Unpublished Disposition, 876 F.2d 897 (9th Cir. 1986)

MEMORANDUM^* 

Richard M. Pachulski, trustee for the bankruptcy estates of three corporations, appeals from summary judgments entered against the corporations in two lawsuits against former corporate directors and shareholders. These cases have been consolidated on appeal. The lawsuits arose from real estate transactions between the corporations and partnerships composed of corporate directors and shareholders. Pachulski contends that the former directors and shareholders breached their fiduciary duty to the corporations by usurping corporate opportunities. He seeks to impose resulting or constructive trusts in favor of the corporations and to recover on a loan one of the corporations made to one of the partnerships. We affirm.

BACKGROUND

Nutritional Foods, Inc. ("NFI"), a California corporation, was the sole owner of three subsidiary corporations: (1) Collegedale Distributors, Inc. ("Collegedale"), a Tennessee corporation; (2) Keene Distributors, Inc. ("Keene"), a Texas corporation; and (3) Landstrom Distributors, Inc. ("Landstrom"), a California corporation. Collegedale, Keene, and Landstrom were wholesale distributors of health foods. Robert Merriam, Richard Merriam, and Lynn Merriam owned all the stock of NFI.¹ 

Collegedale operated its business out of a warehouse in Ooletewah, Tennessee. Collegedale leased the warehouse from Southern Missionary College ("SMC"). In 1978 SMC offered to sell the property to Collegedale. Instead of Collegedale buying the property, however, a California partnership was formed to make the purchase. The partnership, Lanco Real Estate-Tennessee ("Lanco-Tennessee"), consisted of Robert, Richard, and Lynn Merriam (the beneficial owners of Collegedale stock), Hussein Tawfik, and Gerald Fleming. Collegedale's directors knew of Lanco-Tennessee's plan to buy the property and lease it to Collegedale. In fact, Robert Merriam, Tawfik, and Fleming were also Collegedale directors. The directors claim that Collegedale had a company policy to lease, rather than own, its premises in order to preserve resources for inventory acquisition. The directors and beneficial owners of Collegedale consented to the purchase and lease transaction.

In March 1979 Lanco-Tennessee purchased the property from SMC by making a $25,000 down payment and executing a promissory note for the balance of the purchase price. Lanco-Tennessee then leased the premises to Collegedale. Although Collegedale had advanced Lanco-Tennessee the $25,000 down payment, Lanco-Tennessee claims that this advance was repaid to Collegedale in the form of reduced rent.

Keene operated its business from leased premises in Texas. In 1978 Keene's management believed the business had outgrown its current facilities. A California partnership, Lanco Real Estate-Texas ("Lanco-Texas"), endeavored to purchase property and construct larger facilities for Keene. The partners of Lanco-Texas were Richard and Robert Merriam, June Merriam (the mother of Robert, Richard and Lynn), Gary Hume, and Hussein Tawfik. Lanco-Texas negotiated for construction and permanent financing for the new building. The financing arrangements resulted in a temporary transfer of the subject real property to Keene and a subsequent reconveyance to Lanco-Texas.

Lanco-Texas partially financed the construction by borrowing $69,000 from Landstrom. Lanco-Texas executed a noninterest bearing note to Landstrom, payable upon demand, for the loan amount. Lanco-Texas's partners made a $5,000 partial payment on the note on April 16, 1982. Landstrom apparently received no other payments on the note. In November 1978 the new building was completed and Lanco-Texas leased it to Keene. Keene's directors and beneficial owners knew that Lanco-Texas intended to construct and lease facilities to Keene. Robert and Richard Merriam, Tawfik, and Hume were Keene directors. The directors and shareholders knew the terms of the lease and loan agreement and approved the transaction.

On June 15, 1984, NFI and its three subsidiaries filed Chapter 11 bankruptcy petitions. Pachulski was appointed trustee for the estates of Collegedale, Keene, and Landstrom. In 1985 Pachulski filed suit in bankruptcy court on behalf of Collegedale against Lanco-Tennessee and its partners. Pachulski sought to have title to the property purchased from SMC transferred to Collegedale under a constructive or resulting trust and to recover all unjust enrichment received by the defendants. Pachulski also brought suit on behalf of Keene against Lanco-Texas and its partners. Pachulski sought title to the property leased to Keene and recovery of all unjust enrichment received by the defendants.

The actions were transferred to the district court upon the defendants' request for a jury trial. On July 28, 1986, Pachulski amended Keene's complaint to add causes of action on Landstrom's behalf based on Lanco-Texas's failure to repay the $69,000 note. In June 1987 the district court entered summary judgment against Collegedale and Keene, finding no breach of fiduciary duty. The court also entered summary judgment against Landstrom on those causes of action based on breach of fiduciary duty. In December 1987 the court entered summary judgment against Landstrom on its remaining cause of action based on breach of contract, finding that suit on the promissory note was barred by the statute of limitation. Pachulski timely appealed. We have jurisdiction under 28 U.S.C. § 1291.

STANDARD OF REVIEW

This court reviews a grant of summary judgment de novo. Darring v. Kincheloe, 783 F.2d 874, 876 (9th Cir. 1986). We must determine whether there is any genuine issue of material fact and whether the substantive law was correctly applied. Id.; see also Amaro v. Continental Can Co., 724 F.2d 747, 749 (9th Cir. 1984).

DISCUSSION

Pachulski argues that Lanco-Tennessee, Lanco-Texas, and their individual partners (collectively the "Defendants"), as corporate directors and shareholders, breached their fiduciary duty to Collegedale and Keene. Pachulski alleges that the Defendants' real estate transactions usurped corporate opportunities belonging to Collegedale and Keene, thereby unjustly enriching themselves. He contends that a resulting or constructive trust in favor of Collegedale and Keene should be imposed upon the properties acquired by Lanco-Tennessee and Lanco-Texas.

A resulting trust arises by law to enforce the inferred intention of the parties to the transaction. See Calistoga Civic Club v. City of Calistoga, 143 Cal. App. 3d 111, 117, 191 Cal. Rptr. 571, 577 (1983). Pachulski suggests that Collegedale's $25,000 advance to Lanco-Tennessee and Keene's holding of the property for Lanco-Texas while construction financing was obtained evidences an intent that Collegedale and Keene were to own the properties. Looking at all the facts, however, we conclude that the parties clearly never intended Collegedale or Keene to own the properties and therefore a resulting trust is an inappropriate remedy.

A constructive trust arises when the following three conditions are met: (1) the existence of a res; (2) the plaintiff's right to that res; and (3) the defendant's wrongful acquisition of the res. Id. at 116, 191 Cal. Rptr. at 575-76. The defendant's wrongful act need not amount to actual fraud. "All that must be shown is that the acquisition of the property was wrongful and that the keeping of property by the defendant would constitute unjust enrichment." Id. at 116, 191 Cal. Rptr. at 576.

Pachulski argues that Lanco-Tennessee wrongfully acquired the SMC property and that Collegedale has a right to the property because it supplied all the money for its purchase. Pachulski contends that Lanco-Texas wrongfully acquired the Texas warehouse property and that Keene has a right to the property because Keene held the property while financing was obtained and Keene supplied much of the money for its purchase. We find, however, that under California law, the Defendants' actions were not wrongful and therefore Collegedale and Keene are not entitled to a constructive trust remedy.

The district court, in granting summary judgment for the Defendants, relied upon the California Supreme Court's decision in Brainard v. De La Montanya, 18 Cal. 2d 502, 116 P.2d 66 (1941). In Brainard, the corporation's bankruptcy trustee sued De La Montanya, a shareholder-director, for imposition of a trust and recovery of secret profits. De La Montanya was one of three shareholders, each of whom also served as a corporate director. De La Montanya purchased property in his own name and rented it to the corporation with the full knowledge and consent of the other two shareholder-directors. The California Supreme Court noted that no creditors were harmed by the transaction and therefore the shareholders were the only beneficiaries of De La Montanya's fiduciary trust. Id. at 510-11, 116 P.2d at 70. Since "all that was done by defendant was done after full disclosure and with the full knowledge and consent of all said beneficiaries," no fiduciary violation occurred and the trustee had no claim. Id. at 511, 116 P.2d at 70-71. See also Rankin v. Frebank Co., 47 Cal. App. 3d 75, 85, 121 Cal. Rptr. 348, 354 (1975) (" 'There is nothing sacred in the life of a corporation that transcends the interests of its shareholders.' "); Cechettini v. Consumer Assoc., 260 Cal. App. 2d 295, 301, 67 Cal. Rptr. 15, 19 (1968) (no breach of directors' fiduciary duty occurred when sole shareholder had approved the directors' actions).

In this case, no violation of fiduciary obligations occurred because the beneficiaries of that trust, the shareholders, were fully informed of and consented to the transactions. Furthermore, Pachulski does not allege that any debt existing at the time of these transactions is still unpaid or that any creditor was defrauded by the Defendants' action. See Brainard, 18 Cal. 2d at 510-11, 116 P.2d at 70.

Since all shareholders and directors consented to the transactions, we affirm the judgment of the district court.

II. Tolling of Statute of Limitations on Landstrom's Breach of Contract Action

The district court granted summary judgment against Landstrom after concluding that the statute of limitations barred a claim on the promissory note given by Lanco-Texas. The $5,000 payment made on April 16, 1982, commenced the running of a new four-year statutory period. Cal.Civ.Proc.Code Secs. 337, 360 (West 1982). Pachulski did not amend the complaint to state this claim until July 28, 1986, after the statute had run.² 

Pachulski does not dispute that he filed this claim more than four years after the partial payment was made. He contends, however, that the adverse domination of Landstrom by the partners of Lanco-Texas tolled the statute of limitations on this claim. "It is an accepted federal equitable doctrine that the running of a statute of limitations may be suspended during a period of adverse domination of the injured corporation by the wrongdoers." Saylor v. Lindsley, 302 F. Supp. 1174, 1184 (S.D.N.Y. 1969).

The district court refused to apply the adverse domination doctrine to toll the statute of limitations because "the loan taken by the directors of the corporation was not a misappropriation." Excerpt of Record at 209. Since there was no wrongdoing, tolling was inappropriate. The district court's decision is supported by the reasoning in In re REA Express, Inc., Private Treble Damage Antitrust Litigation, 412 F. Supp. 1239 (E.D. Pa. 1976). In REA Express, a shipping company alleged that all its former shareholders engaged in a conspiracy in restraint of trade which damaged the company. The court held that the company failed to state an antitrust claim. Id. at 1255. The court also noted that even if the allegations had stated a claim, it would be time-barred. The company had argued that the statute of limitations was tolled during the period of adverse domination, but the court reasoned that "no purpose would be served by applying the domination doctrine in a context, such as this, in which there are no minority interests to be protected against the actions of the controlling individuals or entities." Id. at 1257 n. 45.

In this case, all shareholders and directors approved the loan to Lanco-Texas. Thus, no minority interests required protection through the application of the adverse domination doctrine, and the claim was properly dismissed as time-barred.

CONCLUSION

The judgment of the district court is AFFIRMED.