Robert Seiden v. Frazer Frost, LLP

• Court: Court of Appeals for the Ninth Circuit
• Decided: January 3, 2020
• Docket: 18-56176
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS JAN 3 2020 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

ROBERT W. SEIDEN, RECEIVER FOR No. 18-56176 CHINA VALVES TECHNOLOGY, INC., D.C. No. Plaintiff-Appellant, 8:18-cv-0588-CJC (KESx)

v. MEMORANDUM* FRAZER FROST, LLP; MOORE STEPHENS WURTH AND TORBERT, LLP; FRAZER, LLP; and FROST, PLLC,

Defendants-Appellees.

Appeal from the United States District Court for the Central District of California Cormac J. Carney, District Judge, Presiding

Argued and Submitted December 9, 2019 Pasadena, California

Before: N.R. SMITH and WATFORD, Circuit Judges, and KORMAN,** District Judge.

Robert Seiden, Receiver for China Valves Technology, Inc. (“CVVT”),

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3.

** The Honorable Edward R. Korman, United States District Judge for the Eastern District of New York, sitting by designation. Page 2 of 4

appeals the dismissal of his claims against Frazer Frost, LLP; Moore Stephens

Wurth and Torbert, LLP; Frazer, LLP; and Frost, PLLC (collectively, “Frazer

Frost”). The district court held that Seiden’s claims were time-barred by the

applicable statutes of limitations. On appeal, Seiden renews his argument that,

because CVVT was controlled by wrongdoers until the statutes of limitations ran,

his claims against Frazer Frost—CVVT’s accounting firm—were equitably tolled

until Seiden’s appointment as Receiver for CVVT in September 2016. We have

jurisdiction under 28 U.S.C. § 1291, and we affirm.

1. This case turns on the proper interpretation of the adverse domination

doctrine. As the district court recognized, a corporate plaintiff or its representative

(arguing that the statute of limitations should be tolled under the doctrine of adverse

domination) must show complete control by its corrupt insiders, such that discovery

of their wrongdoing is impossible. Smith v. Superior Court, 266 Cal. Rptr. 253, 255

(Ct. App. 1990); Admiralty Fund v. Peerless Ins. Co., 191 Cal. Rptr. 753, 758–59

(Ct. App. 1983); Burt v. Irvine Co., 47 Cal. Rptr. 392, 417 (Dist. Ct. App. 1965). We

have held that tolling pursuant to adverse domination is unavailable where discovery

of the alleged bad acts is possible, notwithstanding complete control by wrongdoers.

See Cal. Union Ins. Co. v. Am. Diversified Sav. Bank, 948 F.2d 556, 565–66 (9th

Cir. 1991).

Seiden argues that California Union was wrongly decided because it failed to Page 3 of 4

follow Whitten v. Dabney, 154 P. 312 (Cal. 1915), which he claims stands for the

proposition that equitable tolling under the doctrine of adverse domination applies

whenever a corporation is controlled by corrupt insiders. This argument fails for two

reasons. First, even if we agreed with Seiden, a three-judge panel of this court is not

at liberty to overrule California Union’s construction of California law. Second, we

disagree that there is any tension between Whitten and California Union’s

interpretation of the adverse domination doctrine. In Whitten, certain shareholders

and directors conspired to defraud the corporation they controlled, and “sedulously

concealed” their self-dealing from innocent shareholders. 154 P. at 315. On these

facts, the California Supreme Court held that director malfeasance tolled the statute

of limitations for an innocent shareholder’s claim, filed promptly after that

shareholder’s discovery of the wrongdoing. Id. at 314–16. That is perfectly

consistent with California Union.

Turning to this case, uncontroverted evidence demonstrates that, well within

the statute of limitations, CVVT’s shareholders discovered or should have

discovered the wrongdoing Seiden alleges. Specifically, in 2011, the same year a

Citron Research report publicized CVVT’s alleged wrongdoing, shareholders sought

redress in a class-action lawsuit against both CVVT and Frazer Frost, as well as a

derivative lawsuit against CVVT. In 2014, the SEC filed a fraud action against

CVVT. As the district court observed, “[t]he SEC had the ability to uncover the facts Page 4 of 4

relevant to Plaintiff’s causes of actions and make them public.” Seiden v. Frazer

Frost, LLP, No. 8:18-00588-CJC (KESx), 2018 WL 6137618, at *6 (C.D. Cal. July

31, 2018). Indeed, all of these actions implicated Frazer Frost in the wrongdoing

Seiden now alleges. Accordingly, the district court properly held that adverse

domination did not toll Seiden’s claims. Cf. Mosesian v. Peat, Marwick, Mitchell &

Co., 727 F.2d 873, 876–79 (9th Cir. 1984).

2. The district court also properly held that CVVT shareholders were able to

seek redress for the wrongdoing Seiden alleges here. Seiden argues that

notwithstanding Frazer Frost’s wrongdoing, shareholders had no ability to sue

Frazer Frost prior to his appointment as Receiver because Frazer Frost would have

had an ironclad in pari delicto defense. Seiden is incorrect. Even if Frazer Frost had

a plausible in pari delicto defense against derivative claims brought by CVVT

shareholders, defenses—hypothetical or otherwise—do not toll otherwise applicable

statutes of limitations.

3. The district court correctly determined that Seiden’s failure to plead adverse

domination could not be cured by any amendment.

AFFIRMED.