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DMK Biodiesel, LLC v. McCoy

Supreme Court of Nebraska

March 6, 2015

DMK BIODIESEL, LLC, A NEBRASKA LIMITED LIABILITY COMPANY, AND LANOHA RVBF, LLC, A NEBRASKA LIMITED LIABILITY COMPANY, APPELLANTS,
v.
JOHN MCCOY ET AL., APPELLEES

Page 868

Appeal from the District Court for Buffalo County: JOHN P. ICENOGLE, Judge.

REVERSED AND REMANDED FOR FURTHER PROCEEDINGS.

David A. Domina and Megan N. Mikolajczyk, of Domina Law Group, P.C., .L.O., for appellants.

Daniel L. Lindstrom and Nicholas R. Norton, of Jacobsen, Orr, Lindstrom & Holbrook, P.C., L.L.O., for appellees John McCoy et al.

L. Steven Grasz, Mark D. Hill, and Michael Schmidt, of Husch Blackwell, L.L.P., for appellee Renewable Fuels Technology, LLC.

HEAVICAN, C.J., CONNOLLY, STEPHAN, MCCORMACK, MILLER-LERMAN, and CASSEL, JJ. Wright, J., not participating.

OPINION

Page 869

[290 Neb. 287] Stephan, J.

DMK Biodiesel, LLC (DMK), and Lanoha RVBF, LLC (Lanoha), filed suit against John McCoy; John Hanson; Phil High; Jason Anderson (collectively the individual defendants); and Renewable Fuels Technology, LLC (Renewable), alleging the fraudulent sale of securities, in violation of Neb. Rev. Stat. § 8-1118(1) (Reissue 2012). This is the second appeal. In the first appeal, we reversed the district court's order granting a motion to dismiss because the court considered matters outside the pleadings without conducting an evidentiary hearing.[1] On remand, Renewable and the individual defendants filed motions for summary judgment, which the district court sustained after conducting an evidentiary hearing. DMK and Lanoha now appeal. We reverse, and remand for further proceedings.

I. BACKGROUND

Republican Valley Biofuels, LLC (RVBF), issued a confidential private placement memorandum (PPM) with an effective date of May 7, 2007, seeking investors

Page 870

in a biodiesel production facility. RVBF was promoted by the individual defendants, and Renewable was the manager of RVBF. The PPM provided that the securities being offered were " speculative and involve a high degree of risk." It included a summary of the offering describing RVBF and the biodiesel facility RVBF proposed to build, as well as a description of " [r]isk factors" involved in the investment. The PPM provided that " [n]o person has been authorized to make any representation or warranty, or give any information, with respect to RVBF or the units offered hereby except for the information contained herein." The PPM also stated that

[a]lthough we believe that our plans and objectives reflected in or suggested by such forward-looking statements are reasonable, we may not achieve such plans [290 Neb. 288] or objectives. Actual results may differ from projected results. We will not update forward-looking statements even though we may undergo changes in the future.

In August 2007, DMK and Lanoha entered into separate subscription agreements and became minority investors in RVBF. In the agreements, each acknowledged the investments involved a high degree of risk. They further acknowledged they had sufficient knowledge and experience in financial and business matters to be able to evaluate " the merits and risks involved" in the investments. Each agreement states: " Subscriber has relied solely upon the information furnished in the [PPM] and Subscriber has not relied on any oral or written representation or statement, except as contained in the [PPM], in making this investment."

In 2009, DMK and Lanoha brought an action against Renewable and the individual defendants in the district court for Buffalo County. In their operative complaint, they alleged that Renewable and the individual defendants, acting in concert as members and the manager of RVBF, made false oral representations and omissions in connection with RVBF and the proposed biodiesel facility which induced their investment. DMK and Lanoha asserted these actions violated the Securities Act of Nebraska (the Act)[2] and violated fiduciary duties owed by the members and manager of RVBF. DMK and Lanoha further sought an accounting at law.

Renewable and the individual defendants filed motions to dismiss, which the district court sustained. DMK and Lanoha appealed, and we reversed.[3]

After the district court entered a judgment on the appeal mandate, Renewable and the individual defendants filed motions for summary judgment asserting they were not liable to DMK and Lanoha as a matter of law. The district court held an evidentiary hearing, after which it sustained the motions and dismissed the action. The court assumed for purposes of [290 Neb. 289] its ruling that Renewable and the individual defendants " made the oral representations alleged by [DMK and Lanoha] during the period of time that [DMK and Lanoha] were contemplating their investment." The court framed the issue as whether the " cause of action for security fraud [based on] misrepresentations made to investors is viable given the contents of the [PPM] and subscription agreements in which [DMK and Lanoha] acknowledge[d] that their investments were made without consideration of any representation not contained in the [PPM] or Subscription

Page 871

Agreements." The court reasoned that DMK and Lanoha were sophisticated investors and that given the contents of the PPM and subscription agreements, they could not have relied upon any oral representations as a matter of law. The court concluded:

[W]hen the sophisticated investor executes a subscription document stating that the " Subscriber has relied solely upon the information furnished in the [PPM] and Subscriber has not relied on any oral or written representation or statement, except as contained in the [PPM], in making ...

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