JOSEPHINE M. KNOELL ET AL., APPELLANTS, V. H. DAN HUFF AND NORTH KANSAS FINANCIAL CORPORATION, APPELLEES.
No. 85-232
Supreme Court of Nebraska
November 7, 1986
395 N.W.2d 749
Rodney M. Confer of Knudsen, Berkheimer, Richardson & Endacott, for appellees.
KRIVOSHA, C.J., BOSLAUGH, WHITE, HASTINGS, CAPORALE, SHANAHAN, and GRANT, JJ.
PER CURIAM.
Plaintiffs-appellants, Josephine M. Knoell and nine others (investors), appeal from an order of the Lancaster County District Court which sustained a demurrer in favor of the defendants-appellees, H. Dan Huff (Huff), a resident of Lancaster County, and North Kansas Financial Corporation (NKFC), a Nebraska corporation. The investors brought this suit to recover damages because of financial losses they sustained when the stock they had purchased in NKFC from Huff became worthless. The district court sustained the demurrer and dismissed the investors’ petition. The court held that all five causes of action in the third amended petition were barred by the statute of limitations under the Securities Act of Nebraska,
The facts in this case are set out in the investors’ third amended petition. For the purpose of ruling on Huff‘s and NKFC‘s demurrer, we accept the well-pleaded facts in the petition, as distinguished from the conclusions allеged, as true. Allen v. County of Lancaster, 218 Neb. 163, 352 N.W.2d 883 (1984). The facts alleged in the petition are deemed admitted for the purpose of ruling on Huff‘s and NKFC‘s demurrer.
The investors are stockholders and debenture holders of NKFC. NKFC was formed for the purpose of acting as a holding company to own the stock of a Kansas corporation known as North Kansas Savings Association (NKSA). NKSA was a federally chartered savings and loan association with offices in Beloit and Phillipsburg, Kansas.
In September 1980 the investors were solicited by Huff and his agent, Tom Scheer, to invest in NKFC, which would in turn own a controlling interest in NKSA. During the solicitation, the investors were informed by Huff and Scheer that Huff had experience as a promoter in numerous bank acquisitions in the past and had been successful in arranging the ownership of financial institutions through holding companies. Huff and Scheer also represented to the investors that Huff would act as their agent and would (1) form a holding company to own the stock of NKSA and (2) gain federal home loan bank board approval of the transfer. The investors paid the purchase рrice for their securities at various times between September 1980 and January 1981. The money paid in was deposited in a repurchase, or “repo,” account, earning interest. The total amount invested by all 10 investors was $266,500.
The petition shows that Huff, before soliciting the investors, acquired controlling interest in NKSA in January 1980. To finance the purchase of the NKSA stock,
At the time Huff acquired the stock of NKSA, he was informed by the NKSA stockholders and employees that there was a lawsuit pending against NKSA in the district court of Geary County, Kansas, relating to the breach of a loan commitment.
The holding company (NKFC) was formed on January 5, 1982. At that time Huff assigned to NKFC all of the stock acquired by him in NKSA, representing 89.45 pеrcent of the stock of NKSA. Each investor was issued between one-half and two debentures and 150 to 600 shares of stock in NKFC, depending upon the amount of investment.
On July 29, 1982, judgment was entered against NKSA in the Geary County, Kansas, lawsuit, in the amount of $1,495,944. Thereafter, the federal home loan bank board closed NKSA. By letter dated November 22, 1982, Huff informed the investors that the judgment against NKSA had precipitated the closing by the federal home loan bank board, that he had knowledge of the pending lawsuit at the time he acquired the NKSA stock, and that their invеstments should be considered worthless. At no time before November 22, 1982, did any of the investors have knowledge of the existence of the Geary County lawsuit pending against NKSA.
The investors filed their petition, setting out three causes of action, against Huff and NKFC on November 21, 1983, for damages incurred as a result of the securities becoming worthless. Huff and NKFC filed a motion to strike and to make the petition more definite and certain. This motion was sustained in part. An amended petition was filed. A second motion was sustained in part, and the investors filed a second amended petition. Huff and NKFC demurred, and the district court sustained the demurrer on the ground that none of the counts in the petition stated a cause of action. The court again gave the investors additional time to file a further amended petition.
The investors filed their third amended petition on September 24, 1984, setting out five causes of action. Huff and NKFC again filed a demurrer on October 12, 1984, alleging that the causes of action in the petition were barred by the statute of limitations under the Securities Act of Nebraska,
The investors have assigned six errors, which may be consolidated into two: (1) That the court erred in determining that the “Nebraska Blue Sky Law” (now Securities Act of Nebraska,
We first determine whether the trial court was correct in determining that the “exclusive remedy” to the investors was through
A review of the investors’ third amended petition shows that all five causes of action are based upon thе alleged misconduct of Huff surrounding the sale of stock in NKFC. As previously noted, the trial court determined that the exclusive remedy to the investors was through the Securities
In arguing their first assignment of error, the investors maintain that the Securities Act of Nebraska is not their exclusive remedy and that even if it is, the trial court incorrectly determined the time when the statute of limitations began to run.
The investors argue that their claims are based on negligence, breach of fiduciary duty, and misrepresentation (fraud)—all common-law actions which carry 4-year limitation periods under
Huff and NKFC contend the trial court was correct in its determination that the Securities Act of Nebraska was the exclusive remedy in this case. They point to
Prior law shall exclusively govern all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before August 18, 1965, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after August 18, 1965.
Our review, however, of the history of this section and its earlier enactments leads us to the conclusion that the reference to “prior law” refers not to prior common law but, rather, to prior statutory law governing “blue sky” transactions.
Nebraska has had a “blue sky” law in one form or another since at least 1913. See 1913 Neb. Laws, ch. 199, p. 603. Section 13 of that act established a 1-year statute of limitations. The act provided in part: “[P]rovided, however, no action to rescind any contract of sale made in contravention of the provisions of this act shall be maintainable unless the same is instituted within one year.” (Emphasis supplied.) It seems quite clear from the language of § 13 that one had an option. He or she could either maintain an action to rеscind a contract of sale under the newly enacted “blue sky” law, so long as it was instituted within 1 year, or could bring any common-law action within the applicable statute of limitations then in existence for such action. Nothing is said in the law of 1913 about the act‘s being cumulative. Yet, it is quite clear from a reading of the act that such is the case.
In 1921 the “blue sky” laws were again amended. See 1921 Neb. Laws, ch. 308, p. 967. For the first time there appears language regarding the extent of one‘s liability. Section 28 specifically provides: “Nothing herein contained shall limit or diminish the liability of any person or company now imposed by law, or prevent the prosecution of any person or company violating any of the provisions of this Act for the violation of any other statute or of any other provision hereof.” While one may argue that the reference to “law” in § 28 refers to the common law, reading the section in its entirety leads one to the conclusion
This becomes even clearer when, in 1937, the Legislature adopted a comprehensive “blue sky” law. See 1937 Neb. Laws, ch. 195, p. 790. Section 38 of the 1937 act provides as follows: “The provisions of Sections 81-5419, 81-5428 and 81-5429, Compiled Statutes of Nebraska, 1929, shall be and remain in full force and effect and shall apply to all of the provisions of this Act the same as though they had been originally enacted herein.” Comp. Stat. § 81-5429 (1929) is identical with § 28 of the 1921 act. The language of § 81-5429 was brought in its entirety into
It was not until 1965 that any attempt was made to limit liability under “blue sky” laws. See 1965 Neb. Laws, ch. 549, p. 1762. Section 24(1) of that enactment provided:
Prior law shall exclusively govern all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cаuse of action accrued and in any event within two years after the effective date of this act.
It seems clear to us that no attempt was being made by the Legislature to do away with common-law causes of action, but only to make it clear that a suit could not be brought under a prior “blue sky” act unless suit was commenced within 2 years after the effective date of the act. Prior to 1965 one could maintain an action under either the 1937 act or the pre-1937 acts without limitation. After 1965 one was required to bring an action under the pre-1965 law for causes of action accruing prior to the effective date of the act and, in any event, must do so within 2 years after August 18, 1965, or forever be precluded from maintaining such action. This is further made clear when one looks at
We hold, therefore, that the language of
Having decided this issue, we must now determine if the trial court correctly determined that none of the allegations stated facts sufficient to state a cause of action. With respect to the first cause of action, the trial court ruled that no sufficient facts were alleged from which a conclusion can be drawn that Huff and NKFC were negligent and that the negligence was the proximate cause of investors’ damages.
“In order to constitute actionable negligence, there must exist three еssential elements, namely, a duty or obligation which the defendant is under to protect the plaintiff from injury; a failure to discharge that duty; and injury resulting from the failure. “The petition must allege these essential elements, and the proof must support the allegations, or there can be no recovery.”
Ring v. Kruse, 158 Neb. 1, 6, 62 N.W.2d 279, 284 (1954).
Investors’ third amended petition does allege the representation by Huff that he would act as investors’ agent in handling their money, forming a holding company, and issuing stock and debentures. The petition further alleges that Huff breached his duty to investors by failing to inform them of the pending lawsuit, by failing to hold their funds in escrow, and by failing to consult with an attorney regarding the merits of the pending lawsuit. Finally, the petition alleged damages in the amount of $266,500 plus interest. The essential elements to constitute actionable negligence have been alleged, and the trial court was incorrect in dismissing investors’ first cause of action.
The second cause of action, which alleges constructive fraud and the imposition of a trust, is one in equity. A constructive trust is a relationship, with rеspect to property, subjecting the person who holds title to the property to an equitable duty to convey it to another on the ground that his acquisition or retention of the property would constitute unjust enrichment. Each case involving the existence of a constructive trust is to be determined on the peculiar facts, circumstances, and conditions presented therein. Ruppert v. Breault, 222 Neb. 432, 384 N.W.2d 284 (1986). The burden of proof is upon one seeking to establish the existence of a constructive trust to do so by evidence which is clеar, satisfactory, and convincing in character. Ford v. Jordan, 220 Neb. 492, 370 N.W.2d 714 (1985). Accepting as true the facts alleged in the petition, the investors have alleged facts sufficient to state a cause of action. The trial court was incorrect in sustaining Huff‘s and NKFC‘s demurrer on this cause of action.
In their assignment of error concerning their third cause of action, the investors allege that the district court erred “in determining that the third cause of action did not state facts which were sufficient to constitute a cause of action under
The investors’ third cause of action is based upon alleged prospectus and interstate communications violations by Huff and NKFC under the 1933 act, pursuant to
In deciding if the statute of limitations under
On its face, the third amended petition shows that 7 of the 10 investors, namely, Josephine Knoell, Susan Huston, Julius Kowalski, Gerald Siedband, Charles Newell, Ford Van Lines, and Vern Westberg, all paid for their investment units in September and October of 1980. Other courts have agreed with our holding above, that a “sale” under the Securities Act of 1933 occurs when an offer to purchase was accepted. See Tirone v. Calderone-Curran Ranches, Inc., Fed. Sec. L. Rep. (CCH) ¶ 96,480 (W.D.N.Y. 1978). In this case the sale occurred when the investors accepted Huff‘s offer of sale by the payment of their purchase price for the investment units. Accordingly, the actions of the above-named investors are time barred by
The three remaining investors, Dale Herman, Lloyd Wheeler, and James Wheeler, paid for their investments in December 1980 and January 1981. The trial court was incorrect in finding that these investors were time barred by
Compliance with
Ordinarily, a plaintiff is allowed to amend his petition to attempt to plead sufficient facts to constitute a cause of action. However, in this case absolute dismissal is appropriate. The investors have pled and repled this cause of action in essentially the same way four different times. In the initial petition and in the third amended petition, they pled facts concerning an alleged violation of
This section of the statute has been held by this court on several occasions to not provide an absolute right of amendment. See, Evans v. Metropolitan Utilities Dist., 184 Neb. 172, 166 N.W.2d 411 (1969); Weiner v. Morgan, 175 Neb. 656, 122 N.W.2d 871 (1963); Coverdale & Colpitts v. Dakota County, 144 Neb. 166, 12 N.W.2d 764 (1944). This court has previously stated that, before error can be predicated upon the refusal of the
court to permit an amendment to a petition after demurrer thereto is sustained, the record must show that, under the circumstances, the ruling of the court was an abuse of discretion. Coverdale & Colpitts v. Dakota County; Weiner v. Morgan.
See, also, Schmuecker Bros. Implement v. Sobotka, 217 Neb. 114, 348 N.W.2d 130 (1984). The trial court did not err in not ordering a further right to amend the investors’ petition with respect to the third cause of action.
The district court held that investors’ fourth cause of action did not state facts sufficient to state a cause of аction. We agree with the trial court‘s determination. The pleadings constituting this cause of action merely restate facts contained elsewhere in the third amended petition. These facts are duplicative and no separate theory of recovery is alleged. We cannot discern a theory of recovery and so affirm the sustaining of Huff‘s and NKFC‘s demurrer with respect to this cause of action.
The fifth cause of action alleges fraud, and investors assign as error the court‘s determination that there were insufficient facts from which the necessary intent for fraud could be inferred. Investors alleged fraudulent misrepresentations and omissions and damages. The elements of fraud are (1) a false representation of material fact, (2) knowledge that the representation was false or made in reckless disregard as to its truthfulness or falsity, (3) an intent to induce another to act, (4) a justifiable reliance on the representation, and (5) injury or damage resulting from such reliance. Mueller v. Union Pacific Railroad, 220 Neb. 742, 371 N.W.2d 732 (1985). The essential elements to constitute fraud have been alleged, and the trial court was incorrect in dismissing investors’ fifth cause of action.
For the reasons set forth above, the judgment of the trial court is affirmed in part and reversed in part.
AFFIRMED IN PART, AND IN PART REVERSED.
GRANT, J., dissenting.
I dissent from so much of the majority opinion that holds, in effect, that the 2-year statute of limitations of
Prior law shall exclusively govern all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before August 18, 1965, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after August 18, 1965.
This section created a transition period between “prior law” and the Securities Act of Nebraska (
“Prior law” included the Blue-Sky Law,
I note also that the Securities Act of Nebraska, as adopted, was modeled substantially after the Uniform Securities Act, 7B U.L.A. 509 et seq. (1985). Specifically, § 8-1118 is almost a complete adoрting by the Nebraska Legislature of § 410 of the Uniform Securities Act. A key provision of the Uniform Securities Act, § 410(h), however, was not adopted. That section provided: “The rights and remedies provided by this act are in addition to any other rights or remedies that may exist at law or in equity, but this act does not create any cause of action not specified in this section or section 202(e).” (Emphasis supplied.) By refusing to enact the provisions of § 410(h) of the Uniform Securities Act, the Legislature made a conscious decision that the Securities Act of Nebraska controlled all actions concerning securities. It appears to me that if the Legislature desired to preserve other general statutes of limitations under the new Securities Act of Nebraska, then either the Legislature would not have repealed § 81-346 or it would have enacted a provision similar to § 410(h) of the Uniform Securities Act.
I believe, therefore, that the language of § 8-1118(3) sets out the applicable statute of limitations of 2 years under Nebraska law in cases involving the sale of securities. Other jurisdictions have reached the same result. See, O‘Hara v. Kovens, 625 F.2d 15 (4th Cir. 1980); Dehler v. Setliff, 143 Ga. App. 430, 238 S.E.2d 723 (1977); Diamond v. Lamotte, 709 F.2d 1419 (11th Cir. 1983); Friedlander v. Troutman, Sanders, Lockerman, 788 F.2d 1500 (11th Cir. 1986).
Plaintiffs’ action was not brought within the 2-year period. I would affirm the judgment of the trial court dismissing plaintiffs’ action.
BOSLAUGH and HASTINGS, JJ., join in this dissent.