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Dolmetta v. Uintah National Corp.

decided: June 28, 1983.


Appeal from a decision of the United States District Court for the Southern District of New York (Brieant, J.) dismissing appellants' diversity action as barred by the applicable New York statutes of limitations.

Feinberg, Chief Judge and Timbers and Cardamone, Circuit Judges.

Author: Cardamone

CARDAMONE, Circuit Judge:

This diversity case arises in the aftermath of the financial chicanery engaged in by the notorious international financier, Michele Sindona, whose unscrupulous machinations resulted in his conviction for fraud. See United States v. Sindona, 636 F.2d 792 (2d Cir. 1980) (affirming conviction), cert. denied, 451 U.S. 912, 101 S. Ct. 1984, 68 L. Ed. 2d 302 (1981). Plaintiffs are two liquidators of a Sindona-owned bank in Milan, Italy. They allege that 27 million dollars were embezzled from the bank, funneled out of Italy in 1973, and used to purchase 1.6 million shares, or 53 per cent, of the common stock of Talcott National Corporation, a large, publicly-traded American banking company. Plaintiffs instituted an action in the United States District Court for the Southern District of New York (Brieant, J.) to recover the 1.6 million shares. In their complaint they alleged seven causes of action which, on motion of the defendants, the district court dismissed as time-barred under the applicable New York statutes of limitations. We affirm the dismissal of plaintiffs' second through seventh causes of action, but the first cause of action was not time-barred. Therefore, the dismissal of that action is reversed and the matter remanded to the district court for further proceedings.


Plaintiffs Adolfo Dolmetta and Vittorio Coda, the liquidators of Banca Privata Italiana S.p.A. (Bank), set forth the facts giving rise to their complaint as follows. In early 1973 Sindona, then in complete control of Banca Unione, fraudulently diverted 27 million dollars to Fasco International Holding, S.A., a Luxembourg corporation that Sindona also controlled. Simultaneously, he caused Fasco International to use the misappropriated funds to purchase 1.6 million shares of Talcott National Corporation. Shortly thereafter, Banca Unione became Banco Privita Italiana, S.p.A. On September 26, 1974, the day before the Italian Ministry of the Treasury ordered the Bank into liquidation, Sindona caused the Talcott shares to be transferred from Fasco International to its Delaware affiliate Fasco, Inc. That same day Fasco, Inc. granted defendants Sterling Bancorp and its subsidiary Sterling National Bank and Trust Company of New York (Sterling Bank) an option to purchase the Talcott shares.

On April 1, 1975 defendant Talcorp, Inc. purchased the shares from Fasco, Inc. Disclaiming beneficial ownership of the shares, Talcorp maintained that it was simply holding the stock on behalf of Sterling Bancorp and Sterling Bank. Sterling Bancorp and Sterling Bank allegedly financed Talcorp's purchase of the Talcott shares and retained the right to dictate subsequent sales of the shares. On January 29, 1976 defendant Uintah National Corporation purchased the shares from Talcorp, purportedly with knowledge of the way in which they had been acquired. Uintah had been formed in late 1975 by defendants David M. Kennedy and Brooke Grant. Kennedy had been a director of Fasco International since shortly after that company acquired the Talcott shares. In his capacity as director, Kennedy had voted to ratify Fasco International's purchase of these shares. During the period 1974 through 1975, Kennedy had also held a proxy over the shares.

Originally filed on January 29, 1982 and twice amended, plaintiffs' complaint asserts seven causes of action. The first cause of action, against Uintah only, alleges that Uintah acquired the Talcott shares in bad faith with knowledge of the Bank's adverse claim to the shares, and that Uintah therefore is a constructive trustee under New York law and holds the stock for the Bank's benefit. The second through sixth causes of action seek damages from all defendants for their asserted participation in the January 29 transfer, which participation was allegedly part of a fraudulent scheme directed against the Bank. Specifically, the liquidators allege that the defendants defrauded the Bank by conveying the shares to Uintah (second claim); the defendants aided and abetted Sindona's fraud on the Bank (third claim); the defendants aided and abetted Sindona's breach of fiduciary duty to the Bank (fourth claim); the defendants were unjustly enriched as a result of their fraud against the Bank (fifth claim); and the defendants violated the anti-fraud provision of section 10(b) of the Securities Exchange Act of 1934 (sixth claim). Plaintiffs' seventh claim alleges that the Talcott stock transactions were fraudulent conveyances and that under New York law the transfers should be set aside.

Subsequent to the filing of the complaint, defendants moved to dismiss the action as barred by the applicable statutes of limitations and, alternatively, as failing to state claims upon which relief could be granted. Reasoning that the law of New York, the forum state, governed the timeliness of plaintiffs' claims, which the district court characterized as sounding in fraud, it held that the applicable limitations period was six years from the date of the action complained of or two years from the date of discovery, whichever period ended later. Finding that plaintiffs knew or should have known of the acts complained of more than two years prior to the filing of their complaint, the district court concluded that the instant suit was commenced beyond the two-year limitations period. It further held that the suit was untimely under the alternative six-year limitations period because the Bank's only injury occurred when Sindona embezzled funds in 1973, approximately nine years before the plaintiffs filed their complaint. Consequently, Judge Brieant dismissed plaintiffs' complaint in its entirety.


Plaintiffs contend that the district court erred in the manner in which it applied the six-year limitation. According to plaintiffs the six-year limitations period commenced on the date of the transfer of the Talcott stock to Uintah. Under this theory plaintiffs' complaint of January 29, 1982 was filed timely within six years of the accrual of the claims stated because, under New York law, the day of accrual is excluded. See N.Y. Gen. Constr. Law § 20 (McKinney Supp. 1982-1983).

First Cause of Action

With respect to the Bank's first claim, which seeks to impose a constructive trust over the Talcott shares held by Uintah on the ground that Uintah acquired the shares in bad faith, the district court erred in dismissing the action as untimely. Since a cause of action for a constructive trust is one "for which no limitation is specifically prescribed by law," it is governed by New York's six-year statute of limitations, N.Y. Civ. Prac. Law and Rules (CPLR) 213(1) (McKinney 1972) and runs from the occurrence of the wrongful act or event which creates a duty of restitution. See Scheuer v. Scheuer, 308 N.Y. 447, 450, 126 N.E.2d 555 (1955); Augustine v. Szwed, 77 A.D.2d 298, 301, 432 N.Y.S.2d 962 (4th Dep't 1980); Mann v. Mann, 77 A.D.2d 866, 431 N.Y.S.2d 63 (2d Dep't 1980). In a felicitous and much-quoted phrase Judge Cardozo said, "[a] constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee." Beatty v. Guggenheim Exploration Co., 225 N.Y. 380, 386, 122 N.E. 378 (1919) (citation omitted); see Simonds v. Simonds, 45 N.Y.2d 233, 241, 380 N.E.2d 189, 408 N.Y.S.2d 359 (1978); 5 A. Scott, The Law of Trusts § 462, at 3413 (3d ed. 1967). Here plaintiffs claim that Uintah holds 1.6 million shares of Talcott stock which in good conscience -- knowing the unsavory circumstances that made the purchase possible -- it should not retain, but should deliver to plaintiffs standing in the shoes of the defrauded Italian Bank.

Since Uintah acquired the Talcott shares on January 29, 1976 the claim that it held the stock in constructive trust could not have accrued until January 29, 1976, the date Uintah began its allegedly wrongful possession as against the Bank. Uintah's argument -- that because other defendants adversely possessed the stock prior to 1976, a cause of action upon a theory of constructive trust arose prior to 1976 -- misses the mark. While such a claim against other defendants may have accrued prior to 1976, plaintiffs' claim of a constructive trust is against Uintah only, not against the other defendants. Cf. Kunstsammlungen Zu Weimar v. Elicofon, 678 F.2d 1150, 1161 (2d Cir. 1982) (conversion action under New York law to recover stolen property from transferee of thief not time-barred even though action against thief would have been untimely because claim against transferee did not accrue until transferee's wrongful possession of property). Since ...

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