Opinion
No. A-07-1324.
Filed December 9, 2008.
Appeal from the District Court for Keith County: DONALD E. ROWLANDS, Judge.
Affirmed.
R.K. O'Donnell, James R. Korth, and Michael D. Samuelson, of McGinley, O'Donnell Reynolds, P.C., L.L.O., for appellants.
Royce E. Norman, of Norman, Paloucek Herman Law Offices, for appellee.
INBODY, Chief Judge, and SIEVERS and MOORE, Judges.
NOTICE: THIS OPINION IS NOT DESIGNATED FOR PERMANENT PUBLICATION AND MAY NOT BE CITED EXCEPT AS PROVIDED BY NEB. CT. R. OF PRAC. 2E.
MEMORANDUM OPINION AND JUDGMENT ON APPEAL
INTRODUCTION
McGinley-Schilz Co. (MSC), a Nebraska corporation, and SW Cattle Co. (SW), a limited partnership, filed a complaint in the district court for Keith County against James G. Wunschel. MSC is the limited partner and Wunschel the general partner in SW. MSC and SW set forth certain claims against Wunschel for an alleged breach of fiduciary duty with respect to SW, and Wunschel asserted a counterclaim against MSC for substantial amounts of money for transactions relating to SW during its final months of operation. The district court denied Wunschel's claims for commissions on the sale of certain cattle and denied the claims of MSC and SW against Wunschel, other than an accounting of funds due to MSC from SW. The court found that MSC owed certain funds to SW and that per the partnership agreement, MSC was obligated to pay Wunschel a portion of those funds. The district court subsequently denied MSC and SW's motion for new trial. For the reasons set forth herein, we affirm.
BACKGROUND
Wunschel has been in the cattle business since 1965. From 1981 until June 1987, Wunschel was an order buyer for a livestock company in Pierre, South Dakota. On July 1, 1987, Wunschel became an independent contractor and buyer for MSC, for which he received the sum of $6,000 per month.
MSC and Wunschel entered into a limited partnership agreement, dated February 17, 1988, forming SW. The partnership agreement was signed by a representative of MSC on May 19 and by Wunschel on May 23. Wunschel was the general partner and was to receive 60 percent of the net profits, while MSC was the limited partner and was to receive 40 percent of the net profits. MSC contributed $10,000 in capital to form SW and guaranteed the bank loan. The partnership agreement specifies that the "character of business to be transacted by the partnership shall be the business of . . . general livestock business, including purchase, sale and raising of livestock." The agreement also provided that the expression of the character of the business "shall not be held to limit or restrict in any manner" the partnership's powers. The agreement authorized the partnership to "do any and all things that may be necessary, useful or advantageous to the conduct" of the partnership's business affairs. Among other things, the agreement contained provisions governing termination of membership in the partnership and dissolution.
SW was created as an "order-buying company." SW never operated a feedlot or fed cattle. SW and MSC sometimes partnered on the ownership of cattle during the course of SW's existence with each owning 50 percent of the particular cattle in question. SW occasionally owned cattle independently, doing so approximately four to six times over a period of 15 years. MSC, while a limited partner of SW, had its own separate business and owns cattle that are fed at the feedlot near Brule, Nebraska.
In 1989, Wunschel moved to Ogallala, Nebraska, and in 1997, he became a full-time employee of MSC. Wunschel bought cattle, sold fat cattle, and solicited business for MSC. Wunschel's employment with MSC was by virtue of an oral agreement, and he was an "at will" employee.
In the 2003 calendar year, Wunschel was an employee of McGinley-Schilz Feedyard, Ltd. (Feedyard). Feedyard was a separate limited partnership formed in November 2002, of which MSC owned 50 percent and five additional partners owned 10 percent each. In 2002, Feedyard began operating the feedlot in Brule, previously operated by MSC. Wunschel earned a wage of $3,900 per month, plus a $600 per month travel allowance, health insurance, and retirement benefits. Wunschel also was to receive $2 per head for each animal solicited by him for feeding at the Brule feedlot.
In late July or early August 2003, Wunschel advised Dennis Schilz, president of MSC, that Wunschel wanted to quit his employment; however, at Schilz' request, Wunschel agreed to stay until September 1.
On September 17, 2003, Wunschel and Schilz had a telephone conversation in which Schilz advised Wunschel that he had heard that Wunschel had started a new feedlot in Paxton, Nebraska, and had hired away a former employee of MSC. Schilz advised Wunschel that they "[were] finished."
On October 3, 2003, Wunschel learned that Schilz had pulled the guarantee for SW at the bank. Wunschel sent a notice to Schilz, as president of MSC, dated October 6, 2003, stating that pursuant to § 13.1 of the partnership agreement, Wunschel intended to withdraw from the partnership effective 30 days from the date of the notice. Schilz received the notice on October 7. MSC did not exercise its option pursuant to the partnership agreement to purchase Wunschel's interest within 90 days.
Wunschel removed all authorized signatures other than his own from the SW checking account on November 19, 2003. Wunschel completed several pending SW transactions during 2004 and 2005, and paid various expenses including accounting fees and trucking bills, which resulted in SW having the sum of $6,286.45 in its checking account when ultimately ordered to pay such balance into the clerk of the district court. Until October 2003, Jodi Guenin, the bookkeeper for MSC since 1984, had kept all of the records and received all of the bank statements for SW. After October 2003, by virtue of Wunschel's actions, Guenin was prevented from receiving any bank statements or records for SW.
Wunschel took some steps toward planning the operation of a new feedlot prior to November 2003. Prior to September 8 or 9, Wunschel spoke with an individual about leasing a feedlot to feed cattle for Wunschel, but not for anyone else. In late September or early October, Wunschel decided to set up Twin Valley Feeders, L.L.C. (Twin Valley). On September 19, Wunschel purchased cattle for Twin Valley in Paxton. Wunschel contacted an attorney in Ogallala about drawing up legal documents for Twin Valley, and Wunschel signed the documents creating Twin Valley on October 8. Wunschel also set up Wunschel Livestock, L.L.C., a cattle order-buying business, in late November 2003. Wunschel Livestock commenced operations in December.
The record shows that several clients of MSC stopped doing business with MSC, not because of any solicitation or improper conduct by Wunschel, but because of outside business conditions. Frank Svoboda stopped feeding at MSC because the cattle business was not always profitable and not because of Wunschel. After Wunschel left SW, Ralph Holzfaster stopped feeding cattle but not because Wunschel solicited his business for Wunschel's new feedyard or because Wunschel talked Holzfaster out of feeding cattle at MSC. Holzfaster was concerned that there was some type of restructuring taking place at MSC, so he decided to wait a year before feeding again. Holzfaster never returned to feeding cattle at MSC. Wunschel, through Wunschel Livestock, purchased approximately 800 to 1,200 head of cattle per year for Holzfaster from 2004 through the time of trial in this matter. At the time of trial, Holzfaster was not feeding any cattle at Twin Valley; rather, he was finishing cattle at his own place.
MSC and SW filed their initial complaint against Wunschel on September 26, 2003. They subsequently were granted leave to file an amended complaint. In the amended complaint, MSC and SW alleged that Wunschel breached the partnership agreement by not allowing them to participate in his new cattle operations, not obtaining their permission and/or consent to participate with others in the cattle business in violation of the partnership agreement, failing to feed his new cattle at the feedlot in Brule, feeding his cattle in a new feeding operation in Paxton, and ultimately denying MSC and SW the profits they would otherwise realize from the partnership. MSC and SW sought a full accounting of partnership assets to date; a full accounting of all profits received by Wunschel as a result of his new cattle business; their share of any profits realized by the new cattle venture; future profits that they would otherwise be entitled to as a part of this cattle business; lost yardage profits due to Wunschel's feeding cattle somewhere other than the Brule feedlot, which they estimated at $182,000 plus additional commission costs that would not have been incurred of approximately $20,000; and damages resulting from Wunschel's use of SW's and MSC's exclusive client list. MSC and SW also alleged that Wunschel breached his fiduciary duty by competing for the purchase of cattle and diverting partnership opportunities to his new business entities. In connection with this allegation, MSC and SW sought the imposition of a constructive trust against Wunschel's business operations, an accounting, costs, and such other relief as the court deemed proper.
Wunschel filed an answer and counterclaim to the amended complaint on August 2, 2004. In connection with his counterclaim, Wunschel sought a full accounting of the SW partnership, an accounting from MSC of all amounts due Wunschel for his solicitation of third-party feeding at the feedlot in Brule, and judgment in his favor for all amounts determined to be owed him pursuant to the accounting.
On November 13, 2006, the district court entered an order ruling on summary judgment motions filed by the parties. The court found numerous questions of fact preventing it from sustaining any of the parties' summary judgment motions. The court found that MSC would be allowed to attempt to prove at trial that Wunschel, while an employee of MSC, violated the fiduciary duty owed to his employer and that SW would be allowed to attempt to prove that Wunschel breached his fiduciary and contractual duties to SW. The court found that SW would be limited in time to the damages it might claim, in that the evidence was uncontroverted that SW received notice of Wunschel's intention to withdraw from the partnership on October 6, 2003, and that pursuant to the partnership agreement, the partnership was dissolved 30 days later on November 5. The court determined that thereafter, Wunschel was allowed to broker cattle without incurring any liability to SW. The court concluded that whether Wunschel engaged in the cattle business in competition with MSC and SW while still employed by MSC or under the restrictions of the partnership agreement were questions of fact to be determined at trial.
Trial evidence was received initially by the district court on July 10 and 11, 2007. Trial was stopped on July 11 to allow for additional discovery and disclosure of documents. The court entered an order on July 16, giving the parties 30 days to complete certain actions. The court ordered Wunschel to close the SW bank account and pay the remaining balance to the clerk of the district court. The record reflects that Wunschel did pay the funds from the SW checking account to the court. The court also ordered Wunschel to provide MSC and SW with the bank statements for SW from January 1, 2004, to the present, the business records of Wunschel Livestock from March 3, 2005, to the present, a copy of the trucking bills, a copy of any correspondence from SW doing business after January 1, 2004, and a copy of SW's 2004 tax return. The court ordered MSC and SW to provide Wunschel with a copy of an accounting bill and ordered the parties to coordinate a time for the telephonic deposition of a particular individual. The court also continued the trial until September 19.
On September 19, 2007, the district court received evidence in the continued trial.
The district court entered an order on October 23, 2007, with its findings on the issues raised at trial. The court denied Wunschel's claims for unpaid commissions and finder's fees, since Wunschel was an employee of Feedyard rather than MSC and Feedyard was not made a party to the lawsuit. The court found that any claims by either MSC or SW for an alleged breach of fiduciary duty by Wunschel as an employee of MSC were not supported by the evidence. The court addressed MSC's claims of a breach of Wunschel's fiduciary duty to SW and Wunschel's counterclaims against MSC for transactions relating to SW's final months of operation. The court reaffirmed its previous finding that SW was dissolved on November 5, 2003, and found that thereafter, Wunschel was allowed to broker cattle without any liability to SW. The court noted that, once Wunschel withdrew from the partnership, under the partnership agreement, MSC had the option of purchasing Wunschel's share within 90 days, which option was never exercised by MSC. The court noted that Wunschel complied with the court's order to pay the funds from the SW checking account into the court registry, where the funds remained at the time of the court's October 23, 2007, order. Notwithstanding the fact that Wunschel may have taken certain actions to form a new business in competition with SW prior to November 5, 2003, the court found that no actual competition with or taking of business from SW actually occurred. In short, while the court found some evidence that Wunschel may have breached his fiduciary duty to SW by forming Twin Valley prior to November 5, there was no credible evidence in the record that Twin Valley actually commenced operations prior to November 5 or caused any damages to either MSC or SW. Accordingly, the court denied any claims by MSC and SW for damages against Wunschel, other than an accounting of funds due to MSC from SW. The district court found that MSC owed SW certain amounts on accounts receivable: $31,800 for certain cattle, $13,968.87 for profits on certain other cattle purchased by SW and transferred to Schilz, and $5,101.75 for attorney fees paid from SW's account for this lawsuit. The various amounts, when added together with the funds on deposit in the registry of the clerk of the district court of $6,286.45, totaled $57,157.07. The court determined that per the partnership agreement, Wunschel's share of this amount was 60 percent, or $34,294.23, but it made an adjustment of $1,396.88 based on certain trial testimony. Accordingly, the court determined that MSC was obligated to pay Wunschel the adjusted amount and entered judgment in favor of Wunschel on his counterclaim for $32,897.36 plus postjudgment interest.
MSC and SW filed a motion for new trial, and on November 20, 2007, the district court overruled that motion. MSC and SW subsequently perfected their appeal to this court.
ASSIGNMENTS OF ERROR
MSC and SW (hereinafter the Appellants) assert that the district court erred in (1) finding that SW was dissolved on November 5, 2003, and that thereafter Wunschel was allowed to broker cattle without any liability to the Appellants; (2) finding that notwithstanding the fact that Wunschel may have taken certain actions to form a new business in competition with SW prior to November 5, no actual competition with or taking of business from SW actually occurred; (3) failing to impose a constructive trust to hold the profits of Wunschel Livestock for the benefit of the Appellants; and (4) finding that SW was owed $31,800 on accounts receivable from MSC for certain cattle.
STANDARD OF REVIEW
Although in many contexts the traditional distinctions between law and equity have been abolished, whether an action is one in equity or one at law controls in determining an appellate court's scope of review. State ex rel. Wagner v. Amwest Surety Ins. Co., 274 Neb. 121, 738 N.W.2d 813 (2007). Whether a particular action is one at law or in equity is determined by the essential character of a cause of action and the remedy or relief it seeks. Id.
In this action, the Appellants sought damages, an accounting, and imposition of a constructive trust based on Wunschel's alleged breach of the partnership agreement and breach of fiduciary duties owed to the Appellants.
An action for an accounting may under one set of circumstances find its remedy in an action at law and under another find it within the jurisdiction of equity. Lone Cedar Ranches v. Jandebeur, 246 Neb. 769, 523 N.W.2d 364 (1994). Generally, in order to be entitled to the equitable remedy of accounting, it is necessary to allege a fiduciary, trust, or confidential relationship; a complicated series of accounts; or the inadequacy of a remedy at law, the latter being the basic reason for asserting equitable jurisdiction. Id. An action to impose a constructive trust sounds in equity. Eggleston v. Kovacich, 274 Neb. 579, 742 N.W.2d 471 (2007).
The essential character of the causes alleged and remedies sought by the Appellants in the amended complaint were equitable. In an appeal of an equity action, an appellate court tries the factual questions de novo on the record and reaches a conclusion independent of the findings of the trial court. Hogelin v. City of Columbus, 274 Neb. 453, 741 N.W.2d 617 (2007).
ANALYSIS
No Breach of Fiduciary Duty.
The Appellants assert that the district court erred in finding that SW was dissolved on November 5, 2003, that Wunschel was allowed to broker cattle after that date without any liability to the Appellants, and that no actual competition with or taking of business from SW actually occurred. The Appellants also assert that the district court erred in failing to impose a constructive trust to hold the profits of Wunschel Livestock for the benefit of the Appellants.
We have looked to various provisions of the Nebraska Uniform Limited Partnership Act (NULPA) and the Uniform Partnership Act of 1998 (UPA 1998) in resolving this issue. Neb. Rev. Stat. § 67-294 (Cum. Supp. 2008) of the NULPA, provides that "[i]n any case not provided for in the [NULPA], the [UPA 1998] shall govern." See, also, Neb. Rev. Stat. § 67-464 (Cum. Supp. 2008) (on and after January 1, 2001, UPA 1998 governs all partnerships).
We note that Neb. Rev. Stat. § 67-276 (Reissue 2003) of the NULPA, which sets forth the conditions under which a limited partnership is dissolved, provides:
A limited partnership is dissolved and its affairs shall be wound up upon the happening of the first to occur of the following:
(1) At the time or upon the happening of events specified in the partnership agreement;
(2) Written consent to dissolution of all partners;
(3) An event of withdrawal of a general partner unless at the time there is at least one other general partner and the partnership agreement permits the business of the limited partnership to be carried on by the remaining general partner and that partner does so, but the limited partnership is not dissolved and is not required to be wound up by reason of any event of withdrawal if (i) all partners have previously consented in the partnership agreement or otherwise to have a specific person designated as a general partner or (ii) within one hundred eighty days after the withdrawal, all partners other than the withdrawn general partner agree in writing to continue the business of the limited partnership and to the appointment of one or more additional general partners if necessary or desired; or
(4) Entry of a decree of judicial dissolution under section 67-277.
We also note Neb. Rev. Stat. § 67-440(1) (Reissue 2003) of the UPA 1998, which provides, "Subject to subsection (2) of this section, a partnership continues after dissolution only for the purpose of winding up its business. The partnership is terminated when the winding up of its business is completed." See, also, Gast v. Peters, 267 Neb. 18, 671 N.W.2d 758 (2003) (interpreting provisions of Uniform Partnership Act (UPA), predecessor to UPA 1998, and stating dissolution of partnership is not synonymous with its termination).
Wunschel gave notice of his withdrawal from the partnership on October 6, 2003, which withdrawal, according to the terms of the partnership agreement, became effective 30 days thereafter, or November 5. Thereafter, Wunschel wound up the business of SW to the exclusion of MSC. The district court treated November 5 as the date of dissolution of the partnership. Upon our de novo review, we agree that the partnership was dissolved November 5. See, Neb. Rev. Stat. § 67-264 (Reissue 2003) (withdrawal of general partner); § 67-276 (limited partnership dissolved upon withdrawal of general partner).
The district court found that Wunschel was free to broker cattle after November 5, 2003, without any liability to SW or MSC. Neb. Rev. Stat. § 67-424 (Reissue 2003) of the UPA 1998 discusses the fiduciary duties owed by a partner to the partnership and the other partners. Specifically, the statute provides that the only fiduciary duties owed are the duty of loyalty and the duty of care as set forth in subsections (2) and (3), which provide:
(2) A partner's duty of loyalty to the partnership and the other partners is limited to the following:
(a) To account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property, including the appropriation of a partnership opportunity;
(b) To refrain from dealing with the partnership in the conduct or winding up of the partnership business as or on behalf of a party having an interest adverse to the partnership; and
(c) To refrain from competing with the partnership in the conduct of the partnership business before the dissolution of the partnership.
(3) A partner's duty of care to the partnership and the other partners in the conduct and winding up of the partnership business is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.
We also note that subsection (5) of § 67-424 provides, "A partner does not violate a duty or obligation under the act or under the partnership agreement merely because the partner's conduct furthers the partner's own interest." See, also, Neb. Rev. Stat. § 67-256 (Reissue 2003) of the NULPA (general partner of limited partnership has rights, powers, restrictions, and liabilities of partner in partnership without limited partners).
Upon our de novo review, we find that there was no unlawful competition by Wunschel prior to the dissolution of the partnership on November 5, 2003. See § 67-424(2)(c). We find no evidence that Wunschel's actions with respect to the formation and operation of Twin Valley and Wunschel Livestock involved any transactions connected with the conduct or winding up of the partnership, the use of any partnership property, or the appropriation of any partnership opportunities. Any income generated by Wunschel's entities after November 5 was not connected to any unfinished business of SW. As such, SW is not entitled to any profits derived by Wunschel after November 5. See § 67-424(2)(a). Wunschel was appropriately ordered to account to MSC for the ongoing business of SW during the winding up phase.
The record does not support the assertion that MSC or SW maintained exclusive client lists. We also note that the partnership agreement does not contain a noncompetition clause upon withdrawal from the partnership.
The record does not support the Appellants' assertion that a constructive trust should have been imposed. A constructive trust is a relationship, with respect to property, subjecting the person who holds title to the property to an equitable duty to convey it to another on the ground that his or her acquisition or retention of the property would constitute unjust enrichment. Anderson v. Bellino, 265 Neb. 577, 658 N.W.2d 645 (2003). Regardless of the nature of the property upon which the constructive trust is imposed, a plaintiff seeking to establish the trust must prove by clear and convincing evidence that the individual holding the property obtained title to it by fraud, misrepresentation, or an abuse of an influential or confidential relationship and that under the circumstances, such individual should not, according to the rules of equity and good conscience, hold and enjoy the property so obtained. Id. The record does not show that any property of Twin Valley or Wunschel Livestock was obtained by fraud, misrepresentation, or an abuse of an influential or confidential relationship with MSC or SW.
The record does not show anything other than ordinary competition between Wunschel and MSC, which was not in fact Wunschel's employer at the time Twin Valley and Wunschel Livestock were created. An employer has a legitimate business interest in protection against a former employee's competition by improper and unfair means, but is not entitled to protection against ordinary competition from a former employee. Aon Consulting v. Midlands Fin. Benefits, 275 Neb. 642, 748 N.W.2d 626 (2008). To distinguish between ordinary competition and unfair competition, courts focus on an employee's opportunity to appropriate the employer's goodwill by initiating personal contacts with the employer's customers.
The Appellants' first three assignments of error are without merit.
Amount Owed to SW.
The Appellants assert that the district court erred in finding that SW was owed $31,800 on accounts receivable from MSC for certain cattle.
Schilz testified about the purchase of these particular cattle. Schilz testified that a contract was made by SW for delivery of the cattle to the Brule feedlot. Schilz recalled that at the time of delivery, MSC was to buy the cattle but that MSC was "financially . . . at [its] limit" at the time. Accordingly, Schilz purchased the cattle personally and sold part of them to customers. Upon further questioning, Schilz testified that MSC was not a party to any contract relative to these cattle and emphasized that he purchased the cattle personally and sold part of them to partners and customers of the feedyard. The purchase amount for these cattle of $31,800 did show up in the SW general ledger under accounts receivable. Guenin testified that she was responsible for placing the amount in the SW general ledger and that it was a correct entry in the ledger. Guenin testified further that the money was not owed by MSC to SW, but, rather, that "Schilz bought the cattle, so he would owe SW." Guenin explained, "This is a contract that SW would have for the cattle, and we would pay a down payment on those cattle, and then you purchase the cattle and deduct the down payment. And then in turn, would sell the cattle." Guenin testified further that MSC did not have the funds available to purchase the cattle at that time and that Schilz went to the ranch in question and purchased the cattle.
In its October 23, 2007, order, the district court did not specify why it found the $31,800 to be an obligation of MSC, rather than Schilz personally, to SW, but clearly, the court did not give full credence to Schilz' and Guenin's testimony and determined that Schilz, as president of MSC, purchased the cattle on behalf of MSC. In an appeal of an equitable action, an appellate court tries factual questions de novo on the record, provided that where credible evidence is in conflict on a material issue of fact, the appellate court considers and may give weight to the fact that the trial judge heard and observed the witnesses and accepted one version of the facts rather than another. Eggleston v. Kovacich, 274 Neb. 579, 742 N.W.2d 471 (2007). We give weight to the district court's acceptance of this version of the facts. The assignment of error is without merit.
CONCLUSION
Upon our de novo review, we find that the determinations of the district court should be affirmed.
AFFIRMED.