Knoell v. Huff

• Citation: 395 N.W.2d 749,224 Neb. 90
• Decision Date: 07 November 1986
• Docket Number: No. 85-232,85-232
• Parties: , Blue Sky L. Rep. P 72,458 Josephine M. KNOELL et al., Appellants, v. H. Dan HUFF and North Kansas Financial Corporation, Appellees.
• Court: Supreme Court of Nebraska

Page 749

395 N.W.2d 749

224 Neb. 90, Blue Sky L. Rep. P 72,458

Josephine M. KNOELL et al., Appellants, v. H. Dan HUFF and North Kansas Financial Corporation, Appellees.

No. 85-232.

Supreme Court of Nebraska.

Nov. 7, 1986.

Syllabus by the Court

1. Demurrer. For the purpose of ruling on a demurrer, the court accepts well-pleaded facts in the petition, as distinguished from the conclusions alleged, as true.

2. Appeal and Error. Regarding questions of law, this court has an obligation to reach its conclusion independent from the conclusion reached by a trial court.

3. Actions: Banks and Banking: Securities Regulation. The Securities Act of Nebraska, Neb.Rev.Stat. §§ 8-1101 et seq. (Reissue 1983), is not the exclusive remedy under Nebraska law in cases involving the sale of securities.

4. Statutes. Where the same word is used repeatedly in the same act, unless the context requires otherwise, the word is to have the same meaning.

5. Negligence. In order to constitute actionable negligence, there must exist three essential elements, namely, a duty or obligation which the defendant is under to protect the plaintiff from injury, a failure to discharge that duty, and injury resulting from the failure. The petition must allege these essential elements and the proof must support the allegations, or there can be no recovery.

6. Pleadings. The right to amend or correct a defect in a pleading is not without limitation.

7. Fraud. The elements of fraud are (1) a false representation of material fact, (2) knowledge that the representation was false or made in reckless disregard as to its truthfulness or falsity, (3) an intent to induce another to act, (4) a justifiable reliance on the representation, and (5) injury or damage resulting from such reliance.

David C. Huston of Paine & Huston, Grand Island, for appellants.

Rodney M. Confer of Knudsen, Berkheimer, Richardson & Endacott, Lincoln, for appellees.

KRIVOSHA, C.J., and BOSLAUGH, WHITE, HASTINGS, CAPORALE, SHANAHAN, and GRANT, JJ.

PER CURIAM.

Plaintiffs-appellants, Josephine M. Knoell and nine others (investors), appeal from an order of the Lancaster County District Court which sustained a demurrer in favor of the defendants-appellees, H. Dan Huff (Huff), a resident of Lancaster County, and North Kansas Financial Corporation (NKFC), a Nebraska corporation. The investors brought this suit to recover damages because of financial losses they sustained when the stock they had purchased in NKFC from Huff became worthless. The district court sustained the demurrer and dismissed the investors' petition. The court held that all five causes of action in the third amended petition were barred by the statute of limitations under the Securities Act of Nebraska, Neb.Rev.Stat. §§ 8-1101 et seq. (Reissue 1983), and that all five failed to state facts sufficient to constitute a cause of action. We affirm in part and in part reverse.

The facts in this case are set out in the investors' third amended petition. For the purpose of ruling on Huff's and NKFC's demurrer, we accept the well-pleaded facts in the petition, as distinguished from the conclusions alleged, as true. Allen v. County of Lancaster, 218 Neb. 163, 352 N.W.2d 883 (1984). The facts alleged in the petition are deemed admitted for the purpose of ruling on Huff's and NKFC's demurrer.

The investors are stockholders and debenture holders of NKFC. NKFC was formed for the purpose of acting as a holding company to own the stock of a Kansas corporation known as North Kansas Savings Association (NKSA). NKSA was a federally chartered savings and loan association with offices in Beloit and Phillipsburg, Kansas.

In September 1980 the investors were solicited by Huff and his agent, Tom Scheer, to invest in NKFC, which would in turn own a controlling interest in NKSA. During the solicitation, the investors were informed by Huff and Scheer that Huff had experience as a promoter in numerous bank acquisitions in the past and had been successful in arranging the ownership of financial institutions through holding companies. Huff and Scheer also represented to the investors that Huff would act as their agent and would (1) form a holding company to own the stock of NKSA and (2) gain federal home loan bank board approval of the transfer. The investors paid the purchase price for their securities at various times between September 1980 and January 1981. The money paid in was deposited in a repurchase, or "repo," account, earning interest. The total amount invested by all 10 investors was $266,500.

The petition shows that Huff, before soliciting the investors, acquired controlling interest in NKSA in January 1980. To finance the purchase of the NKSA stock Huff made a downpayment of approximately $300,000 from funds borrowed by him from the National Bank of Commerce in Lincoln, Nebraska. Huff later negotiated a loan of $1.3 million from the Merchants Bank in Topeka, Kansas, to complete the financing. Huff used the funds solicited from the investors to repay part of the $300,000 loan from the National Bank of Commerce.

At the time Huff acquired the stock of NKSA, he was informed by the NKSA stockholders and employees that there was a lawsuit pending against NKSA in the district court of Geary County, Kansas, relating to the breach of a loan commitment.

The holding company (NKFC) was formed on January 5, 1982. At that time Huff assigned to NKFC all of the stock acquired by him in NKSA, representing 89.45 percent of the stock of NKSA. Each investor was issued between one-half and two debentures and 150 to 600 shares of stock in NKFC, depending upon the amount of investment.

On July 29, 1982, judgment was entered against NKSA in the Geary County, Kansas, lawsuit, in the amount of $1,495,944. Thereafter, the federal home loan bank board closed NKSA. By letter dated November 22, 1982, Huff informed the investors that the judgment against NKSA had precipitated the closing by the federal home loan bank board, that he had knowledge of the pending lawsuit at the time he acquired the NKSA stock, and that their investments should be considered worthless. At no time before November 22, 1982, did any of the investors have knowledge of the existence of the Geary County lawsuit pending against NKSA.

The investors filed their petition, setting out three causes of action, against Huff and NKFC on November 21, 1983, for damages incurred as a result of the securities becoming worthless. Huff and NKFC filed a motion to strike and to make the petition more definite and certain. This motion was sustained in part. An amended petition was filed. A second motion was sustained in part, and the investors filed a second amended petition. Huff and NKFC demurred, and the district court sustained the demurrer on the ground that none of the counts in the petition stated a cause of action. The court again gave the investors additional time to file a further amended petition.

The investors filed their third amended petition on September 24, 1984, setting out five causes of action. Huff and NKFC again filed a demurrer on October 12, 1984, alleging that the causes of action in the petition were barred by the statute of limitations under the Securities Act of Nebraska, §§ 8-1101 et seq., and that the petition did not state sufficient facts to constitute a cause of action. The trial court sustained the demurrer and dismissed the investors' petition with prejudice.

The investors have assigned six errors, which may be consolidated into two: (1) That the court erred in determining that the "Nebraska Blue Sky Law" (now Securities Act of Nebraska, Neb.Rev.Stat. §§ 8-1101 to 8-1124 (Reissue 1983)) provides the exclusive remedy for those who sustain damages in the purchase of securities and that all of the investors' causes of action were barred by the statute of limitations in that act; and (2) That the court erred in determining that none of the causes of action stated facts sufficient to constitute a cause of action.

We first determine whether the trial court was correct in determining that the "exclusive remedy" to the investors was through §§ 8-1101 to 8-1124. Regarding questions of law, this court has an obligation to reach its conclusion independent from the conclusion reached by a trial court. Boisen v. Petersen Flying Serv., 222 Neb. 239, 383 N.W.2d 29 (1986).

A review of the investors' third amended petition shows that all five causes of action are based upon the alleged misconduct of Huff surrounding the sale of stock in NKFC. As previously noted, the trial court determined that the exclusive remedy to the investors was through the Securities Act of Nebraska. The trial court also determined that the contract for the sale of the securities in NKFC "occurred no later than January, 1981." Section 8-1118(3) provides in part that "[n]o person may sue under this section more than two years after the contract of sale." Under the trial court's reasoning, the investors had until January 1983 to timely file their petition in order to pursue their rights under the Securities Act of Nebraska. The investors filed their original petition on November 21, 1983.

In arguing their first assignment of error, the investors maintain that the Securities Act of Nebraska is not their exclusive remedy and that even if it is, the trial court incorrectly determined the time when the statute of limitations began to run.

The investors argue that their claims are based on negligence, breach of fiduciary duty, and misrepresentation (fraud)--all common-law actions which carry 4-year limitation periods under Neb.Rev.Stat. §§ 25-201 et seq. (Reissue 1985). The investors contend that they are entitled to bring their common-law action as opposed to only seeking a remedy under the Securities Act of Nebraska because "There is no express language in the [current] Blue Sky Law which excludes all other common law causes of action." Brief for Appellants at 19. The investors contend that ...