Nebraska Nutrients, Inc. v. Shepherd

• Citation: 261 Neb. 723,626 N.W.2d 472
• Decision Date: 11 May 2001
• Docket Number: No. S-95-624, No. S-98-782.
• Parties: NEBRASKA NUTRIENTS, INC., a Nebraska corporation, et al., Appellants, v. Wyman SHEPHERD and Leo Corbet, Appellees. Nebraska Nutrients, Inc., a Nebraska corporation, Appellee, Raymond Clayton Roles, individually, Appellant, and Tri-State Construction & Supply, Inc., a Nebraska corporation, Appellee, v. Wyman Shepherd and Leo Corbet, Appellees.
• Court: Supreme Court of Nebraska

626 N.W.2d 472

261 Neb. 723

NEBRASKA NUTRIENTS, INC., a Nebraska corporation, et al., Appellants, v. Wyman SHEPHERD and Leo Corbet, Appellees.

Nebraska Nutrients, Inc., a Nebraska corporation, Appellee, Raymond Clayton Roles, individually, Appellant, and Tri-State Construction & Supply, Inc., a Nebraska corporation, Appellee, v. Wyman Shepherd and Leo Corbet, Appellees.

Nos. S-95-624, S-98-782.

Supreme Court of Nebraska.

May 11, 2001.

Todd R. McWha and Terrance O. Waite, of Waite & McWha, and John E. DeWulf, of Roshka, Heyman & DeWulf, P.L.C., North Platte, for appellants Nebraska Nutrients, Inc., Raymond Clayton Roles, and Tri-State Construction & Supply, Inc.

Thomas E. Johnson, Kirk S. Blecha, and Patrick J. Ickes, of Baird, Holm, McEachen, Pedersen, Hamann & Strasheim, Omaha, for appellant Raymond Clayton Roles (case No. S-98-782).

Robert B. Reynolds and R. Kevin O'Donnell, of McGinley, O'Donnell, Reynolds, & Edwards, P.C., Ogallala, and Robert W. Mullin and Maren Lynn Chaloupka, Scottsbluff, of The Van Steenberg Firm, for appellee Wyman Shepherd.

Richard A. Dudden, Ogallala, of Padley & Dudden, P.C., and G. Gregory Eagleburger, of The Eagleburger Law Group, for appellee Leo Corbet.

HENDRY, C.J., CONNOLLY, GERRARD, STEPHAN, McCORMACK, and MILLER-LERMAN, JJ.

STEPHAN, Justice.

In 1990, Arizona residents Raymond Clayton Roles, Wyman Shepherd, and Leo Corbet formed two Nebraska corporations known as Nebraska Nutrients, Inc. (Nebraska Nutrients), and Tri-State Construction & Supply, Inc. (Tri-State), for the purpose of building and operating a plant near Sutherland, Nebraska, to manufacture ethanol and yeast products. In 1993, when the plant was approximately 95 percent complete but not yet operational, Roles and Nebraska Nutrients filed this action for declaratory judgment and injunctive relief in the district court for Lincoln County, which action was later amended to include Tri-State, seeking a determination that Roles was the sole officer, director, and shareholder of the two corporations and had full authority to negotiate a sale of the plant. In separate answers, Shepherd and Corbet each asserted an ownership interest in the corporations and the plant by virtue of a written agreement dated November 1, 1990, and counterclaimed against Roles for damages based upon an alleged breach of the agreement. Following a bifurcated trial in which the court sitting without a jury found in favor of Shepherd and Corbet on the claims for declaratory judgment and injunctive relief and a jury returned verdicts in their favor on the counterclaims, the district court entered judgments in favor of Shepherd and Corbet in the amounts of $6,649,141 and $5,571,945, respectively. Thereafter, the district court overruled Roles' motion for a new trial or judgment notwithstanding the verdict and awarded attorney fees and expenses to Shepherd and Corbet as a judgment against Roles. Roles perfected this timely appeal.

I. BACKGROUND

1. FACTUAL BACKGROUND

Corbet, a former state senator and gubernatorial candidate in Arizona, has been licensed by that state as an attorney and real estate broker. In November 1989, he arranged a luncheon meeting in Phoenix, Arizona, for the purpose of introducing Roles and Shepherd, with whom he had been acquainted for several years. In arranging the meeting, Corbet hoped to broker the sale of a ranch owned by Shepherd to Roles.

Roles is a successful developer of more than 100 mobile home parks and recreational vehicle resorts in Arizona. He became acquainted with Corbet through their mutual involvement in Arizona politics. Shepherd's background is more diverse. After receiving his high school diploma through the general educational development program, Shepherd began his career by building self-serve gas stations in five states. Although he is not a licensed engineer, he subsequently built a small oil refinery in Louisiana. According to Shepherd, this company was worth approximately $25 million by 1981, when changes in crude oil laws affected his profits. In response to such changes, Shepherd converted the refinery into an ethanol plant, using blackstrap molasses imported from Brazil as the energy source. After some initial financial difficulties, including a bankruptcy filing, Shepherd's molasses-based ethanol plant was operational for several years. Following the enactment in 1986 of new legislation requiring the exclusive use of Louisiana products in the manufacture of ethanol in that state, Shepherd converted his plant to corn-based production of ethanol at a cost of approximately $20 million. The converted plant operated successfully for 3 months until Louisiana completely abolished its ethanol subsidy program, at which time Shepherd again filed bankruptcy. This bankruptcy proceeding was pending when Shepherd became involved with the Sutherland plant.

Although the real estate sale envisioned by Corbet when he introduced Roles to Shepherd never came to fruition, the three men entered into discussions of other investment opportunities and eventually decided to build and operate a plant to manufacture ethanol and yeast products. After making preliminary inquiries, they decided to build the plant on a site near Sutherland, Nebraska. They chose to pursue this venture in Nebraska because the then Nebraska Ethanol Authority and Development Board (Ethanol Authority), a state agency created to promote the building of ethanol plants in Nebraska, had funds available for investment in ventures manufacturing ethanol from corn. In addition, the men were aware of proposed legislation in Nebraska subsidizing ethanol production.

The three men originally planned to build the Sutherland plant with incremental construction funding provided by the Ethanol Authority. In furtherance of this plan, they caused a preliminary application for investment funds to be submitted to the Ethanol Authority on March 15, 1990. This document was submitted on behalf of "International Nutrient, Inc.," an Arizona corporation, and signed by Shepherd as its president. The preliminary application proposed a plant which could produce approximately 6 million gallons of ethanol per year, as well as torula yeast, corn gluten feed, and corn oil. The projected total investment was $9.5 million. The Ethanol Authority approved the preliminary application on April 13, 1990. On the following day, the Governor of Nebraska signed new legislation which created a 20-cents-per-gallon producer incentive for ethanol production in the state.

On July 17, 1990, Nebraska Nutrients submitted a formal application, which pertained to the proposed Sutherland plant, to the Ethanol Authority. The application identified Roles as "Owner, Director, CEO"; Shepherd as "President, Director, Chief Operating Officer"; and Corbet as "Marketing Manager, Director Public Affairs." The application included biographical information pertaining to each of the three individuals. It proposed a 14-million-gallon ethanol plant, larger than that described in the preliminary application due to the passage of the aforementioned legislation granting producers of ethanol a 20-cents-per-gallon credit. The application stated that the plant would involve an investment of $11.5 million, to be raised by the purchase of 5,865,000 shares of common stock at $1 par value by Roles and the purchase of 5,635,000 shares of preferred stock at $1 par value by the Ethanol Authority. The total anticipated cost of the plant subsequently increased to $12.5 million when Roles, Shepherd, and Corbet determined that it would be necessary to construct a wastewater treatment facility at the Sutherland site.

The formal application submitted to the Ethanol Authority included pro forma financial and product yield projections for the plant. The pro forma projections indicated that the plant would produce ethanol, germ, corn gluten feed, gluten, torula yeast, and brewers' yeast. The projections for each product were prepared by Shepherd and his accountant, Richard Dodd, although Shepherd alone determined how much of each product the plant was capable of producing and the expected price of each product. Shepherd arrived at the projected prices for brewers' yeast, gluten, germ, and corn gluten in discussions with George Wright of Coors Bio-Tech, Inc., a subsidiary of the Adolph Coors Brewing Company. Shepherd determined the projected price for torula yeast by examining the value placed on such yeast by the U.S. Commerce Department on imports and by inquiring of a former marketer of torula yeast. He kept no records of his inquiries or the results thereof.

Shepherd also provided the data used in determining the anticipated operational costs for the plant. In doing so, he projected how much corn, natural gas, electricity, and other chemicals the plant would require and the cost thereof. Shepherd used his experience acquired at his Louisiana corn dry mill plant to estimate the cost of the foregoing items, as well as payroll, startup, and administrative expenses. He admitted that the Louisiana plant was a dry mill plant and so the product yields were different than the proposed wet mill. A dry mill plant breaks up the entire corn kernel in a grinding process. A wet mill, on the other hand, soaks or steeps the kernel so that the kernel can be easily divided into its component parts. Shepherd also admitted that the Louisiana plant operated as a corn mill for a period of only 90 days, which he noted was "probably not" a fair period of experience to judge the costs of production.

A report from R & R Resources of Golden, Colorado, was also included in the formal application. The report analyzed the expected product yields at each stage of the proposed corn proc-essing operation at the plant and noted that the estimated yields were predicated on general corn wet mill yields. The report further noted that the yield projections might be slightly off because of the plant's unique design (discussed below) but found...