Wolf v. Walt

• Decision Date: 27 April 1995
• Docket Number: No. S-93-716,S-93-716
• Citation: 530 N.W.2d 890,247 Neb. 858
• Parties: William WOLF, Appellant, v. Delbert WALT and Michael Rainwater, Appellees.
• Court: Nebraska Supreme Court

Page 890

530 N.W.2d 890

247 Neb. 858

William WOLF, Appellant, v. Delbert WALT and Michael Rainwater, Appellees.

No. S-93-716.

Supreme Court of Nebraska.

April 27, 1995.

Syllabus by the Court

1. Corporations: Equity: Liability: Debtors and Creditors: Appeal and Error. Proceedings seeking disregard of the corporate entity to impose liability on a shareholder for a corporation's debt or other obligation are equitable actions. An appeal of such a matter is reviewed de novo on the record, and the appellate court is required to reach factual findings independent of the trial court.

2. Verdicts: Juries: Appeal and Error. Generally, a jury verdict will not be set aside unless clearly wrong, and it is sufficient if any competent evidence is presented to the jury upon which it could find for the successful party.

3. Equity: Trial: Juries. A jury empaneled in an equitable action serves only in an advisory role, and its findings are not binding on the trial court.

4. Equity: Appeal and Error. In an appeal of an equitable action, an appellate court tries the factual issues de novo on the record and reaches its conclusions independent of the trier of fact.

5. Directed Verdict: Appeal and Error. In reviewing the action of a trial court, an appellate court must treat a motion for directed verdict as an admission of the truth of all competent evidence submitted on behalf of the party against whom the motion is directed. The party against whom the motion is directed is entitled to have every controverted fact resolved in his favor and to have the benefit of every inference which can reasonably be deduced from the evidence. In order to sustain a motion for directed verdict, the court resolves the controversy as a matter of law and may do so only when the facts are such that reasonable minds can draw but one conclusion from the evidence.

6. Corporations: Liability: Debtors and Creditors. A corporation is a legal entity separate and apart from its officers and shareholders. Generally, shareholders are not liable for corporate debts or liabilities.

7. Corporations. A court will disregard a corporation's identity only where the corporation has been used to commit fraud, violate a legal duty, or perpetrate a dishonest or unjust act in contravention of the rights of another.

8. Corporations: Proof. A plaintiff seeking to pierce the corporate veil must allege and prove that the corporation was under the actual control of the shareholder and that the shareholder exercised such control to commit a fraud or other wrong in contravention of the plaintiff's rights.

9. Corporations: Liability: Debtors and Creditors: Proof. A plaintiff seeking to impose liability for a corporate debt on a shareholder has the burden to show by a preponderance of the evidence that the corporate identity must be disregarded to prevent fraud or injustice to the plaintiff.

10. Corporations: Fraud. Some of the relevant factors in determining whether to disregard the corporate entity on the basis of fraud 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 of the corporate entity.

11. Corporations: Words and Phrases. Inadequate capitalization means capitalization 12. Corporations: Words and Phrases. A corporation is insolvent if it is unable to pay its debts as they become due in the usual course of its business, or if it has an excess of liabilities of the corporation over its assets at a fair valuation. Whether a corporation is insolvent is usually a question of fact.

very small in relation to the nature of the business of the corporation and the risks entailed. The adequacy of capitalization is measured at the time of incorporation.

13. Corporations: Fraud: Liability: Debtors and Creditors. When a principal shareholder appropriates and uses corporate funds and property for his personal purposes and thereby defrauds and causes damages to creditors, the shareholder can be held individually liable for corporate debt.

14. Conversion: Proof: Words and Phrases. Conversion is any unauthorized or wrongful act of dominion exerted over another's personal property which deprives the owner of his property permanently or for an indefinite period of time. In order to establish conversion, a plaintiff must allege and prove facts showing a right to immediate possession of the property at the time of the conversion.

15. Fraud: Words and Phrases. Constructive fraud involves a breach of fiduciary duty. A fiduciary duty arises out of a confidential relationship which exists when one party gains the confidence of the other and purports to act or advise with the other's interest in mind.

16. Corporations: Fraud: Liability. A stockholder can only be individually liable for a constructive fraud committed by the corporation where he had knowledge of and instigated the fraud.

17. Appeal and Error. Errors which are argued but not assigned will not be considered by an appellate court.

Michael J. Mooney and Michael J. Whaley, of Gross & Welch, P.C., Omaha, for appellant.

Denise E. Frost, of Domina & Copple, P.C., Omaha, for appellees.

WHITE, C.J., CAPORALE, FAHRNBRUCH, LANPHIER, WRIGHT, and CONNOLLY, JJ.

LANPHIER, Justice.

Plaintiff-appellant, William Wolf, entered into a dairy lease agreement with Flat Top Dairy, Inc., in August 1989. Defendant-appellee Delbert Walt was the president and principal shareholder of Flat Top. Pursuant to the agreement, Flat Top leased and managed Wolf's cattle. Flat Top paid monthly rent to Wolf. Defendant-appellee Michael Rainwater was employed by Flat Top to manage the dairy cattle herd. Flat Top ceased making the required payments to Wolf after approximately 1 year. Wolf filed a petition in the district court for Cuming County and asserted that Flat Top's corporate identity should be disregarded and that Walt should be held personally liable for Flat Top's debt to Wolf. Before submission of the matter to the jury, the district court directed a verdict in favor of the defendants on three tort claims Wolf asserted. Following the trial, the jury refused to hold Walt personally liable. The district court entered judgment in favor of the defendants. The district court correctly granted directed verdicts for the defendants on the three tort claims. Wolf failed to prove by a preponderance of the evidence that Flat Top's corporate identity should be disregarded. We affirm the district court's judgment.

BACKGROUND

Flat Top's dairy lease program involved the lease of dairy cattle to Flat Top. The cows were to be purchased for Wolf by Walt, who was a buyer. Pursuant to the program, Wolf leased 40 head of dairy cows at a designated value of $1,000 per cow to Flat Top for a 5-year term. Flat Top agreed to pay Wolf $24 per month per head, totaling $960. On August 2, 1989, Wolf wired Flat Top $40,000, and sometime during that month, Walt purchased the cows and transported them to Flat Top. Rainwater testified that two of Wolf's cows died shortly after arriving at Flat Top. The remaining 38 cows were tagged in order to identify them as Wolf's.

In addition to his interest in Flat Top, Walt was a cattle order buyer. From January 1989 through June 1991, Walt traveled extensively in order to select and buy cattle on behalf of his customers. Rainwater managed the day-to-day operations, and Walt checked on the dairy's status by phone several times a week. Walt testified that Rainwater assured him that everything at the dairy was okay.

Pursuant to the lease agreement, Wolf received payments of $960 per month from Flat Top from October 1989 through December 1990. The source of the payments was the income from the sale of milk. From January through May 1991, Wolf did not receive the scheduled payments due him. Wolf repeatedly asked Rainwater about the overdue payments, and Rainwater advised him that the payments were delayed due to a change in milk companies. In June and July 1991, Wolf received his scheduled monthly payments.

In August 1991, Walt visited Flat Top and toured the premises. Walt testified that during this tour he discovered that the Flat Top herd was dramatically diminished and that many of the remaining cows were very thin or diseased. Only 19 of Wolf's 40 cows remained. Walt immediately fired Rainwater.

Walt stated that Wolf's remaining cows were so thin and diseased that he sold them for slaughter. On August 10, 1991, Walt tendered the proceeds of the sale, $10,424.62, to Wolf. Walt made no further payments under the lease.

Apparently, the total dairy herd maintained at Flat Top numbered approximately 680 cows. However, inconsistent testimony was adduced regarding the size of the herd. The lease agreement provided that cows and calves would be culled from the herd as necessary. The proceeds of the sale of culled cows and calves were to be placed in an escrow account designated as the "herd replacement account." Culled cows were to be replaced. Rainwater testified that the goal was to maintain the size of the herd at its original level.

In his deposition in May 1992, Rainwater testified that approximately 30 percent of the cows were culled from the herd per year. Rainwater referred to records during his deposition that identified the culled cattle but testified that no records existed which would identify replacement cattle. The records used during Rainwater's deposition are not a part of the record before us.

Rainwater estimated during his deposition that about 180 cows were culled during the first year of Flat Top's existence. No distinction was made between Wolf's cows and the rest of the herd when culling. Rainwater also testified that only 60 cows were...