach of fiduciary duty. Defendants submit that since the alleged breach of duty is predicated on negligent conduct, the two year statute of limitation in Section 339(1) of the California Code of Civil Procedure governs. *fn2" Defendants direct the court's attention to several cases which have applied the two year statute to actions for breach of fiduciary duty. See, e.g., Vucinich v. Paine, Webber, Jackson & Curtis, Inc., 739 F.2d 1434, 1436 (9th Cir. 1984); Burt v. Irvine, 237 Cal. App. 2d 828, 865, 47 Cal. Rptr. 392 (1965). Since there are no tolling allegations in the complaint, and since the cause of action is based on conduct occurring through 1984, defendants contend that the FDIC's cause of action was barred as of 1986, a year before it became receiver. See FDIC v. Former Officers & Directors of Metro. Bank, 884 F.2d 1304, 1309 n. 4 (9th Cir. 1989) (FDIC may not revive a time-barred claim when it assumes control of an entity).

 In contrast, the FDIC claims that the "catch-all" four year period in Section 343 of the California Code of Civil Procedure governs this matter. *fn3" The FDIC argues that the cases cited by defendants, Vucinich, supra, and Burt, supra, were effectively superseded by more recent authority applying the four-year period. See, e.g., Davis & Cox v. Summa Corp., 751 F.2d 1507, 1520-21 (9th Cir. 1985); David Welch Co. v. Erskine & Tulley, 203 Cal. App. 3d 884, 893, 250 Cal. Rptr. 339 (1988). Applying the longer period, the action was still viable on April 10, 1987 when the FDIC became receiver, and because FIRREA provides the FDIC an extended filing period of four years on those claims not time-barred when it becomes receiver, the FDIC properly filed suit on April 5, 1991. *fn4"

 In response, defendants contend that Davis & Cox, supra, cannot legitimately be read to overrule Vuicinich, supra. Defendants argue that the cases are critically distinguishable in that Vuicinich considered a breach of fiduciary duty claim based on negligent conduct, as is the case here, while Davis & Cox dealt with a case of intentional breach of fiduciary duty. As such, defendants contend that Vuicinich's two-year statute must apply. I reject this distinction.

 Neither Vuicinich nor Davis & Cox draw a negligent versus intentional tort distinction. Rather, each case simply asserts, without much discussion, diametrically distinct time periods for a breach of fiduciary duty. However, those courts which have squarely made a choice between Vuicinich and Davis & Cox have followed Davis & Cox, not because the particular case was dominated by issues of intentionality versus negligence, but because Davis & Cox was the last word from the Ninth Circuit on the appropriate time-bar for claims of fiduciary duty. See, e.g., FSLIC v. Kidwell, 716 F. Supp. 1315, 1318 (N.D.Cal. 1989); David K. Lindemuth Co. v. Schannon Financial Corp., 660 F. Supp. 261, 264-65 (N.D.Cal. 1987).

 Furthermore, the four year time-bar applied in Davis & Cox has been found better reasoned. See Kidwell, 716 F. Supp. at 1318; Lindemuth, 660 F. Supp. at 265. The Vuicinich court asserts the two year statute in dictum, without the citation of authority. See id. at 1436. In contrast, the Davis & Cox court made a specific holding that a cause of action for breach of fiduciary duty cannot be accorded the same time-bar as that statutorily accorded malpractice actions since a claim for breach of fiduciary duty is a distinct cause of action. See id. at 1520-21 & n. 3. As a limitations period is not otherwise provided for breach of fiduciary duty claims, the four year "catch-all" period dictated by Section 343 applied. Id. For this proposition, Davis & Cox relied, inter alia, on Robuck v. Dean Witter & Co., 649 F.2d 641 (9th Cir. 1980), where the Ninth Circuit specifically held that the statute of limitation period for breach of fiduciary duty is not otherwise provided for under state law, and as such, Section 343 squarely governs such claims. Id. at 644. Thus, unlike Vuicinich, which made no specific holding with respect to the appropriate time period and failed to cite authority, the Davis & Cox court firmly rooted its adoption of the four year period in precedent. *fn5"

 Defendants McSweeney and Stalder contend, however, that it is the gravamen of plaintiff's complaint and the nature of the right sued on, rather than the form of the action or relief demanded, that determines which statute of limitation applies. See, e.g., Davis & Cox, 751 F.2d at 1520. Since the breach of fiduciary claim here is dominated by negligent acts, defendants argue that the two-year statute for negligence should apply. A similar argument was raised in Robuck where defendants argued that since an intentional breach of fiduciary duty is nothing more than a fraud allegation, the limitations period applicable to fraud should govern. In rejecting this argument, the Robuck court underscored that a cause of action for breach of fiduciary duty is its own "right sued on" and cannot be compartmentalized into another rubric for time-bar purposes. ...


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