In June of 2022, the Nebraska Supreme Court found it was without jurisdiction over an appeal because a district court’s order for mediation and further determination is not considered a final judgment. Tegra Corp. v. Boeshart, 311 Neb. 783 (2022). The decision stemmed from a dispute over what authority a committee has under Neb. Rev. Stat. § 21-168, which governs special litigation committees for corporations, and whether that authority was analyzed with regard to Neb. Rev. Stat. § 25-1902, which defines a final order.
Patrick Boeshart is the president and sole manager of Lite-Form Technologies, LLC, based in Sioux City, Nebraska. Tegra, 311 Neb. 783 at 787. His wife, Sandra, is the office manager and bookkeeper. Id. Boeshart Management Company is an Iowa LLC owned by Patrick and Sandra. Id. Pat Boeshart Construction is an Iowa LLC that is wholly owned by Patrick. Id. Tegra Corporation is an Iowa corporation in Sioux City, Iowa, and is a minority shareholder of Lite-Form. Id.
Tegra, individually and on-behalf of Lite-Form, filed a complaint against the Boeshart’s alleging breach of fiduciary duty, misappropriation and waste of corporate assets, unjust enrichment, and conversion. Id at 788. Based on Tegra’s claims and pursuant to Neb. Rev. Stat. § 21-168, the manager-defendants appointed Cody Carse to the special litigation committee for the corporation. Tegra, 311 Neb. 783 at 788. Carse determined that it was in Lite-Form’s best interests to settle. A term of settlement included disclosing certain issues to the LLC members and conducting a majority vote on how the issues should be resolved. Id at 792.
When the District Court reviewed the committee’s report, it found the committee acted with enough disinterested independence and good faith, but that its recommendations went beyond the authority of a committee under Neb. Rev. Stat. § 21-168. Tegra, 311 Neb. 783 at 794. The District Court ordered the parties to attempt mediation and report back. Id. Tegra appealed the order and the defendants cross-appealed. Id.
The Supreme Court selected this case to address the scope of final judgments under Neb. Rev. Stat. § 25-1911 and how they apply to the Court’s jurisdiction. First, the Court determined that to be appealable, the order in question must satisfy the requirements of Neb. Rev. Stat. § 25-1902 and when applicable, Neb. Rev. Stat. § 25-1315(1). Id at 796. Under § 25-1315, an express determination by the court about lack of reason for delay in making a final judgment must exist which would be “fatal to [the Court’s] jurisdiction over the appeal.” Id at 798. The Court found there was no express determination here. Further, the Court found the order was not final under § 25-1902. Id.
To determine if the order to mediate was final under § 25-1902, the Court analyzed whether a derivative action is a “special proceeding” that “affected a substantial right.” Id. A special proceeding includes every special statutory remedy that is not in itself an action. While the plea may be connected with an action through application of the proceeding, it is not the integral part of an action. Id at 799. Prior to Tegra, the Court had not addressed if a derivative action was a special proceeding. The Court stated they “will no longer reason that a proceeding is special by the sole virtue of being governed by statutes outside of chapter 25.” Id at 802.
Ultimately, the Court concluded derivative actions are not special proceedings, but an equitable proceeding a member asserts on behalf of the LLC. Id at 802. While a derivative action requires the extra steps of making a demand of other members to enforce the right and requires the complaint to state a demand or state the action is futile, the derivative action is an action nonetheless. Id. The derivative action is a proceeding in a court by which one party prosecutes another for enforcement. It is still possible that orders under § 21-168 are made during a special proceeding, but this is because a special proceeding may be “connected with” an action; not because it, in itself, is an action. Id at 803. Whether a special proceeding is connected with an action or is an action depends on whether the proceedings under § 21-168 are an integral part of the main derivative action or just one of the many steps taken to commence the action. Id.
The four options available to a committee under § 21-168 are: (1) the action continue under the control of the minority-member plaintiff who brought it, (2) the action continue under the control of the committee, (3) the action be settled on terms approved by the committee, and (4) the action be dismissed. Id at 806. After analyzing the four options, the Court determined any proceedings under § 21-168 are just a step in the underlying derivative action and not itself an action. Therefore, orders made pursuant to § 21-168 are not made during a special proceeding. Id at 807.
The Court also held an order under § 21-168 does not impact a substantial right. Id. A substantial right is “an essential legal right...[that is] affected if an order affects the subject matter of the litigation, such as by diminishing a claim or defense that was available to an appellant before the order from which an appeal is taken.” Id at 807. Determining whether an order is substantial depends on if it affects, with finality, the rights of the parties in the subject matter. Id at 810. The Court held that enforcing special litigation committee determinations lead to final judgments, but their effect as independent orders is limited in duration and any delay in their enforcement does not affect any substantial right. Id.
Both parties in this suit attempted to argue the Court’s order of mediation exceeded its authority, but the Supreme Court found it did not affect a substantial right because any alternative dispute resolution is voluntarily entered into. Id at 811.
Ultimately, the Court found the order of the lower court was not a final order because there was not a “special proceeding” that “affected a substantial right.” This means reviewing courts’ rulings issued about a corporate committee decision under § 21-168 are not part of special proceedings for purposes of the final order doctrine. Id at 812.
The Nebraska Supreme Court continues to clarify and update its stance on final orders for purposes of appeals. Erickson | Sederstrom’s litigation attorneys are well-versed in this law and happy to review any appeal issues for clients in the region as lead counsel, for out-of-state attorneys as local counsel, or for Nebraska attorneys needing expert appellate co-counsel for their clients’ matters.
** This article was researched and primarily written by E|S law clerk Amelia Rens. Amelia is starting her third year at Creighton University School of Law and will join E|S as an associate attorney in the fall of 2023 after becoming licensed. We look forward to it! **