Nebraska Engineering Co. v. Gerstner, 44264

• Decision Date: 13 August 1982
• Docket Number: No. 44264,44264
• Citation: 323 N.W.2d 84,212 Neb. 440
• Parties: NEBRASKA ENGINEERING COMPANY, a Nebraska corporation, Appellee, v. Al GERSTNER, doing business as 1st Ag Manufacturers Corporation, Appellant.
• Court: Nebraska Supreme Court

Page 84

323 N.W.2d 84

212 Neb. 440

NEBRASKA ENGINEERING COMPANY, a Nebraska corporation, Appellee, v. Al GERSTNER, doing business as 1st Ag Manufacturers Corporation, Appellant.

No. 44264.

Supreme Court of Nebraska.

Aug. 13, 1982.

Syllabus by the Court

1. Actions: Pleadings. Both legal and equitable principles may be enforced in the same action according to the facts. The essential character of the cause of action and the remedy or relief it seeks, as shown by the allegations of the complaint, determine whether a particular action is one at law or in equity, unaffected by the conclusions of the pleader or what the pleader calls it, or the prayer for relief.

2. Corporations. In equity, the corporate entity may be disregarded and held to be the mere alter ego of a shareholder or shareholders in various circumstances where necessary to prevent fraud or other injustice.

3. Corporations. Some of the factors which are relevant in determining whether to disregard the corporate entity are (1) grossly inadequate capitalization, (2) insolvency of the debtor corporation at the time the debt is incurred, (3) diversion by the shareholder or shareholders of corporate funds or assets to their own or other improper uses, and (4) the fact that the corporation is a mere facade for the personal dealings of the shareholder and that the operations of the corporation are carried on by the shareholder in disregard for the corporate entity.

Owen A. Giles, Omaha, for appellant.

Michael A. Nelsen of Schmid, Ford, Mooney & Frederick, Omaha, for appellee.

Heard before KRIVOSHA, C. J., and BOSLAUGH, McCOWN, CLINTON, WHITE, and HASTINGS, JJ.

WHITE, Justice.

Plaintiff, Nebraska Engineering Company (Nebraska Engineering), brought this action in the District Court for Douglas County, Nebraska, against the defendant, Al Gerstner, doing business as 1st Ag Manufacturers Corporation (1st Ag). In the first cause of action, the plaintiff alleged that the defendant purchased merchandise in the value of $14,621.42 and failed to pay for the same. The second cause of action alleged essentially the same facts but alleged fraud in the securing of the merchandise and the failure to pay the account due. The defendant by answer admitted that the goods were sold and delivered to 1st Ag, a Nebraska corporation, but denied that the goods were ordered, solicited, or promised to be paid for directly or indirectly by Al Gerstner, the president and one of two stockholders of 1st Ag, and prayed that the plaintiff's petition be dismissed. For reply, the plaintiff denied generally any new allegations of fact in the defendant's answer. The trial court found for plaintiff and entered judgment for $14,621.42.

The cause was pled as a law action; however, a jury was waived and at trial it became apparent that the plaintiff's basis for recovery was not on any direct solicitation or order by Al Gerstner but was tried on the following theory stated by the trial judge: "The theory upon which the case is being tried and defended is the issue of whether or not the corporate entity should be pierced and personal liability imposed; is that correct? MR. MILLER: [trial counsel for Gerstner] Yes, Your Honor." The characterization of the action as law or equity becomes important for the purposes of the standard of review applied by this court. "The distinctions between actions at law and suits in equity, and the forms of all such actions and suits heretofore existing, are abolished; and in their place there shall be hereafter but one form of action, which shall be called a civil action." Neb.Rev.Stat. § 25-101 (Reissue 1979).

We have said that both legal and equitable principles may be enforced in the same action according to the facts. City of Beatrice v. Gage County, 130 Neb. 850, 266 N.W. 777 (1936). The essential character of the cause of action and the remedy or relief it seeks, as shown by the allegations of the complaint, determine whether a particular action is one at law or in equity, unaffected by the conclusions of the pleader or what the pleader calls it, or the prayer for relief. Mills v. Heckendorn, 135 Neb. 294, 281 N.W. 49 (1938).

This cause of action is one essentially stated at law. However, the theory on which the case was tried differs from the cause of action pled by the petition and is essentially a doctrine that was first cognizable in equity, i.e., to prevent the use of the corporate form to accomplish fraud or injustice. In United States Nat. Bank of Omaha v. Rupe, 207 Neb. 131, 135, 296 N.W.2d 474, 477 (1980), this court stated: "In equity, the corporate entity may be disregarded and held to be the mere alter ego of a shareholder or shareholders in various circumstances where necessary to prevent fraud or other injustice."

For the purpose of this case, we shall treat the matter as one in equity according to the agreement of the parties and not one in law as pled. We shall, therefore, review the matter de novo on the record and come to an independent conclusion without reference to the findings of the District Court. Daugherty v. Ashton Feed and Grain Co., Inc., 208 Neb. 159, 303 N.W.2d 64 (1981).

However, even though this is an equity action and upon appeal it is triable de novo, it is still subject "to the...