ProData Computer Services, Inc. v. Ponec

• Citation: 590 N.W.2d 176,256 Neb. 228
• Decision Date: 19 February 1999
• Docket Number: No. S-97-1114,S-97-1114
• Court: Nebraska Supreme Court
• Parties: PRODATA COMPUTER SERVICES, INC., a Nebraska corporation, appellee, v. Ronald E. PONEC, an individual, defendant and third-party plaintiff, appellant, and Marion R. Wamsat and Joseph Alan Hartley, individuals, third-party defendants, appellees.

Page 176

590 N.W.2d 176

256 Neb. 228

PRODATA COMPUTER SERVICES, INC., a Nebraska corporation, appellee, v. Ronald E. PONEC, an individual, defendant and third-party plaintiff, appellant, and Marion R. Wamsat and Joseph Alan Hartley, individuals, third-party defendants, appellees.

No. S-97-1114.

Supreme Court of Nebraska.

Feb. 19, 1999.

Syllabus by the Court

1. Equity: Appeal and Error. In an appeal of an equity action, an appellate court tries factual questions de novo on the record and reaches a conclusion independent of the findings of the trial court, 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 witnesses and accepted one version of the facts rather than another.

2. Trusts: Property: Title: Equity. 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 grounds that his or her acquisition or retention of the property would constitute unjust enrichment.

3. Trusts: Property: Title: Equity: Proof. A plaintiff seeking to establish a constructive 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.

4. Records: Appeal and Error. It is incumbent upon the party appealing to present a record which supports the errors assigned.

5. Trusts: Property. Where money is the asset upon which a constructive trust is based, it is necessary that the specific amounts be identified and located, either by tracing the money to a specific and existing account or where the funds have been converted into another type of asset such as by the purchase of real property, the money must be traced into the item of property.

6. Agents: Agency: Equity. An agent or other fiduciary who deals with the subject matter of the agency so as to make a profit for himself will be held to account in equity as trustee for all profits and advantages acquired by him in such dealings.

Patrick T. Riskowski, of Gallup & Schaefer, Omaha, for appellant.

James B. Cavanagh, of Lieben, Whitted, Houghton, Slowiaczek & Dougherty, P.C., Omaha, for appellees.

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

MILLER-LERMAN, J.

NATURE OF CASE

Ronald E. Ponec I appeals an order of the district court for Douglas County imposing a constructive trust on certain assets owned by Ponec in favor of appellee ProData Computer Services, Inc. We affirm.

STATEMENT OF FACTS

Appellees Marion R. Wamsat and Joseph Alan Hartley started ProData, a computer business, in 1981. When they created ProData, Wamsat and Hartley were its sole shareholders, a status they continued to hold at the time of trial. Wamsat and Ponec were married to each other during the years of ProData's early growth. They were married in 1962. Wamsat and Ponec separated in 1990 and divorced in 1991.

At the time Wamsat and Hartley formed ProData, Ponec was self-employed in his own computer consulting business, which was located next door to ProData's office. About a year after ProData had been in business Ponec began to work for ProData on a full-time basis in about 1982. Although he had substantive knowledge of computers, Ponec's employment duties for ProData were at all times exclusively in accounting and financial matters. Ponec established ProData's internal accounting system using computer software created by Wamsat. Ponec was responsible for handling ProData's billings, collections, deposits, expense payments, and bank accounts. Ponec stored most of ProData's financial records in his office. Ponec stored some records, including those detailing compensation paid to ProData employees, in his desk, which he kept locked when he was not in his office. Wamsat described Ponec as ProData's "chief financial operator."

Ponec began to assist Wamsat and Hartley with bookkeeping for ProData on an uncompensated, as-needed basis. At that point, ProData's accounting needs were few, and Ponec, who had accounting experience, was able to assist ProData while continuing to maintain his separate business.

Wamsat, Hartley, and Ponec all characterized ProData as a "family" business which successfully grew over time. Two adult children of Wamsat and Ponec's were employed by ProData, as was Hartley's wife. Although Ponec was never a shareholder of ProData, he was compensated in the same manner as Wamsat and Hartley, ProData's owners. Ponec received an annual salary of approximately $70,000, plus a company car for business and personal use with fuel and insurance costs fully paid. Ponec received retirement and insurance benefits and reimbursement for business expenses charged on a credit card which ProData procured for his business use. There was trial evidence that during approximately the first 6 years of his employment with ProData, Ponec continued to maintain his separate computer consulting business, and that he kept all of the proceeds generated by it.

Ponec and Wamsat separated from each other in 1990 and divorced in 1991. Ponec continued to work at ProData, and his compensation was not impacted as a result of the divorce. Ponec did not receive any stock or ownership interest in ProData from Wamsat in the 1991 divorce proceedings. At that time, ProData employed 9 or 10 persons, including Ponec. By the time of trial in the instant case, in August 1997, ProData had grown to 15 employees.

ProData maintained business accounts at two Omaha banks. ProData's general operating account, as well as a money market account and several certificates of deposit, was at Western Security Bank (WSB). ProData also maintained a money market account and a checking account for paying small miscellaneous company expenses at Douglas County Bank & Trust (DCBT). Wamsat testified that there was a DCBT branch office in the same building that housed ProData's office and that ProData maintained the DCBT accounts for convenience. According to Wamsat, ProData's receipts were to be deposited in the DCBT money market account as they were received and then transferred in a lump sum once or twice a month to ProData's operating account at WSB.

Ponec provided Wamsat and Hartley with a general report on ProData's finances every 3 to 4 months. According to Wamsat, she and Hartley requested monthly financial reports from Ponec, but they received this information irregularly "[b]ecause Mr. Ponec would never get the books done in time for us to review them every month." In these reports, Ponec presented Wamsat and Hartley with a general profile he prepared of ProData's income and expenses that contained little detail. According to Wamsat, "[Ponec] always had a reasonable summation" when he was questioned about specific items, and she had no knowledge of any irregularity in the firm's accounting. Wamsat testified that neither she nor Hartley knew about any unauthorized compensation taken by Ponec and that had they known of such, there would have been "a horrible battle."

In November 1995, Hartley expressed concern about ProData's finances. Hartley told Wamsat that he thought ProData's net profit should have been higher than that reported by Ponec. Ponec was away on vacation, so Hartley and Wamsat personally examined the ProData records. They quickly detected With assistance, Wamsat and Hartley detected several categories of financial transactions in which Ponec repeatedly converted ProData funds to his own use. The first category consisted of checks written by Ponec on ProData's DCBT money market account for large sums of cash. Ponec "buried" these checks in ProData's records as payments to fictitious vendors. The second category of questionable transactions included direct payments from ProData's DCBT account for personal luxuries Ponec afforded himself, including investments, jewelry, clothing, guns, and a country club membership. Wamsat and Hartley found that Ponec had funded monthly payments for his personally owned Mercedes Benz automobile from ProData's WSB operating account. Ponec had also taken customer checks made payable to ProData for professional services and deposited them directly into his own checking account.

substantial irregularities. Without Ponec's knowledge, Wamsat and Hartley hired their own accountant to aid them in their examination of ProData's accounts. Wamsat and Hartley also obtained assistance from personnel at DCBT and WSB, including production of the banks' microfilmed records of ProData's monthly account activity during the 1990 to 1995 period.

ProData filed suit against Ponec on February 23, 1996, seeking a judgment of $754,523.06 against Ponec for alleged fraud, conversion, embezzlement, breach of fiduciary obligations, and breach of his employment contract with ProData.

After filing its petition and before trial, ProData obtained pretrial attachment of certain assets owned by Ponec, including the home in which Ponec and his present wife resided in Elkhorn, Nebraska, and investment accounts that Ponec maintained at Dain Bosworth, Inc., and Wallace Weitz & Co. Shortly before trial, with the court's permission, ProData added a cause of action seeking imposition of a constructive trust upon these assets and others owned by Ponec.

In response to ProData's petition, Ponec admitted that he was a financial officer of ProData empowered to conduct ProData's financial affairs and maintain its records. Ponec denied all of ProData's claims for recovery. He affirmatively alleged, inter alia, that ProData ratified all of his actions and that ProData's claims against him were barred by laches, waiver, and estoppel and ProData's...