Court Opinion

ID: 8038488
Source: CourtListenerOpinion
Date Created: 2022-09-09 03:23:43.590173+00
Date Added: 2024-06-11T16:37:13.721955
License: Public Domain

Yeager and Chappell, JJ.,
and Ellis, District Judge,
dissenting.
The majority opinion confirms the power and authority of the directors of the Society to make the lease in question and finds no fault with the decision of the directors that it was to the best interests of the Society and its members for it to get out of the radio broadcasting business.
The opinion finds that there was no actual fraud and otherwise disposes of all the contentions of the plaintiff favorably to the defendants with the exception of the contention that “leg'al” or constructive fraud is established by the record.
With reference to constructive fraud, this contention, along with all the others made by the plaintiff, involved and placed upon him the burden of proving the same by a preponderance of the evidence.
At the plaintiff’s rest there was utterly no proof to sustain any of plaintiff’s allegations. If a motion for judgment had been made at that point, it seems wholly improbable that any trial judge would have hesitated to have sustained such motion and entered judgment of dismissal. However, the defendants expressly refrained from entering such a motion, expressly indicated a desire to completely *424refute the charges that had been made against them, and then proceeded voluntarily to put in all of the facts and details surrounding the transaction in question.
This attitude on the part of the defendants certainly justifies the inference that they were not conscious of any wrongdoing but rather had a confidence that their action was entirely open and aboveboard and justified by the circumstances.
With reference to the record itself, there is no direct evidence whatsoever that supports any of the plaintiff’s charges. On the other hand, the overwhelming weight of the evidence (in nearly all instances uncontradicted) shows the following:
1. The long-held judgment of several members of the board of directors of the Society that the radio station was foreign to and not beneficial to the Society. This judgment was unanimous after 1937.
2. The unquestionable threat of taxation proximately caused by and contributed to by the untaxed profits from the station. This was not a threat based on speculation or conjecture alone but was real in form of legislative proposals and bills and actual suits involving more than $1,000,-000. (This threat of tax legislation proximately caused by or contributed to by the profits from the radio station and prejudice to the primary interest and business of the Society was sufficiently real that if the officers and directors had not been prompted to an effort to eliminate this cause they would have been subject to severe criticism on the ground that they had failed in the discharge of their duties as trustees to the members of the Society.)
3. The peculiar uncertainties, threats and hazards of the broadcasting business.
4. Completely overcomes any inference based on the difference between the income from the Society’s operation of the station and the rental under the lease.
5. The return to the Society under the lease appears to be greater than could be realized from outright sale.
6. Uncontradicted and overwhelming expert opinion that the rental is adequately compensatory.
*4257. Completely disproves and overcomes every allegation and insinuation that the officers and directors, of the Society had any personal interest in the lessee corporation or stood to profit personally in any way whatsoever from its lease and operation of the station.
In this state of the record the majority opinion is left to rest on just two things — (a) Bradshaw’s, interest in John Gillin and (b) dissatisfaction with the terms of the lease. With reference to the first, the evidence is overwhelming in establishing Gillin’s ability, capacity and standing in the radio field.
When Bradshaw’s statements are considered with the context of his testimony, they do not support an inference of ulterior purpose but rather disclose a perfectly normal and proper reason for wanting Gillin to be in any organization taking over the station. There is no evidence that the personal relationship between Bradshaw and Gillin was any other or different than that which would exist between any appreciative employer and a valued, competent and loyal employee. Bradshaw’s statements about Gillin should be considered not only in the light of his success in operating .the station but also in the light of other facts as, for instance, Cowles’s testimony that at one time he attempted to persuade Gillin to leave WOW and enter his employ.
It should also be noted that Carl A. Swanson testified he had known Gillin for a long time and wanted to help him if he could. Also, that Gillin was to. have a one-fourth interest in the organization if the Swansons made a deal for the station and that the Swansons were to put up the money.
With reference to the dissatisfaction of the majority with some of the terms of the lease, it is interesting to note that Erickson would have insisted, under a lease arrangement, that the Society pay for the installation of television equipment. And also that the Swansons would not have entered into a lease without an option to buy at the termination of the lease for a nominal sum. This evidence serves to illustrate that no lease is likely to contain only those provisions which are to the advantage of one of the parties.
*426The advantages of the lease under attack over a lease containing either one or both of the provisions which other prospective lessees would have insisted on is apparent. Under the lease in question the Society continues to own the reversion unincumbered by any option and with assurance that the physical equipment will be maintained and modernized apace with technical developments in the industry, all of which would seem to enhance the opportunity of the Society to sell the reversion and thus entirely remove the Society from the radio business.
In the final analysis it seems apparent that the finding of constructive fraud by the majority must be and is ultimately based upon an inference of inadequacy of the rental consideration reserved in the lease and this inference must rest solely on the difference between the amount of net income received by the Society from its operation of the station and the rent it will receive under the lease. This must necessarily be true because all other phases of the matter such as the decision to lease and terms and conditions of the lease are conceded by the majority to fall within the dis-. cretion and wisdom of the directors and are not subject to judicial interference in the .absence of fraud. It will be noted that the majority opinion holds with' reference to the belated motion of plaintiff for alternative relief requiring modification of the terms of the lease that these matters are within the discretion of the directors and that the court will not interfere.
In any comparison of these income figures, it must be borne in mind that had it not been' for the rare and peculiar exemption of the Society from federal income taxes, the net income of the Society from its. operation of the station would have been very substantially reduced. It was the advantage of this very exemption over others engaged in the same type of commercial business which aroused prejudice against the general exemption in favor of the Society and other similar institutions and created the threat of legislation to remove the exemption — a threat which at least involved the possibility of injury to the best interests of the *427members of this Society far beyond the loss of income represented by the difference between the income from the station operated by the Society and the rental.
The record, as well as common knowledge, overwhelmingly indicates the improbability, if not the utter impossibility, of finding either a buyer or a lessee of the station not subject to the burden of federal taxation. Therefore, in comparing the value of the station to the'Society on an income basis with the value that might be realized on a sale or rental under a lease, it seems elementary that consideration must be given to the fact that the station could not be comparably profitable to any available buyer or a lessee and that this inescapable fact would be reflected in any bid or rental offer that might be made.
In this situation the plaintiff, having the burden of proof, offered no direct evidence ivhatever that the rental reserved under the lease attacked was inadequate. Neither did the plaintiff offer any evidence as to the fair market value of this station for whatever help such evidence might be in reasoning from such value to any adequate or fair rental. As before stated, there is nothing in the plaintiff’s case to support the inference of inadequate rental consideration and in turn the constructive fraud inferred therefrom except the difference in’income.
Against this, the evidence presented by defendants discloses the following: The matter of this lease was referred to a committee of the board of directors of the Society, the members of which met by themselves, considered the matter for two days with all the facts before it and reported to the whole board recommending the lease. Following this, the whole board unanimously approved the lease. The board is composed of 14 members, sevéral of them from scattered points in the United States, and there is nothing in the record that would justify any other assumption than that all members of the board are conscientious, representative and capable men. In addition to the 14 judgments thus represented, three business men of Omaha who are members of the Society expressed their opinion approving the lease.
*428Messrs. Carl A. Swanson and. Gilbert Swanson, who do not appear to have been interested in the Society and who do not appear to have been engaged in the radio business, but who appear to be successful business men and who made some investigation of the business and the federal tax angle as a result of some negotiations looking either to the purchase or lease of the station, testified that in their opinion the rental under the lease was adequate.
In addition to this evidence, the defendants introduced the testimony of six men, all experienced in the ownership* management and operation of radio stations in widely separated parts of the country. Among these witnesses were Niles Trammell, president of the National Broadcasting Company, and Joseph H. Ream, vice-president of Columbia Broadcasting System. All of these witnesses, with broad background of experience in a highly specialized and limited field testified that the rental value was adequate. Several expressed the opinion that the rental was not only adequate “but high” and “more than could be secured by rental to other people in the radio industry.”
None of the opinions of 25' men thus reflected by the record was impeached in any way and this evidence stands uncontradicted.
In this state of the record we are unable to agree with the conclusion of the majority that the court is justified in inferring constructive fraud.
Recognizing the importance and value of inferences in the determination of disputed facts and that there are many instances in trials where inferences are permitted to overcome positive and direct testimony, we think the latter is only justified where the strength of the inferences clearly overcomes the opposing evidence or where the force of the inference is irresistible and destroys the very credibility of the direct evidence.
Inferences ought to spring directly, naturally and irresistibly from proved facts. In view of the undisputed impact of federal taxes upon the profits of any operator of the station in question other than one enjoying the exemption *429of the Society, and the resulting absence of any basis for a rental comparable to the Society’s income, it is seriously doubted whether any inference whatever from this difference is justified. The proved fact basis is entirely lacking.
In any event, as stated in 32 C. J. S. 1129,1133, sec. 1044: “An inference is unjustified and without probative force if it is inconsistent with undisputed or clearly established facts, or is contrary to direct, positive, and uncontradicted testimony. Evidence which is consistent with direct, positive, and otherwise uncontradicted testimony that a fact does not exist will not support an inference that it does, and an inference should not be adopted from a few of the facts proved when it is absolutely inconsistent with, and repelled by, other equally well proved facts.”
The result of the majority opinion is to place the problem of disposing of the radio station back in the hands of the directors of the Society with their power to sell or lease confirmed and their judgment that it is to the best interests of the Society to get out of the broadcasting business unquestioned.
This will neither enlarge the field of prospects nor change the character of possible buyers or lessees. Neither will it overcome the inexorable economic fact that any purchase price or rental will be reduced in amount to compensate for the effect upon possible profits of federal taxes. If, to escape judicial condemnation, the purchase price or rental must be directly comparable to the basis of profits to the Society, the directors are faced with great difficulty in executing their judgment if not an absolute bar.
No one can say with positive assurance that this Society will sustain benefit or suffer detriment from the condemnation of the lease in question. Absolute assurance of the wisdom of any major business decision, whether made by an individual or corporate agents, is seldom afforded at the time. Hindsight is all too frequently the unpleasant reminder of mistakes in judgment. The result of the judgment following the majority opinion is essentially a decision of a problem of business or economic character and not *430of legal character. It is a venture into a field in which the courts are obviously without adequate experience or equipment. Such decision is easily rendered and will have the virtue of arbitrary finality. This, however, will not exempt it from the inexorable review of time and future developments. It will not be immune from that same hindsight to which all such decisions are subject. Its inherent unsoundness lies in the fact that if time indicates error the maker of the decision is without opportunity or power to move to avoid the consequences. These things are the basis of the rules quoted in the majority opinion from Royal Highlanders v. Wiseman, 140 Neb. 28, 299 N. W. 459, and Price v. Fraser, 119 Neb. 806, 231 N. W. 18.
The risk that the affirmance of this lease would deprive the members of the Society of a chance of better disposition of this property, if present, is insignificant when compared to the danger to them and all other citizens of the precedent of judicial determination which ignores the overwhelming weight'of competent evidence.
We find confirmation of our opinion that the plaintiff wholly failed in sustaining- the burden of proof to- justify any inference of constructive fraud in the other contention of plaintiff mentioned at the outset. At the close of the case and after the announcement by the trial court that his findings would be against the plaintiff, the latter filed a motion for leave to amend the prayer of his petition. With reference to this the plaintiff says in his brief: “The substance of his proposed amendment was that in the event only that the court determined that the officers and directors of the Society had the right to enter into a lease of the station, the court then require as a condition of its approval, that such lease be modified to protect and safeguard the interests of the Society and its members in certain respects then mentioned.” The suggested modifications included a substantial increase in the rental.
This motion seems to clearly disclose recognition by the plaintiff that he had wholly failed to sustain the burden of proof of either actual or constructive fraud and that the di*431rect proof to the contrary was overwhelming. Otherwise the plaintiff has suggested no tenable, legal basis upon which this court could rewrite the lease and bind the lessee thereto.
With reference to Mr. Gillin, his interest in the lessee, and the consideration therefor, he was not an officer of the lessor and what interest he has in the lessee, as well as what he paid for it, seems to be a matter between him and his associates and wholly immaterial to the issues involved. He had been a valuable employee of the Society and the lease of the station left no place for him in the Society. We are reluctant on the record to infer an ulterior purpose from what with equal force appears to have been no more than a decent desire to see him satisfactorily placed. The record gives full credit to him for the successful financial operation of the station by the Society during the later years. The evidence of his ability and valuable contacts in the radio field is overwhelming and undisputed. In view of these facts it seems that Bradshaw’s apparent interest in having Gillin in the lessee organization was entirely proper since it directly tended to provide assurance of the success of the lessee and therefore the best possible security for performance of the covenants of the lease.
The escape clauses in the lease in case of the station being taken over by the government or cancellation of the license seem to be no more than sound business provisions which any prudent and experienced business person would insist on with the firm support of his own counsel. It must be borne in mind that the lessee under penalty of forfeiture must keep the station equipment in first class and modern operating condition so that upon its return to the Society in any event the station will be unimpaired from an operating standpoint.
The other provisions of the lease, reflecting in this case as they do in every such instrument the composition of efforts of each party to have as many favorable and as few burdensome ones as possible, cannot, we think, be said to be either so unusual or improvident as to- justify any inference-of fraud.
*432It is our opinion that this record wholly fails to disclose any basis justifying the court in disregarding the rule that in the absence of fraud, “ * * * the wisdom and expediency of corporate business policies and the methods of executing them are left to the discretion and decision of the board of directors.” Royal Highlanders v. Wiseman, 140 Neb. 28, 299 N. W. 459.
Heard before Paine, Carter, Messmore, Yeager, Chappell and Wenke, JJ.
Carter, J.
Our first opinion in this case will be found, ante, p. 406, 13 N. W. 2d 556. In that opinion we determined that the lease of the radio station, which was the subject matter of the action, was made and procured as the result of constructive fraud. The facts upon which this, holding was based are set out in the former opinion and will not be repeated here. The lease was thereupon set aside and directions given ordering the restoration of the property to the Wood*433men of the World Life Insurance Society, the owner and lessor. Motions for a rehearing have been filed which raise certain questions not heretofore presented that are deserving of consideration.
It is urged by the defendants that the issue of constructive fraud was not pleaded and that the holding of the court that the lease should be set aside because of constructive fraud constitutes a fatal variance from the pleadings. The petition meticulously recites the facts and prays for a decree declaring the lease to be illegal and void because of fraud and ordering cancellation and termination of the same, and for such other, further and different relief as equity and justice may require. Neither the words “actual” or “constructive” were used in connection with the charging of fraud in plaintiff’s petition. Under our system of Code pleading, a petition is required to contain a statement of the facts constituting the cause of action in ordinary and concise language. Comp. St. 1929, sec. 20-804. Legal conclusions as to the nature of the action are not required and are not considered good pleading. State ex rel. Johnson v. Wagner, 139 Neb. 471, 297 N. W. 906. The character of a cause of action is determined by the allegations of fact contained in the petition, unaffected by the conclusions of the pleader. An authoritative text states the rule as follows: “Generally, however, it may be said, that the essential character of the cause of action and the remedy or relief it seeks, as shown by the allegations of the complaint, determine whether a particular action is at law or in equity, unaffected by the conclusions of the pleader or by what the pleader calls it, or the prayer for relief, or the nature of the defense interposed, or new matter stated in the reply, or whether the action is statutory or otherwise.” 1 C. J. S. 1152, sec. 54. The prayer of the petition asks for general equitable relief and is not, therefore, so restrictive as to preclude the holding that constructive fraud exists. In School District No. 70 v. Wood, ante, p. 241, 13 N. W. 2d 153, we said: “A prayer for general relief in an equity action is as broad as the pleadings and the equitable powers of the court.”' In *434the same case we also said: “A prayer for general relief in an equity action is sufficient to authorize any judgment to which the party is entitled under the pleadings and evidence, even though he may have misconstrued his remedy and prayed specially for lesser relief.” A constructive fraud is usually defined as “a breach of duty which, irrespective of moral guilt, the law declares fraudulent because of its tendency to deceive, to violate confidence, or to injure public interests.” 37 C. J. S. 211, sec. 2c. Constructive fraud generally arises from a breach of duty arising out of a fiduciary or confidential relationship. An examination of the pleadings and the evidence reveals the correctness of the holding in our former opinion that a constructive fraud was sufficiently pleaded and proved by the evidence. Consequently, the claim of defendants that such a holding constitutes a fatal variance from the pleadings and the evidence is without merit.
Defendants urge that the subject matter of this action is solely within the jurisdiction of the Federal Communications Commission Act, subchapter I to subchapter VI, inclusive, of chapter 5, Title 47, U. S. C. A., and that this court is therefore without jurisdiction to pass upon the issues raised herein. This contention is in part based upon the interpretation placed by them upon that part of our former opinion as follows: “It is therefore ordered that the lease to the station, the lease to the space occupied by the station and the transfer of the license to operate the station be vacated and set aside. * * * that the license to operate the station be returned and that lessee is directed to do all things necessary for that purpose; that'generally everything be done to restore the parties to their original position prior to the entering into the leases; * * * .”
We conclude at the outset that the power to license a radio station, or to transfer, assign or annul such a license, is within the exclusive jurisdiction of the Federal Communications Commission. Such a license is a-permissive grant of a privilege and creates no vested property right in the licensee. Federal Communications Commission v. Sanders *435Bros. Radio Station, 309 U. S. 470, 60 S. Ct. 693; American Bond & Mtg. Co. v. United States, 52 Fed. 2d 318. But the right of the Federal Communications Commission to license and to require compliance with the regulations of the commission does not deprive the state courts of jurisdiction to hear and decide all other property rights in a radio station and the rights of parties incident thereto. It is true that the Federal Communications Commission may refuse to ap-, prove the reissuance of a license to the Woodmen of the World Life Insurance Society. That is a hazard that every radio station operator must take. It is a matter that does not concern this court and is not involved in the decision of the-case now before us. In any event, it leaves the Woodmen of the World Life Insurance Society in no different position than if it were obliged to take the station back under the express terms of the lease. The effect of our former opinion was to vacate the lease of the radio station and to order a return of the property to its former status, the question of the federal license being a question solely for the Federal Communications Commission. Our former opinion should be SO' construed.
The claim of defendants that the court has no jurisdiction of the subject matter of the action is contrary to the pleadings filed by the defendants in the trial court. In their answers the defendants say: “Defendants further allege that the Federal Communications Commission by virtue of the laws of the United States of America and its rules and regulations made pursuant thereto, has and concedes that it has no jurisdiction over the subject matter of plaintiff’s action, except jurisdiction to determine the transfer of the license to operate said radio station * * * .” We think this allegation correctly recites the jurisdiction of the state courts in relation to the jurisdiction of the Federal Communications Commission. Our former opinion, correctly interpreted, we think, states the same conclusion. In any event, the trial court and consequently this court, has no power to set aside or vacate the license of the Federal Communications Commission to operate the radio station, that being a matter ex*436clusively within the granted powers of the commission. Southern Broadcasting Corporation v. Carlson, 187 La. 823, 175 So. 587. It was not our understanding that there was any contention to- the contrary. Any statements in our former opinion on this subject are therefore to be construed in accordance with this opinion.
The claim that this was an action essentially to annul or set aside an order of the Federal Communications Commission is wholly without merit. It is a representative suit brought by one member of the society on behalf of all to protect the interests of all from loss resulting from a lease of valuable property of the society alleged to' have been fraudulently made. The fact that the property involved was used in a licensed business was an incident to the suit only. The answer of the defendants, heretofore quoted, squarely contradicts the position they now endeavor to assume. Their position is unsound on its merits and, in addition thereto, it was eliminated from the case by the pleadings- they filed in their own behalf .
Defendants also contend that the former opinion and judgment of this court are void because they contravene section 1 of the Fourteenth Amendment to the Constitution of the United States in that they deprive these defendants of their liberty and property without due process of law and that they deny them, the equal protection of the laws. It is also asserted that such opinion and judgment contravene section 3, article I of the Constitution of the State of Nebraska in that they deprive defendants of their liberty and property without due process of law.
These questions were not raised in the lower court. They appear nowhere in the pleadings and are for the first time asserted in the motions for a rehearing after an opinion and judgment were entered. This court has repeatedly held that constitutional questions will not be considered unless raised in the trial court. Bell v. Niemann, 127 Neb. 762, 257 N. W. 69; Howarth v. Becker, 128 Neb. 580, 259 N. W. 505. It is a fundamental rule that the appellate jurisdiction of this court is limited to a review of the rulings of in*437ferior tribunals duly excepted to at the time and to a correction of those which are found to be erroneous ; not the consideration of questions first raised after the case is brought here, except they be those involving jurisdiction. This has been the law since this court was first established and we see no reason for departing from it now. See Courtnay v. Price, 12 Neb. 188, 10 N. W. 698.
All other questions raised are properly and adequately disposed of in our former opinion. The former opinion is adhered to and the motion for a rehearing is denied.
Yeager and Chappell, JJ., dissent.