Sports Courts of Omaha, Ltd. v. Brower

• Decision Date: 30 June 1995
• Docket Number: No. S-93-798,S-93-798
• Citation: 534 N.W.2d 317,248 Neb. 272
• Parties: , 26 UCC Rep.Serv.2d 1272 ., a Nebraska Limited Partnership, Appellant, v. Sam R. BROWER and Andersen Berkshire Lauritsen & Brower, Appellees. Supreme Court of Nebraska
• Court: Nebraska Supreme Court

Page 317

534 N.W.2d 317

248 Neb. 272, 26 UCC Rep.Serv.2d 1272

SPORTS COURTS OF OMAHA, LTD., a Nebraska Limited Partnership, Appellant, v. Sam R. BROWER and Andersen Berkshire Lauritsen & Brower, Appellees.

No. S-93-798.

Supreme Court of Nebraska.

June 30, 1995.

Syllabus by the Court

1. Expert Witnesses: Rules of Evidence. Expert testimony is relevant and admissible only if it tends to help the trier of fact understand the evidence or to determine a fact issue, and expert testimony concerning the status of the law does not tend to accomplish either of these goals; as a consequence, expert testimony concerning a question of law is generally not admissible in evidence.

2. Uniform Commercial Code: Security Interests. The retention of collateral does not in and of itself constitute a disposition under Neb.U.C.C. § 9-504 (Reissue 1980).

3. Uniform Commercial Code: Security Interests: Words and Phrases. The phrase "otherwise dispose of," as used in Neb.U.C.C. § 9-504(1) (Reissue 1980), does not include permanent retention of the collateral for the secured party's own use.

Daniel E. Klaus and Donald L. Dunn, of Rembolt Ludtke Parker & Berger, Lincoln, for appellant.

Dean F. Suing and David A. Castello, of Katskee, Henatsch & Suing, Omaha, for appellees.

White, C.J., and Caporale, Fahrnbruch, Wright, and Connolly, JJ.

PER CURIAM.

The plaintiff-appellant, Sports Courts of Omaha, Ltd., alleges that it sustained damage as the result of the negligence of its attorneys, the defendants-appellees, Sam R. Brower and the partnership of which he is a member, Andersen Berkshire Lauritsen & Brower, in permitting the dismissal of Sports Courts of Omaha, Ltd. v. Thomas M. Schuessler and Harry W. Meginnis, Jr., Douglas County District Court, docket 843, page 474,

hereinafter referred to as the underlying case. In a bifurcated proceeding, the district court determined that Sports Courts could not have been successful in the underlying case and thus dismissed the within action.

SETTING OF CONTROVERSY

Sports Courts alleges that as a result of the dismissal of the underlying case, it is time barred from successfully pursuing its right to recover on a certain promissory note. So far as is relevant, the defendant attorneys answered that inasmuch as Sports Courts had improperly disposed of certain collateral, Sports Courts would have been precluded from recovering a deficiency judgment on the note and thus had no basis for maintaining this action.

There are three elements a plaintiff alleging attorney negligence must prove: (1) the attorney's employment, (2) the attorney's neglect of a reasonable duty, and (3) that such negligence resulted in and was the proximate cause of loss to the client. Patterson v. Swarr, May, Smith & Anderson, 238 Neb. 911, 473 N.W.2d 94 (1991).

The district court elected to nibble at the resolution of this action by trying only whether the method of disposition of the subject collateral was such as to prevent Sports Courts from obtaining a deficiency judgment on the promissory note. As a consequence, the posture of the action is such that no question exists concerning Sports Courts' employment of the defendant attorneys in the underlying case, the defendant attorneys' negligence in permitting the dismissal of the underlying case, or the extent of Sports Courts' damages, if any. The only question is whether the negligence of the defendant attorneys resulted in and was the proximate cause of loss to Sports Courts.

TRANSACTIONAL FACTS

Approximately 5 years after Sports Courts was organized and began operations as a limited partnership, it sold certain of its assets to Tom-Har, Inc., a corporation whose stockholders consisted of Schuessler and Meginnis, the two individuals named as defendants in the underlying case. As part of that transaction, Tom-Har executed a promissory note in favor of the limited partners of Sports Courts.

Later, as Tom-Har was then considered to be in default, Sports Courts hired Brower to review the "purchase agreement or promissory note" relating to that transaction. As a result, the arrangement between Sports Courts and Tom-Har was restructured under documents which Brower prepared and which were executed on May 15, 1984. A cash payment was made toward the note, Tom-Har reaffirmed the debt, and Schuessler and Meginnis became comakers of the note. In addition, a trust deed was executed to secure the obligation, and Schuessler and Meginnis pledged all the capital stock of Tom-Har as security, actual physical possession of which had already been obtained by Brower. At some point, Brower also acquired possession of the stock record book. The pledge agreement named Brower the monitor and agent of Sports Courts. According to the Tom-Har bylaws, in order to vote the shares, Schuessler and Meginnis had to be registered in Brower's name as pledgee, and to issue new shares, the stock certificate had to be signed by the president and secretary.

Tom-Har also executed a security agreement in favor of Sports Courts which undertook to encumber all of the tangible and intangible assets of Tom-Har located in Omaha. The security agreement was perfected by the filing of a financing statement.

Sports Courts' secretary-treasurer, Marlo Burg, later informed Brower that two monthly payments due on the note were in default. Brower advised Burg of the options available, and at Burg's request, Brower sent a notice of default stating that Sports Courts had directed him as monitor to take all action necessary under the pledge agreement. In another notice of default, Burg advised Tom-Har, Schuessler, and Meginnis that the note would be accelerated if the default was not cured by a specified date.

During discussions over the next few days, Burg and Brower concluded that Brower, acting under the pledge agreement as monitor, would vote the stock. Pursuant to the pledge agreement, Brower sent notice to Subsequently, Tom-Har's bylaws were amended, after which five directors, Burg and four other limited partners of Sports Courts, were elected to the Tom-Har board. Together, these directors also owned 85 percent of Sports Courts.

Tom-Har advising that he had exercised voting rights to the pledged shares of Tom-Har capital stock and had elected Burg as the new sole director of Tom-Har and asking that such be reflected in Tom-Har's corporate minutes. In lieu of a special shareholder meeting, Brower prepared a document in which Tom-Har consented and agreed to the action electing Burg, revoked any action of the former directors in seeking bankruptcy protection, and prevented the taking of any such future action. (The filing for bankruptcy protection was of concern to Sports Courts because Tom-Har's assets secured its note to the limited partners of Sports Courts.)

The day-to-day operations were still left in the hands of Tom-Har. But as the directors wished to sell the business, continuing efforts to do so were made. Brower, again acting as monitor under the pledge agreement, sent a letter to attorney Mike Morrow, who he believed was representing both Schuessler and Meginnis, soliciting written offers to purchase the Tom-Har capital stock held under the pledge agreement.

Morrow, representing Meginnis, contacted Brower with a proposal by Meginnis and others to purchase the capital stock of Tom-Har, which Sports Courts found acceptable. However, after Brower sent notice to Schuessler and Tom-Har of the intent to sell the Tom-Har capital stock to Meginnis and others, negotiations broke down, and the buyers refused to proceed.

Thereafter, a special meeting of the board of directors of Tom-Har was held, at which the directors were also made officers. Because of concerns about the condition of the club, its level of membership, and its value as collateral, Schuessler was relieved of further responsibility for the operations of the business. Brower was asked to investigate the status of the operating facility and subsequently did so. Although not reflected in the minutes, Brower testified that he was also instructed to take a series of actions to acquire actual physical control of the facility and its assets and to deny Schuessler access or control of the operations or assets.

At a meeting held a few days later, Brower reported the condition of the club to the board, confirming the board's concerns, including those about unpaid bills and taxes and the hygiene of the club. On the following day, that is, on April 9, 1985, without giving Schuessler and Meginnis any further notice, Brower wrote "cancelled" on their Tom-Har stock and reissued the stock to "Sam R. Brower, 'Monitor' under a Certain Pledge Agreement dated May 15, 1984."

TRIAL FACTS

At the partial trial described earlier, the district court received, over Sports Courts' objection, the testimony of a law professor who opined that the cumulative effect of the postdefault acts Brower took as monitor on behalf of his client with regard to the capital stock of Tom-Har was such as to have constituted a disposition of collateral under the provisions of Neb.U.C.C. § 9-504 (Reissue 1980), and that Brower's failure to have given appropriate notice to Tom-Har, Schuessler, and Meginnis precluded the obtaining of a deficiency judgment on the note.

ANALYSIS

Our analysis is confined to the two dispositive assignments of error asserted by Sports Courts, to wit, that the district court (1) improvidently received testimony concerning the status of the applicable law and (2) incorrectly judged that law.

Receipt of Testimony.

At all times during and prior to the date Brower wrote "cancelled" on the Tom-Har stock of Schuessler and Meginnis, § 9-504 read in pertinent part:

(1) A secured party after default may sell, lease or otherwise dispose of any or all of the collateral in its then condition or following any commercially reasonable preparation or processing....

....

(3) ... [R]easonable notification of the time and place of any public sale or reasonable...