Anderson v. Bellino

658 N.W.2d 645

265 Neb. 577

Robert L. ANDERSON and LaVista Lottery, Inc., Appellees, v. Richard T. BELLINO and LaVista Keno, Inc., Appellants.

No. S-01-584.

Supreme Court of Nebraska.

March 28, 2003.

William F. Hargens and Kathryn D. Folts, of McGrath, North, Mullin & Kratz, P.C., Omaha, for appellants.

Thomas J. Culhane and Patrick R. Guinan, of Erickson & Sederstrom, P.C., Omaha, for appellees.

HENDRY, C.J., and WRIGHT, CONNOLLY, GERRARD, STEPHAN, McCORMACK, and MILLER-LERMAN, JJ.

MILLER-LERMAN, J.

I. NATURE OF CASE

Appellees, Robert L. Anderson and LaVista Lottery, Inc. (Lottery), brought this action in Cass County District Court against appellants, Richard T. Bellino and LaVista Keno, Inc. (Keno). Anderson and Lottery alleged that Bellino had breached a fiduciary duty he owed to Anderson and Lottery by usurping a corporate opportunity belonging to Lottery and directing such opportunity to Keno. Bellino and Keno denied the critical allegations in the petition, and Bellino further responded by filing a claim for a setoff and a counterclaim seeking, inter alia, compensation for services he had provided to Lottery.

Trial in the case was bifurcated. At the conclusion of the liability phase, the district court concluded that Bellino, an officer, director, and 50-percent shareholder in Lottery, had breached the duty of "`utmost good faith and loyalty'" which he owed to Anderson and Lottery. The district court reached this conclusion because Bellino had formed his own corporation, Keno, and had successfully bid against Lottery for the 1998 contract to operate a keno parlor in LaVista, Nebraska. The district court imposed a constructive trust upon Keno for the benefit of Anderson and Lottery and reserved further ruling until completion of the accounting phase of the case. The district court denied Bellino relief on his claim for a setoff and on his counterclaim. Trial was had on the accounting. In view of the breach of fiduciary duty and in furtherance of the constructive trust, following the accounting phase of the trial, the district court awarded relief to Anderson and Lottery. The district court, inter alia, ordered Bellino to pay Anderson and Lottery $644,992.63, representing sums by which Keno had been improperly diminished and other sums Bellino had inequitably received in connection with the operation of Keno, which amount could be reduced by $172,514.63 if Bellino were successfully to transfer the stock of Keno to Lottery and persuade the city of LaVista to relicense the keno contract from Keno in favor of Lottery.

Bellino and Keno appeal. Following our review, we conclude that the district court did not err in determining there had been a breach of fiduciary duty, imposing a constructive trust, and accounting therefor. Accordingly, we affirm.

II. STATEMENT OF FACTS

In 1989, the city of LaVista was seeking bids for the operation of a keno-type lottery for the city. Bellino, an electrician by training and experience, became interested in bidding. The bid specifications included a restaurant and lounge to be operated in connection with the keno operation. Bellino testified that he wanted someone to share the financial risk of a potential keno operation. In addition, Bellino wanted to find someone with experience in the restaurant and lounge business. At least two people declined to bid with Bellino, and he eventually approached Anderson, who evidently was involved in a number of successful businesses, liked to play keno, and knew people in the gaming industry. Anderson was aware of the bidding. Anderson and Bellino began investigating the keno business. They sought the advice of experienced operators in Reno, Nevada, who had contacts with keno equipment suppliers and who explained the mechanics of the industry. In addition, Bellino and Anderson investigated potential locations for the keno operation.

In March 1989, Bellino and Anderson submitted their bid for the LaVista keno contract. In April 1989, Bellino and Anderson formed Lottery, a Nebraska corporation, for the purpose of operating the keno parlor if they were awarded the contract. Anderson and Bellino each owned 50 percent of the shares of stock of Lottery, and both were officers and directors of the corporation. Bellino was the president and treasurer, and Anderson was the vice president and secretary.

The bid submitted by Anderson and Bellino was successful. Lottery entered into a lottery operation contract with the city of LaVista on May 16, 1989. The initial contract was for a 5-year term. After the keno parlor was opened, the contract was amended several times. Pursuant to the fifth amendment, executed on October 13, 1992, the fixed term of the contract was extended through July 31, 1998, with a provision that the term would continue indefinitely beyond that fixed term until one party served 60 days' written notice of termination upon the other.

Following the award of the contract, Bellino and Anderson arranged for Lottery to lease space for the keno operation, purchase necessary equipment, and hire management and nonmanagement employees. Bellino and Anderson shared the initial investment of around $300,000 plus equipment.

Lottery initially entered into a lease with LaVista Commercial Partnership for space in the LaVista Plaza. Subsequently, Bellino purchased LaVista Plaza. Thereafter, Bellino leased the space in LaVista Plaza to Lottery.

The keno parlor operated by Lottery was successful. During the approximately 9 years that Lottery operated the keno parlor, the district court found, and the record supports the finding, that Lottery "had total gross receipts in excess of 100 million dollars" and that "Bellino and Anderson each personally received over 4 million dollars in salary and distributions during that time period." Initially, Anderson and Bellino received salaries from Lottery. In 1993, following the advice that Bellino told Anderson he had received from an accountant, Anderson and Bellino stopped receiving salaries from Lottery. Anderson and Bellino, as equal shareholders in Lottery, divided the profits from the operation of the keno parlor equally. In addition, because Lottery rented space in LaVista Plaza which was owned by Bellino, Bellino received monthly rental payments from Lottery.

Prior to their formation of Lottery, Anderson and Bellino were each involved in other businesses. Before Lottery commenced operation, a general manager was identified who would be responsible for the day-to-day activities of Lottery. The general manager hired and fired employees, purchased supplies, operated the keno game, and scheduled and supervised the employees. In addition to the general manager, Lottery hired keno managers, supervisors, and keno writers. Lottery also opened a lounge and a restaurant in conjunction with its keno operation. At some point, an additional manager was hired and put in charge of the day-to-day operations of both the lounge and the restaurant. If problems arose that could not be handled by the general manager or the general manager's staff, Anderson and Bellino were generally available. The district court found, and the record supports the finding, that

[t]here was no express agreement between Bellino and Anderson as to the amount of time that each would devote to the lottery business. To the contrary, their agreement, as even evidenced by the testimony of Bellino, was simply that each would participate as much as they [sic] could in the business and that the day-to-day operations of the business would be conducted by managers hired by Lottery.

Neb.Rev.Stat. § 9-646(3) (Reissue 1997) was amended in October 1993 to provide in part that "[n]o owner or officer of a lottery operator with whom the county, city, or village contracts to conduct its lottery shall play any lottery conducted by such county, city, or village." The Nebraska Department of Revenue brought administrative charges against Anderson relating to a December 1993 gambling incident. Anderson agreed to pay an administrative fine of $4,500. As part of the stipulation of the settlement, the department agreed that the settlement would have no impact on Anderson's license to operate Lottery.

Subsequently to the award of the LaVista keno contract to Lottery, Anderson and Bellino became involved in other ventures, including a racetrack near Omaha, the I-80 Speedway. Anderson was a part owner from 1994 to 1996. Both Anderson and Bellino spent significant time from 1994 through 1996 operating the speedway. In addition, Bellino invited Anderson to bid with him for a Fremont keno contract. Eventually, Anderson and his brother agreed to and became investors in a corporation that was awarded a Fremont keno contract. Along with Bellino, they were still investors in the Fremont venture as of April 2000.

From 1994 to 1998, Lottery employed general managers, keno managers, supervisors, and keno writers. Although Bellino and Anderson continued to be involved in Lottery, the evidence indicated that Bellino began to spend more time in the lounge of Lottery due, in part, to his personal relationship with Lottery's lounge manager. Anderson continued to be involved in the business to a lesser degree than Bellino. According to Lottery's bookkeeper, Anderson would come to the Lottery facilities at least once or twice a week in the mornings to review records and effect repairs. The bookkeeper testified that she talked to Anderson on a daily basis regarding Lottery's business. Bellino acknowledged in his testimony that he did not complain to Anderson about Anderson's degree of involvement in Lottery until approximately March 1998 and that Anderson never refused to do anything that Bellino asked him to do.

Shortly before Christmas 1997, Anderson met with Bellino and discussed with him the fact that Lottery's keno contract with LaVista was set to expire on July 31, 1998. Anderson advised Bellino that if the contract was not extended, Lottery would need to...