PUBLISH
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
_______________
No. 97-4068
_______________
D. C. Docket No. 93-1830-CV-EBD
JEFFREY H. BECK, as Trustee of Southeast Banking Corporation,
Plaintiff-Appellant,
versus
DELOITTE & TOUCHE, DELOITTE, HASKINS & SELLS, ERNEST & YOUNG,
L.L.P.,
Defendants-Appellees.
______________________________
Appeal from the United States District Court
for the Southern District of Florida
______________________________
(June 23, 1998)
Before EDMONDSON and BIRCH, Circuit Judges, and FAY, Senior Circuit
Judge.
BIRCH, Circuit Judge:
In this case, we determine when the Florida statute of
limitations began to run on a malpractice action brought by the
trustee of a bankrupt corporation. The district court ruled that the
bankrupt corporation’s directors had been aware of the defendant-
appellee’s alleged malpractice, and the court imputed this
knowledge to the corporation. As a result, the district court held that
the corporation’s malpractice action had accrued and then expired
long ago. The plaintiff-appellant, however, argues that the directors’
knowledge regarding the alleged malpractice should not be imputed
to the corporation because the interests of the directors and the
corporation were “adverse” with respect to the transaction at issue.
We reverse.
I. BACKGROUND
Plaintiff-appellant, William A. Brandt, Jr. (“the Trustee”), serves
as the trustee for the Southeast Banking Corporation (“Southeast”),
which the Federal Deposit Insurance Company (“FDIC”) placed in
receivership on September 19, 1991.1 Defendant-appellant Deloitte
1
Southeast subsequently filed for Chapter 7 bankruptcy on
September 20, 1991.
2
& Touche (“Deloitte”) is an accounting firm that has provided
services to Southeast. For the purposes of this appeal, we accept
the well-pleaded facts in the Trustee’s complaint as true. See St.
Joseph’s Hosp., Inc. v. Hospital Corp. of Am., 795 F.2d 948, 954
(11th Cir. 1986).
In 1988, Southeast purchased First Federal and South Florida
Savings (“First Federal”) (“the acquisition”). At that time, the FDIC
had already placed First Federal into receivership, reflecting First
Federal’s poor financial performance. According to the Trustee,
Southeast’s directors purchased First Federal for the sole purpose
of making Southeast an unattractive target for any future takeover
attempt; Southeast’s directors had no belief or intention that the
acquisition of First Federal might benefit Southeast in any legitimate
way.
As part of the process of purchasing First Federal, Southeast
hired Deloitte as its accountant for the transaction. In performing its
duties, Deloitte allegedly had a choice of two accounting methods.
3
Under the “Purchase Method,” Deloitte would have assessed First
Federal’s meager assets at fair market value. Because Southeast’s
purchase price for First Federal well exceeded the fair market value
of First Federal’s assets, the Trustee maintains that use of the
Purchase Method would have discredited the proposed acquisition
in the eyes of both Southeast’s stockholders and federal regulators.2
As a result, Deloitte’s use of the Purchase Method would have
prevented Southeast from acquiring First Federal.
Instead of the Purchase Method, though, Deloitte employed the
“Pooling Method.” Under this approach, Deloitte did not have to
calculate the excess of Southeast’s proposed purchase price over
First Federal’s fair market value. In fact, Deloitte was able to
account for First Federal’s assets and liabilities at historic recorded
prices instead of fair market value at the time of the transaction.
Further, Deloitte’s use of the Pooling Method permitted it to treat
2
The Trustee alleges that use of the Purchase Method would
have shown Southeast to be in violation of various regulatory
capital requirements.
4
Southeast’s and First Federal’s assets and liabilities as if they had
always been combined. By basing its accounting on this blending
of historical rather than present market data, Deloitte allegedly
enabled Southeast to hide the true danger that the acquisition of
First Federal posed to Southeast’s financial health.
According to the Trustee’s complaint, Deloitte’s use of the
Pooling Method constituted malpractice. After providing Southeast’s
directors with the results under both the Purchase and Pooling
Methods, Deloitte allegedly allowed Southeast’s directors to choose
the method on which Deloitte ultimately based its official accounting
opinion, even though Deloitte knew or should have known that use
of the Pooling Method under such circumstances did not conform to
Generally Accepted Accounting Principles (“GAAP”). Worse,
Deloitte allegedly advised the directors to offer certain Southeast
stock for sale to First Federal’s depositors to create the false
appearance that Southeast’s planned acquisition qualified for the
Pooling Method. Deloitte also allegedly allowed Southeast to use its
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accounting opinion to win required regulatory approvals from the
Federal Home Loan Bank Board and the Federal Savings & Loan
Insurance Corporation. Through all of these actions, Deloitte
allegedly violated its duty to Southeast and committed actionable
negligence.
On September 21, 1993, the Trustee sued Deloitte for
professional malpractice under Florida law. Soon thereafter, Deloitte
moved to dismiss, arguing inter alia that the Trustee’s suit was
untimely. Specifically, Deloitte argued that because the directors
knew of Deloitte’s use of the Pooling Method in 1988, the applicable
two-year statute of limitations had expired in 1990. The Trustee
responded that the directors’ knowledge of Deloitte’s alleged
negligence should not be imputed to Southeast because the
interests of the directors and Southeast with regard to the acquisition
had been adverse. Thus, the Trustee contended that Southeast’s
malpractice action did not accrue, and therefore the statute of
limitations did not begin to run, until the Trustee’s
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appointment—which occurred within two years of the Trustee’s filing
suit against Deloitte. On September 28, 1994, the district court ruled
that the Trustee had not satisfied the adverse interest exception
because he had “failed to plead” that the directors of Southeast were
acting adversely to Southeast’s interest. R1-31-5. For this reason,
the district court dismissed the original complaint with leave to
amend.
On October 12, 1994, the Trustee filed an amended complaint
alleging that the directors’ interest was adverse to that of the
corporation. The Trustee’s amended complaint was essentially
identical to his original complaint, except for two added paragraphs:
8. From at least in or about 1985 until Southeast’s failure
in September 1991, the Southeast Directors acted with
the improper purpose of maintaining their control over
Southeast and entrenching themselves in their positions
of power and influence, without consideration of whether
their actions were in the best interest of Southeast or its
shareholders. The utter and continuing conscious
disregard by the Southeast Directors of their duties to
Southeast caused a once highly successful business to
fail. Accordingly, the misconduct of the Southeast
Directors did not benefit Southeast in any way, but
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instead destroyed the institution. But for the negligence
of Deloitte & Touche described herein, the Southeast
Directors’ efforts to mask their incompetence and
misdeeds would have been revealed to Southeast’s
regulators and shareholders, who would have taken
timely action to prevent the failure of Southeast.
9. By reason of the aforesaid adverse interests of
Southeast’s Directors whose adverse acts were without
benefit to Southeast, and, indeed were to its fatal
detriment, the knowledge of Southeast’s Directors
regarding Deloitte & Touche’s negligence is not imputed
to Southeast.
R2-43 Exh. A at ¶8, ¶9. After reviewing the Trustee’s amended
complaint, the district court again dismissed his suit as barred by the
statute of limitations, on August 15, 1995. Again, the district court
ruled that “Plaintiff’s allegations . . . are insufficient to meet the
pleading requirement to allege adverse actions taken by Southeast
directors.” R3-56-6. In addition, the district court ruled that the
Trustee could not, in any event, satisfy the adverse interest
exception because the directors’ actions in adopting Deloitte’s
accounting practices did not have an “entirely” adverse effect on
Southeast. Although the district court recognized that “it may seem
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clear that the directors’ actions were not ultimately beneficial to
Southeast,” the court explained that the long-term effect of the
directors’ cooperation with Deloitte was “not the relevant inquiry.” Id.
at 7. “Because Southeast was allowed to continue in business past
the point of insolvency [as a result of the Pooling Method],” the
district court wrote, “the corporation benefitted to the detriment of
outside creditors and stock purchasers.” Id.
Finally, on September 18, 1995, the Trustee attempted to file
a second amended complaint. This time, however, the district court
denied the Trustee leave to amend. Because “the Trustee implicitly
concedes that the alleged malpractice gave the Bank an appearance
of health as the officers and directors were able to declare
dividends,” and because “the Trustee also implicitly concedes that
the alleged malpractice benefitted the Bank by extending its life as
the alleged malpractice masked the company’s financial position,”
the district court held that any further attempt by the Trustee to draft
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a complaint upon which the court could grant relief was futile. R5-
94-4-5.
II. DISCUSSION
In evaluating the sufficiency of a complaint, a court “must
accept the well pleaded facts as true and resolve them in the light
most favorable to the plaintiff.” St. Joseph’s Hosp., 795 F.2d at 954.
A court should not dismiss a suit on the pleadings alone “unless it
appears beyond doubt that the plaintiff can prove no set of facts in
support of his claim.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.
Ct. 99, 102, 2 L. Ed. 2d 80 (1957). In seeking dismissal for failure
to state a viable claim, a defendant thus bears the “very high
burden” of showing that the plaintiff cannot conceivably prove any
set of facts that would entitle him to relief. See Jackam v. Hospital
Corp. of Am. v. Mideast, Ltd., 800 F.2d 1577, 1579 (11th Cir. 1986).
We review the district court’s decision to dismiss on the pleadings de
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novo. See McKusick v. City of Melbourne, 96 F.3d 478, 482 (11th
Cir. 1996).
This appeal turns on a single issue: whether the directors’ self-
interest in the acquisition prevented the accrual of Southeast’s
malpractice action, and thus running of the statute of limitations, until
the Trustee’s appointment. Under 11 U.S.C. § 108(a), a trustee of
a bankrupt may bring a suit either (1) within the regularly-applicable
statute of limitations or (2) within two years of the order for relief if
the regularly-applicable limit did not expire before the filing of the
bankruptcy petition. Because the Trustee filed the present action
two years and one day after the date of the petition, he must allege
facts sufficient to satisfy Florida’s two-year statute of limitations if
this suit is to proceed. See Fla. Stat. § 95.11(4)(a) (establishing a
two-year limit for the filing of professional malpractice actions). This
Florida limitation period runs from “the time the cause of action is
discovered or should have been discovered with the exercise of due
diligence.” Id. In normal circumstances, the knowledge of a
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corporation’s directors (and therefore their discovery of malpractice)
is imputed to the corporation. See Seidman & Seidman v. Gee, 625
So.2d 1, 2 (Fla. Dist. Ct. App. 1992) (per curiam), review granted,
640 So. 2d 1106 (Fla. 1994), cause dismissed, 653 So. 2d 384 (Fla.
1995). Thus, Deloitte contends that the directors’ knowledge of
Deloitte’s alleged malpractice was imputed to Southeast in 1988,
and that the statute of limitations therefore expired in 1990.
The Trustee, however, argues that Southeast’s cause of action
against Deloitte did not accrue until his appointment because the
directors’ interest regarding Deloitte’s use of the Pooling Method
was adverse to that of Southeast. As the Florida courts have
recognized, “an exception to the imputation rule exists where an
individual is acting adversely to the corporation. In that situation, the
officer’s knowledge and conduct are not imputed to the corporation.”
Id. at 2-3; Golden Door Jewelry Creations, Inc. v. Lloyds
Underwriters Non-Marine Assoc., 117 F.3d 1328, 1338-39 (11th Cir.
1997) (applying Florida law); Tew v. Chase Manhattan Bank, N.A.,
12
728 F. Supp. 1551, 1560 (S.D. Fla. 1990) (same). The key question
thus becomes: Did the Trustee allege facts that might conceivably
establish that the directors’ interest was adverse?
In its orders dismissing this case, the district court ruled that the
Trustee could not avail himself of the adverse interest exception
because Deloitte’s alleged malpractice brought Southeast some
short-term benefit. In so holding, the district court was correct that
Florida law requires that a corporate officer’s interest be entirely
adverse for the exception to apply (i.e., his actions must neither be
intended to benefit the corporation nor actually cause short- or long-
term benefit to the corporation). See Gee, 625 So. 2d at 3. Under
Florida law, the knowledge of a corporate officer whose fraud or
misbehavior brings short-term gain to the corporation, or merely
injures a third party, is imputed to the corporation, even if the
officer’s misbehavior ultimately causes the corporation’s insolvency.
See id. at 203; accord Cenco Inc. v. Seidman & Seidman, 686 F.2d
449, 456 (7th Cir. 1982) (relied on in Gee). Nonetheless, the district
13
court used the wrong baseline in its attempt to determine whether
Deloitte’s use of the Pooling Method conferred any benefit on
Southeast. In its final order of October 11, 1996, the district court
read the complaint as conceding that Deloitte’s use of the Pooling
Method had allowed Southeast to hide its financial distress and even
to declare a dividend after the acquisition; these short-term benefits
to Southeast, in the district court’s view, precluded an adverse
interest exception. The Trustee, however, alleges in his complaint
that, but for Deloitte’s negligence in using the Pooling method, the
acquisition would not have occurred. Taken from this perspective,
any concealment that Deloitte’s actions may have allowed only
mitigated the injury that Deloitte’s negligence caused Southeast.
Even assuming that the district court properly drew its inferences
regarding concealment from the complaint, the Trustee has not
conceded that Southeast was, in the short- or long-term, better off
because of Deloitte’s use of the Pooling Method than it would have
been had Deloitte employed the Purchase Method. A director’s
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wrongful actions toward his corporation do not have to rise to the
level of corporate “looting” (as in Tew) or embezzlement (as in
Golden Door) in order to be adverse and thereby prevent imputation,
as long as the corporation receives no benefit from the director’s
misbehavior. Therefore, we hold that the district court erred by
ruling that the Trustee did not allege a set of facts that might
conceivably entitle him to relief.
III. CONCLUSION
To avoid imputation of the directors’ knowledge of Deloitte’s
alleged malpractice, the Trustee must show that the directors’ and
Southeast’s interests in Deloitte’s use of the Pooling Method were
adverse. Assuming that the facts that the Trustee alleges in his
complaint are true, the Trustee has satisfied this burden. Therefore,
we REVERSE the holding of the district court and REMAND this
case for further consideration consistent with this opinion.
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