Upah v. Ancona Bros. Co.

Citations: 521 N.W.2d 895; 246 Neb. 585; 1994 Neb. LEXIS 192Docket: S-91-699

Court: Nebraska Supreme Court; September 23, 1994; Nebraska; State Supreme Court

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Josephine Upah filed a civil conspiracy action against her brothers and Ancona Bros. Co. on March 1, 1989, in the Douglas County District Court. The jury awarded her $3,766,000. The defendants, Samuel A. Ancona, Joseph I. Ancona, and Carl Ancona, are shareholders and directors of the company, which was founded in 1915 by their father, Ignatius Ancona, and his brother, Charles. Upah claims the defendants conspired to deprive her of stock ownership, citing acts of conversion, denial of preemptive rights, and excessive compensation to the individual defendants, without making specific allegations of fraud aside from the terms "fraud" and "defraud."

Key allegations include:
1. Upah became the owner of ten shares of stock in 1961, but the defendants altered the stock ledger to remove her ownership without her consent.
2. In 1965, the individual defendants issued additional shares to themselves without notifying Upah or other female shareholders, denying them their preemptive rights.
3. Following the death of Ignatius Ancona in 1965, Upah was entitled to 72 shares of stock from his estate. However, the individual defendants failed to register these shares in the corporate stock records, depriving her of ownership benefits.

The case centers on the management of the company and the alleged manipulation of stock records by the defendants.

Samuel A. Ancona, Joseph I. Ancona, and Carl Ancona, as directors of Ancona Bros. Co., failed to register Dorothy G. Ancona's 144 shares of stock after the estate of Ignatius S. Ancona was closed, depriving her and, consequently, the plaintiff of benefits. Between 1966 and 1969, these individuals issued additional shares to themselves without notifying the female shareholders, including Dorothy and Vita Ancona, thereby violating their preemptive rights to acquire proportional stock. In June 1976, Vita Ancona gifted 61 shares of stock to the plaintiff, but the defendants canceled this certificate without the plaintiff's consent, transferring the shares to treasury stock without providing value to the plaintiff. Charles S. Ancona passed away in 1974 holding 489 shares; his estate was structured to benefit Vita Ancona during her lifetime, with subsequent distributions planned for the remaining family members. In 1979, after Vita revoked her life estate, the trustees, without the plaintiff’s knowledge, transferred the trust's stock to Ancona Bros. Co. and reissued it to themselves, leaving the plaintiff without her entitled share. After Dorothy G. Ancona's death in 1980, her estate, including 60 shares of stock, was to be managed by the defendants for the plaintiff's benefit, with distribution planned to the defendants thereafter.

The individual defendants orchestrated the purchase of 60 shares of stock by Ancona Bros. Co. at $130.71 per share, totaling $7,842, which was significantly below the fair market value. This transaction benefited the defendants, who were principal shareholders, while harming the plaintiff. The company's March 30, 1980 audit reported a book value of $294.79 per share, excluding necessary adjustments for LIFO inventory accounting, current depreciated asset valuations, goodwill, and the defendants' exclusive distribution of corporate profits. In the fiscal year ending March 30, 1980, the defendants distributed approximately $480,000 in profits to themselves, in addition to their salaries, resulting in over $220,000 each. Adjusting the book value for these factors could raise the per-share value to over $1,152, leading to a stock value exceeding $69,120, the exact excess value of which is currently unknown to the plaintiff.

The plaintiff discovered a personal account at Ancona Bros. Co., consisting of gifts from her father, which the defendants misappropriated for company working capital without her consent. They made unauthorized transfers from her account to the Dorothy G. Ancona testamentary trust, where the defendants are remainder beneficiaries. These transfers included amounts ranging from $500 to $5,000 from 1982 to 1987, a $2,564 bonus check deposited in July 1980, and interest earnings totaling $3,337.71 and $2,070.86 deposited in 1985 and 1986, respectively. Additionally, $3,980.03 and $10,776.66, presumably belonging to the plaintiff, were transferred to the trust without her consent. The defendants have not documented or justified various other deposits into the trust, totaling $14,436.56, $6,062.51, and $1,018.21, made in early 1980, that should have been directly distributed to the plaintiff.

The plaintiff claims that Ancona Bros. Co. is jointly and severally liable for the actions of the individual defendants, which were allegedly conducted within the scope of their corporate duties. The plaintiff asserts she was unaware of the defendants' conspiracy until January 1989, following her brother's warning about her financial situation. She appointed her ex-husband, Richard Upah, as her attorney-in-fact during this period. The plaintiff seeks damages and equitable relief but is countered by the Company’s argument that she failed to establish a civil conspiracy claim, as she did not allege that the individual defendants acted outside their corporate duties. The trial court previously ruled that her claims were not barred by the statute of limitations, despite the defendants' contention that her petition was facially barred. To support a claim for civil conspiracy, the plaintiff needed to show that the individual defendants acted beyond their authority, which she did not. The legal precedent indicates that a petition can be challenged on appeal if it appears to be barred by the statute of limitations, though it will be liberally construed to determine if it states a cause of action. Civil conspiracy claims impose vicarious liability rather than being actionable independently.

In Trebelhorn v. Bartlett, the Nebraska Supreme Court addressed the statute of limitations for civil conspiracy, which is governed by the limitations applicable to the underlying wrongs. The plaintiff's allegations of conspiracy involved acts of conversion, denial of preemptive rights regarding stock issuances, and excessive compensation. All these claims carry a 4-year statute of limitations, as stated in Neb.Rev.Stat. 25-207 and 25-206.

The plaintiff initiated the action on March 1, 1989, with claims stemming from transactions completed before the end of 1980. Except for one abandoned claim and one remaining allegation, the court found that the conspiracy claims were barred by the statute of limitations. The plaintiff sought to avoid this bar by arguing that the defendants fraudulently concealed the cause of action. To succeed under this doctrine, the plaintiff must demonstrate due diligence in discovering the claim and that the defendants engaged in affirmative acts of concealment.

However, the court found that the plaintiff did not provide sufficient facts to support her claim of fraudulent concealment, as she only stated her ignorance of the conspiracy until January 1989 without detailing any specific acts by the defendants that concealed the cause of action. The evidence presented did not indicate that the defendants concealed facts that would have alerted the plaintiff to her potential claims. The court noted that mere silence is insufficient to toll the statute of limitations unless there is a fiduciary relationship. The plaintiff's second amended petition sought damages for the alleged wrongful acts and a declaration regarding the validity of stock acquisitions by the defendants.

On November 21, 1990, the plaintiff requested permission to file a third amended petition, which mirrored her second amended petition while altering the formal prayer to seek only damages. The relief sought remained the same: voiding prior share issuances and claiming damages for excessive compensation and undeclared dividends. On December 21, 1990, the trial court granted this request over objections from the defendants, changing the case from equitable to legal, which mandated a jury trial. Initially, on November 1, 1990, the trial court had classified the case as one of equitable cognizance, as remedies like voiding stock issued in violation of preemptive rights and actions for excessive compensation or unpaid dividends are inherently equitable.

Despite the request for damages in the third amended petition, the case combined legal and equitable claims, leading to an erroneous classification by the trial court. Equity retains jurisdiction throughout the entirety of a case once it is established. In appellate review of equitable cases, courts assess factual questions independently from the trial court's findings, although they may defer to the trial judge's observations of witnesses when material facts are disputed.

The record also details events related to the statute of limitations. It notes that prior to 1960, the company was managed by Ignatius and Charles, with the plaintiff, Vita, employed there until 1960. In 1961, stock certificate No. 48 was issued to the plaintiff for 10 shares, which Ignatius bought in 1962 for $1,000. There is no evidence implicating the individual defendants in this transaction. Ignatius died in 1965, and his estate, including 433½ shares of stock, was distributed in 1967. The plaintiff declined to inherit under Ignatius' will, opting for her statutory share, which led to a confirmed distribution of the estate. The plaintiff received her one-sixth share of the estate amounting to $13,857.84 in cash through two payments, one via check and the other as a deposit into her emergency account at the company.

Dorothy received $29,940.09 from Ignatius' estate, including a $20,655.41 promissory note from individual defendants for her one-third share of Ignatius' stock in the Company. On September 15, 1967, she forgave the note and gifted the plaintiff $6,885.14, which was deposited into the plaintiff's account at the Company. Following Charles' death on March 8, 1974, his estate, which included 489½ shares of stock, was distributed by coexecutors Samuel and Joseph. Charles bequeathed half of his estate to Vita outright and the other half to Samuel and Joseph as trustees for Vita's lifetime. Upon Vita's death, three-fourths of the trust would go to the individual defendants and one-fourth to Samuel and Joseph in trust for the plaintiff for life, with the remainder going to the individual defendants upon the plaintiff's death.

On February 17, 1976, the Company reissued 244¾ shares to Vita, who decided to give those shares to the individual defendants and provide the plaintiff with a cash equivalent. The shares were reissued as 61 shares each to Samuel, Joseph, Carl, and 61¾ shares to the plaintiff. On June 11, 1976, the plaintiff's shares were reacquired by the Company for $6,175. Vita confirmed that she had given the stock to the individual defendants and cash to the plaintiff, who expressed gratitude. Vita also transferred her life interest in the trust shares to the individual defendants. On June 15, 1979, the trustees reissued shares to Samuel, Joseph, and Carl without discussing this with the plaintiff, intending to provide her a similar amount of money, though there is no evidence they did so.

Dorothy died in 1980, leaving 60 shares of Company stock to the individual defendants as cotrustees for the plaintiff for life, with the cotrustees granted unlimited discretion. Upon the plaintiff's death, the estate would be divided among the individual defendants and the plaintiff's children. The 60 shares were retired as treasury stock, and Dorothy's estate received $7,842.60 for them. All estate transactions were legally documented, and the plaintiff had access to estate documents, indicating awareness of her financial interests. The Company provided her with benefits, including a car and health insurance. The plaintiff's daughter, who assists her, discussed the plaintiff’s accounts with Samuel. Despite the plaintiff's multiple sclerosis affecting her mobility, her mental functions remained intact, and she did not inquire about her interests in the Company.

Defendants did not engage in business discussions with the plaintiff. In 1987, plaintiff granted her ex-husband a durable power of attorney to investigate her finances after being informed by Samuel that she needed to reduce her in-home care due to financial constraints. Following accounting actions related to the Charles Ancona and Dorothy Ancona trusts, the plaintiff filed this case on March 1, 1989. Except for the claim in paragraph 12(i), the plaintiff did not demonstrate that defendants concealed facts that would alert her to a potential cause of action. In paragraph 12(i), the plaintiff accused Samuel and Joseph of transferring 244¾ shares from the Charles Ancona trust to the Company without her consent and reissuing those shares to themselves without any compensation to her or the trust. Evidence confirmed that this transfer occurred without notifying the plaintiff, violating their fiduciary duty to disclose information as trustees.

For fraudulent concealment to delay the statute of limitations, there must be an affirmative act or misrepresentation unless a trust or confidential relationship exists, in which case mere silence can be deemed fraudulent. Evidence presented at trial indicated Samuel and Joseph later returned the shares to the trust and acknowledged their duty to inform the plaintiff of the transaction, which they failed to do. The plaintiff did not prove fraudulent concealment for other allegations in paragraph 12. Regarding stock issuances from 1965 to 1969, the defendants had no duty to disclose since the plaintiff had no ownership in the Company. Other claims in paragraph 12 were barred by the statute of limitations, as the plaintiff had the means to inquire about potential claims against the defendants.

Consequently, except for the claims in paragraph 12(i) against fiduciaries Samuel and Joseph Ancona and those in paragraph 12(k) withdrawn before trial, the plaintiff's claims were dismissed due to the statute of limitations. The court reversed the judgment and remanded for further proceedings solely against Samuel and Joseph Ancona regarding the claim in paragraph 12(i), while dismissing the petition against Carl Ancona and Ancona Bros. Co. The appeal was partially dismissed and partially reversed and remanded.