Adverse Domination

DEFINITION of 'Adverse Domination'

A legal doctrine that allows regulators to bring litigation against a corporation’s officers and directors as long as those officers and directors remain with the corporation. Adverse domination extends the typical statute of limitations under which litigation can be sought.

BREAKING DOWN 'Adverse Domination'

The basis of the adverse domination rests in the concept of power and control: who has it, what can be done with it, and what is expected of those who have it. Courts have upheld that adverse domination can apply to officers if they have the authority to conduct the suspected wrongful activity, have control of information that would otherwise expose the misconduct, and have the power to control whether legal action is taken.

The directors and officers of a corporation have a legal duty to act in the best interest of the corporation. This can lead them to seek out the best deal for shareholders, to approve mergers or acquisitions, and to generally direct the company to profitability. This duty can be muddled when the personnel acting against the company’s interest happen to be its officers and directors. Adverse domination allows corporations to go after its officers for failure of fiduciary duty or other forms of corporate wrongdoing. It is a way for regulators to protect shareholders and other stakeholders.

Adverse domination was a legal tool used by regulators during the savings and loan crisis of the 1980s. The Regional Trust Corporation (RTC) and Federal Deposit Insurance Corporation (FDIC) used the doctrine to go after officers who were suspected of acting against the financial interests of the financial institutions that they governed.