Nathan v. McDermott , 306 Neb. 216 ( 2020 )

Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
09/18/2020 01:08 AM CDT
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306 Nebraska Reports
NATHAN v. McDERMOTT
Cite as 306 Neb. 216
Patrick S. Nathan and Kelsey M. Nathan,
appellants and cross-appellees, v. Jason McDermott
and Brandon Hoy, appellees and cross-appellants,
and Chris Nielsen and Results Business
Advisors LLC, appellees.
___ N.W.2d ___
Filed June 26, 2020. No. S-19-637.
1. Appeal and Error. To be considered by an appellate court, an alleged
error must be both specifically assigned and specifically argued in the
brief of the party asserting the error.
2. Summary Judgment: Appeal and Error. An appellate court will affirm
a lower court’s grant of summary judgment if the pleadings and admit-
ted evidence show that there is no genuine issue as to any material facts
or as to the ultimate inferences that may be drawn from those facts and
that the moving party is entitled to judgment as a matter of law.
3. ____: ____. In reviewing a summary judgment, the court views the
evidence in the light most favorable to the party against whom the
judgment was granted and gives such party the benefit of all reasonable
inferences deducible from the evidence.
4. Contracts. The interpretation of a contract and whether the contract is
ambiguous are questions of law subject to independent review.
5. ____. A contract written in clear and unambiguous language is not sub-
ject to interpretation or construction and must be enforced according to
its terms.
6. Contracts: Words and Phrases. A contract is ambiguous when a word,
phrase, or provision in the contract has, or is susceptible of, at least two
reasonable but conflicting interpretations or meanings.
7. Contracts. A determination as to whether an ambiguity exists in a
contract is to be made on an objective basis, not by the subjective
contentions of the parties; thus, the fact that the parties have suggested
opposite meanings of a disputed instrument does not necessarily compel
the conclusion that the instrument is ambiguous.
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8. Contracts: Fraud: Election of Remedies. A party who fraudulently
induces another to contract and then also refuses to perform the contract
commits two separate wrongs, so that the same transaction gives rise to
distinct claims that may be pursued to satisfaction consecutively.
9. Pleadings: Actions: Contracts: Torts. To determine whether an action
is based on a contract or a tort, a court must examine and construe the
petition’s essential and factual allegations by which the plaintiff requests
relief, rather than the legal terminology utilized in the petition or the
form of the pleading. Consideration must be given to the facts which
constitute the cause of action.
10. Pleadings: Actions: Breach of Contract: Torts. If the petition con-
tains a cause of action for breach of contract, additional averments
appropriate to a cause of action for a wrong will not change the action
from contract to tort, and if there is a doubt as to the character of the
action, it will be resolved in favor of an action in contract. In such an
instance, the statements appropriate to an action in tort will be consid-
ered surplusage.
11. Promissory Notes: Words and Phrases. Absent a defense, a promis-
sory note is ordinarily a stand-alone, unqualified, enforceable promise
to pay.
12. Pleadings: Proof. The burden of both pleading and proving affirmative
defenses is upon the defendants, and when they fail to do so, they cannot
recover upon mere argument alone.
13. Limitations of Actions: Recoupment. The defense of recoupment
survives as long as a plaintiff’s cause of action exists, even if affirma-
tive legal action upon the subject of recoupment is barred by the statute
of limitations.
14. Actions: Recoupment. Recoupment must arise out of the same trans-
action or occurrence which is the basis of a plaintiff’s action and is
merely defensive, that is, does not seek an affirmative judgment in the
action.
15. Claims: Recoupment: Proof. To state an affirmative defense of recoup-
ment, the defendant must prove the elements of his claim and that it
occurred in the very same action as the plaintiff’s claim against him.
16. Fraud: Proof. A fraudulent misrepresentation claim requires a plaintiff
to establish the following elements: (1) A representation was made; (2)
the representation was false; (3) when made, the representation was
known to be false or made recklessly without knowledge of its truth and
as a positive assertion; (4) the representation was made with the inten-
tion that the plaintiff should rely on it; (5) the plaintiff did so rely on it;
and (6) the plaintiff suffered damage as a result.
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17. Negligence: Fraud. Negligent misrepresentation has essentially the
same elements as fraudulent misrepresentation with the exception of
the defendant’s mental state.
18. ____: ____. In both negligent and fraudulent misrepresentation cases,
whether the plaintiff exercised ordinary prudence is relevant to whether
the plaintiff justifiably relied on the misrepresentation when the means
of discovering the truth was in the plaintiff’s hands.
19. Fraud. A plaintiff is justified in relying upon a positive statement of fact
if an investigation would be required to discover the truth.
20. ____. In determining whether an individual reasonably relied on a
misrepresentation, courts consider the totality of the circumstances,
including the nature of the transaction; the form and materiality of the
representation; the relationship of the parties; the respective intelligence,
experience, age, and mental and physical condition of the parties; and
their respective knowledge and means of knowledge.
21. Motions to Dismiss: Pleadings: Appeal and Error. A district court’s
grant of a motion to dismiss on the pleadings is reviewed de novo,
accepting the allegations in the complaint as true and drawing all rea-
sonable inferences in favor of the nonmoving party.
22. Principal and Agent. Agency is the fiduciary relation which results
from the manifestation of consent by one person to another that the
other shall act on his or her behalf and subject to his or her control, and
the consent of the other to so act.
23. ____. An agent and principal are in a fiduciary relationship such that
the agent has an obligation to refrain from doing any harmful act to the
principal, to act solely for the principal’s benefit in all matters connected
with the agency, and to adhere faithfully to the instructions of the prin-
cipal, even at the expense of the agent’s own interest.
24. Pleadings: Evidence: Trial. A party may at any and all times invoke the
language of his opponent’s pleadings on which the case is being tried on
a particular issue as rendering certain facts indisputable.
25. Pleadings: Evidence: Waiver. The pleadings in a cause are not a means
of evidence, but a waiver of all controversy, so far as the opponent
may desire to take advantage of them, and therefore, a limitation of
the issues.
26. Principal and Agent. As a general rule, where an obligation is that of a
principal, a court cannot enforce the obligation against the agent as long
as he or she is merely acting as agent.
27. Principal and Agent: Liability. An agent may be held liable for the
agent’s conduct, such as misrepresentation of a material fact, during a
transaction on behalf of the principal.
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NATHAN v. McDERMOTT
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28. ____: ____. An agent can be held liable if the agent makes some repre-
sentation or performs some act on the agent’s own responsibility without
authorization from the principal.
29. Attorney Fees: Appeal and Error. On appeal, a trial court’s deci-
sion awarding or denying attorney fees will be upheld absent an abuse
of discretion.
30. Judges: Words and Phrases. A judicial abuse of discretion exists when
the reasons or rulings of a trial judge are clearly untenable, unfairly
depriving a litigant of a substantial right and denying just results in mat-
ters submitted for disposition.
31. Actions: Attorney Fees: Words and Phrases. A frivolous action is one
in which a litigant asserts a legal position wholly without merit; that is,
the position is without rational argument based on law and evidence to
support the litigant’s position.
32. Attorney Fees: Words and Phrases. The term frivolous connotes an
improper motive or legal position so wholly without merit as to be ridic-
ulous. Any doubt about whether a legal position is frivolous or taken in
bad faith should be resolved in favor of the one whose legal position is
in question.
Appeal from the District Court for Douglas County: Leigh
Ann Retelsdorf, Judge. Affirmed.
James D. Sherrets and, on brief, Jared C. Olson, of Sherrets,
Bruno & Vogt, L.L.C., for appellants.
Scott D. Jochim and Matthew W. Harris, of Croker,
Huck, Kasher, DeWitt, Anderson & Gonderinger, L.L.C., for
appellees.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke,
Papik, and Freudenberg, JJ.
Cassel, J.
I. INTRODUCTION
The buyers of a business pursuant to a written purchase
agreement sued the sellers and their agents on various contract
and tort theories, and the sellers counterclaimed for amounts
owing under promissory notes. From a dismissal under Neb.
Ct. R. Pldg. § 6-1112(b)(6) of the agents and a summary
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NATHAN v. McDERMOTT
Cite as 306 Neb. 216
judgment for the sellers, the buyers appeal. The sellers cross-
appeal the denial of attorney fees.
We resolve three broad issues. First, because the agreement’s
indemnification clause—particularly, the word “aware”—was
unambiguous and the misrepresentation claim arose from iden-
tical facts, undisputed facts supported the summary judgments
for the sellers. Second, where the complaint admitted the
agency relationship with the sellers, the agreement incorpo-
rated in the buyers’ complaint disclaimed reliance on the
agents’ representations, and the complaint lacked an allegation
of action beyond the scope of the relationship, the complaint
stated no claim against the agents. Third, the trial court, resolv-
ing doubt of the buyers’ legal positions in their favor, did not
abuse its discretion in denying attorney fees to the sellers. We
affirm the judgment below.
II. BACKGROUND
In this section, we summarize only the central facts and pro-
cedures. Additional background will be set forth in the analy­
sis section.
Jason McDermott and Brandon Hoy were the sole for-
mer shareholders of Nebraska Medical Mart II, Inc. (NMM).
In April 2015, McDermott and Hoy hired Results Business
Advisors LLC (RBA) to broker a sale of NMM. Chris Nielsen
of RBA represented McDermott and Hoy.
In June 2015, Patrick S. Nathan and Kelsey M. Nathan
communicated with RBA and entered into negotiations for the
purchase of NMM. During the negotiations, most communica-
tions with the Nathans went through Nielsen. During the due
diligence period, McDermott and Hoy sent several financial
statements to the Nathans. These statements were unaudited.
In July 2015, the Nathans executed an agreement with
McDermott and Hoy to purchase all the shares of NMM for
$1.1 million. The Nathans paid $990,000 at the time of clos-
ing and executed promissory notes to McDermott and Hoy for
the remaining balance. McDermott’s promissory note was for
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NATHAN v. McDERMOTT
Cite as 306 Neb. 216
$66,000, and Hoy’s note was for $44,000. The Nathans made
no payments on the promissory notes.
The district court’s order stated, “After gaining control of
NMM, the Nathans reviewed NMM’s books and financial
records and discovered that the information and documents
provided during negotiations contained misrepresentations
about NMM’s financial situation.” In mid-October 2015, the
Nathans emailed documents detailing the financial discrepan-
cies to their attorney. In mid-December 2015, the Nathans’
attorney sent a formal notice of their claims and a demand for
indemnification to McDermott and Hoy.
In the amended complaint, the Nathans sought damages for
breach of contract, bad faith, misrepresentation, and breach of
fiduciary duty against McDermott, Hoy, RBA, and Nielsen. In
McDermott and Hoy’s answer, they counterclaimed for breach
of contract concerning the promissory notes.
The parties filed several motions. RBA and Nielsen filed a
motion to dismiss the Nathans’ complaint for failure to state a
claim. McDermott and Hoy filed a motion for summary judg-
ment on all claims and counterclaims and sought attorney fees.
The Nathans filed a motion for partial summary judgment on
their claims against McDermott and Hoy.
The district court granted RBA and Nielsen’s motion to dis-
miss. The district court granted McDermott and Hoy’s motion
for summary judgment on all claims and counterclaims. It
denied McDermott and Hoy’s motion for attorney fees.
The Nathans moved to alter or amend the district court’s
order on summary judgment. The court granted the motion in
order to address the affirmative defense of recoupment but did
not modify the judgment, because, the court concluded, the
Nathans were not entitled to recoupment.
The Nathans filed a timely appeal, and McDermott and
Hoy cross-appealed. We moved the case to our docket. 1
1
See Neb. Rev. Stat. § 24-1106(3) (Cum. Supp. 2018).
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NATHAN v. McDERMOTT
Cite as 306 Neb. 216
As authorized by court rule, we submitted the case without
oral argument. 2
III. ASSIGNMENTS OF ERROR
The Nathans assign, reordered and restated, that the district
court erred in (1) granting McDermott and Hoy’s motion for
summary judgment by finding that (a) the Nathans failed to
meet the notice requirements of § 7.6 in the purchase agree-
ment and (b) § 7.6 of the purchase agreement barred the
Nathans’ misrepresentation claim; (2) awarding McDermott
and Hoy monetary damages on their motion for summary
judgment on their counterclaims; (3) disregarding the Nathans’
affirmative defense of offset, setoff, and recoupment; (4)
weighing evidence and evaluating the reasonableness of the
Nathans’ action on a motion for summary judgment; (5) grant-
ing the motion to dismiss as to RBA by finding that (a) RBA
did not owe the Nathans any fiduciary duties, (b) the claims
against RBA were barred by §§ 3.5 and 9.2 of the purchase
agreement, and (c) the Nathans could not rely on any factual
misrepresentations made by RBA regarding the purchase of
NMM; and (6) denying the Nathans’ motion for summary
judgment without a hearing.
On cross-appeal, McDermott and Hoy assign that the district
court erred in failing to sanction the Nathans for knowingly
submitting false testimony to the court and in failing to award
McDermott and Hoy attorney fees.
IV. ANALYSIS
[1] Before we delve into the parties’ arguments on appeal,
we quickly dispose of the Nathans’ last assignment of error:
The district court erred in denying their motion for sum-
mary judgment without a hearing. This assignment was not
argued in the Nathans’ brief. To be considered by an appel-
late court, an alleged error must be both specifically assigned
2
See Neb. Ct. R. App. P. § 2-111(B)(1) (rev. 2017).
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Cite as 306 Neb. 216
and specifically argued in the brief of the party asserting the
error. 3 We do not consider it.
1. Claims Involving McDermott and Hoy
(a) Additional Background
(i) Pleadings
In the amended complaint, the Nathans alleged that
McDermott and Hoy made several material misrepresenta-
tions regarding NMM’s finances, which the Nathans relied
upon to purchase NMM. They alleged that McDermott and
Hoy breached several warranties and refused to indemnify
the Nathans as the purchase agreement required. Further, they
alleged that McDermott and Hoy breached a duty of good
faith and fair dealing by making multiple misrepresentations,
breaching warranties, and refusing to indemnify. As a result of
the misrepresentations and breaches of contract, the Nathans
claimed, they suffered a loss of no less than $695,000.
In McDermott and Hoy’s answer to the amended complaint,
they asserted counterclaims for breach of promissory notes.
They alleged that they each were the holder and payee of a
promissory note, they performed and satisfied their obligations
under the notes, the Nathans defaulted on the notes by failing
to make payment when due, the Nathans failed to cure the
default, and McDermott and Hoy were entitled to payment of
the outstanding amount plus interest.
The Nathans filed a reply to McDermott and Hoy’s coun-
terclaims (styled as a response) 4 and an alleged affirmative
defense, including “setoff, offset, and recoupment against all
amounts purportedly due and owing to [McDermott and Hoy]
as a result of the misrepresentations and wrongdoing asserted
in the [amended complaint].”
3
Adair Holdings v. Johnson, 304 Neb. 720, 936 N.W.2d 517 (2020).
4
See Neb. Ct. R. Pldg. § 6-1107.
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(ii) Purchase Agreement
In the purchase agreement, McDermott and Hoy repre-
sented that all the financial statements provided were prepared
in accordance with “GAAP,” which the agreement defined
as “United States generally accepted accounting principles
consist­ently applied and maintained throughout the applicable
periods”; were complete and consistent with the books and
records of NMM; and, “in light of the circumstances under
which such statements were made, true, correct and complete
in all material aspects.”
Section 7 of the purchase agreement set forth the indem-
nification provisions. The parties agreed that except for fraud
claims, their exclusive remedy for a breach of the agree-
ment was the indemnification provisions. McDermott and Hoy
agreed to indemnify the Nathans from all losses incurred by
the Nathans or NMM resulting from “any material breach of
any representation or warranty of [McDermott and Hoy].” A
party claiming a loss under the agreement was required to send
notification “in writing within forty-five (45) days after the
[claiming party] becomes aware, or should have reasonably
been aware, of any such claim.” The agreement required the
notice to describe any claim in reasonable detail.
(iii) Evidence of Financial Discrepancies
Prior to closing, the Nathans received an email from their
lender. From NMM’s financial documents provided by the
Nathans, the lender detailed several financial discrepancies.
The balance sheets showed a negative change in net worth
of about $275,000. The lender commented that with so many
changes from year to year on NMM’s profit and loss state-
ments, “it is very hard to trust a lot of their numbers.” It
detailed that the “realtor has over calculated the actual cash
flow of the business.” It discussed that the “realtor’s” finan-
cial stabilization statement of actual cash flow and his narra-
tive cannot be supported by the income tax returns and bal-
ance sheets submitted. It noted a discrepancy based on how
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NATHAN v. McDERMOTT
Cite as 306 Neb. 216
NMM handled leased equipment and stated that the Nathans
“could find out too late that [NMM] actually did not properly
account for these lease sales and the business is not nearly
as profitable as [NMM] made it out to be.” Lastly, the lender
described that the “previous owner” may not have accounted
for all his tax liability for the company.
In the preclosing communication, the lender made several
recommendations. It recommended asking for a reduction in
the purchase price, adding a provision in the purchase agree-
ment that McDermott and Hoy are responsible for anything
arising out of income tax returns before 2016, adding a pro-
vision that further negative accounting discrepancies will be
reduced from the remaining price owed, and postponing closing
in order to have an independent accountant look at the past and
present books of NMM. According to the lender, “[McDermott
and Hoy] are wanting a premium price for this business, but
they have not supported this [in] the accounting, unreliable
business records, and reduced net worth of the business and
in my opinion do not deserve the large premium that they are
presently asking.”
But on July 17, 2015, the Nathans closed the purchase of
NMM. Ten days later, the Nathans received an email from their
lender. The lender stated concerns that the inventory, accounts
receivable, and accounts payable were not reconciled from
the previous balance sheet to the closing date. It requested the
Nathans to provide “a copy of the audit that was supposed to
have been completed by an independent contractor on all of the
Inventory of the business.”
On October 9, 2015, the Nathans sent their attorney an email
outlining the discrepancies they found in the accounts payable,
cash projection comparison, inventory, and loans. It detailed
discrepancies of $3,500 of missing inventory, the accounts
payable were off by $30,910.39, there were mischaracterized
payments of $62,566.10, and cash projections were off for the
first 2 months by $30,000 on the low end and $48,000 on the
high end.
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On December 15, 2015, the Nathans sent an indemnifica-
tion demand letter to McDermott and Hoy. The letter detailed
all the accounting discrepancies discussed in the October 2015
email. It further included discrepancies in the depreciation
schedules of $85,292. The total demand for indemnification
owed to the Nathans was $212,268.49.
(iv) District Court’s Orders
In the district court’s order on McDermott and Hoy’s motion
for summary judgment, it summarized the requirements for
indemnification under the purchase agreement. The district
court analyzed “whether the Nathans complied with the require-
ment of giving notice of the breach of contract claim within the
required forty-five day timeframe.” It began by interpreting the
purchase agreement’s phrase “becomes aware, or should have
reasonably been aware, of any such claim.” The court acknowl-
edged that the term “aware” did not indicate knowledge was
required and that the provision further mandated the notice
shall describe the claim in “reasonable detail.”
It relied on a case from the U.S. Supreme Court where the
Court interpreted “becoming aware” in the context of a bond.
There, the Court explained,
[T]he obvious meaning of “becoming aware,” as used in
this bond, is “to be informed of,” or, “to be apprised of,”
or, “to be put on one’s guard in respect to,” and that no
other meaning is equally admissible under the terms of
the instrument. These are the definitions of the lexicog-
raphers, distinctly deducible from the derivation of the
word “aware,” and that is the sense in which they are
here employed. 5
Relying on this authority, the district court rejected the Nathans’
argument that the term “aware” should be interpreted as hav-
ing precise knowledge or a full grasp of the facts supporting a
claim for indemnification.
5
Guarantee Co. v. Mechanics’ &c. Co., 183 U.S. 402, 420, 22 S. Ct. 124,
46 L. Ed. 253 (1902).
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After interpreting “becomes aware,” the district court deter-
mined when the Nathans became aware of their claims. The
Nathans sent an email to their attorney listing financial dis-
crepancies, but it was not until December 15, 2015, when the
Nathans sent the letter to McDermott and Hoy outlining the
same discrepancies and demanding indemnification. It con-
cluded that at the latest, the Nathans became “aware” of their
claims by October 9, 2015, and that notice was not sent within
45 days. Therefore, the court found no genuine issue of mate-
rial fact and ordered that McDermott and Hoy were entitled to
summary judgment regarding the breach of contract claim.
The district court then analyzed whether the Nathans could
maintain a theory of recovery for fraudulent misrepresentation.
The court contrasted our decisions in Cimino v. FirsTier Bank 6
and deNourie & Yost Homes v. Frost. 7 The court reasoned
that like the situation in Cimino and in contrast to the circum-
stances in deNourie & Yost Homes, the Nathans’ allegations for
fraudulent misrepresentation and negligent misrepresentation
were based on the same conduct that formed their breach of
contract claim. It found that because the financial information
contained in the documents was subject to written representa-
tions in the purchase agreement, the Nathans failed to plead
their misrepresentation claim based on independent facts from
their breach of contract claim. The court granted McDermott
and Hoy’s motion for summary judgment concerning the mis-
representation claim.
In a separate order, the district court considered McDermott
and Hoy’s counterclaims. The district court found that
McDermott and Hoy presented prima facie evidence of breach
of the promissory note. It granted both McDermott’s and Hoy’s
counterclaims and ordered the Nathans to pay $113,541.53 to
McDermott and $75,694.35 to Hoy.
6
Cimino v. FirsTier Bank, 247 Neb. 797, 530 N.W.2d 606 (1995).
7
deNourie & Yost Homes v. Frost, 295 Neb. 912, 893 N.W.2d 669 (2017).
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In the district court’s order on the motion to alter or amend,
it acknowledged that it had not addressed the Nathans’ affirm­
ative defense. The court determined that because it found for
McDermott and Hoy on their counterclaims, the Nathans’
recoupment defense survived. This was true, the court found,
because the Nathans’ recoupment defense arose out of the same
transaction as the counterclaims.
Turning to the merits of the recoupment defense, the district
court analyzed whether the Nathans could meet their burden
of proving misrepresentation. As required on summary judg-
ment, the court viewed the evidence in the light most favor-
able to the Nathans. The court focused on whether the Nathans
reasonably relied on the misrepresentations, which, the court
acknowledged, required the court to examine the totality of the
circumstances. The court explained that because, prior to clos-
ing, the Nathans received a letter from the lender outlining rec-
ommended steps regarding the purchase of NMM and did not
act on any of them, no reasonable fact finder could determine
that the Nathans’ reliance on McDermott and Hoy’s representa-
tions was reasonable. It granted the motion to alter or amend
to the extent that it would address recoupment, determined that
the Nathans could not have been entitled to recoupment, and
ordered that the judgment not be modified.
(b) Standard of Review
[2,3] An appellate court will affirm a lower court’s grant
of summary judgment if the pleadings and admitted evidence
show that there is no genuine issue as to any material facts
or as to the ultimate inferences that may be drawn from
those facts and that the moving party is entitled to judgment
as a matter of law. 8 In reviewing a summary judgment, the
court views the evidence in the light most favorable to the
party against whom the judgment was granted and gives such
8
Merrick v. Fischer, Rounds & Assocs., 305 Neb. 230, 939 N.W.2d 795
(2020).
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party the benefit of all reasonable inferences deducible from
the evidence. 9
(c) Contract Interpretation
[4-7] Before addressing the Nathans’ specific arguments, we
recall general principles of contract interpretation. The inter-
pretation of a contract and whether the contract is ambiguous
are questions of law subject to independent review. 10 A contract
written in clear and unambiguous language is not subject to
interpretation or construction and must be enforced according
to its terms. 11 A contract is ambiguous when a word, phrase,
or provision in the contract has, or is susceptible of, at least
two reasonable but conflicting interpretations or meanings. 12
A determination as to whether an ambiguity exists in a con-
tract is to be made on an objective basis, not by the subjec-
tive contentions of the parties; thus, the fact that the parties
have suggested opposite meanings of a disputed instrument
does not necessarily compel the conclusion that the instrument
is ambiguous. 13
The Nathans do not point to a conflicting definition or
meaning of the term “aware.” They simply argue that because
there is no definition in the purchase agreement or a legal
definition, the word “aware” is ambiguous. And based on their
assertion that the lack of definition makes the term ambigu-
ous, they argue it is a question of fact for the jury to decide.
We disagree.
As stated earlier, the interpretation of a contract and whether
it is ambiguous are questions of law for the court to decide. It
was within the province of the court to determine if the agree-
ment’s language was ambiguous. The court determined it was
not. We agree.
9
Id.
10
DH-1, LLC v. City of Falls City, 305 Neb. 23, 938 N.W.2d 319 (2020).
11
Id.
12
Id.
13
Id.
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We determine the meaning of “aware” in the context of the
entire purchase agreement. The agreement provided that the
claiming parties must give notice within 45 days after they
become aware or reasonably should have been aware of their
claim and that the notice must describe the claim in “reason-
able detail.” Viewing the agreement as a whole, the term
“aware” means something more than mere notice of a claim.
And we agree that because the parties specifically defined
“knowledge” but did not define “aware,” “[t]o be aware is not
the same as to have knowledge.” 14
The Nathans argue that the U.S. Supreme Court did not
actually define the term “aware” and only distinguished it
“somewhere in the nebulous space between ‘notice’ and
‘knowledge.’” 15 The Court did define “becoming aware” as “‘to
be informed of,’ or, ‘to be apprised of,’ or, ‘to be put on one’s
guard in respect to.’” 16 The Oxford English Dictionary defines
“aware” as “[i]nformed, cognizant, conscious, sensible.” 17 This
plain and ordinary meaning of “aware” supports the Court’s
interpretation. We accept these definitions as the unambiguous
meaning of “aware.”
Because the meaning of “aware” is unambiguous, we next
turn to whether there was a genuine issue of material fact as to
when the Nathans became aware of their claim. The evidence
presented to the district court showed that the Nathans were
informed, conscious, and cognizant of their claim by October
9, 2015. On that date, the Nathans detailed and reconciled
several accounting discrepancies. The December indemnifica-
tion letter reiterated several bases and amounts for the claim
in the October email. We agree with the district court that at
the latest, the Nathans were aware of their claim by the time
of the October email. Because the Nathans were aware of their
14
See Guarantee Co. v. Mechanics’ &c. Co., supra note 5, 183 U.S. at 420.
15
Brief for appellants at 19.
16
Guarantee Co. v. Mechanics’ &c. Trust Co., supra note 5, 183 U.S. at 420.
17
“Aware,” Oxford English Dictionary Online, http://www.oed.com/view/
Entry/13892 (last visited June 17, 2020).
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claim at the time of the October email, they had 45 days to
send written notice of the claim to McDermott and Hoy. The
Nathans sent the indemnification demand letter on December
15, 2015. The indemnification demand letter was clearly
beyond the 45-day timeframe. Therefore, the Nathans were
precluded from recovering the breach of contract claim.
The amended complaint included two theories for breach of
contract: breach of warranty and bad faith. Because the indem-
nification letter was not sent within 45 days, it precluded every
breach of contract claim.
(d) Tort Claim
The Nathans argue that the district court mischaracterized
their misrepresentation claim as a contract claim. They assert
that their amended complaint and evidence provided an inde-
pendent ground for recovery under fraudulent or negligent
misrepresentation. They contend that the conduct to support the
misrepresentation claim arose before the purchase agreement
was executed and, therefore, could not rise to the same conduct
as a breach of contract.
[8] It is certainly possible to assert independent contract and
misrepresentation claims. A party who fraudulently induces
another to contract and then also refuses to perform the con-
tract commits two separate wrongs, so that the same transac-
tion gives rise to distinct claims that may be pursued to satis-
faction consecutively. 18
[9,10] But merely alleging both theories does not make
them separate wrongs. To determine whether an action is
based on a contract or a tort, a court must examine and
construe the petition’s essential and factual allegations by
which the plaintiff requests relief, rather than the legal ter-
minology utilized in the petition or the form of the pleading.
Consideration must be given to the facts which constitute the
cause of action. 19 If the petition contains a cause of action for
18
deNourie & Yost Homes v. Frost, supra note 7.
19
Cimino v. FirsTier Bank, supra note 6.
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breach of contract, additional averments appropriate to a cause
of action for a wrong will not change the action from contract
to tort, and if there is a doubt as to the character of the action,
it will be resolved in favor of an action in contract. In such an
instance, the statements appropriate to an action in tort will be
considered surplusage. 20
In order to apply these precepts, we first examine our deci-
sions which were contrasted by the district court. We then note
a federal appeals court decision applying our law.
In Cimino, 21 a seller sued a bank for breach of contract and
several other tort actions based on its failure to approve the
sale of a company. The bank moved to strike several factual
paragraphs and all the tort claims. The district court granted the
motion and dismissed the tort claims. On appeal, we discussed
whether the seller pled independent facts sufficient to sustain
separate contract and tort actions. We reasoned that each alle-
gation pled in the tort claims related directly to the contract
claim. We agreed with the district court that the seller failed
to allege separate and distinct facts that could stand alone as a
tort action.
In deNourie & Yost Homes, 22 buyers defaulted on loans
owed to a contractor for construction of a new home. The
contractor brought an action alleging several theories of
recovery, including fraud and breach of contract. We dis-
cussed maintaining tort and contract claims in the context of
the election of remedies doctrine. We stated, “‘“A party who
fraudulently induces another to contract and then also refuses
to perform the contract commits two separate wrongs, so that
the same transaction gives rise to distinct claims that may be
pursued to satisfaction consecutively.”’” 23 We reasoned that
20
Id.
21
Id.
22
deNourie & Yost Homes v. Frost, supra note 7.
23
Id. at 929, 893 N.W.2d at 682 (quoting Davis v. Cleary Building Corp.,
143 S.W.3d 659 (Mo. App. 2004)).
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the breach of contract action was based on the buyers’ failure
to pay the amounts due and that the fraudulent concealment
action was based on the false representations made by the
buyers, which induced the contractor to complete the home.
“Because the causes of action were based on different obliga-
tions and were not repugnant to one another, [the contractor]
could pursue both.” 24
In Oriental Trading Co., Inc. v. Firetti, 25 the Eighth Circuit
discussed our case law on maintaining contract and tort
actions. Third-party officers of a seller made false represen-
tations about “anti-dumping duties” on goods shipped from
overseas, which induced the buyers to advance funds. 26
Relying on several of our cases, 27 the court reasoned that the
fraudulent misrepresentation claim did not arise out of the
contract. The court explained that the claims were distinguish-
able because the claims against the third-party officers arose
not out of the terms of the contract with the seller but from
representations they made which caused the buyers to advance
and lose funds. The court concluded that Nebraska law did
not bar the buyers from maintaining the fraudulent misrepre-
sentation claim.
Here, the Nathans’ breach of contract and tort claims derive
from the same factual basis. Their contract claim stemmed
from allegedly false financial representations, which breached
the purchase agreement’s warranties and, in turn, breached the
indemnification clause, which, under the agreement, was their
sole remedy. In their attempt to assert tort theories, they
24
Id. at 930, 893 N.W.2d at 683.
25
Oriental Trading Co., Inc. v. Firetti, 236 F.3d 938 (8th Cir. 2001).
26
Id. at 941.
27
See, Streeks v. Diamond Hill Farms, 258 Neb. 581, 605 N.W.2d 110
(2000), overruled in part on other grounds, Knights of Columbus Council
3152 v. KFS BD, Inc., 280 Neb. 904, 791 N.W.2d 317 (2010); Cimino v.
FirsTier Bank, supra note 6; Gibb v. Citicorp Mortgage, Inc., 246 Neb.
355, 518 N.W.2d 910 (1994).
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alleged that because McDermott and Hoy provided false
financial representations and the Nathans relied upon them,
they were damaged by purchasing NMM for more than it was
worth. In other words, both claims stem from and depend
solely upon the allegedly false financial representations. In
this instance, the averments of fraudulent misrepresenta-
tion do not change the action and were correctly considered
as surplusage.
Therefore, the Nathans did not present facts sufficient to
sustain an independent tort action. We conclude that the district
court did not err in granting summary judgment for McDermott
and Hoy on the Nathans’ amended complaint.
(e) Counterclaims and Affirmative Defense
The Nathans argue that the district court erred in ordering
damages on McDermott and Hoy’s counterclaims because, they
reason, damages are a question of fact for the jury and they
dispute the amount due to McDermott and Hoy.
[11] Absent a defense, a promissory note is ordinarily a
stand-alone, unqualified, enforceable promise to pay. 28 The evi-
dence presented showed that the Nathans executed two promis-
sory notes: one to McDermott and one to Hoy. The promissory
notes were for a specified amount subject to interest of 16
percent per annum. The Nathans failed to pay on the notes and
defaulted. McDermott and Hoy presented prima facie evidence
of a breach of the promissory notes.
The Nathans assert that their defense of recoupment raised
a genuine issue of material fact as to the amount of damages.
They argue that the district court should not have evaluated
the reasonableness of their reliance on the misrepresentations,
because the evidence presented disputed whether their reliance
was reasonable.
In order to determine whether the district court prop-
erly granted summary judgment on McDermott and Hoy’s
28
Schuyler Co-op Assn. v. Sahs, 276 Neb. 578, 755 N.W.2d 802 (2008).
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counterclaims and ordered damages, we must first examine
the recoupment defense.
[12] Of course, the Nathans bore the burden of establish-
ing the defense. The burden of both pleading and proving
affirmative defenses is upon the defendants, and when they
fail to do so, they cannot recover upon mere argument alone. 29
Regarding McDermott and Hoy’s counterclaims, the Nathans
were the “defendants” for the purpose of that rule of law.
[13] As the district court correctly recognized, the Nathans’
recoupment defense was not precluded by their untimely
request for indemnification. The defense of recoupment sur-
vives as long as a plaintiff’s cause of action exists, even if
affirmative legal action upon the subject of recoupment is
barred by the statute of limitations. 30 Because McDermott and
Hoy (the “plaintiffs” on their counterclaims) presented prima
facie evidence of their breach of contract claim, the Nathans’
defense of recoupment survived.
[14] The Nathans’ defense met the “same transaction or
occurrence” test; recoupment must arise out of the same trans-
action or occurrence which is the basis of a plaintiff’s action
and is merely defensive, that is, does not seek an affirmative
judgment in the action. 31 In response to the counterclaims,
the Nathans pled that they were “entitled to setoff, offset, and
recoupment against all amounts purportedly due and owing to
[McDermott and Hoy] as a result of the misrepresentations and
wrongdoing asserted in the [amended complaint].” It is clear
that the Nathans alleged that McDermott and Hoy’s misrepre-
sentations arose out of the sale of NMM shares and execution
of the promissory notes. We agree with the district court that
the Nathans’ recoupment defense arose out of the same transac-
tion as the counterclaims.
29
Funk v. Lincoln-Lancaster Cty. Crime Stoppers, 294 Neb. 715, 885
N.W.2d 1 (2016).
30
Becker v. Hobbs, 256 Neb. 432, 590 N.W.2d 360 (1999).
31
Ed Miller & Sons, Inc. v. Earl, 243 Neb. 708, 718, 502 N.W.2d 444, 452
(1993).
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[15-17] To state an affirmative defense of recoupment,
the defendant must prove the elements of his claim and that
it occurred in the very same action as the plaintiff’s claim
against him. 32 A fraudulent misrepresentation claim requires
a plaintiff to establish the following elements: (1) A represen-
tation was made; (2) the representation was false; (3) when
made, the representation was known to be false or made reck-
lessly without knowledge of its truth and as a positive asser-
tion; (4) the representation was made with the intention that
the plaintiff should rely on it; (5) the plaintiff did so rely on
it; and (6) the plaintiff suffered damage as a result. 33 Negligent
misrepresentation has essentially the same elements as fraudu-
lent misrepresentation with the exception of the defendant’s
mental state. 34
[18-20] In both negligent and fraudulent misrepresenta-
tion cases, whether the plaintiff exercised ordinary prudence
is relevant to whether the plaintiff justifiably relied on the
misrepresentation when the means of discovering the truth
was in the plaintiff’s hands. 35 A plaintiff is justified in relying
upon a positive statement of fact if an investigation would be
required to discover the truth. 36 In determining whether an
individual reasonably relied on a misrepresentation, courts
consider the totality of the circumstances, including the nature
of the transaction; the form and materiality of the represen-
tation; the relationship of the parties; the respective intel-
ligence, experience, age, and mental and physical condition
of the parties; and their respective knowledge and means
of knowledge. 37
32
Qualsett v. Abrahams, 23 Neb. Ct. App. 958, 879 N.W.2d 392 (2016).
33
Cullinane v. Beverly Enters. - Neb., 300 Neb. 210, 912 N.W.2d 774
(2018).
34
Zawaideh v. Nebraska Dept. of Health & Human Servs., 285 Neb. 48, 825
N.W.2d 204 (2013).
35
Lucky 7 v. THT Realty, 278 Neb. 997, 775 N.W.2d 671 (2009).
36
Id.
37
Id.
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Here, again, the district court correctly recognized that sum-
mary judgment required the court to view the evidence in the
light most favorable to the Nathans. We must do likewise. In
order to uphold the summary judgment against the Nathans
on their recoupment defense, the evidence must be such that
no reasonable fact finder could conclude that they exercised
ordinary prudence in order to justifiably rely on the misrep-
resentations when the means of discovering the truth was in
their hands.
In several cases, we have discussed the extent of ordinary
prudence required to justify reliance on misrepresentations.
In Lucky 7 v. THT Realty, 38 a buyer sought fraudulent and
negligent misrepresentation claims against the seller for a
commercial real estate transaction. It was later discovered that
two sections of roof were partially deteriorated, even though
the areas of the roof visible from the ground were recently
replaced. We reasoned that justifiable reliance was a case-by-
case analysis and that the court should consider the totality of
the circumstances. We agreed with the district court’s findings
that the buyer was unreasonable in relying on the representa-
tions, because the buyer had experience buying commercial
property, the contract explicitly stated that the purchase was
based on the buyer’s inspection, the purchase agreement pro-
vided for an inspection period, the buyer could have observed
the roof’s condition, and the warranty provided that the roof
was replaced 3 years prior. We reasoned that the buyer under-
stood the importance of inspecting the property and that an
inspection would not have posed any hardship. We affirmed the
district court’s dismissal.
Schuelke v. Wilson 39 presented a similar factual scenario.
A buyer sought rescission of a contract for the purchase
of a business by fraudulent misrepresentation. The district
court granted the rescission based on misrepresentations about
38
Id.
39
Schuelke v. Wilson, 250 Neb. 334, 549 N.W.2d 176 (1996).
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the profitability of an owner-operated versus absentee-owner
franchise. It determined that the seller tried to couch his
misrepresentations about the adjusted statements of profit as
“‘“guesstimates’”” in an attempt to deflect any conclusion
that the buyer was justified in relying on the representations. 40
It found that the seller made the representations knowingly
and that the buyer relied on them based on the seller’s years
of experience.
In Schuelke, we reasoned that the district court erred in
granting rescission because the buyer did not prove each ele-
ment of fraudulent misrepresentation by clear and convincing
evidence. We focused on the justified reliance element and the
duty of ordinary prudence. We reasoned that the buyer was not
justified in relying on the seller’s representations, because the
buyer expressed concern over adjusted statements of profit, the
seller recommended verifying the figures with an accountant,
the buyer was in possession of the documents, and the buyer
took no further action. We concluded that under the circum-
stances, the buyer did not act with ordinary prudence, and that
therefore, the record did not support rescission.
We acknowledge that both of those cases were decided after
a trial and not on summary judgment. But that does not mean
that a summary judgment cannot stand.
Here, the undisputed evidence showed that the Nathans
received a letter from their lender detailing several recommen-
dations prior to closing. The letter listed numerous financial
discrepancies found in NMM’s financial documents and rec-
ommended two additional clauses in the purchase agreement:
one for past tax liability and one for further negative account-
ings that would reduce the amount owed on the promissory
notes. It further recommended postponing closing, hiring an
independent accountant to look into NMM, and requesting a
price reduction. Instead, the Nathans agreed to move up clos-
ing by 2 weeks and did not hire an independent accountant.
40
Id. at 341, 549 N.W.2d at 181.
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Kelsey Nathan testified that the lender recommendations
were only one reason for requesting a price reduction before
closing. She indicated that the same discrepancies were found
across the financial statements. She confirmed that there were
accounting issues that could have been audited during the due
diligence period.
Viewing the evidence in the light most favorable to the
Nathans, we agree with the district court’s conclusion that
they did not exercise ordinary prudence when relying on the
representations of McDermott and Hoy. Once inspected, the
financial discrepancies were obvious to both the Nathans and
the lender. Because the Nathans came across the same financial
discrepancies, did not hire an independent accountant, ignored
the recommendations of the lender, and closed the purchase 2
weeks early, no reasonable finder of fact could find that the
Nathans exercised ordinary prudence and were justified in rely-
ing on McDermott and Hoy’s misrepresentations. We conclude
that the district court did not err in finding that the Nathans
failed to meet their burden of proof and, thus, were not entitled
to recoupment.
Accordingly, because the Nathans were not entitled to the
affirmative defense of recoupment, the district court did not
err in granting summary judgment on McDermott and Hoy’s
counterclaims. McDermott and Hoy’s undisputed evidence pre-
sented prima facie evidence of breach of contract and damages.
The Nathans point to no evidence, other than their recoup-
ment defense argument, to dispute the amount of damages.
Therefore, the district court did not err in granting summary
judgment and awarding damages.
2. Claims Involving RBA and Nielsen
(a) Additional Background
(i) Amended Complaint
In the amended complaint, the Nathans alleged the follow-
ing: McDermott and Hoy retained RBA and Nielsen to act
as brokers for the sale of NMM to the Nathans. McDermott
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and Hoy made the majority of their communications to the
Nathans through Nielsen. Throughout the course of the nego-
tiations, RBA and Nielsen made several misrepresentations by
providing documents and statements with inaccurate financial
information. The Nathans raised several concerns about the
veracity and accuracy of the statements. RBA and Nielsen, the
Nathans claim, made several assurances to the Nathans that
“the documents and statements provided by them and those
provided by McDermott and Hoy [were] true and accurately
depicted NMM’s financial situation.”
The amended complaint also set forth four allegations: RBA
and Nielsen, as representatives of McDermott and Hoy, had a
reckless disregard for the truth of the documents given to the
Nathans. RBA and Nielsen intended for the Nathans to rely on
the statements to purchase NMM. The Nathans could not have
discovered that the documents were false until they had “time
to review NMM’s confidential financial records and books.”
The Nathans relied on the misrepresentations of RBA and
Nielsen to purchase NMM.
In a separate count, the Nathans alleged that RBA and
Nielsen made several representations that they were looking
out for the best interests of all the parties. The Nathans alleg-
edly relied on the representations to reasonably believe that
RBA and Nielsen were acting as fiduciaries for them. They
asserted that RBA and Nielsen owed and breached their fidu-
ciary duties of honesty and loyalty to the Nathans when they
were aware of and failed to disclose several misrepresentations
made by McDermott and Hoy. The Nathans claimed that as a
result of the misrepresentations and breach of fiduciary duty,
they suffered a loss of no less than $695,000.
(ii) Motion to Dismiss
By a motion to dismiss pursuant to § 6-1112(b)(6) of the
rules of pleading, RBA and Nielsen sought dismissal from the
case for failure to state a claim. The district court sustained
their motion.
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In the district court’s order, it relied upon §§ 3.5 and 9.2 of
the purchase agreement to resolve the misrepresentation claim.
It found that pursuant to § 3.5, the Nathans agreed that they
were “not relying on any statements, information or representa-
tions of [RBA] or any of RBA’s agents, employees, represen-
tatives or affiliates, with respect to [the Nathans’] evaluation
of [NMM] or of the Shares.” The court reasoned that because
§ 3.5 expressly stated that the Nathans conducted their own
due diligence and were not relying on RBA’s representations
and because § 9.2 affirmed that the purchase agreement was
the entire agreement, fraud could not occur, because there was
no reliance. Likewise, the court ruled, there could not be neg-
ligent misrepresentation, because this claim had essentially the
same elements and the Nathans disclaimed reliance on RBA
and Nielsen.
Lastly, the district court found that RBA did not breach
a fiduciary duty, because it was undisputed that RBA and
Nielsen were acting as agents for McDermott and Hoy, not
the Nathans. The Nathans could not show, as a matter of law,
that RBA and Nielsen owed any duty, contractual or otherwise,
to them. The district court granted the motion to dismiss with
prejudice. It overruled the Nathans’ motion for summary judg-
ment, as to RBA and Nielsen, as moot.
(b) Standard of Review
[21] A district court’s grant of a motion to dismiss on the
pleadings is reviewed de novo, accepting the allegations in
the complaint as true and drawing all reasonable inferences in
favor of the nonmoving party. 41
(c) Fiduciary Duty
The Nathans argue that they pled sufficient facts to show
that RBA and Nielsen held themselves out as a joint agent
and fiduciary for McDermott, Hoy, and the Nathans. They
contend that pleading that “Nielsen and RBA made multiple
41
Rutledge v. City of Kimball, 304 Neb. 593, 935 N.W.2d 746 (2019).
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representations to the [Nathans] that they were looking out
for the best interests of all parties involved, including the
[Nathans],” was sufficient to establish a fiduciary relationship.
They assert that the district court improperly dismissed the
claim by finding that RBA could not represent both parties
when no legal authority precludes such an arrangement.
[22,23] Agency is the fiduciary relation which results from
the manifestation of consent by one person to another that the
other shall act on his or her behalf and subject to his or her
control, and the consent of the other to so act. 42 An agent and
principal are in a fiduciary relationship such that the agent
has an obligation to refrain from doing any harmful act to the
principal, to act solely for the principal’s benefit in all mat-
ters connected with the agency, and to adhere faithfully to the
instructions of the principal, even at the expense of the agent’s
own interest. 43
[24,25] In the amended complaint, the Nathans specifically
admit that “McDermott and Hoy agreed to and did retain RBA
and Nielsen to act as brokers for the sale of NMM to the
[Nathans].” A party may at any and all times invoke the lan-
guage of his opponent’s pleadings on which the case is being
tried on a particular issue as rendering certain facts indisput-
able. 44 The pleadings in a cause are not a means of evidence,
but a waiver of all controversy, so far as the opponent may
desire to take advantage of them, and therefore, a limitation of
the issues. 45 It is abundantly clear from the pleadings that RBA
and Nielsen had a fiduciary relationship with McDermott and
Hoy. Because RBA and Nielsen were fiduciaries to McDermott
and Hoy, they owed a duty to act solely for the benefit of
McDermott and Hoy as their principals.
42
Deutsche Bank Nat. Trust Co. v. Siegel, 279 Neb. 174, 777 N.W.2d 259
(2010).
43
Archbold v. Reifenrath, 274 Neb. 894, 744 N.W.2d 701 (2008).
44
TNT Cattle Co. v. Fife, 304 Neb. 890, 937 N.W.2d 811 (2020).
45
Id.
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The Nathans’ allegation that RBA and Nielsen “were look-
ing out for the best interests of all parties” was not sufficient
to plead the presence of a fiduciary relationship when the
amended complaint showed that RBA and Nielsen already had
a fiduciary relationship with the opposing party. We agree with
the district court that the Nathans “cannot show as a matter of
law that RBA and Nielsen owed any duty, contractual or other-
wise, to [the Nathans].”
Here, the Nathans’ attempt to assert a duty owed to them
by RBA and Nielsen is defeated by the admission in their own
pleading. Even if it is possible for a broker to represent both
parties in a business transaction, the amended complaint here
did not raise a plausible claim of the existence of such a rela-
tionship. Upon our de novo review, we agree that the Nathans
failed to plead the existence of a fiduciary relationship with
RBA and Nielsen. Therefore, the district court did not err in
dismissing the claim for breach of fiduciary duty.
(d) Tort Claim
The Nathans argue that the district court erred in dismiss-
ing the misrepresentation claim against RBA and Nielsen
because it was contrary to “overwhelming Nebraska law.” 46
They contend that the presence of a disclaimer does not relieve
a principal or agent for fraudulent representations made by
the agent concerning the subject matter of a contract. 47 They
assert that RBA and Nielsen are liable for their own fraudulent
conduct.
The purchase agreement precluded claims for misrepresen-
tation against RBA and Nielsen. The clear and unambiguous
language of the agreement showed that the Nathans expressly
disclaimed any reliance on representations made by RBA and
Nielsen. Additionally, the agreement explicitly stated that it
46
Brief for appellants at 32.
47
See Gibb v. Citicorp Mortgage, Inc., supra note 27.
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was the entire contract between the parties and that it super-
seded “any prior understandings, agreements or representa-
tions by or among the parties, whether written or oral, that
may have related in any way to the subject matter hereof.” We
must enforce the agreement, a contract, in accordance with
the plain meaning of its words. 48 As the Delaware Supreme
Court explained:
“To fail to enforce non-reliance clauses is not to pro-
mote a public policy against lying. Rather, it is to excuse
a lie made by one contracting party in writing—the lie
that it was relying only on contractual representations
and that no other representations had been made—to
enable it to prove that another party lied orally or in a
writing outside the contract’s four corners. For the plain-
tiff in such a situation to prove its fraudulent induce-
ment claim, it proves itself not only a liar, but a liar in
the most inexcusable of commercial circumstances: in a
freely negotiated written contract. Put colloquially, this is
necessarily a ‘Double Liar’ scenario. To allow the buyer
to prevail on its claim is to sanction its own fraudu-
lent conduct.” 49
The Delaware court distinguished fraud claims based on repre-
sentations made outside of a merger agreement—which can be
disclaimed through nonreliance language—from fraud claims
based on false representations of fact made within the contract
itself—which cannot be disclaimed. 50 Because the purchase
agreement is unambiguous that the Nathans disclaimed any
reliance on representations made by RBA and Nielsen and
that the statements made in the agreement supersede all prior
48
See McCully, Inc. v. Baccaro Ranch, 284 Neb. 160, 816 N.W.2d 728
(2012).
49
RAA Management v. Savage Sports Holdings, 45 A.3d 107, 117 (Del.
2012) (quoting ABRY Partners V, L.P. v. F & W Acquis. LLC, 891 A.2d
1032 (Del. Ch. 2006)).
50
Id.
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statements, the Nathans, as a matter of law, cannot state a
claim for misrepresentation.
[26-28] Moreover, as a general rule, where an obligation
is that of a principal, a court cannot enforce the obligation
against the agent as long as he or she is merely acting as
agent. 51 An agent may be held liable for the agent’s conduct,
such as misrepresentation of a material fact, during a transac-
tion on behalf of the principal. 52 An agent can be held liable
if the agent makes some representation or performs some act
on the agent’s own responsibility without authorization from
the principal. 53
Although RBA and Nielsen are not parties to the purchase
agreement, we cannot enforce an obligation of the principal
against an agent, as long as he or she is merely acting as an
agent. 54 In the amended complaint, the allegations for mis-
representation against RBA and Nielsen are nearly identical
to those against McDermott and Hoy. The allegations admit
that documents and assurances provided by McDermott and
Hoy were made “directly and through RBA and Nielsen.”
Because the Nathans admitted that RBA and Nielsen were
acting as agents when sending financial documents and assur-
ances, we cannot enforce McDermott and Hoy’s representation
against them.
The amended complaint fails to allege any statements or
documents that RBA and Nielsen made that were independent
of the assurances and documents given to them by McDermott
and Hoy. We conclude that the district court did not err in dis-
missing the Nathans’ claim for misrepresentation against RBA
and Nielsen.
51
Suzuki v. Gateway Realty, 207 Neb. 562, 299 N.W.2d 762 (1980).
52
Edwin Bender & Sons v. Ericson Livestock Comm. Co., 228 Neb. 157, 421
N.W.2d 766 (1988).
53
Id.
54
See Gibb v. Citicorp Mortgage, Inc., supra note 27.
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3. Cross-Appeal
(a) Additional Background
McDermott and Hoy made two motions for summary judg-
ment. In the district court’s first order on summary judgment,
it relied on Kelsey Nathan’s affidavit for determining if a genu-
ine issue of material fact existed under the 45-day timeframe
for notice of indemnification. Her affidavit stated:
[W]e only discovered these misrepresentations in or
about December of 2015, after thorough investigation of
NMM’s records which were kept in electronic databases
. . . . We were not given access to [these databases] prior
to executing the [purchase agreement,] and we could not
have discovered these misrepresentations without access
to those records.
Relying on this evidence, the court initially found that “a
genuine issue of material fact remain[ed] as to whether [the
Nathans] should have reasonably been aware of their claims
within forty-five days of signing the [purchase agreement].”
In the second motion for summary judgment, McDermott
and Hoy moved for an award of attorney fees and court costs
incurred after the denial of the first motion. They asserted
that they were entitled to such fees and costs as a sanction
against the Nathans, pursuant to Neb. Rev. Stat. § 25-824
(Reissue 2016).
In the district court’s order on attorney fees, it outlined
McDermott and Hoy’s argument that Kelsey Nathan know-
ingly made false statements in her affidavit about the date the
Nathans became aware of the misrepresentations. It acknowl-
edged that the parties disagreed over the definition of the
term “aware” in the purchase agreement. It explained that the
Nathans argued being “aware” meant to have knowledge or
a full grasp of the claims and that from their interpretation,
they waited to bring their claims until they were certain of the
figures. It reasoned that although this was an incorrect inter-
pretation of “aware,” “the Nathans brought an action with that
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interpretation in mind, which is not so irrational or ridiculous
[as] to render the action frivolous.” It denied McDermott and
Hoy’s request for sanctions and attorney fees.
(b) Standard of Review
[29,30] On appeal, a trial court’s decision awarding or deny-
ing attorney fees will be upheld absent an abuse of discretion. 55
A judicial abuse of discretion exists when the reasons or rul-
ings of a trial judge are clearly untenable, unfairly depriving a
litigant of a substantial right and denying just results in matters
submitted for disposition. 56
(c) Attorney Fees
On cross-appeal, McDermott and Hoy argue that the district
court erred in denying their motion for attorney fees because
the Nathans knowingly made a false statement to the court,
which precluded their first motion for summary judgment.
McDermott and Hoy assert this was the “sole basis for denying
summary judgment in favor of the [sic] McDermott and Hoy
(on all claims and counterclaims) at that time.” 57 They contend
that because the Nathans were aware of their claims by the
October 2015 email, they knowingly gave false testimony to
the court, in violation of Neb. Rev. Stat. § 25-1336 (Reissue
2016). They claim that they have incurred significant expenses
since the denial of the first motion for summary judgment.
McDermott and Hoy argue that because the Nathans intention-
ally lied to the court, the court abused its discretion in denying
the motion for attorney fees.
[31,32] Section 25-824(2) allows a court to award attor-
ney fees and court costs “against any attorney or party who
has brought or defended a civil action that alleges a claim or
defense which a court determines is frivolous or made in bad
faith.” A frivolous action is one in which a litigant asserts a
55
Seldin v. Estate of Silverman, 305 Neb. 185, 939 N.W.2d 768 (2020).
56
Id.
57
Brief for appellees McDermott and Hoy on cross-appeal at 9.
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legal position wholly without merit; that is, the position is
without rational argument based on law and evidence to sup-
port the litigant’s position. The term frivolous connotes an
improper motive or legal position so wholly without merit as
to be ridiculous. 58 Any doubt about whether a legal position is
frivolous or taken in bad faith should be resolved in favor of
the one whose legal position is in question. 59
McDermott and Hoy further direct our attention to § 25-1336.
Should it appear to the satisfaction of the court at any
time that any of the affidavits . . . are presented in bad
faith or solely for the purpose of delay, the court shall
forthwith order the party employing them to pay to the
other party the amount of the reasonable expenses which
the filing of the affidavits caused him to incur, including
reasonable attorney’s fees, and any offending party or
attorney may be adjudged guilty of contempt. 60
The district court’s reasoning to deny attorney fees was
not clearly untenable. It noted the Nathans consistently, albeit
incorrectly, argued that they became “aware” of all their claims
“in or about December 2015.” Consistently with each motion
for summary judgment, they did not change their position of
when they became “aware” of their claims. We agree with
the district court that although the Nathans’ interpretation of
“aware” was incorrect, they brought their action with the inter-
pretation in mind. The Nathans’ statement of fact was made
with a good faith argument about the interpretation of “became
aware,” and they did not submit affidavits to the court in bad
faith. Accordingly, the district court did not abuse its discretion
in denying the motion for attorney fees.
V. CONCLUSION
We conclude that because there was no genuine dispute of
material fact, the district court did not err in granting summary
58
Seldin v. Estate of Silverman, supra note 55.
59
Id.
60
§ 25-1336.
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judgment in favor of McDermott and Hoy on all claims. The
evidence presented showed that the Nathans became aware
of their claims more than 45 days before the indemnification
letter was sent; the breach of contract claim and misrepresen-
tation claim were based upon the same operative facts; and
the Nathans could not have reasonably relied on the represen-
tations to sustain an affirmative defense of recoupment. The
district court did not err in dismissing the claims against RBA
and Nielsen, because the Nathans failed to plead the existence
of a fiduciary duty; under the purchase agreement, they dis-
claimed any reliance on representations made by RBA and
Nielsen; and they failed to plead how the representations were
made outside the scope of the agency relationship. Further, we
conclude that the district court did not abuse its discretion in
denying attorney fees, because the Nathans’ affidavits were
submitted with a good faith interpretation of the agreement in
mind. We affirm the judgment of the district court.
Affirmed.