Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Frederick v. Merz

Court of Appeals of Nebraska

November 12, 2013

David L. Frederick and Carol Frederick, husband and wife, and Douglas E. Merz, on behalf of Salem Grain Company, Inc., a Nebraska corporation, appellants and cross-appellees,
v.
Mary Merz et al., Appellees and cross-appellants.

NOT DESIGNATED FOR PERMANENT PUBLICATION

Appeal from the District Court for Richardson County: Daniel E. Bryan, Jr., Judge.

J.L. Spray and Patricia L. Vannoy, of Mattson, Ricketts, Davies, Stewart & Calkins, for appellants.

Terry C. Dougherty and Kari A.F. Scheer, of Woods & Aitken, L.L.P., for appellees.

Moore, Pirtle, and Bishop, Judges.

MEMORANDUM OPINION AND JUDGMENT ON APPEAL

Moore, Judge.

I. INTRODUCTION

David L. Frederick, Carol Frederick, and Douglas E. Merz (collectively the Appellants) filed a complaint in the district court for Richardson County against Mary Merz, Bruce Merz, William R. Duey, and Kay Richter (collectively the Appellees). The Appellants set forth derivative actions on behalf of Salem Grain Company, Inc. (Salem Grain), for breaches of fiduciary duty and duty of loyalty and a third cause of action for tortious interference with a business relationship and expectancy. A bench trial was held, and after the close of the Appellants' case, the court granted the Appellees' motion for directed verdict. The court found that the Appellees breached their fiduciary duty and duty of loyalty to Salem Grain but that the Appellants failed to prove that the breaches caused any damages. The court also found that the Appellants did not prove any elements of tortious interference with a business relationship. On appeal, the Appellants assign error to the court's findings with respect to damages and their tortious interference claim. The Appellees have cross-appealed and assign error to the court's findings with respect to their breaches of fiduciary duty and duty of loyalty. Because we find no error in the grant of a directed verdict in favor of the Appellees, we affirm.

II. BACKGROUND

Salem Grain is a Nebraska corporation operating grain facilities in and around Falls City, Nebraska. Salem Grain is a subchapter S corporation, which means that the income flows directly through to the shareholders and the shareholders are responsible for payment of the income tax on the earnings. Accordingly, Salem Grain consistently made distributions to the shareholders of 50 percent of the corporation's net profits for the fiscal year.

Two of the Appellants, David and Carol, are married and have been minority shareholders in Salem Grain since 1997. The third appellant, Douglas, has been a minority shareholder in Salem Grain since 1980 and was a member of the board of directors during the relevant time period.

The Appellees were each minority shareholders and members of Salem Grain's board of directors during the relevant period. At an April 21, 2000, special meeting of Salem Grain's shareholders, a new board of directors was elected. Duey was on the board prior to the April 2000 meeting and was reelected to the board in April 2000. Richter, Bruce, and Mary were first elected as directors at the April 2000 meeting and served continuously until their resignation in November 2001. Following the special shareholders' meeting, a board of directors meeting was convened, and Duey was elected as the board's vice president, Richter as secretary, and Mary as treasurer.

Although not parties to the case, at relevant times, John Seeba and his wife, Rita Seeba, owned shares of Salem Grain. John was Salem Grain's manager and president of the board throughout the relevant period. Rita was also on the board.

The dispute at issue in this appeal involves the sale in 2001 of stock in Salem Grain by a group of shareholders, which included the Appellees, to the Seebas and the obligations the Appellees had with respect to that sale. As will be further detailed below, there were a series of offers and discussions among various persons concerning the sale of the stock.

In their operative complaint, filed on February 13, 2006, the Appellants included a derivative action on behalf of Salem Grain, alleging that the Appellees breached their fiduciary duty and their duty of loyalty to the corporation and its directors and shareholders. The crux of these derivative causes of action was that the Appellants were not advised of the Seebas' independent offer to purchase the stock or given an opportunity to respond and that the Appellees, as directors of Salem Grain, voted to approve certain payments from the corporation as consideration for the stock purchase agreement with the Seebas. The Appellants also included an individual action, alleging that the Appellees "tortuously [sic]" interfered with a business relationship and expectancy of the Appellants with respect to purchasing the stock.

A bench trial was held before the district court on June 25 and 26, 2012. The court received numerous exhibits and heard testimony from witnesses called by the Appellants. At the close of the Appellants' evidence, the Appellees moved for a directed verdict and the court granted the motion.

The Appellants' evidence shows that by January 30, 2001, the Appellees and six additional shareholders (collectively the sellers) decided to sell their shares in Salem Grain. Although the sellers were each minority shareholders, they collectively held approximately 51 percent of the stock in Salem Grain. Prior to offering their shares for sale, the sellers researched how to go about offering their shares for sale and hired an attorney, Michael Dunn, to assist them. One consideration the sellers had in this process was Salem Grain's bylaws, which state, "A stockholder who wishes to sell his stock must first offer it to another existing stockholder of the corporation before selling it to someone outside of the regular stockholders of the corporation unless waived by the Board of Directors." Dunn informed the sellers that the sellers who were members of Salem Grain's board of directors would have a conflict of interest and advised them how to handle that conflict, essentially by abstaining to vote on approval of any transaction or contract.

Dunn drafted a letter, dated January 30, 2001, and addressed to John as president of Salem Grain, concerning the sellers' offer to sell their shares to the corporation or to any remaining shareholder. The letter stated that a group of shareholders holding 51 percent of the outstanding corporate shares were "offer[ing] their shares of stock as a block to the corporation or to any willing remaining shareholder or group of shareholders for the price of $3, 600.00 per share." The total purchase price for all the stock offered was $1, 096, 666.20. The offer letter stated that each of the sellers would pay the tax on their proportionate share of any net profit for the 2000-2001 fiscal year, but that they would require a 50-percent distribution of the net profit of the corporation on or before December 31, 2001, to each shareholder of record as of July 31, 2001. The letter held the offer open for the corporation for 30 days and for an additional 15 days thereafter for any shareholder.

Dunn met with the Seebas on January 30, 2001, to discuss the offer letter. Dunn emphasized that the offer was being presented to John as corporate president and should be shared with all the remaining shareholders. Dunn advised John that the deadlines in the letter may be negotiable if Salem Grain or a group of shareholders was working to finance the transaction. Dunn advised that the offer price was based on the appraisal that had been completed during the administration of the estate of a deceased shareholder and additional information obtained after the appraisal. The price was arrived at with the consent of all of the sellers. Dunn indicated that if the ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.