Opinion ID: 2099674
Heading Depth: 1
Heading Rank: 15

Heading: Trieweiler's Damages

Text: As previously noted, the court entered a total judgment in favor of Trieweiler, in an individual capacity, in the amount of $105,759. The appellants claim that if damages were to be awarded, the court erred in awarding those damages individually to Trieweiler, as opposed to Varsity Investments, the interests of which Trieweiler represents in this derivative proceeding. We note that Trieweiler's brief does not appear to take issue with this assignment of error, at least with respect to the forced distribution of the corporation's recovery from the appellants. Nonetheless, in the absence of an express concession by Trieweiler, we must explain our reasoning with respect to this assignment of error. [46] The appellants correctly state that in a derivative proceeding, the plaintiff acts in a representative capacity for the corporation, and any recovery is obtained in the name of the corporation. See Meyerson v. Coopers & Lybrand, 233 Neb. 758, 448 N.W.2d 129 (1989). See, generally, 13 William Meade Fletcher et al., Fletcher Cyclopedia of the Law of Private Corporations § 6028 (perm. ed., rev. vol. 1995). It is only where the injury to the plaintiff's stock is peculiar to him or her alone, such as in an action based on a contract to which the shareholder is a party, or on a fraud affecting him or her directly, and does not fall alike upon other shareholders, that the shareholder may recover as an individual. Meyerson, supra . The court, before entering judgment, recognized these general principles. The court stated that [a]n award in favor of Varsity Investments, Inc. and against . . . Campagna for misappropriation and . . . Sears for breach of fiduciary duty, jointly and severally, in the amount of $168,000.00 would be proper. But the court went on to state: However, under the circumstances, due to the efforts that . . . Trieweiler had to go to take [sic] to establish these claims and because he is the only shareholder not involved in the wrongdoing shown by the evidence in these actions, an award of $105,759.00 in favor of . . . Trieweiler should be entered. This award ought to be paid directly to and/or collected for the benefit of . . . Trieweiler without regard to the interests of the two remaining shareholders . . . and without regard to the claims of any other persons or entities. This sum includes [Trieweiler's] claim as a 30% shareholder to the Varsity Sports assets misappropriated by Campagna of $168,000.00; and to his $16,000.00 individual claim at Varsity Sports; and to his interest in the proceeds of the two sales  $12,633.75 and $26,725.25 This court has, in the past, recognized that an action raising a derivative claim may, in the case of a closely held corporation, be treated as a direct action for purposes of recovering damages. See Anderson v. Clemens Mobile Homes, 214 Neb. 283, 333 N.W.2d 900 (1983). In Anderson, we concluded that the trial court had not erred in permitting a minority shareholder a direct recovery from the majority shareholder whom the court found to have misappropriated funds from the corporation. See id. But in Anderson, we did not completely set forth our reasons for that conclusion, or establish any criteria for determining when, in a case involving a closely held corporation, a direct recovery might be within the court's discretion. The American Law Institute (ALI), however, has promulgated a rule for such circumstances that we find to be persuasive: In the case of a closely held corporation . . . the court in its discretion may treat an action raising derivative claims as a direct action, exempt it from those restrictions and defenses applicable only to derivative actions, and order an individual recovery, if it finds that to do so will not (i) unfairly expose the corporation or defendants to a multiplicity of actions, (ii) materially prejudice the interests of creditors of the corporation, or (iii) interfere with a fair distribution of the recovery among all interested parties. 2 American Law Institute, Principles of Corporate Governance: Analysis and Recommendations § 7.01(d) at 17 (1994). The ALI rule was, when proposed, a consolidation of decisions generally holding that the special case of a closely held corporation justifies an exception to the general rule that only a derivative action may be used to seek redress of corporate injuries. See id. The basis for this reasoning is that a closely held corporation may be treated, in effect, as an incorporated partnership, and a significant difference in legal treatment is unwarranted, as the concept of a corporate injury that is distinct from any injury to the shareholders approaches the fictional in the case of a firm with only a handful of shareholders. Id. [47] Since its promulgation by the ALI, § 7.01(d) has been adopted by a number of courts. See, e.g., Mynatt v. Collis, 274 Kan. 850, 57 P.3d 513 (2002); Aurora Credit Services v. Liberty West, 970 P.2d 1273 (Utah 1998); Barth v. Barth, 659 N.E.2d 559 (Ind. 1995); Derouen v. Murray, 604 So. 2d 1086 (Miss. 1992); Schumacher v. Schumacher, 469 N.W.2d 793 (N.D. 1991). Likewise, we conclude that these principles are helpful to our analysis of the instant case. We hold that in the case of a closely held corporation, a court in its discretion may permit an individual recovery to the plaintiff in an action raising derivative claims, if it finds that to do so will not unfairly expose the corporation or defendants to a multiplicity of actions, materially prejudice the interests of creditors of the corporation, or interfere with a fair distribution of the recovery among all interested persons. Applying those principles to the instant case, we conclude, on our de novo review, that those criteria are met in this case and that the district court did not err in permitting Trieweiler an individual recovery against the appellants. There is no indication in the record that permitting Trieweiler a direct recovery will lead to a multiplicity of actions or interfere with a fair distribution of any recovery from the appellants. Nor does the record suggest that there are creditors of the corporation whose interests will be prejudiced by Trieweiler's recovery, as the debts evidenced in the record were paid from the proceeds of the sales of the Varsity Sports Café and Varsity West. Consequently, the court acted within its discretion in permitting Trieweiler an individual recovery. The appellants are, however, correct in arguing that the court erred in awarding Trieweiler $16,000 for unpaid wages. Trieweiler's operative petitions do not seek recovery for any unpaid wages. Evidence was presented as to the value of services Trieweiler rendered to the corporation during construction and startup, but that evidence was not intended to support a claim for unpaid wages, as the following colloquy demonstrates: [Trieweiler's counsel]. Did you  did you keep track of the value of the services that you provided during the construction and start-up of the Varsity Sports Cafe on 302 South 11th Street? [Trieweiler]. Yes, I did. [Trieweiler's counsel]. And what did you determine the value of those services to be? [Appellants' counsel]. Objection, no foundation, irrelevant. THE COURT. Is there a suit for lost wages or the value of work performed? [Appellants' counsel]. I think it goes to consideration for the stock. THE COURT. Okay. As previously noted, a party will not be permitted to plead one cause of action and upon trial rely upon proof establishing another. Abdullah v. Nebraska Dept. of Corr. Servs., 246 Neb. 109, 517 N.W.2d 108 (1994). Proof must correspond with the allegations in the pleadings, and relief cannot be granted upon proof of a cause substantially different from the case made in the pleadings. Id. Based upon these principles, we conclude that the court erred in awarding Trieweiler damages for unpaid wages. The court's judgment will be modified to remove that award.