DMK Biodiesel, LLC v. McCoy

859 N.W.2d 867

DMK Biodiesel, LLC, a Nebraska limited liability company, and Lanoha RVBF, LLC, a Nebraska limited liability company, appellants

v.John McCoy et al., appellees.

No. S–14–150

Supreme Court of Nebraska.

Filed March 6, 2015.

David A. Domina and Megan N. Mikolajczyk, of Domina Law Group, P.C., L.L.O., Omaha, for appellants.

Daniel L. Lindstrom and Nicholas R. Norton, of Jacobsen, Orr, Lindstrom & Holbrook, P.C., L.L.O., Kearney, for appellees John McCoy et al.

L. Steven Grasz, Mark D. Hill, and Michael Schmidt, of Husch Blackwell, L.L.P., Omaha, for appellee Renewable Fuels Technology, LLC.

Heavican, C.J., Connolly, Stephan, McCormack, Miller–Lerman, and Cassel, JJ.

Syllabus by the Court

1. Summary Judgment: Appeal and Error.An appellate court will affirm a lower court's grant of summary judgment if the pleadings and admitted evidence show that there is no genuine issue as to any material facts or as to the ultimate inferences that may be drawn from those facts and that the moving party is entitled to judgment as a matter of law.

2. Summary Judgment: Appeal and Error.In reviewing a summary judgment, the court views the evidence in the light most favorable to the party against whom the judgment was granted and gives such party the benefit of all reasonable inferences deducible from the evidence.

3. Statutes: Appeal and Error.Statutory interpretation presents a question of law. When reviewing questions of law, an appellate court resolves the questions independently of the conclusions reached by the trial court.

4. Securities Regulation.The Securities Act of Nebraska should be liberally construed to afford the greatest possible protection to the public.

5. Statutes: Appeal and Error.Absent a statutory indication to the contrary, an appellate court gives words in a statute their ordinary meaning.

6. Statutes: Appeal and Error.An appellate court will not read into a statute a meaning that is not there.

7. Securities Regulation.Reliance is not an element of an investor's claim against the seller of a security under Neb.Rev.Stat. § 8–1118(1) (Reissue 2012).

8. Securities Regulation.A buyer's sophistication is irrelevant to a claim under Neb.Rev.Stat. § 8–1118(1) (Reissue 2012).

Opinion

Stephan, J.

DMK Biodiesel, LLC (DMK), and Lanoha RVBF, LLC (Lanoha), filed suit against John McCoy; John Hanson; Phil High; Jason Anderson (collectively the individual defendants); and Renewable Fuels Technology, LLC (Renewable), alleging the fraudulent sale of securities, in violation of Neb.Rev.Stat. § 8–1118(1) (Reissue 2012). This is the second appeal. In the first appeal, we reversed the district court's order granting a motion to dismiss because the court considered matters outside the pleadings without conducting an evidentiary hearing.¹ On remand, Renewable and the individual defendants filed motions for summary judgment, which the district court sustained after conducting an evidentiary hearing. DMK and Lanoha now appeal. We reverse, and remand for further proceedings.

I. BACKGROUND

Republican Valley Biofuels, LLC (RVBF), issued a confidential private placement memorandum (PPM) with an effective date of May 7, 2007, seeking investors in a biodiesel production facility. RVBF was promoted by the individual defendants, and Renewable was the manager of RVBF. The PPM provided that the securities being offered were “speculative and involve a high degree of risk.” It included a summary of the offering describing RVBF and the biodiesel facility RVBF proposed to build, as well as a description of “[r]isk factors” involved in the investment. The PPM provided that “[n]o person has been authorized to make any representation or warranty, or give any information, with respect to RVBF or the units offered hereby except for the information contained herein.” The PPM also stated that

[a]lthough we believe that our plans and objectives reflected in or suggested by such forward-looking statements are reasonable, we may not achieve such plans or objectives. Actual results may differ from projected results. We will not update forward-looking statements even though we may undergo changes in the future.

In August 2007, DMK and Lanoha entered into separate subscription agreements and became minority investors in RVBF. In the agreements, each acknowledged the investments involved a high degree of risk. They further acknowledged they had sufficient knowledge and experience in financial and business matters to be able to evaluate “the merits and risks involved” in the investments. Each agreement states: “Subscriber has relied solely upon the information furnished in the [PPM] and Subscriber has not relied on any oral or written representation or statement, except as contained in the [PPM], in making this investment.”

In 2009, DMK and Lanoha brought an action against Renewable and the individual defendants in the district court for Buffalo County. In their operative complaint, they alleged that Renewable and the individual defendants, acting in concert as members and the manager of RVBF, made false oral representations and omissions in connection with RVBF and the proposed biodiesel facility which induced their investment. DMK and Lanoha asserted these actions violated the Securities Act of Nebraska (the Act)² and violated fiduciary duties owed by the members and manager of RVBF. DMK and Lanoha further sought an accounting at law.

Renewable and the individual defendants filed motions to dismiss, which the district court sustained. DMK and Lanoha appealed, and we reversed.³

After the district court entered a judgment on the appeal mandate, Renewable and the individual defendants filed motions for summary judgment asserting they were not liable to DMK and Lanoha as a matter of law. The district court held an evidentiary hearing, after which it sustained the motions and dismissed the action. The court assumed for purposes of

its ruling that Renewable and the individual defendants “made the oral representations alleged by [DMK and Lanoha] during the period of time that [DMK and Lanoha] were contemplating their investment.” The court framed the issue as whether the “cause of action for security fraud [based on] misrepresentations made to investors is viable given the contents of the [PPM] and subscription agreements in which [DMK and Lanoha] acknowledge[d] that their investments were made without consideration of any representation not contained in the [PPM] or Subscription Agreements.” The court reasoned that DMK and Lanoha were sophisticated investors and that given the contents of the PPM and subscription agreements, they could not have relied upon any oral representations as a matter of law. The court concluded:

[W]hen the sophisticated investor executes a subscription document stating that the “Subscriber has relied solely upon the information furnished in the [PPM] and Subscriber has not relied on any oral or written representation or statement, except as contained in the [PPM], in making this investment” the investor should be held to that statement.

DMK and Lanoha filed a timely appeal.

II. ASSIGNMENTS OF ERROR

DMK and Lanoha assign, restated and consolidated, that the district court erred when it (1) concluded that there were no genuine issues of material fact; (2) concluded that Renewable and the individual defendants were entitled to summary judgment as a matter of law; (3) failed to find that § 8–1118(5) invalidates provisions of the subscription agreements; and (4) failed to recognize that § 8–1118 is applicable to all situations in which a false or misleading statement is made, regardless of the level of sophistication of the investors.

III. STANDARD OF REVIEW

An appellate court will affirm a lower court's grant of summary judgment if the pleadings and admitted evidence show that there is no genuine issue as to any material facts

or as to the ultimate inferences that may be drawn from those facts and that the moving party is entitled to judgment as a matter of law.⁴

In reviewing a summary judgment, the court views the evidence in the light most favorable to the party against whom the judgment was granted and gives such party the benefit of all reasonable inferences deducible from the evidence.⁵

Statutory interpretation presents a question of law.⁶ When reviewing questions of law, an appellate court resolves the questions independently of the conclusions reached by the trial court.⁷

IV. ANALYSIS

1. § 8–1118(1)Claim

DMK and Lanoha claim Renewable and the individual defendants violated § 8–1118(1) by selling a security by means of any untrue statement of material fact. Section 8–1118(1) is part of the Act which is modeled after the 1956 Uniform Securities Act.⁸ The Act should be liberally construed to afford the greatest possible protection to the public.⁹ The purpose of the Act is to protect the public from fraud and to benefit purchasers as opposed to sellers.¹⁰ According to § 8–1118 :

(1) Any person who offers or sells a security in violation of section 8–1104 or offers or sells a security by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made in the light of the circumstances under which they are made not misleading, the buyer not knowing of the untruth or omission, and who does not sustain the burden of proof that he or she did not know and in the exercise of reasonable care could not have known of the untruth or omission, shall be liable to the person buying the security from him or her, who may sue either at law or in equity....

We have few cases construing or applying this statute. In the most recent of these, Hooper v. Freedom Fin. Group,¹¹ we affirmed a judgment determining that directors and a holding company of a broker-dealer which sold securities by means of untrue statements of material fact were liable to investors. In our opinion, we noted that the evidence established the stock in question was sold by means of untrue statements and that the purchasers “were...