Jurisdiction is a legal question, and appellate courts have the authority to determine their jurisdiction regardless of whether it is raised by the parties involved. A judgment is defined as the final determination of the parties' rights, while any written court direction not included in a judgment is considered an order. For an order to be appealable under Neb. Rev. Stat. 25-1902, it must meet specific final order criteria and, when applicable, Neb. Rev. Stat. 25-1315(1). This statute applies when multiple causes of action or parties exist, and a final order is issued regarding fewer than all causes or parties. If a court does not expressly determine that there is no just reason for delay and direct the entry of judgment, orders addressing less than all claims or parties are not final. An appeal is permissible only when there are multiple causes of action or parties, a final order is present, and the trial court explicitly decides on the order's finality and absence of delay. Final orders are restricted to prevent fragmented reviews and successive appeals, ensuring orderly trial procedures. A "special proceeding" refers to a legal right granted that allows a specific application to enforce that right, distinct from an action, which involves formal court proceedings for the enforcement or protection of rights. Special proceedings and actions are separate categories under Nebraska law, and the procedural steps leading to a final judgment do not qualify as special proceedings.
Statutory placement by the Revisor of Statutes does not change the nature of a proceeding, nor does being outside chapter 25 of the Nebraska Revised Statutes render a proceeding special. Derivative actions are defined as equitable proceedings where a member of a limited liability corporation pursues a claim belonging to the corporation, requiring a demand on other members or managers, with a statement of such demand or futility in the complaint. Special litigation committees investigate claims to determine if pursuing them serves the company's best interests, balancing the rights of the board and dissenting shareholders to prevent misuse against legitimate derivative claims.
A substantial right is an essential legal right that, when affected by an order, must significantly impact the rights of the parties involved. The duration of an order and its finality are relevant in assessing whether it affects a substantial right. Being subjected to inconvenience or discomfort by a decree does not grant the right to appeal if it does not prevent the assertion of personal or property rights. Orders to mediate do not affect substantial rights, and allowing interlocutory appeals on such orders would disrupt mediation efficiencies. Consequently, an appeal based on inconvenience from a mediation order is dismissed.
In a derivative lawsuit initiated by a minority shareholder on behalf of a manager-managed LLC, the manager-defendants formed a single-member special litigation committee to assess the viability of pursuing the action. According to Neb. Rev. Stat. 21-168 (Reissue 2012), the committee concluded that settling the derivative action was in the LLC's best interests, recommending disclosure of certain issues to LLC members and a majority vote for resolution. The district court found the committee acted with sufficient independence and good faith but ruled that its recommendation exceeded its statutory authority. The court subsequently ordered mediation between the parties, after which they were instructed to report the mediation outcome and provide further recommendations. The minority shareholder appealed, while the defendants cross-appealed the court's order.
The background indicates that Lite-Form Technologies, L.L.C., is based in South Sioux City, Nebraska, with Patrick Boeshart as its president and sole manager, and Sandra Boeshart as the office manager. Patrick and Sandra also control Boeshart Management Company, L.L.C., and Boeshart Construction, L.L.C. Tegra Corporation, an Iowa corporation and minority shareholder of Lite-Form, owns approximately 2.52% of Lite-Form's membership units, while Patrick and Sandra own approximately 7% each, with other minority members owning collectively around 22.67% to 24.31%. Lite-Form International, L.C. owns about 60% of Lite-Form, with Tegra indirectly owning approximately 22.46% through its stake in Lite-Form International.
Tegra's lawsuit against the Boesharts alleges multiple claims, including breach of fiduciary duty, misappropriation of corporate assets, unjust enrichment, and conversion, specifically naming Sandra in connection with aiding and abetting a breach of fiduciary duty. Tegra also contends that it made a demand for information from Lite-Form, which was allegedly wrongfully withheld.
Cody Carse was appointed as a single-member special litigation committee (Committee) by Patrick to investigate claims brought by Tegra and assess the best interests of Lite-Form. The derivative action was paused during this investigation. Carse, a certified public accountant and fraud examiner, submitted a report addressing the allegations.
1. **Conflicting-Interest Leases**: The Committee found that leases between Boeshart Construction/Management and Lite-Form were legitimate but noted some rental rates were above market. It recommended disclosing these leases to Lite-Form members, who should then vote to either approve or modify the leases retroactively, require future member approval for related-party leases, or take no action.
2. **Diversion of Profits**: The Committee examined a claim regarding a $1 million payout from Lite-Form to Patrick and his family. Although Patrick loaned back $600,000 to Lite-Form, the Committee noted a lack of documentation on additional fees and penalties incurred during the transaction's unwinding. It recommended disclosing all transaction details to members and voting on potential reimbursement to Lite-Form by Patrick for incurred expenses.
3. **Unauthorized Salaries, Bonuses, and Benefits**: The Committee concluded that, aside from the $1 million bonus in 2018, salaries paid to Patrick, Sandra, and their son were comparable to other employees. Their daughter’s salary matched her previous employment. The operating agreement allowed for the manager's compensation without explicit member approval, which had not been sought for 18 years. The Committee suggested discussing the operating agreement’s provisions regarding manager compensation in the next member meeting.
On July 28, 2002, Lite-Form entered into two leases with Lite-Form Int’l for luxury vehicles, which included monthly payments of $400 for office equipment and $4,800 for vehicles. Despite the leases terminating on December 31, 2002, payments continued unchanged, with Lite-Form Int’l providing vehicles for both business and personal use of employees. The Committee noted that the cost remained constant regardless of the vehicle type and recommended discussing the leases and the continuation of this vehicle provision at the next member meeting.
Regarding financial mismanagement allegations, the Committee found that Patrick used a personal American Express card for both business and personal expenses, with Sandra reviewing the statements to differentiate between the two. She accurately coded business expenses for payment by Lite-Form, while personal charges were paid by Patrick. The Committee noted the lack of supporting documentation from Tegra for these allegations.
On wrongful withholding of information, the Committee acknowledged that the Boesharts were acting on legal counsel's advice concerning the requested information from Tegra.
In its "Statement of Determination," the Committee concluded that settling the derivative proceeding on terms it approved was in Lite-Form's best interest, as the Boesharts' actions did not warrant continued control by Tegra. The Committee believed that the majority of voting members could resolve the identified issues, and after their meeting, counsel would report back for a potential dismissal request with the Court.
An evidentiary hearing was conducted to determine whether the district court would adopt the Committee's report or let Tegra retain control of the litigation, with Carse testifying that his opinions were based on reasonable accounting certainty.
Carse viewed his role within the Committee as primarily investigative, believing it was the court's responsibility to make decisions, and he did not make decisions on behalf of the company. He acknowledged a lack of legal expertise, stating he did not engage in legal interpretation and relied on the Committee's legal counsel solely as a conduit for information, without seeking legal advice. Throughout his investigation, Carse felt it was Tegra's responsibility to provide evidence supporting their allegations and concluded that the evidence presented did not substantiate the claims in the lawsuit. He did not perform a cost-benefit analysis before recommending options, instead determining that there was insufficient support for the claims, leading him to suggest disclosing various issues to the members for a vote rather than pursuing litigation.
The district court found Carse's review aligned with his professional background and concluded that he acted with sufficient independence and good faith. However, the court criticized the Committee for making recommendations that benefited the Boesharts, who had selected Carse, and determined that the Committee exceeded its statutory authority by suggesting matters for a member vote. The court emphasized that the statutory framework only permitted the Committee to choose among four options, which included seeking settlement. Consequently, the court ordered mediation for the claims, establishing a 30-day timeline for the parties to agree on a mediator, and instructed the Committee to report the mediation outcome and make further recommendations thereafter, scheduling a status hearing for September 20, 2021.
Tegra Corp. alleges several errors by the district court regarding the investigation and recommendations made by a Committee under Neb. Rev. Stat. 21-168. Specifically, Tegra claims the court wrongly concluded that the Committee acted independently, in good faith, and with reasonable care. Additionally, Tegra argues that the court improperly accepted the Committee's settlement determination, despite finding some aspects non-compliant with the statute and tainted by impropriety. The court's action to amend the Committee's determination and substitute mediation is also contested, as is the deference given to a Committee that lacked the authority to decide on the derivative action's best interests. Further, Tegra asserts that the court misapplied the standard of review and did not adequately assess whether the Committee met the statutory requirements. Lastly, Tegra disputes the court's allowance for a second determination by the Committee.
In a cross-appeal, the Boesharts contend that the district court erred by not enforcing the entirety of the Committee’s recommendations after accepting its determination. The document further outlines the legal standards for jurisdiction, emphasizing that an appellate court must establish its jurisdiction based on final judgments or orders. It notes that Tegra is appealing an order rather than a final judgment and details the criteria necessary for an order to be appealable when multiple claims or parties are involved. The absence of a final determination of merits or dismissal means the court's order does not meet the final order requirements as specified by Nebraska statutes.
Section 25-1315(1) stipulates that in cases with multiple claims or parties, a court can issue a final judgment on fewer than all claims or parties only if it expressly determines that there is no just reason for delay and directs the entry of such judgment. Without this express determination and direction, any decision addressing fewer than all claims or parties remains subject to revision until a final judgment is entered for all. An appeal under Neb. Rev. Stat. 25-1315(1) is permissible only when there are multiple claims or parties, the court issues a final order on fewer than all claims, and the trial court explicitly directs the entry of that order while determining there is no just reason for delay.
In the case discussed, Tegra's appeal relates to a separate cause of action regarding wrongful information withholding, distinct from Tegra's derivative claims for Lite-Form. If this allegation is treated as a cause of action, the absence of a court determination that there is no just reason for delay could undermine jurisdiction over the appeal. However, it was concluded that the order was not final under Neb. Rev. Stat. 25-1902, which delineates final orders to prevent piecemeal review and multiple appeals in the same case.
Final orders are defined narrowly, and the discussion focuses on whether an order for mediation and further recommendations qualifies as a final order made during a special proceeding affecting a substantial right. A special proceeding is characterized as a statutory remedy that is distinct from an action, which involves formal enforcement or protection of rights culminating in a final judgment. Although a special proceeding may relate to an action, it is not considered an integral part of it.
Action proceedings, including motions for summary judgment, are not classified as special proceedings under Neb. Rev. Stat. 25-1902, as they are considered standard tools for resolving issues within a case. The Nebraska Supreme Court in Kremer v. Rural Community Ins. Co. clarified that special proceedings can exist within Chapter 25, and the categorization of a remedy does not determine whether a proceeding is special. Specifically, orders relating to arbitration can be classified as special proceedings. The document addresses a derivative action related to an LLC, noting the court has not previously classified derivative actions as special proceedings, which are governed by statutes outside Chapter 25. Historical decisions indicate that orders made during derivative actions may not align with the definition of special proceedings.
Derivative actions are not classified as special proceedings, even if they are governed by statutes outside of chapter 25. A derivative action is defined as an equitable proceeding initiated by a member of a Limited Liability Company (LLC) on behalf of the LLC, asserting claims that belong to the company rather than to the member. It is governed by specific requirements outlined in Nebraska Revised Statutes 21-154 to 21-169 (Reissue 2012) and follows the uniform procedural rules in chapter 25.
Although derivative actions necessitate an additional step—demanding other members or managers to initiate the action—and require the complaint to state the demand or its futility, they remain actions rather than special proceedings. The nature of these actions involves prosecuting another party to enforce rights or seek redress for wrongs and adheres to statutory pleadings and procedures, culminating in a final judgment.
The classification of orders under section 21-168, which allows an LLC to appoint a special litigation committee, remains under scrutiny. These orders may not be deemed special proceedings but could be integral to the main derivative action, constituting necessary steps within its process. Understanding whether proceedings under section 21-168 are part of the derivative action or represent a distinct special application requires a closer examination of the section and its implications.
A limited liability company involved in a derivative proceeding can appoint a special litigation committee to investigate claims and assess whether pursuing the action serves the company's best interests. Upon the committee's motion, the court must stay discovery for a reasonable period to allow the investigation, although the court may enforce information rights or grant extraordinary relief if justified. The committee can consist of disinterested and independent individuals, including members of the company.
In a member-managed company, the committee can be appointed by a majority of members not involved in the proceeding; if all are involved, it can be appointed by a majority of those named as defendants. In a manager-managed company, the appointment follows similar rules based on the majority of non-involved managers or those named as defendants.
The committee may conclude that the proceeding should either continue under the plaintiff's control, continue under the committee's control, be settled, or be dismissed. After reaching a decision, the committee must file its statement and supporting report with the court, which will assess the committee's disinterest, independence, and the integrity of its investigation. If the court validates the committee's findings, its determination will be enforced; otherwise, the stay on discovery will be lifted, allowing the action to proceed under the plaintiff's direction. The committee's purpose is to evaluate the merits of the litigation against its costs, including management time and public relations implications.
The special litigation committee serves to balance the interests of the board and dissenting shareholders by allowing a corporation to eliminate baseless or detrimental lawsuits, while ensuring that directors cannot improperly take over legitimate derivative claims from well-intentioned plaintiffs. Courts will uphold the special litigation committee's decisions if it demonstrates that its members are disinterested and independent, and that it acted in good faith, independently, and with reasonable care. If the committee fails to prove these criteria, the original plaintiff retains control of the lawsuit.
Upon a favorable ruling for the committee, the court may enforce one of four options: (1) the action continues under the minority member plaintiff’s control; (2) the action continues under the committee’s control; (3) the action is settled based on the committee's approved terms; or (4) the action is dismissed. In all scenarios, the limited liability company (LLC) remains the plaintiff. Options one and two allow litigation to proceed under either the minority member's or the committee's direction, while options three and four give the committee control for settlement or dismissal.
In Platte Valley Nat. Bank v. Lasen, it was determined that analogous proceedings do not qualify as special proceedings; rather, they are part of the original action and do not constitute a final order, thus not subject to appeal until a final judgment is reached. The proceedings under the applicable statute are essentially about determining which party manages the original case and are considered procedural steps within the overall derivative action, rather than special proceedings.
An order under § 21-168 does not impact a substantial right, which is defined as an essential legal right rather than a mere technicality. A substantial right is affected if an order diminishes a claim or defense available to an appellant before the appeal. The significance of the order's effect on that right is also crucial; for instance, the duration of the order can influence whether a substantial right is affected. Substantial rights include those that a party can enforce or defend. An order significantly undermines a substantial right if delaying appellate review would result in that right being lost.
Case law indicates that certain orders, such as those for revivor or substituting party plaintiffs, do not affect substantial rights, as they do not determine the parties' rights but merely progress the case. In Cinatl v. Prososki, the court ruled that denying a request to vacate an arbitration award does not affect a substantial right because the appellant can appeal the confirmation of the award, which serves to uphold the efficiency of arbitration. Similarly, orders enforcing special litigation committee decisions lead to imminent final judgments and their limited duration means that any delay in enforcement does not significantly impact substantial rights, despite potential claims regarding the control of litigation.
An appeal following the final judgment of a derivative action can effectively address disputes related to control of the action, as these disputes ultimately pertain to financial matters. Unlike certain property sale orders, which cannot be appealed effectively, issues surrounding monetary control can lead to reversible errors and potentially a new trial. However, ordinary trial burdens do not inherently affect substantial rights, as established in case law. Consequently, inconvenience or expense from a decree does not justify an appeal unless it precludes asserting personal or property rights in court.
In this particular case, the court did not enforce the Committee's determination or allow the action to proceed under Tegra's direction, as it was not convinced the Committee had properly selected one of the statutory options. Instead, the court mandated mediation and further recommendations from the Committee. Both parties in the appeal claim their rights under statute 21-168 to a choice between the Committee's recommendation and proceeding under minority control were violated, with Tegra arguing against a second chance for the Committee to make a proper recommendation.
Despite the unique nature of the order, it did not impact a substantial right, as mediation is intended to facilitate voluntary agreements and alleviate court system burdens. Mediation agreements must be consensual, reflecting one of its purposes to efficiently manage case loads.
Court orders mandating mediation and requiring parties to report back are not immediately appealable, as they do not affect substantial rights. Allowing interlocutory appeals would undermine the mediation process's efficiency and does not alter the fundamental issues of the case. Inconvenience from such an order does not grant grounds for appeal. The portion of the order for further recommendations by the special litigation committee is temporary and retains court jurisdiction for future actions. Any rights concerns raised by Tegra can be addressed in an appeal from the final judgment if the dispute remains unresolved after mediation. The court concludes that the mediation order is not a final order under the relevant statute, resulting in a lack of jurisdiction over Tegra’s appeal and the Boesharts’ cross-appeal, leading to the dismissal of the appeal.
