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Elting v. Elting

Supreme Court of Nebraska

June 27, 2014

PERRY ELTING ET AL., APPELLEES,
v.
KERWIN ELTING, APPELLANT

Page 445

Appeal from the District Court for Nuckolls County: VICKY L. JOHNSON, Judge.

AFFIRMED.

Daniel E. Klaus and Sheila A. Bentzen, of Rembolt Ludtke, L.L.P., for appellant.

Steven E. Guenzel and Cameron E. Guenzel, of Johnson, Flodman, Guenzel & Wedger, for appellees.

HEAVICAN, C.J., WRIGHT, CONNOLLY, STEPHAN, MCCORMACK, MILLER-LERMAN, and CASSEL, JJ.

OPINION

Page 446

[288 Neb. 405] Miller-Lerman, J.

NATURE OF CASE

Glenn Elting and Sons was a family farming partnership that was formed in 1976 among Glenn Elting and his sons, Kerwin Elting and Perry Elting, all as managing partners. The partners who comprised the partnership changed over the years. The managing partners during the time period relevant to the issues in this case were: Kerwin; Perry; Kerwin's son, Carl Elting; and Perry's son, Knud Elting. On March 30, 2011, Perry, Knud, and Perry's wife, ReJean Elting, the appellees, filed this action in the district court for Nuckolls County [288 Neb. 406] against Kerwin, the appellant. The amended complaint was filed on January 22, 2013. The appellees alleged that Kerwin had entered into a series of grain contracts on behalf of the partnership without the authority to do so, resulting in significant losses to the partnership. The appellees sought damages based on these losses.

After a bench trial, the district court filed its order on May 30, 2013, in which it found in favor of the appellees. The district court determined that Kerwin did not have authority to enter into the contracts and that his actions were not ratified. The district court further determined that Kerwin was not shielded by the limitation of liability clause contained in the controlling partnership agreement. The district court awarded judgment in favor of the appellees in the amount of $1,072,175 plus prejudgment interest. Kerwin appeals. Finding no error, we affirm.

STATEMENT OF FACTS

In 1976, Glenn Elting and Sons, a farming partnership, was formed among Glenn and his two sons, Kerwin and Perry. The partnership was later expanded and included as partners Glenn's wife, Esther Elting; Kerwin's wife, Patricia Elting; and Perry's wife, ReJean Elting; however, the management of the partnership remained with Glenn, Kerwin, and Perry.

The partnership had an established decisionmaking process: The managing partners would have informal discussions regarding

Page 447

whether and how to proceed, and once a consensus was reached, the partners would proceed. No documents recorded the discussions or decisions of the managing partners. Once a decision was made, Glenn, and later Kerwin, was responsible for carrying out the decision, including signing contracts on the partnership's behalf.

On January 31, 2005, the partners entered into the " Amended and Restated Partnership Agreement for Glenn Elting and Sons" (Partnership Agreement). The Partnership Agreement did not change how the partnership made decisions. Paragraph 5.1 of the Partnership Agreement provided that the partnership was to be managed by the managing partners, and paragraph 5.2 provided that the managing partners were Glenn, Kerwin, [288 Neb. 407] and Perry. Paragraph 5.3 provided that at any time there were more than two managing partners, " the approval of a majority of the Managing Partners shall be required for the Managing Partners to act on behalf of the Partnership, unless unanimous approval of the Managing Partners is required for such action by another provision of [the Partnership] Agreement." Paragraph 5.4 of the Partnership Agreement contained a limitation of liability clause, which provided:

Liability of Managing Partners. No Managing Partner shall be liable to the Partnership or to any other Partner for any action taken in good faith and reasonably believed by such Managing Partner to be in the best interest of the Partnership or taken in reliance on the provisions of [the Partnership] Agreement, or for good faith errors of judgment, but shall only be liable for willful misconduct or gross negligence in the performance of his or her duties.

In 2008, Kerwin's son, Carl, and Perry's son, Knud, joined the partnership and became additional managing partners. At this point, the managing partners were Kerwin, Perry, Carl, and Knud. On February 8, 2008, the partners entered into the " First Amendment to Amended and Restated Partnership Agreement for Glenn Elting and Sons" to reflect this change. This amendment to the Partnership Agreement did not change any other provisions of the Partnership Agreement regarding how decisions were made. When this amendment to the Partnership Agreement was signed, Glenn and Esther were no longer partners, and they are not involved in this appeal. As noted, the managing partners in 2008 thus were Kerwin, Perry, Carl, and Knud. Kerwin's wife, Patty, and Perry's wife, ReJean, remained as partners, but they did not have a significant role in managing the partnership.

In December 2008, Knud withdrew from active participation in the partnership and ceased his day-to-day involvement in the partnership's activities. However, Knud's status as a managing partner remained unchanged. Kerwin, Perry, and Carl continued to make the decisions involving the partnership.

In 2007, prior to the time that Carl and Knud became partners, the partnership had entered into hedge contracts with [288 Neb. 408] Cargill, Inc., and Aurora Cooperative to sell all of the partnership's anticipated corn production for the years 2008, 2009, and 2010. The partnership contracted to sell approximately half of its corn production to Cargill and the other half to Aurora Cooperative. It is undisputed that the initial hedge contracts with Cargill and Aurora Cooperative were entered into with the knowledge and consent of the managing partners at the time, Glenn, Kerwin, and Perry.

In approximately 2008, Cargill began offering a product called a focal point contract. The focal point contract allowed a farmer to " unlock" the price of hedged

Page 448

corn and allow it to float with the market based upon the increase or decrease in the market between the opening and closing dates specified in the focal point contract. The focal point contract generally was an amendment to the original hedge contract. If the market moved up and the price per bushel increased between the opening and closing dates, then the increased amount would be added to the price per bushel agreed to in the original hedge contract, minus a service fee of 3 cents per bushel. If the price per bushel decreased between the opening and closing dates, then the decreased amount, plus the 3-cent service fee, would be subtracted from the price per bushel agreed to in the original hedge contract. Because all the focal point contracts assessed the same 3-cent fee per bushel, a farmer entering into the focal point contract was predicting and hoping that the market would move up at least 3 cents per bushel during the time that the contract was open in order to maintain at least the same return as would have obtained on the original hedge contract after the payment of service fees.

In 2008 and 2009, Kerwin entered into a series of focal point contracts with Cargill on behalf of the partnership (Focal Point contracts). Cargill's local representative had in-person and telephone conversations with Kerwin regarding the Focal Point contracts. Kerwin entered into the Focal Point contracts on behalf of the partnership at three times. The first set of contracts opened with 240,000 bushels on May 2, 2008, and closed on May 8. The second set of contracts opened with 1,750,000 bushels on September 8 and 26, 2008, and closed on September 12 and October 7, respectively. The third set of [288 Neb. 409] contracts opened on June 23, 2009, and closed on July 1. As a result of the first set of Focal Point contracts, the partnership gained $23,400. As a result of the second and third sets of contracts, the partnership lost significant money. In total, the partnership lost $2,144,350 on the three sets of Focal Point contracts from the originally contracted price.

Sometime in late 2008 or early 2009, Kerwin and Perry started having discussions with respect to dissolving the partnership. A " Partnership Separation Agreement" had been signed on February 8, 2008, which was the same date that the amendment to the Partnership Agreement changing membership was signed. On April 27, 2009, Kerwin, Patricia, and Carl signed a separation notice stating that they wished to dissolve the partnership in accordance with the partnership separation agreement. According to the findings of the district court, the performance of the first two sets of Focal Point contracts did not affect the decision to dissolve the partnership.

Before the partnership dissolved, in late 2007 or early 2008, the partnership began banking with the First National Bank of Fairbury (FNB). The partnership worked primarily with Dick Hoppe, a senior vice president and senior agriculture loan specialist. The partnership's primary purpose of banking with FNB was to secure an operating note, which operated as a line of credit to secure the year's farming expenses. Before agreeing to lend the partnership money, Hoppe needed to review the partnership's financial information. Kerwin was primarily responsible for compiling the information. Kerwin provided Hoppe with the raw data, and Hoppe prepared a balance sheet and cashflow projections. FNB determined that the partnership was creditworthy, and the banking relationship began in January 2008. The 2007 balance sheet was signed by Glenn, Perry, and Kerwin, who were the managing partners at that time.

On January 9, 2009, Hoppe met with Kerwin, Carl, Perry, and ReJean for their annual meeting to review the partnership's

Page 449

financial information, including the 2008 balance sheet and cashflow projections for 2009, in order to renew the partnership's line of credit. At that meeting, Kerwin, Perry, and [288 Neb. 410] Carl each signed the 2008 balance sheet for the partnership. Immediately above their signatures, the balance sheet stated:

For the purpose of securing credit from time to time this statement is furnished and is certified to be true and correct. I (or We) agree to notify the bank promptly of any material change herein. . . . False statement may be subject to prosecution under Title 18 of the U.S. Code. I (or We) have read the above statement before signing . . . .

The 2008 balance sheet, as well as the cashflow projections for the upcoming 2009 crop year, reflected the price of the Cargill corn after the gains from the May 2008 Focal Point contracts and the losses from the September 2008 Focal Point contracts. There is dispute as to how specific the review of the partnership's financial information was during the annual meetings with Hoppe, including the January 2009 meeting.

After the proceedings to dissolve the partnership began, Kerwin and Carl began farming together and Perry and Knud began farming together. Once the partnership stopped farming, Kerwin and Perry needed to establish separate relationships with FNB. To do so, they each needed to ...


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