The doctrine of adverse domination allows the statute of limitations on a claim for breach of fiduciary duty against directors and officers of a corporation to be tolled until the corporation is no longer controlled by the alleged wrongdoers. This doctrine, available for the benefit of the corporation, aims at preventing corrupt officers to hold off on initiating actions or investigations that could expose their wrongdoing on behalf of the corporation.
This doctrine, which appeared in the beginning of the 20th century, was revived in the 1990s when Congress’ Resolution Trust Corporation (RTC) decided to use this doctrine to resuscitate claims against former directors of financial institutions under the Financial Institutions Reform Recovery, and Enforcement Act of 1989. This Act aimed at transforming the savings and loan industry by closing insolvent thrift institutions and providing funds to pay out insurance to their depositors.
In Clark v. Milam, the U.S. District Court for the Southern District of West Virginia explained this doctrine stating that “[t]olling is considered appropriate because where the culpable directors and officers control a corporation, they are unlikely to initiate actions or investigations for fear that such actions will reveal their own wrongdoing.” Clark v. Milam, 872 F. Supp. 307 (S.D. W. Va. 1994).
[Last updated in May of 2020 by the Wex Definitions Team]