Sixth Circuit Court of Appeals, on Ohio's Behalf, Rejects Adverse Domination Tolling of Statute of Limitations

Sixth Circuit Court of Appeals, on Ohio's Behalf, Rejects Adverse Domination Tolling of Statute of Limitations

      In a recent decision from the Sixth Circuit Court of Appeals, applying Ohio law, it rejected a claim that adverse domination should effect the tolling of the statute of limitations of claims of breach of fiduciary duty against corporate directors/officers. This the Sixth Circuit did after the Ohio Supreme Court rejected a request to answer that certified question. Antioch Company Litigation Trust v. Morgan, No. 14-3790, 2016 WL 1161233 (6^th Cir. March 24, 2016).

      This suit arose out all a leveraged ESOP transaction entered into in 2003. By 2007, the company was facing financial challenges. When efforts to market or recapitalize the company were unsuccessful, it was in March, 2008 placed in a Chapter 11 bankruptcy. This adversary action was filed in December, 2009 against Lee Morgan and Asha Morgan Moran, it charging them with breach of fiduciary duties owed to Antioch consequent to their positions as directors and officers of the corporation, they having in conflict of interest in approving the original ESOP transaction.

       Under Ohio law, there is a four-year statute of limitations for breach of fiduciary duty. The question is whether the statue limitations, which began to run as of the closing of the ESOP transaction on December 16, 2003, was tolled at any time before the suit was brought on December 23, 2009.

      Previously, the Sixth Circuit had asked the Ohio Supreme Court to answer a certified question as to adverse domination and the tolling of the statue limitations. The Ohio Supreme Court declined to answer the question, leaving the Sixth Circuit to assess, as best it could, what the Ohio Supreme Court would hold to be the law. Framing the question whether Ohio would “apply a discovery rule to the relevant claim for purposes of the statute of limitations,” and citing decisions including that of the Kentucky Supreme Court rendered it Wilson v. Paine, 288 S.W.3d 284, 287-88 (Ky. 2009), the Sixth Circuit assessed the wording of Ohio's statute of limitations and the related law as to the application of a discovery rule. Finding it informative that, apparently, Ohio courts will not apply a discovery rule were not provided for by statute, the Court of Appeals affirmed the trial court's determination that adverse domination would not toll the statute of limitations.

      There was a dissent written by Circuit Judge Moore focusing upon what a slender reed there is as to Ohio law on this point and suggesting that, on policy grounds, the Ohio Supreme Court would allow tolling on these and similar facts.