Opinion ID: 6353431
Heading Depth: 1
Heading Rank: 2

Heading: facts

Text: 1. Parties and Ownership Interests Lite-Form Technologies, L.L.C. (Lite-Form), is an LLC with its principal place of business in South Sioux City, Nebraska. Patrick Boeshart is the president and sole manager of Lite-Form, and his wife, Sandra Boeshart, is the office manager and provides bookkeeping services to Lite-Form. Boeshart Management Company, L.L.C. (Boeshart Management), is an Iowa LLC that conducts business in Nebraska. Boeshart Management is wholly owned and controlled by Patrick and Sandra, with Sandra designated as the registered agent in Nebraska for Boeshart Management. Pat Boeshart Construction, L.L.C. (Boeshart Construction), is an Iowa LLC that conducts business in Nebraska. Boeshart Construction is wholly owned and controlled by Patrick. Patrick, Sandra, Boeshart Management, and Boeshart Construction are collectively referred to hereafter as “the Boesharts.” Tegra Corporation (Tegra) is an Iowa corporation with its principal place of business in Sioux City, Iowa, and is a minority shareholder of Lite-Form. There is some slight discrepancy between the parties’ pleadings as to ownership percentages for Lite-Form. Accounting for this discrepancy, Tegra owns approximately 2.521 to 2.5237 percent of the membership units of Lite-Form, Patrick owns approximately 7.084 to 7.1714 percent of the membership units of Lite-Form, and Sandra owns approximately 7 to 7.0662 percent of the membership units of Lite-Form. The remaining minority members collectively own approximately 22.671 to 24.313 percent of the membership units of Lite-Form. Lite-Form International, L.C. (Lite-Form Int’l), owns approximately 60 to 60.5677 percent of Lite-Form. Tegra owns approximately 37.44 to 37.5755 percent of the membership units of Lite-Form Int’l, and therefore, it indirectly owns approximately 22.46 to 22.7586 percent of Lite-Form. Patrick owns approximately 49.766 to 49.9678 percent of the member­ ship units of Lite-Form Int’l, and therefore, he indirectly - 788 - Nebraska Supreme Court Advance Sheets 311 Nebraska Reports TEGRA CORP. v. BOESHART Cite as 311 Neb. 783 owns approximately 29.86 to 30.2643 percent of Lite-Form. Finally, Sandra owns approximately 6.745 to 6.7480 percent of the membership units of Lite-Form Int’l, and therefore, she indirectly owns approximately 4.05 to 4.08711 percent of Lite-Form. 2. Tegra’s Lawsuit Tegra, individually and on behalf of Lite-Form, filed a complaint against the Boesharts alleging breach of fiduciary duty, misappropriation and waste of corporate assets, unjust enrichment, conversion, and, as to Sandra, aiding and abetting a fiduciary breach. Tegra also alleged in its individual capacity that it had made a demand upon Lite-Form to produce information and documentation related to the claims set forth and that Lite-Form had wrongfully withheld that information from Tegra. 3. Appointment of Special Litigation Committee and Its Findings Patrick, under the authority granted to LLCs by § 21-168, appointed Cody Carse as a single member special litigation committee (Committee) to investigate the claims asserted by Tegra and to determine whether pursuing the action was in the best interests of Lite-Form. The derivative action was stayed during the pendency of the Committee’s investigation. The Committee subsequently timely filed its report and statement of determination with the court. Carse outlined his qualifications, which consisted of the fact that Carse is a certified public accountant, a certified fraud examiner, and certified in financial forensics. The report generally addressed the allegations of the complaint. (a) Conflicting-Interest Leases The Committee found that leases between Boeshart Construction and Lite-Form and Boeshart Management and Lite-Form, challenged in the action, were for equipment - 789 - Nebraska Supreme Court Advance Sheets 311 Nebraska Reports TEGRA CORP. v. BOESHART Cite as 311 Neb. 783 used by Lite-Form for legitimate business purposes but that some of the leases had rental rates that appeared to be above market. The Committee recommended that the leases be disclosed to all the members of Lite-Form and that the members holding at least a majority of all outstanding units vote to either (1) approve or modify any of the terms of the relatedparty leases retroactively back to the start of each lease, (2) determine if member approval must be required in the future before entering into any related-party lease, or (3) choose not to address the leases at all or take any action. (b) Diversion of Profits to Boeshart Family On a claim of diversion of profits, the Committee found that on October 30, 2018, Lite-Form paid $600,000 to Patrick, $200,000 to Patrick and Sandra’s son, and $200,000 to Patrick and Sandra’s daughter. Patrick loaned the $600,000 back to Lite-Form, but the loan was reduced to $487,194.03 by July 3, 2019. The $512,805.97 net cash paid out by Lite-Form was repaid to Lite-Form by a deposit of $234,867.03 made on December 23, 2019, and a deposit of $277,938.94 made on January 17, 2020. While the derivative action alleged Lite-Form had lost use of the $1 million for over a year, incurred additional professional fees to unwind the transaction, and incurred Internal Revenue Service penalties and interest due to the payment and unwinding of the transaction, the Committee noted it had not been provided with any documentation regarding additional professional fees or Internal Revenue Service penalties and interest. As a resolution, the Committee recommended that all the details of the $1 million bonus transaction be disclosed to the members of Lite-Form, including any expenses incurred by Lite-Form due to the loss of use of the money that was paid out on October 31, 2018, and not fully repaid until January 17, 2020, and that the members thereafter vote to determine if Lite-Form should be reimbursed by Patrick for any expenses incurred due to the transaction. - 790 - Nebraska Supreme Court Advance Sheets 311 Nebraska Reports TEGRA CORP. v. BOESHART Cite as 311 Neb. 783 (c) Unauthorized Salaries, Bonuses, and Benefits With respect to alleged unauthorized salaries, bonuses, and benefits, the Committee found that, except for the $1 million bonus in 2018, Sandra and Patrick and Sandra’s son were paid salaries comparable to other Lite-Form employees and that Patrick and Sandra’s daughter’s salary was based on her previous employer. It was a condition of her joining Lite-Form that Lite-Form would match the salary she was receiving previously. With respect to Patrick’s salary, the Committee found that the operating agreement states the manager’s salary and other compensation are subject to the approval of the members but does not state the manager must request approval from the members. It appeared that for the 18 years of Lite-Form’s existence, the members had chosen not to specifically approve the salary and other compensation of the manager of the company. The Committee found it did not have a basis to evaluate the amount of Patrick’s salary. It recommended that the relevant section of the operating agreement be discussed at the next member meeting. (d) Luxury Vehicles With respect to allegations concerning luxury vehicles, the Committee found that on July 28, 2002, Lite-Form entered into two leases with Lite-Form Int’l, which owned the vehicles, for a term from July 1 to December 31, 2002. The leases included $400 per month for general office and computer equipment and $4,800 per month for “Autos and Trailers.” The Committee noted that although the written leases terminated on December 31, the monthly rental payments have continued through the present point in time for the same amounts and Lite-Form Int’l continued to provide Lite-Form with all the company-provided vehicles driven by Lite-Form employees. The Committee found that the vehicles were for the business and personal use of the Lite-Form employees and opined that providing company vehicles and having the employer pay for - 791 - Nebraska Supreme Court Advance Sheets 311 Nebraska Reports TEGRA CORP. v. BOESHART Cite as 311 Neb. 783 license, taxes, and registration for company-provided vehicles is a common business practice. The Committee further found that the monthly rental payment of $4,800 has never changed over the years and that the cost to Lite-Form has been the same whether the company provided “‘new and luxury cars’ or ‘old and cheap cars.’” Thus, the Committee concluded the purchase price of the vehicles had no impact on the cost to Lite-Form. The Committee recommended that the leases be discussed at the next Lite-Form member meeting, as well as whether Lite-Form should continue providing company vehicles to employees for business and personal use and paying for license, taxes, and registration of those vehicles. (e) Financial Mismanagement In addressing the derivative action’s allegations of financial mismanagement, the Committee found that Patrick uses a personal American Express credit card for both Lite-Form business purposes and personal purposes. The monthly statement is reviewed by Sandra, and she identifies which charges are personal and which are Lite-Form business expenses. The business expenses are then coded to the applicable Lite-Form general ledger account and are paid by Lite-Form to American Express. The personal purchases are paid by Patrick personally to American Express. The Committee’s recommendation concluded, “This is a small business and Sandra . . . is very familiar with all of the charges made to [the American Express] account each month. She is quite capable of accurately identifying which charges are [Lite-Form] expenses and which charges are personal.” Further, the Committee noted that Tegra had failed to provide the Committee with documentation supporting these allegations. (f) Wrongful Withholding of Information With respect to allegations of wrongful withholding of information, the Committee stated, “It is the [Committee’s] understanding that [the Boesharts] are following the advice - 792 - Nebraska Supreme Court Advance Sheets 311 Nebraska Reports TEGRA CORP. v. BOESHART Cite as 311 Neb. 783 of their legal counsel with regard to production of the information requested in [Tegra’s] October 22[, 2019,] Demand.” (g) Statement of Determination In a “Statement of Determination” in the report, the Com­ mittee “determined that it is in the best interests of [Lite-Form] that the derivative proceeding be settled on terms approved by the Committee.” This was because, in Carse’s professional opinion, “[the Boesharts’] actions do not justify continuing the derivative proceeding under the control of [Tegra]”: In summary, all the issues identified in the [Com­ mittee’s] investigation can be resolved by the Members of [Lite-Form]. After the Members have been properly informed about the issues, the Members holding at least a majority of all outstanding Units and entitled to vote can determine how these issues should be resolved. In my professional opinion, the “majority of voting members” are quite capable of making the final decision on all of these issues. Once the Members have met and voted, counsel shall report back to the Committee. Based upon the results of the meeting, the Committee may file a request with the Court to dismiss the pending action. 4. Evidentiary Hearing on Committee’s Report An evidentiary hearing was held to determine whether the district court would adopt the determinations in the report or continue the litigation in the control of Tegra. Carse was the only witness to testify. Carse testified that all his opinions were made to a reasonable degree of accounting certainty. He viewed his role as the Committee to simply investigate and then have the court make a decision, and he “never made any decisions on behalf of the company.” Carse testified that in his role as the Committee, he did not “do anything from a legal interpretation standpoint,” since - 793 - Nebraska Supreme Court Advance Sheets 311 Nebraska Reports TEGRA CORP. v. BOESHART Cite as 311 Neb. 783 he was “not a lawyer.” However, the Committee’s legal counsel “didn’t make any decisions on how to do [his] investigation” and was simply a “conduit” for information to the parties and to file things for the court. Carse repeatedly stated that throughout his investigation, he believed it was “up to Tegra” to bring the evidence to him to support the allegations it was making. Carse testified that as an accountant and business person reading the allegations and weighing the evidence he was provided, he felt the facts presented to him did not satisfy the claims that were in the lawsuit. Carse admitted he did not conduct a cost-benefit analysis in determining which of the four options to recommend. Instead, he simply determined there was no support for the alleged claims. Carse explained, “Based on what [Tegra] provided to me, I didn’t think it would hold up in court.” Therefore, he found no support for choosing options that would continue the litigation. However, Carse admitted that he did not know the legal elements of any of the allegations and, throughout his investigation, never asked the Committee’s counsel for any legal advice or legal interpretations. Still, Carse found evidence that some expenditures were “out of line.” He believed his solutions of disclosure and voting on those matters would resolve those matters without requiring a lawsuit. Carse admitted in regard to the $1 million bonus that he did not quantify the cost of pursuing the claims or the potential recovery. He just “estimated it in [his] own mind” that a member meeting would be cheaper than to “tie up four attorneys and a judge and a court.” Thus, Carse ultimately recommended that many of the issues, such as the leases and the $1 million bonus, should be disclosed to the members of Lite-Form for a vote. Carse believed that recommendation constituted making a decision under § 21-168(d)(3) to “be settled on terms approved by the committee.” - 794 - Nebraska Supreme Court Advance Sheets 311 Nebraska Reports TEGRA CORP. v. BOESHART Cite as 311 Neb. 783 5. District Court Order The district court found that Carse’s review was consistent with someone of his background as a certified public account­ ant and a certified fraud examiner and that, in the court’s opinion, “he reviewed the claims of [Tegra], did a records review, and found enough to recommend that the parties attempt settlement.” The court ultimately found that the Committee acted “with enough disinterested independence and good faith to support a determination that the parties attempt to settle these claims.” Still, the court took issue with the fact that the Committee had made a recommendation directly beneficial to the Boesharts, who chose Carse. And the court believed it was beyond the statutory authority of the Committee to send matters to the members for a majority vote, because, [b]eyond the fact that these recommendations would seem to put [the Boesharts], accused of self-dealing, in a position to act in their own best interest and to the detriment of [Tegra] and its other members, there is no language in §21-168(d) that allows the [Committee] to make recommendations for [Tegra] to complete. Thus, the court stated, “The [Committee] was authorized by statute to choose one of four options, it chose settlement, and the additional recommendations of the [Committee] will not be considered by this Court.” The court ordered the parties to attempt mediation of the claims outlined in the operative complaint. The court gave the parties 30 days to choose a mediator, and if no mediator could be agreed upon, the court stated it would determine the mediator. The court stated that “[u]pon conclusion of Mediation, the [Committee] is Ordered to report to the Court the outcome of the mediation and make further recommendations per §21-168.” It scheduled a status hearing for September 20, 2021. - 795 - Nebraska Supreme Court Advance Sheets 311 Nebraska Reports TEGRA CORP. v. BOESHART Cite as 311 Neb. 783