Jurisdiction is a legal question, with appellate courts tasked to determine their jurisdiction regardless of party assertions. A judgment represents the final determination of rights in a case, while any written court direction not included in a judgment is classified as an order. For an order to be appealable, it must meet the criteria of a final order per Neb. Rev. Stat. 25-1902 (Cum. Supp. 2020) and, when applicable, Neb. Rev. Stat. 25-1315(1) (Reissue 2016). This latter statute applies when multiple causes of action or parties are involved, and a final order is made regarding fewer than all claims or parties. Without an express determination of no just reason for delay, orders addressing fewer than all claims or parties are not considered final.
Appeals under Neb. Rev. Stat. 25-1315(1) require the presence of multiple causes of action or parties, a final order as defined by Neb. Rev. Stat. 25-1902, and explicit direction from the trial court for the entry of such order. If a judgment under Neb. Rev. Stat. 25-1315 (Reissue 2016) is not issued, no appeal is allowed unless all claims against all parties are resolved. Final orders as defined by Neb. Rev. Stat. 25-1902 are restricted to prevent fragmented reviews and ensure orderly trial procedures. A special proceeding is characterized by a legal right granted that requires a specific application to the court for enforcement and is distinct from an action, which involves the prosecution of another for rights enforcement and concludes with a final judgment. Special proceedings, although potentially related to an action, do not form a part of it, and the steps in commencing and conducting an action do not constitute special proceedings.
Final orders and statutory remedies in Nebraska law are distinct and mutually exclusive. The classification of proceedings does not change based on where they are placed within the statutes. Specifically, derivative actions are characterized as equitable proceedings where a member of a limited liability corporation asserts a claim on behalf of the corporation. Although derivative actions require a preliminary demand on other members or managers, they are still considered actions.
Corporate governance includes the role of special litigation committees, which evaluate claims in derivative actions to determine whether pursuing them serves the corporation's interests. These committees help protect against frivolous litigation while ensuring that genuine claims are not unduly suppressed.
In terms of substantial rights, an order must significantly affect a party's legal rights to be considered impactful; mere inconvenience does not qualify. The duration of an order and its finality in affecting the parties' rights are also critical in determining substantial rights under Neb. Rev. Stat. 25-1902. An order to mediate does not affect substantial rights and allows parties to appeal only if their legal rights are significantly undermined or irrevocably lost, not merely due to inconvenience. Interlocutory appeals regarding mediation orders are discouraged to maintain judicial efficiency. In this case, the appeal from the District Court was dismissed.
A minority shareholder initiated a derivative action on behalf of a manager-managed limited liability company (LLC) under Neb. Rev. Stat. 21-168. The manager-defendants formed a single-member special litigation committee to assess whether pursuing the derivative action was in the LLC's best interests. The committee concluded that settling the action was advisable, recommending disclosure of certain issues to LLC members and a subsequent majority vote for resolution. However, the district court found the committee acted with sufficient independence and good faith but determined that its recommendation exceeded its statutory authority. Consequently, the court mandated mediation, requiring the parties to report back on its outcome and further recommendations.
The parties involved include Lite-Form Technologies, L.L.C., managed by Patrick Boeshart, and Boeshart Management Company, L.L.C., both of which are controlled by Patrick and Sandra Boeshart. Tegra Corporation is a minority shareholder of Lite-Form, owning approximately 2.521 to 2.5237 percent of the membership units, while Patrick and Sandra own approximately 7.084 to 7.1714 percent and 7 to 7.0662 percent, respectively. The remaining minority members collectively hold about 22.671 to 24.313 percent. Lite-Form International, L.C., holds approximately 60 to 60.5677 percent of Lite-Form, with Tegra indirectly owning about 22.46 to 22.7586 percent.
Tegra filed a lawsuit against the Boesharts alleging breach of fiduciary duty, misappropriation of corporate assets, unjust enrichment, conversion, and aiding and abetting a fiduciary breach against Sandra. Tegra also claimed it had requested information from Lite-Form that was wrongfully withheld.
Cody Carse was appointed as a single member of a special litigation committee (Committee) by Patrick, under Neb. Rev. Stat. 21-168, to investigate claims made by Tegra regarding Lite-Form. The derivative action was paused during this investigation, which concluded with a report filed with the court. Carse, a certified public accountant and fraud examiner, detailed his qualifications and addressed key allegations.
1. **Conflicting-Interest Leases**: The Committee found that certain leases between Boeshart Construction/Boeshart Management and Lite-Form were legitimate but had rental rates above market. It recommended disclosing these leases to Lite-Form members, who should then vote to approve, modify, or take no action regarding the leases.
2. **Diversion of Profits**: The Committee noted that Lite-Form had made significant payments to Patrick and his family in 2018, which were subsequently partially repaid. Although the derivative action claimed financial losses from these transactions, the Committee lacked documentation on additional fees or IRS penalties incurred. It recommended full disclosure of the transaction details to Lite-Form members and a vote on potential reimbursement from Patrick for any incurred expenses.
3. **Unauthorized Salaries, Bonuses, and Benefits**: Aside from the disputed $1 million bonus, the Committee found that salaries for Patrick, Sandra, and their son were in line with other employees, while their daughter's salary matched her previous pay. The operating agreement allowed for manager compensation without explicit member approval, which had not been sought in 18 years. The Committee could not assess Patrick’s salary amount and suggested discussing the operating agreement's relevant section at the next member meeting.
On July 28, 2002, Lite-Form entered into two leases with Lite-Form Int’l for luxury vehicles, covering the period from July 1 to December 31, 2002, with payments of $400 monthly for office equipment and $4,800 for vehicles. Despite the leases ending on December 31, payments continued at the same rate, with Lite-Form Int’l providing vehicles for both business and personal use of employees. The Committee observed that the monthly rental cost remained consistent over time, irrespective of the vehicles' condition, concluding that vehicle purchase prices did not affect Lite-Form’s expenses. They recommended discussing the leases and vehicle provision at the next member meeting.
In addressing 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. Sandra was deemed capable of accurately categorizing expenses, and the Committee noted a lack of supporting documentation from Tegra regarding these allegations.
Regarding wrongful withholding of information, the Committee indicated 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 approves is in Lite-Form's best interests, asserting that the Boesharts' actions do not warrant continuation under Tegra’s control. The Committee expressed confidence that the majority of voting members could resolve the identified issues, and after member discussions and votes, counsel would report back to the Committee, which may then seek court approval to dismiss the pending action.
An evidentiary hearing was conducted to assess whether the district court would accept the Committee's report or allow Tegra to continue litigation. Carse was the sole witness, stating his opinions were formed with reasonable accounting certainty and clarifying that his role was to investigate rather than make decisions for the company. He indicated that Tegra was responsible for providing evidence to support its allegations and believed the claims did not hold up based on the information he received. Carse did not conduct a cost-benefit analysis for his recommendations and admitted he lacked knowledge of the legal elements of the allegations, never seeking legal counsel’s advice during his investigation.
Despite noting some expenditures were questionable, Carse suggested that the issues, including a $1 million bonus and leases, be disclosed to Lite-Form members for a vote, believing this would avoid litigation. The district court found Carse's review aligned with his qualifications as a CPA and certified fraud examiner, concluding that he acted with sufficient independence and good faith to recommend settlement efforts. However, the court criticized the Committee’s recommendations as being directly beneficial to the Boesharts, who appointed Carse, and determined the Committee exceeded its statutory authority by suggesting member voting on matters that could benefit the Boesharts at Tegra's expense. The court concluded that while the Committee could recommend settlement, additional recommendations would not be entertained.
The court has mandated that the parties engage in mediation regarding the claims specified in the operative complaint, setting a 30-day timeline for mediator selection. If the parties cannot agree on a mediator, the court will appoint one. Upon mediation's conclusion, the Committee is required to report the results to the court and provide further recommendations as per §21-168. A status hearing is scheduled for September 20, 2021.
Tegra has raised several assignments of error, asserting that the district court incorrectly determined that the Committee met its obligations under Neb. Rev. Stat. 21-168. Specifically, Tegra contends that the court erred in concluding that the Committee acted independently and in good faith, that it improperly accepted the Committee's settlement recommendation despite recognizing certain statutory violations, and that it wrongly substituted mediation to address perceived improprieties. Additional errors cited include deferring to the Committee’s advisory role without proper authority, misapplying the standard of review, and allowing a second determination by the Committee under the statute.
In a cross-appeal, the Boesharts argue that the district court erred by not enforcing all of the Committee's recommendations after acknowledging its determination.
Regarding jurisdiction, the appellate court's authority is to assess whether it has jurisdiction over the appeal, which hinges on the existence of a final judgment or order as per Neb. Rev. Stat. 25-1911. In this case, Tegra's appeal is based on an order rather than a final judgment, as there has been no dismissal or conclusive determination of the case’s merits. For an order to be appealable, it must meet the final order criteria outlined in Neb. Rev. Stat. 25-1902, particularly in scenarios involving multiple claims or parties. Without a clear directive for judgment on all claims, orders adjudicating fewer than all claims are not considered final.
Section 25-1315(1) allows a court to enter a final judgment on one or more claims or parties in a multi-claim or multi-party action only if it explicitly determines there is no just reason for delay and directs entry of that judgment. Without such determination, any decision addressing fewer claims or parties does not terminate the action and can be revised until all claims and parties are adjudicated. An appeal can occur under this statute only when multiple claims or parties are present, a final order is issued regarding fewer than all claims or parties, and the trial court expressly states there is no just reason for delay. In this context, Tegra's separate cause of action for wrongful withholding of information was not adjudicated, raising questions about jurisdiction over the appeal due to the lack of necessary determinations under Section 25-1315. Furthermore, the order directing mediation and further recommendations was not considered a final order under Neb. Rev. Stat. 25-1902, which aims to prevent piecemeal appeals and maintain orderly trial procedures. The determination of whether an order constitutes a special proceeding hinges on whether it enforces a legally conferred right. Special proceedings are distinct from actions, with each having different procedural implications. Special proceedings may relate to an action but do not form an integral part of it; actions involve comprehensive processes culminating in a final judgment, while special proceedings seek remedies independently.
A motion for summary judgment is not classified as a special proceeding under Neb. Rev. Stat. 25-1902, as it is merely a tool for resolving case issues. Special proceedings involve civil statutory remedies not included in chapter 25 of the Nebraska Revised Statutes, with examples such as juvenile court proceedings, involuntary commitment, license revocation, dissolution, probate actions, and various motions related to chapter 29, among others. The case Kremer v. Rural Community Ins. Co. clarifies that special proceedings can be found within chapter 25, and the location of a statutory remedy does not define the nature of the proceeding. Orders related to arbitration within chapter 25 are considered special proceedings. The current appeal involves a derivative action on behalf of an LLC, which has not been previously classified as a special proceeding. Derivative actions, governed by statutes outside chapter 25, are determined not to be special proceedings, affirming that the governing statute's location does not influence the classification of the proceeding. A derivative action is characterized as an equitable proceeding where an LLC member asserts a claim belonging to the LLC, following specific statutory requirements.
A derivative action, initiated by a member on behalf of the company, requires a demand on other members or managers to enforce the company's rights, with the complaint needing to state the demand's existence or its futility. This action is subject to procedural rules outlined in chapter 25. Derivative actions are characterized as court proceedings aimed at enforcing rights or seeking redress for wrongs, adhering to statutory pleadings and procedures, culminating in a final judgment.
While derivative actions themselves are not classified as special proceedings, the relationship between such actions and orders made under section 21-168—concerning the appointment of a special litigation committee—needs clarification. Section 21-168 allows a limited liability company involved in a derivative proceeding to appoint a committee to investigate the claims and determine the best course of action. Following this appointment, the court, upon the committee's motion, is required to stay discovery for a reasonable time to facilitate the investigation, unless good cause is shown otherwise. The determination of whether proceedings under section 21-168 are integral to the main derivative action or constitute a separate special application hinges on a thorough examination of the section and the implications of its orders.
The subsection allows the court to enforce an individual's right to information under section 21-139 and to grant extraordinary relief, such as temporary restraining orders or preliminary injunctions, upon showing good cause. A special litigation committee can consist of one or more disinterested and independent individuals, potentially including members of the company. This committee can be appointed in a member-managed limited liability company by a majority consent of non-defendant plaintiffs or, if all members are involved in the litigation, by a majority of the defendants. In a manager-managed limited liability company, appointment is similarly made by a majority of non-defendant managers or by a majority of the defendant managers if all are involved.
After investigation, the committee may decide whether the proceeding should continue under the plaintiff's control, under the committee's control, be settled, or be dismissed. The committee must then file a statement of its determination with the court, which will assess the disinterest and independence of the committee members, as well as the good faith and thoroughness of their investigation. If the court validates the committee's actions, its decisions will be enforced; otherwise, the stay on discovery will be lifted, allowing the plaintiff to proceed with the action.
The special litigation committee's role is to evaluate claims and determine if pursuing the action benefits the company, weighing the merits and costs of litigation. The committee serves to balance the interests of the board and dissenting shareholders while preventing misuse by directors to undermine legitimate derivative claims. The court will uphold the committee's business decisions if it finds the members acted appropriately.
If the special litigation committee does not demonstrate that its members were disinterested and independent, the lawsuit continues under the original plaintiff's control. If the committee proves its independence and good faith, the court may choose from four options: 1) allow the minority member plaintiff to control the action, 2) allow the committee to control the action, 3) settle the action based on the committee's approval, or 4) dismiss the action. In all scenarios, the LLC remains the plaintiff. Options one and two maintain the procedural course of the litigation under the minority member or the committee, while options three and four hand control to the committee for settlement or dismissal.
The referenced case, Platte Valley Nat. Bank v. Lasen, elucidates that proceedings under the relevant statute are not special and do not constitute a final order; they merely substitute one party for another, continuing the original action. Orders under the statute are seen as procedural steps in the underlying derivative action and do not affect substantial rights. A substantial right is defined as a critical legal right, not merely technical, and is impacted if the order alters the litigation's subject matter or diminishes available claims or defenses. The permanence of the order's effect is also a factor in determining whether it affects a substantial right.
Substantial rights under Nebraska Revised Statute 25-1902 refer to legal rights a party can enforce or defend. An order affects a substantial right if postponing appellate review would significantly undermine or irrevocably lose that right. In Platte Valley Nat. Bank, it was determined that an order of revivor, which advances a case towards trial, does not affect substantial rights, as it does not determine the parties' rights but retains the cause for further action. Similarly, orders substituting party plaintiffs are not seen as affecting substantial rights. In Cinatl v. Prososki, the court ruled that denying a motion to vacate an arbitration award does not affect a substantial right since the appellant can appeal from the order confirming the award, thus preserving the right to challenge its validity without immediate appeal. Allowing immediate appeals for such orders would undermine the efficiency goals of arbitration. Court orders enforcing special litigation committee determinations lead to final judgments, and delays in their enforcement do not significantly impact substantial rights. Claims regarding control in derivative actions can be addressed in appeals from final judgments, and any disputes about control ultimately relate to monetary issues, which can be remedied by reversal and retrial. Ordinary trial burdens do not constitute substantial rights, as illustrated in prior cases, including appeals regarding summary judgment denials.
A person experiencing inconvenience, annoyance, discomfort, or expense due to a decree does not have grounds for appeal, provided they can still assert or defend their claims in court. Being subjected to litigation does not affect a substantial legal right. The court did not enforce the Committee's decision or allow the action to proceed under Tegra's direction, as it questioned the Committee's compliance with statutory options. Instead, it mandated mediation and further recommendations. Both parties argued that their rights under Neb. Rev. Stat. 21-168 were infringed and that the court overstepped by ordering mediation. Tegra contended that the Committee should not have another chance to provide a recommendation. Despite the unique nature of the order, it did not impact a substantial right. Mediation is defined as a process where a mediator aids parties in reaching a voluntary agreement, and it aims to alleviate court system burdens. Although the finality of mediation orders is not explicitly addressed in this jurisdiction, other jurisdictions do not consider court orders for mediation immediately appealable. The court concluded that mediation orders do not affect substantial rights, and allowing appeals would undermine mediation's efficiency. The inconvenience caused by mediation does not provide grounds for an appeal. The court's order for additional recommendations from the special litigation committee is temporary and subject to further court action.
Tegra's claims regarding the rights impacted by the court's order can be addressed in an appeal from the final judgment, should the matter not be resolved through mediation. The court acknowledges that Tegra initiated this appeal as a precautionary measure. The court's order for mediation and further recommendations is deemed not to be a final order under Neb. Rev. Stat. 25-1902, resulting in a lack of jurisdiction over both Tegra's appeal and the Boesharts' cross-appeal. Consequently, the appeal has been dismissed. Chief Justice Heavican did not participate in the decision.
