Schmid v. Simmons

311 Neb. 48

970 N.W.2d 735

Lanny SCHMID, an individual, appellee and cross-appellee,

v.Lee SIMMONS, an individual, and Niobrara River Ranch, L.L.C., a Nebraska limited liability company, appellants,MAR14, LLC, a Nebraska limited liability company, appellee and cross-appellant,andThomas Masters, an individual, appellee.

No. S-20-524.

Supreme Court of Nebraska.

Filed March 4, 2022

Bartholomew L. McLeay and Dwyer Arce, of Kutak Rock, L.L.P., Omaha, for appellants.

Michael C. Cox, John V. Matson, Quinn R. Eaton, and Cassandra M. Langstaff, of Koley Jessen, P.C., L.L.O., Omaha, for appellee Lanny Schmid.

Eric A. Scott, for appellee MAR14, LLC.

Heavican, C.J., Cassel, Stacy, Funke, Papik, and Freudenberg, JJ., and Weimer, District Judge.

Stacy, J.

This appeal arises from a dispute involving a limited liability company (LLC) and its members. After a bench trial, the district court entered a judgment which ordered an accounting, declared the membership rights of the parties, quieted title to certain real estate, and established a resulting trust; all other requested relief was denied. One member of the LLC appealed, assigning error to the district court's denial of a request for a jury trial on its legal counterclaims. The LLC cross-appealed, assigning error to the court's denial of a request to dissociate one of the members. Finding no merit to the assigned errors, we affirm.

I. BACKGROUND

In 2014, Lanny Schmid and Lee Simmons pooled their money with others to bid on certain tracts of land being sold at public auction, including 560 acres near Valentine, Nebraska, which the parties refer to as the "Canyon Rim" land. The collective bid was successful. Only the Canyon Rim tract is relevant to this appeal.

Schmid did not attend the closing for the Canyon Rim land, but on the day of closing, he transferred $600,000 to an account operated by Niobrara River Ranch, L.L.C. (NRR). NRR is a trade name that Simmons uses for some of his business ventures, and the account into which Schmid transferred the funds is owned and controlled by Simmons. The reason for Schmid's transfer is disputed, but it appears Simmons used the $600,000, along with other funds, to close on the land acquired by the parties. The deed to the Canyon Rim land was titled in the name "MAR14, LLC" (MAR14).

MAR14 is a member-managed limited liability company, and its only members are Simmons, Schmid, and Thomas Masters. Its operating agreement states that "this Company is formed to purchase land, transfer it and manage it." The operating agreement requires unanimous consent of all members for certain matters, including property transfers. The record shows that Simmons initially created MAR14 to take title to another tract of land and to serve as a tax-planning vehicle for other properties.

After closing on the Canyon Rim land, Simmons and Schmid considered building cabins on the property, subdividing the property, and selling the property. But roughly 2 years after acquiring the land, the parties’ communications regarding the Canyon Rim land stalled.

In May 2016, Schmid sent Simmons an email proposing that they divide ownership of the Canyon Rim land. Schmid suggested that 320 acres of the Canyon Rim land be titled in his name and that the remaining 240 acres be titled in Simmons’ name. Simmons did not accept the proposal. About 2 months later, in July 2016, Schmid sent Simmons a demand letter requesting, among other things, a full accounting of MAR14's activities, an accounting of his $600,000 transfer, and an explanation for why title to certain property was transferred from MAR14 to another entity without unanimous approval from all MAR14 members. Simmons’ attorney responded to this letter, but no resolution was reached.

1. LAWSUIT

Shortly thereafter, Schmid filed a lawsuit against Simmons, MAR14, and NRR in the district court for Cherry County, Nebraska. In an amended complaint, Schmid added the third member of MAR14, Masters, as a defendant. Schmid's operative amended complaint sought (1) to quiet title to a specific parcel of land acquired in the auction and to eject Simmons from the parcel, (2) a declaratory judgment determining the MAR14 members’ percentage of ownership, (3) an accounting from MAR14, (4) judicial dissolution of MAR14, and (5) any other relief the court deemed just and equitable.

Simmons and NRR filed a joint answer, generally denying that Schmid was entitled to the relief sought and disputing the nature of Schmid's $600,000 transfer. Their answer also alleged several counterclaims, including claims for (1) a resulting trust, (2) a decree quieting title, and (3) an accounting/action for assumpsit.

MAR14 filed its own answer to Schmid's operative complaint and generally denied that Schmid was entitled to have MAR14 judicially dissolved. MAR14 also counterclaimed, seeking a "judicial determination and declaration concerning" Schmid's membership status in MAR14, costs of its action, and other equitable relief. Masters filed an answer in which he denied making any capital contribution to MAR14 and disclaimed any interest in the real estate held by MAR14.

2. TELEPHONIC PROGRESSION CONFERENCE

In February 2017, the presiding judge held a telephonic conference with the parties’ counsel. The bill of exceptions does not include that conference, but our transcript includes a signed and file-stamped progression order which memorialized the conference. The progression order states the conference occurred in "Judge's chambers at Ainsworth, Nebraska, by telephone conference call" and also states, "The parties agreed the matter was equitable and would be tried to the court without a jury."

3. SIMMONS AND NRR AMEND ANSWER TO ADD COUNTERCLAIM AND MAKE JURY DEMAND

In December 2017, Simmons and NRR amended their answer to include a counterclaim for "Breach of Contract/Estoppel." The counterclaim sought to recover lost profits and demanded a jury trial on "any and all issues or claims triable by right under the Nebraska Constitution or Nebraska statutes."

Schmid moved to strike the jury demand from the amended answer, and the court granted that motion. In addition to noting that the parties agreed, during the progression conference, that the matter was equitable in nature and would be tried to the court, the court's order stated that Simmons, Masters, MAR14, and NRR were not entitled to a jury trial.

It relied on Kuhlman v. Cargile¹ for the proposition that "when a court of equity acquires jurisdiction over a cause for any purpose it may retain the cause for all purposes and proceed to a final determination on all matters put in issue in the case." This rule is sometimes referred to as the "equitable clean-up" doctrine.²

The court subsequently issued a final pretrial order which stated that "the pleadings adequately state the issues to be tried," and it confirmed that "[t]he matter shall be tried to the court without a jury." Simmons and NRR objected to that portion of the pretrial order which required a trial to the bench on their legal counterclaims, but the court overruled the objection and declined to reconsider its prior ruling. Simmons and NRR renewed their jury demand at the start of the bench trial, and the court again overruled their objection.

During the 4-day bench trial, the parties adduced evidence on all disputed issues. We summarize only that evidence which is pertinent to the assignments of error on appeal.

Schmid testified that he was a financial member of MAR14 and that his $600,000 transfer was a capital contribution to the LLC. Schmid believed MAR14's purpose was to acquire and manage agricultural land. Schmid testified that MAR14 refused to provide him an accounting of revenues and expenses and denied his right to authorize transfers, receive revenue, and participate in its operation and management. Schmid wanted MAR14 to be judicially dissolved because he and Simmons were unable to agree on the membership status of the MAR14 members, the percentage of ownership of any member, the distributions to be made, or how to conduct the business and operations of MAR14. According to Schmid, MAR14 was "hopelessly deadlocked" and it was "not reasonably practical to carry on MAR14's activities in conformity with the certificate of organization of MAR14 and the operating agreement."

Simmons testified that he was MAR14's only "financial" member. He described Schmid's $600,000 transfer to MAR14 as an investment in Canyon Rim and the parties’ collective plans for that land, rather than a capital contribution to MAR14. He also testified that after making initial capital contributions, neither Schmid nor Masters contributed additional capital to MAR14. Simmons testified that he formed MAR14 to facilitate certain property exchanges, and he believed Schmid was hindering that purpose.

During closing argument, Schmid's attorney urged the court to judicially dissolve MAR14. The attorney also suggested to the court that it had discretion to pursue other equitable alternatives if it deemed dissolution inappropriate, but Schmid did not ask the court to dissociate any member from MAR14.

When presenting closing arguments on behalf of Simmons and NRR, counsel expressly asked the court, for the first time, to consider using its equitable powers and authority under Neb. Rev. Stat. § 21-147(b) (Cum. Supp. 2020) to dissociate Schmid from MAR14. Later, MAR14 submitted a posttrial brief in which it asked, for the first time, to have Schmid dissociated. This brief is not in our appellate record.

4. JUDGMENT

On May 27, 2020, the district court entered judgment denying Schmid's claims for quiet title and ejectment, but granting Schmid's claims for an accounting and declaratory judgment. After determining that Schmid intended his $600,000 to be used to purchase the Canyon Rim land, the court declared Schmid to be the owner of an undivided 53.57 percent interest in the Canyon Rim land. It ordered MAR14 to convey that undivided interest to Schmid. The court effectively denied Schmid's...