Dick v. Koski Prof. Group , 307 Neb. 599 ( 2020 )

Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
11/13/2020 08:06 AM CST
- 599 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599Robert Dick, appellee and cross-appellant, v.
Koski Professional Group, P.C., third-party
plaintiff, appellant and cross-appellee, and
Bland & Associates, P.C., third-party
defendant, appellee and
cross-appellant.
___ N.W.2d ___
Filed October 30, 2020. No. S-19-132.
1. Judgments: Jury Trials: Pretrial Procedure: Appeal and Error. The
allocation of peremptory challenges in a multi-party civil suit is left
to the discretion of the trial court and will be reviewed for an abuse
of discretion.
2. Judgments: Words and Phrases. A judicial abuse of discretion exists
when a judge, within the effective limits of authorized judicial power,
elects to act or refrain from acting, but the selected option results in a
decision which is untenable and unfairly deprives a litigant of a substan-
tial right or a just result in matters submitted for disposition through a
judicial system.
3. Jury Instructions: Proof: Appeal and Error. To establish reversible
error from a court’s failure to give a requested jury instruction, an appel-
lant has the burden to show that (1) the tendered instruction is a correct
statement of the law, (2) the tendered instruction was warranted by the
evidence, and (3) the appellant was prejudiced by the court’s failure to
give the requested instruction.
4. Jury Instructions: Pleadings: Appeal and Error. A party may not
complain of the failure of the trial court to instruct on issues that are
outside the scope of the pleadings.
5. Jury Instructions. Jury instructions must be read together; they must be
read conjunctively, rather than separately in isolation.
6. Jury Instructions: Appeal and Error. If the jury instructions given,
which are taken as a whole, correctly state the law, are not misleading,
- 600 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599and adequately cover the issues submissible to a jury, there is no preju-
dicial error concerning the instructions and necessitating a reversal.
7. Directed Verdict: Appeal and Error. When a motion for directed ver-
dict made at the close of all the evidence is overruled by the trial court,
appellate review is controlled by the rule that a directed verdict is proper
only where reasonable minds cannot differ and can draw but one con-
clusion from the evidence, and where the issues should be decided as a
matter of law.
8. Pleadings: Appeal and Error. Permission to amend a pleading is
addressed to the discretion of the trial court, and an appellate court will
not disturb the trial court’s decision absent an abuse of discretion.
9. Juries. In Nebraska, the number of peremptory challenges allowable in
civil actions is governed by case law and unwritten rules of court.
10. Juries: Parties. A party can exercise the peremptory challenge to
remove a potential juror on the basis of that party’s belief that the juror’s
status as a member of some cognizable group will prejudice his or her
attitude toward that party’s case.
11. ____: ____. Where there are multiple parties on the same side of a
lawsuit, each side of the lawsuit is entitled to a total of three peremp-
tory challenges, unless the multiple parties’ interests are adverse to
each other.
12. ____: ____. Multiple parties on the same side of a civil lawsuit are
adverse to each other when a good-faith controversy exists between
them over an issue of fact that the jury will decide.
13. Parties. The fact that one party may have to defend against a theory of
recovery not asserted against the other does not in itself mean that the
two parties’ interests are adverse.
14. ____. Relevant circumstances to determine whether the defendants’
interests are adverse to each other include but are not limited to (1)
whether separate acts of misconduct were alleged against the separate
defendants, (2) whether comparative negligence principles applied to
the case, (3) the type of relationship among the defendants, (4) whether
cross-claims or third-party complaints had been filed and the positions
taken therein, (5) information disclosed on pretrial discovery, and (6)
representations made by the parties.
15. Juries: Parties: Appeal and Error. One who does not exercise all his
or her peremptory challenges cannot assign as error the court’s refusal
to allow a greater number or a lesser number to the opposing parties.
16. Contracts: Shareholder Agreements. Shareholder agreements are con-
strued according to the principles of the law of contracts.
17. Actions: Breach of Contract: Damages. A suit for damages arising
from breach of a contract presents an action at law.
- 601 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 59918. Contracts: Shareholder Agreements. The meaning of an unambiguous
shareholder agreement, like any contract, is a question of law.
19. Contracts. Matters seeking avoidance of a valid contract are affirma-
tive defenses.
20. Contracts: Words and Phrases. A condition precedent is a condition
that must be performed before the parties’ agreement becomes a binding
contract or a condition which must be fulfilled before a duty to perform
an existing contract arises.
21. Contracts: Breach of Contract: Damages. A condition precedent is
in contrast to a promise in a contract, the nonfulfillment of which is a
breach, i.e., the failure to perform that which was required by a legal
duty, and the remedy lies in an action for damages.
22. Contracts: Intent: Words and Phrases. Whether language in a con-
tract is a condition precedent depends on the parties’ intent as gathered
from the language of the contract.
23. ____: ____: ____. Where contracting parties’ intent is not clear, the lan-
guage is generally interpreted as promissory rather than conditional.
24. Contracts: Liability: Tender. In a simultaneous exchange, entailing
mutual conditions precedent, liability under the contract by the first
party is triggered by an offer of tender by the second party, which is
conditional upon contemporaneous performance of the first.
25. Contracts: Words and Phrases. Tender is an offer to perform a con-
dition or obligation, coupled with the present ability of immediate
performance, so that, were it not for the refusal of cooperation by the
party to whom tendered, the condition or obligation would be immedi-
ately satisfied.
26. Tender: Waiver. Tender before suit is filed is waived where the party
entitled to payment, by conduct or declaration, proclaims that if a tender
should be made, acceptance would be refused.
27. Contracts: Tender: Proof. Acts which, in themselves, are insufficient
to make a complete tender may constitute proof of readiness to perform,
so as to protect the rights of a party under a contract, where a proper
tender is rendered impossible by circumstances not due to the fault of
the tenderer.
28. Actions: Contracts: Pleadings. To constitute a defense to an action
based on contract, the matters must generally be germane to the cause
of action pleaded, in addition to presenting a legal reason why plaintiff
will not recover.
29. Claims: Contracts: Torts. A claim of defense arising out of tort con-
cepts is not generally available where the claim of the plaintiff is pre-
mised upon contract.
30. Contracts. Fiduciary duties arise from the relationship and not from the
terms of the agreement.
- 602 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 59931. Contracts: Parties. The implied covenant of good faith and fair dealing
exists in every contract and requires that none of the parties to the con-
tract do anything which will injure the right of another party to receive
the benefit of the contract.
32. Contracts. The scope of conduct prohibited by the covenant of good
faith is circumscribed by the purposes and express terms of the contract.
33. ____. The covenant of good faith and fair dealing cannot give rise to
new obligations not otherwise contained in a contract’s express terms.
34. Contracts: Breach of Contract. The “prior material breach” doctrine
applies when a contract contemplates an exchange of performances
between the parties, and the doctrine holds that one party’s failure to
perform allows the other party to cease its own performance.
35. ____: ____. A duty under a separate contract is not affected by the
doctrine of prior material breach, nor is a duty under the same contract
affected if it was not one to render a performance to be exchanged under
an exchange of promises; further, only duties to render performance
are affected.
36. Actions: Breach of Contract. A prior material breach by the other con-
tracting party is an affirmative defense that applies only when the breach-
ing party breaches the same contract on which he or she is suing.
37. Shareholder Agreements: Corporations. Shareholder agreements may
be freestanding of corporate bylaws.
38. Claims: Juries: Verdicts. Factual issues necessarily determined by a
jury’s verdict on one claim in a case are also deemed resolved with
respect to other claims in the same case.
39. Judgments. The existence of a fiduciary duty and scope of that duty are
questions of law for the court to decide.
40. Corporations: Trusts. The law of trusts forms the basis for fiduciary
duties. Fiduciaries in a corporation are not trustees in the strict sense
because they do not have title to the estate; they are instead fiduciaries
to the extent that they control the corporation’s property.
41. Equity: Courts. The scope of fiduciary duties is flexible, reflecting the
historical approach of the courts of equity.
42. Corporations. Minority shareholders do not owe a fiduciary duty to
each other or to the corporation.
43. ____. An officer of a corporation occupies a fiduciary relationship
toward the corporation and its stockholders.
44. ____. The existence of a fiduciary duty of an officer in a closely held
corporation depends on the ability to exercise the status that creates it,
and nominal corporate officers with no management authority generally
do not owe fiduciary duties to the corporation.
45. Actions: Damages: Proof. The plaintiff in an action for breach of
fiduciary duty has the burden to prove that (1) the defendant owed the
- 603 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599plaintiff a fiduciary duty, (2) the defendant breached the duty, (3) the
defendant’s breach was the cause of the injury to the plaintiff, and (4)
the plaintiff was damaged.
46. Actions: Corporations: Proof. In an action for breach of fiduciary duty
toward a corporation, the plaintiff must establish a prima facie case of
both the existence of a fiduciary duty and its breach before the burden
shifts to the defendant to prove the defendant acted in an open, fair, and
honest manner such that no breach of fiduciary duty occurred.
47. Corporations: Proof. Negotiating to leave one’s fiduciary position with
a closely held corporation and to enter into competing employment else-
where is not a transaction that shifts the burden to the fiduciary to prove
the negotiation’s fairness.
48. Employer and Employee. An employer’s right to demand and receive
loyalty must be tempered by society’s legitimate interest in encourag-
ing competition.
49. Employer and Employee: Trade Secrets. An employee who plans to
compete with his or her employer may not (1) appropriate the employ-
er’s trade secrets, (2) solicit the employer’s customers while still work-
ing for the employer, (3) solicit the departure of other employees while
still working for the employer, or (4) carry away confidential informa-
tion, such as customer lists.
50. Trial: Evidence: Appeal and Error. Error may not be predicated upon
a ruling of a trial court excluding testimony of a witness unless the sub-
stance of the evidence to be offered by the testimony was made known
to the trial judge by offer or was apparent from the context within which
the questions were asked.
51. Corporations: Contracts. Customers without exclusive contractual
arrangements with corporations or with whom a corporation has to
annually renew contracts are not corporate business opportunities.
52. Equity: Unjust Enrichment: Principal and Agent. Equitable clawback
is a restitutionary remedy based on principles of unjust enrichment and
the faithless servant doctrine. It establishes a mandate that an agent who
engages in activities that breach the agent’s fiduciary duties to the prin-
cipal is not entitled to and must forfeit any compensation for services
rendered during the period of the breach.
53. Jury Instructions: Appeal and Error. Any jury instruction is subject to
the harmless error rule, which requires a reversal only if error adversely
affects the substantial rights of the complaining party.
54. Torts: Intent: Proof. To succeed on a claim for tortious interference
with a business relationship or expectancy, a plaintiff must prove (1) the
existence of a valid business relationship or expectancy, (2) knowledge
by the interferer of the relationship or expectancy, (3) an unjustified
intentional act of interference on the part of the interferer, (4) proof that
- 604 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599the interference caused the harm sustained, and (5) damage to the party
whose relationship or expectancy was disrupted.
55. Torts: Employer and Employee. Factors to consider in determin-
ing whether interference with a business relationship was unjustified
include: (1) the nature of the actor’s conduct, (2) the actor’s motive, (3)
the interests of the other with which the actor’s conduct interferes, (4)
the interests sought to be advanced by the actor, (5) the social interests
in protecting the freedom of action of the actor and the contractual inter-
ests of the other, (6) the proximity or remoteness of the actor’s conduct
to the interference, and (7) the relations between the parties. The issue is
whether, upon a consideration of the relative significance of the factors
involved, the conduct should be permitted without liability, despite its
effect of harm to another.
56. Contracts. An individual’s interest in prospective economic advantage
receives less protection than his or her enforceable contract rights.
57. Torts: Proof. The party alleging tortious interference has the burden of
proving that the conduct did not fall within the competitor’s privilege.
58. Torts: Intent. One is privileged purposely to cause a third person not to
enter into or continue a business relation with a competitor of the actor
if (1) the relation concerns a matter involved in the competition between
the actor and the competitor, (2) the actor does not employ improper
means, (3) the actor does not intend thereby to create or continue an
illegal restraint of competition, and (4) the actor’s purpose is at least in
part to advance his or her interest in the competition with the other.
59. Torts. Improper means of competition has been described as physical
violence, fraud, civil suits, and criminal prosecutions—though even
these means may not be forbidden, depending upon the relation between
the actor and the person induced, and the object sought to be accom-
plished by the actor.
60. Evidence: Appeal and Error. In a civil case, the admission or exclu-
sion of evidence is not reversible error unless it unfairly prejudiced a
substantial right of the complaining party.
Appeal from the District Court for Douglas County: J
Russell Derr, Judge. Affirmed.
Robert M. Slovek and Dwyer Arce, of Kutak Rock, L.L.P.,
for appellant.
Aaron A. Clark, Ruth A. Horvatich, and Cody E.
Brookhouser-Sisney, of McGrath, North, Mullin & Kratz, P.C.,
L.L.O., for appellee Robert Dick.
- 605 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599Ryan M. Kunhart and Jeffrey J. Blumel, of Dvorak Law
Group, L.L.C., for appellee Bland & Associates, P.C.
Heavican, C.J., Cassel, Stacy, Funke, Papik, and
Freudenberg, JJ.
Freudenberg, J.
I. NATURE OF CASE
An accountant left one firm in order to join another. Several
clients followed the accountant to his new firm. The account­
ant, who was a shareholder and officer at his former firm, sued
the former firm for failing to perform a mandatory provision in
the shareholder agreement to buy out a departing shareholder’s
corporate shares at a price that accounted for any lost billings
by virtue of clients’ following a departing shareholder. The
firm made numerous allegations in defense of the account­
ant’s claim and brought counterclaims against the account­
ant, including breach of fiduciary duty and misappropriation
of confidential information. The accountant’s prior firm also
brought third-party claims against the accountant’s new firm,
which included tortious interference with business expectations
and a malicious prosecution claim in relation to a complaint
made by the new firm to the Nebraska State Board of Public
Accountancy (NSBPA). All claims presented to the jury were
determined in favor of the accountant and his new firm. The
accountant’s former firm appeals, presenting 15 assignments
of error challenging the allocation of peremptory strikes, the
denial of its motion for directed verdict, the exclusion of cer-
tain evidence, and several of the jury instructions. We affirm
the judgment.
II. BACKGROUND
The underlying action was commenced by Robert Dick, an
accountant, against Koski Professional Group, P.C. (KPG),
a closely held professional corporation providing accounting
services. Dick worked at KPG as an accountant for 22 years
and eventually held the corporate office of vice president.
- 606 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599In 2015, Dick moved his practice to Bland & Associates,
P.C. (Bland). Bland agreed to pay Dick a base salary plus a
percentage commission on his clients’ billings. Although not
solicited to do so prior to his departure, many of Dick’s clients
transferred their business to Bland after Dick began working
there. There was no noncompete agreement between Dick
and KPG.
Dick had purchased 30 percent of KPG shares during his
tenure at KPG, at a total purchase price of approximately
$257,000. Some of the funds for the stock purchase were
obtained through a loan by Randall Koski (Koski), president of
KPG, to Dick. The loan was secured by a promissory note and
set forth a payment plan and interest. At the time of his depar-
ture, Dick still owed approximately $63,000 on the loan. Dick
continued the scheduled payments and paid off the balance in
full before trial.
When Dick left KPG, he communicated to Koski that
he wished for KPG to purchase his shares pursuant to the
terms of the controlling shareholder agreement (Shareholder
Agreement). The Shareholder Agreement described voluntary
termination as an operative event requiring the shareholder to
sell and the corporation to purchase all of the disposing share-
holder’s stock. The Shareholder Agreement set forth the pur-
chase price for an operative event such as a shareholder’s vol-
untary departure as 80 percent of the adjusted book value. The
adjusted book value in such circumstances was based in part
on “[r]etained [a]nnual [b]illings,” described as the difference
between KPG’s total professional fees during the most recently
completed fiscal year and all professional fees billed to clients
who are no longer clients of KPG and were being served by
the departing shareholder 1 year subsequent to departure. The
repurchase under the Shareholder Agreement was to occur
within 60 days of termination. The agreement further speci-
fied that KPG was to issue a promissory note to purchase the
stock in 120 equal monthly installments with 5 percent per
annum interest.
- 607 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599Koski disavowed a buyout obligation at the price set forth
under the Shareholder Agreement. Koski believed that Dick’s
actions in relation to procuring his new employment had
breached his fiduciary duties to KPG and the corporate bylaws
and, further, that because of the promissory note, Dick had
failed to offer the stock free of all liens. KPG never valued the
shares or set a closing date for a repurchase. Dick sued.
1. Amended Complaint
Dick alleged breach of contract. Dick also asked for an order
granting specific performance of the Shareholder Agreement
compelling KPG to calculate the adjusted book value per share,
deliver a promissory note secured by the pledge of stock, and
pay in full all installment payments to repurchase the stock
plus prejudgment interest and other interest provided under
the Shareholder Agreement. He asked for an accounting or
such other relief necessary to determine the value of his stock.
Alternatively, Dick asked for an order accelerating the pay-
ment of all amounts due to purchase his stock and the entry
of a monetary judgment representing the full adjusted book
value owed by reason of KPG’s repudiation and default. Dick
also alleged violations of the Nebraska Wage Payment and
Collection Act, 1 but dismissed that claim after trial.
2. Amended Answer
KPG generally denied the allegations set forth in Dick’s
amended complaint and alleged several affirmative defenses,
including prior material breach and failure to satisfy a condi-
tion precedent. KPG alleged that Dick’s breach of contract
claim was barred by his own prior material breach of the
Shareholder Agreement and bylaws, thereby excusing KPG’s
duty to perform. KPG alleged that Dick failed to satisfy a con-
dition precedent of the applicable stockholder agreement by
1
See Neb. Rev. Stat. §§ 48-1228 to 48-1234 (Reissue 2010, Cum. Supp.
2018 & Supp. 2019).
- 608 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599failing to return his stock to KPG free and clear of any security
interests or encumbrances.
KPG did not allege a prior breach of fiduciary duty or good
faith and fair dealing as affirmative defenses to Dick’s breach
of contract claim.
3. Counterclaims
KPG then set forth seven counterclaims against Dick, some
of which mirrored the alleged affirmative defenses.
(a) Breach of Fiduciary Duty
First, KPG alleged a counterclaim for breach of fiduciary
duty. KPG asserted that Dick breached his fiduciary duties
of loyalty and care, imposed by virtue of his being an offi-
cer and shareholder of a close corporation, by (1) disclosing
KPG’s confidential business techniques and commercial data
to Bland; (2) failing to send out engagement letters on behalf
of KPG to two different KPG clients in order to take those
clients to Bland; (3) “‘shopp[ing]’” KPG’s long-term clients
to other accounting firms to find the one that would offer him
the largest fees for taking those clients to them; (4) engaging
with Bland, while still working for KPG, in an agreement in
which he would receive a 10-percent commission on all clients
he brought to Bland from KPG, in violation of the rules of pro-
fessional conduct of the NSBPA; (5) concealing from KPG his
efforts to transition to a rival accounting firm; (6) breaking his
specific promise to KPG that he would not contact KPG cli-
ents during that period of time; (7) mishandling and providing
negligent accounting services to KPG clients; and (8) violating
KPG’s bylaws by sending KPG’s confidential business tech-
niques and commercial data to Bland.
While the underlying facts of this stated claim were the same
as those referred to in the affirmative defense of unclean hands,
KPG sought damages as a result of the alleged breaches, as
well as a return of compensation paid to Dick during the period
of his breach—under the “equitable claw back” doctrine.
- 609 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599(b) Breach of Shareholder Agreement
Second, KPG asserted that Dick breached the explicit terms
of the Shareholder Agreement, as well as implied covenants of
good faith and fair dealing, by demanding that KPG repurchase
his stocks and by initiating litigation to compel the same, when
Dick was allegedly unable to return his stock unencumbered.
Like in its affirmative defense of prior material breach and
failure to satisfy a condition precedent based on similar alle-
gations, KPG asserted that it was excused from performing
any further obligation under the Shareholder Agreement. KPG
asked for damages as a result of Dick’s breach.
(c) Breach of KPG’s Bylaws
Third, and again repeating one of the allegations stated
under breach of fiduciary duty, KPG alleged that Dick breached
bylaws providing that officers and employees of KPG maintain
and preserve confidentiality as to all business techniques, com-
mercial data, formulas, goodwill, operational methods, product
identifications, service marks, trademarks, trade names, and
trade secrets, by disclosing confidential information to Bland
in order to undercut KPG pricing for its clients. KPG alleged it
suffered monetary damages as a result of the breach.
(d) Misappropriation of Trade Secrets
Fourth, KPG alleged that Dick violated Nebraska’s Trade
Secrets Act, Neb. Rev. Stat. § 87-501 et seq. (Reissue 2014),
by utilizing KPG’s trade secrets for his own benefit in the
course of his employment with Bland. KPG asked for dam-
ages due to actual losses and unjust enrichment, as provided
by § 87-504.
(e) Tortious Interference With Contact or
Business Relationship or Expectancy
KPG’s fifth counterclaim was based in part on the same
allegations as those set forth in KPG’s counterclaim alleging
breach of fiduciary duties and in part on the additional alleged
facts that (1) Dick had encouraged clients who switched from
- 610 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599KPG to Bland not to pay their outstanding balances with KPG
and (2) Dick maliciously assisted Bland in filing a false com-
plaint against KPG with the NSBPA. KPG sought damages.
(f) Civil Conspiracy
Sixth, repeating allegations made under its breach of fidu-
ciary duty and tortious interference claims concerning Dick’s
breach of KPG’s bylaws by sending confidential information to
Bland, KPG alleged that Dick conspired with Bland to “wrong-
fully co-opt KPG’s niche practice, all while taking concerted
steps to prevent KPG from discovering Dick’s wrongful con-
duct.” KPG sought damages for this alleged civil conspiracy.
(g) Unjust Enrichment
Seventh, KPG asked for the return of certain amounts paid
to Dick or on his behalf under the theory of unjust enrich-
ment. Specifically, KPG sought reimbursement of a $16,000
discretionary bonus paid to Dick on the condition that he stay
through an orderly transition process, which Dick allegedly did
not do. KPG also sought reimbursement for $3,587.13 paid to
cover Dick’s health insurance premium for the fourth quarter of
2015, during which Dick no longer worked for KPG.
4. Third-Party Complaint
KPG brought a third-party complaint against Bland stat-
ing six claims for which KPG sought monetary damages:
(1) tortious interference with an existing contract or business
relationship or expectancy; (2) aiding and abetting a breach
of fiduciary duty; (3) malicious prosecution based on Bland’s
commencement of NSBPA proceedings against KPG, allegedly
without probable cause and with malice, “in an effort to bully
and intimidate” KPG; (4) misappropriation of trade secrets
as defined by KPG’s bylaws and § 87-502(4); (5) civil con-
spiracy to willfully and maliciously interfere with KPG’s busi-
ness operations, customer relationships, and corporate oppor-
tunities; and (6) unjust enrichment through the receipt and
- 611 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599continued use of KPG’s confidential business techniques and
commercial data.
5. Pretrial Order Regarding
10-Percent Commission
KPG moved for partial summary judgment against Bland on
its allegation that Bland’s payment of a 10-percent commission
to Dick for prior KPG clients violated the rules of professional
conduct of the NSBPA and that this accordingly constituted
tortious interference with its business relationships or expec-
tations. Bland responded by filing a cross-motion for partial
summary judgment against KPG, alleging that as a matter of
law, the commission did not create a conflict of interest or vio-
late the NSBPA’s regulations, because it was paid directly by
Bland to Dick and did not affect the amounts paid by a client
or the outcome of an engagement between Bland and a client.
Dick filed a separate motion for partial summary judgment for
the same reasons as set forth in Bland’s motion.
Following a hearing, the court overruled KPG’s motion for
partial summary judgment and granted Bland’s motion for par-
tial summary judgment on the issue of whether the commission
violated NSBPA regulations. The court found as a matter of
law that Bland was not violating NSBPA regulations by paying
Dick a 10-percent commission on fees paid to Bland for work
performed for clients Dick brought to Bland. The NSBPA rule
in question, the court explained, prohibited commissions that
would create a potential conflict of interest, such as a licensee’s
receiving a commission from an outside service provider for
referring that provider’s service to that licensee’s client. The
court did not rule on whether there was any other basis for
concluding that Bland engaged in an unjustified intentional act
of interference against KPG.
6. Peremptory Challenges
Prior to jury selection, the court issued a written order
finding that the interests of Dick and Bland were suffi-
ciently adverse such that each should have three peremptory
- 612 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599challenges. The jury selection process is not otherwise reflected
in the appellate record.
7. Evidence Presented at Trial
The jury trial was held from October 1 through 12, 2018.
The following evidence was adduced.
(a) Dick Employed by
Randall K. Koski, P.C.
Dick testified that he was hired at Randall K. Koski, P.C., in
1993. At that time, the firm was Koski’s sole practice, estab-
lished in 1986. Koski had as a client a nursing home chain and
was looking for someone with health care experience. Dick had
experience working with Medicare.
Dick testified that at Randall K. Koski, P.C., he specialized
in cost reports and other accounting services for long-term
health care facilities. He brought in his first client in 1995, at
which time there were only three nursing homes being served
by KPG. By the time Dick resigned, KPG served around 45
nursing homes.
Dick testified that since 1995, he had personally brought
in every long-term health care client that Randall K. Koski,
P.C., and KPG had served. A shareholder, Michelle Thornburg,
described that while “Dick may have been the face of that
networking,” KPG resources assisted him in that effort signifi-
cantly. Koski also generally disagreed with Dick’s perspective
that he was the driving force of KPG’s growth in that area.
According to Koski, long-term health care clients have always
been between one-third and one-half of KPG’s client base.
(b) Shareholder Agreements, Stock
Purchases, and Promissory Notes
In 1997, Koski filed with the Secretary of State an amend-
ment to the articles of incorporation of Randall K. Koski, P.C.,
to change the corporation’s name to that of KPG. The amend-
ment, adopted by Koski as the sole shareholder, provided that
“all other terms and conditions of the articles of incorporation
- 613 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599filed January 14, 1991 were reconfirmed and deemed to be in
full force and effect.”
In 1997, the first KPG shareholder agreement was signed
by Koski, Dick, and Thornburg. Shareholder agreements were
again signed by all relevant parties in 2005 and 2011. The rel-
evant provisions were the same in each of these subsequently
executed shareholder agreements.
In addition to the “mandatory sales and purchases” provi-
sions that took into account any clients that leave with a volun-
tarily departing shareholder, the agreements provided for share-
holder indebtedness to the corporation or a third-party secured
creditor to be offset against the buyout price. The shareholder
agreements further had a provision that stated:
This Agreement contains the entire understanding among
the parties and supersedes any prior understanding among
the parties and agreements between them respecting
the within subject matter. There are no representations,
agreements, arrangements or understandings, oral or writ-
ten, between or among the parties hereto relating to the
subject matter of this Agreement which are not fully
expressed herein.
There was no reference in the KPG shareholder agreements
to corporate bylaws. At the time of the corporation’s forma-
tion, there were three shareholders, a few employees, and gross
revenues of close to $500,000. When Dick resigned in 2014,
there were four shareholders, over a dozen employees, and
$1.8 million in gross revenue. The fourth shareholder, Adrian
Lape-Brinkman, joined in 2010, after purchasing a 15-percent
interest in KPG for $186,493.08.
Dick originally purchased 12.5 shares in KPG from KPG for
$52,260.25. In 2000, Dick purchased additional shares in KPG
from KPG for $40,356.
In 2005, Dick purchased 11.8 shares in KPG from Koski
for $90,000, giving Dick a 24-percent ownership interest and
reducing Koski’s interest to 52 percent. The 2005 purchase
was memorialized by a stock purchase agreement between
- 614 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599Dick and Koski and was financed by Koski on a 10-year
repayment term with interest, delineated in a security agree-
ment between Dick and Koski. In 2010, Dick again purchased
shares in KPG from Koski for $74,597.23, at which point
Dick owned 30 percent of KPG. Dick and Koski refinanced
the remaining $41,000 unpaid balance of the 2005 loan into a
new loan for the 2010 purchase, for a total loan of $115,000
plus interest.
Under the promissory note, Dick promised to pay $1,199.67
per month from January 1, 2010, through December 31, 2019.
The evidence was uncontroverted that Dick never defaulted on
any of the loan payments.
It was undisputed that after the underlying lawsuit was
filed, Dick continued to make payments and Koski continued
to accept those payments until Dick paid off the remaining
balance in September 2019. The total amount paid by Dick
for all the KPG shares he purchased was $257,998.74, plus
$40,181.69 in interest under the loan from Koski.
(c) Bylaws
KPG entered into evidence the bylaws of Randall K. Koski,
P.C., adopted in 1990 when Koski was the sole owner and
shareholder. The bylaws provided that “[a]ll officers, agents,
and employees of [KPG] shall be required . . . to maintain
and preserve confidentiality as to all business techniques,
commercial data, formulas, good will, operational methods,
product identifications, [etc.]” Koski testified that the Randall
K. Koski, P.C., bylaws became the bylaws of KPG when the
articles of incorporation for KPG were filed, since “[t]he only
change in the corporation was the name . . . .”
(d) Shareholder Disagreements
Dick testified that in 2014, he became concerned that
KPG’s resources were not sufficient to meet the continuing
growth of the long-term health care client base. Dick sug-
gested hiring more staff or merging with another accounting
- 615 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599firm. Koski and Thornburg, however, were not interested in
expanding in that way.
Also, Dick and Lape-Brinkman began to feel that it was
inequitable that the shareholders’ salaries were not in any man-
ner tied to the number of clients they brought to KPG or to the
amount of work they did. All shareholders were paid the same
base salary no matter how many shares they owned. The share-
holders were then each given a yearly distribution of KPG’s
profits based on their percentage of shareholder interest and
without regard to the amount of revenue they brought to the
firm or the amount of work performed.
Dick estimated that he oversaw approximately $600,000
of work, while the other shareholders oversaw approximately
$400,000 of work each, some of whom were getting paid the
same as Dick for doing less work. According to Dick, none
of the other shareholders practiced in his specialty. Koski
asserted that any extra hours worked by Dick were due to time
spent correcting an error that Koski believed Dick’s negligence
had created, while Dick and his client testified that the error
had occurred previously when the client was doing his own
accounting work.
One idea that Dick and Lape-Brinkman suggested to the
other shareholders was that shareholders be given a commis-
sion or bonus for clients they bring to the firm. Dick described
this as a “standard practice.” At a shareholder meeting in
November 2014, Koski and Thornburg rejected such ideas, but
suggested a formal proposal.
Soon after the November 2014 meeting, Koski sent an email
to the other shareholders stating his belief that “much dam-
age has been done to [the] ‘partnership’” as a result of the
disagreement about compensation. Koski expressed that he did
not believe an agreement could be reached that would make
everyone happy. Koski concluded:
The great irony here is that if I had always kept owner
compensation confidential and none of you knew what
- 616 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599the other was making, everyone would be tickled with
this year’s compensation.
I have a plan to finalize 2014 compensation. It is predi-
cated on the idea that we will remain together as a firm at
least for most of 2015. If anyone does not feel that they
can remain with the firm for most of 2015, allowing us
time for an orderly sale, merger or liquidation, if neces-
sary, please be honest with me and tell me that, for I do
not wish to make a discretionary allocation to anyone
who will not remain here through an orderly process. You
might be thinking that we all lose if we liquidate, and you
would be correct. Substantially.
I have decided that my salary for 2014 will be $160,000
....
At the moment, following are my plans for a discretion-
ary reduction in my compensation. I originally planned to
allocate this to [Dick], [Thornburg,] and [Lape-Brinkman],
as I have made known to you previously. [Thornburg]
has very unselfishly asked me to allocate from her share
$4,000 to Kelli and $2,000 to Annette and none to herself.
The remainder of approximately $30,000 plus would go
to [Dick] and [Lape-Brinkman] in whatever proportion
you may agree upon. . . .
....
For the record, I have enjoyed the camaraderie, whether
it was real or imagined, and I hope it may continue into
the future.
Dick thus received a $16,000 distribution. Dick testified that
there was never any discussion of liquidating the firm, either
prior to the email or afterward. The firm was never dissolved,
and Dick stayed with KPG for the first 9 months of 2015.
In January 2015, a formal proposal was submitted, which the
majority of the shareholders rejected. At some point after Dick
left, the remaining shareholders were able to reach an agree-
ment to change their compensation structure.
- 617 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599(e) Employment Negotiations With
Bland and Resignation
Dick submitted his resignation on September 30, 2015,
effective immediately. Dick testified that he made sure all
his pending work was completed prior to his departure. Dick
did not give KPG notice that he was considering moving his
practice elsewhere. Dick explained that he was worried KPG
would fire him immediately if it found out he was considering
other employment.
Dick described that he had originally begun communica-
tion with Bland about the possibility of a merger. But when
it became clear that neither KPG nor Bland was interested in
a merger, on May 28, 2015, Dick began discussing the pos-
sibility of moving his practice to Bland. Dick communicated
with Bland through his wife’s email account, which Dick testi-
fied was the email account he often utilized for his personal
email communications.
(f) Dick’s “Book of Business”
During these negotiations, Bland requested that Dick send
information relating to Dick’s “book of business.” Dick sent
to Bland (from his wife’s email account) a spreadsheet con-
taining information about the volume, general location, price,
and type of work Dick performed. It was understood that cli-
ents were free to go where they wished and that Dick’s book
of business was developed in his employment at KPG, where
the clients might choose to remain. Nevertheless, the manag-
ing shareholder at Bland testified that Dick’s book of busi-
ness was relevant to putting together a compensation package
for Dick.
The spreadsheet was entered into evidence at trial. It dem-
onstrated chunks of hours and the total billings for each chunk
(such as 34 hours for a $3,200 fee), with a description of the
general type of work (such as “[t]ax” or “Medicaid”). The
spreadsheet often indicated the time of year the work was
due and sometimes indicated the state in which the work was
performed. Clients were identified, if at all, by designations
- 618 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599such as “Owner A.” The document summarized total billings in
various categories such as “[a]udit,” “[t]ax,” “Medicaid,” and
“[r]etirement [p]lan” and then summarized total billings into
date categories of “January - June,” “July - September,” and
“October - December.”
Dick testified that some of the information in the spread-
sheet came from Dick’s estimation of fees and hours, while
other parts of the information came from the KPG computer
database. According to Thornburg, only shareholders and two
paraprofessionals who did billing had access to such fees-and-
hours data in their computer system. Dick acknowledged that
the database was password protected, but testified that the fees-
and-hours information was public information.
Thornburg acknowledged that a range of KPG pricing infor-
mation was given to potential clients and that clients were
obviously aware of what they were being billed. Clients were
not asked to keep that information confidential. Koski testified
that KPG would share its billing rates with anyone, “because it
tells them nothing,” and that pricing information was given to
each customer.
Both Bland and KPG provided potential clients with cost
estimates, which the potential clients were free to share with
others. KPG did so through its engagement letters, and Lape-
Brinkman testified that there was nothing in the engagement
letters that restricted a potential, current, or past client from
disclosing to Bland or other firms what KPG charged for the
described services. The managing shareholder at Bland testi-
fied that he always asked potential clients what fees they were
currently paying before putting together a proposal, which the
clients ordinarily freely disclosed. He generally sought that
information in order to understand whether it would be worth-
while to make an offer, since Bland did not “want to undercut”
and “take a losing job.”
It was undisputed that long-term health care facilities gen-
erally must publicly disclose Medicaid cost reports, which
include accounting fees. But Koski pointed out that those
- 619 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599fees could be a sum of multiple firms’ work. KPG’s website
described the types of tax work KPG performed for its clients.
It also listed the states in which it performed services.
During his testimony, Koski explained that he primarily
took issue with Dick’s sharing with Bland the historical infor-
mation about services provided to KPG clients, KPG client
locations, and number of hours spent servicing KPG clients.
Koski stated, “Standard hourly billing rates are one thing, but
what you actually realized on a client engagement is something
else . . . .” Koski testified that the latter information was not
publicly available. Koski described that such information could
be used by a competitor to organize staff and other resources
required to serve that client.
At no point did Dick relay to Bland any client names. At no
point did Dick or anyone at Bland utilize the information in the
spreadsheet or any other information to undercut KPG’s rates
or solicit new clients. The managing shareholder at Bland testi-
fied that he did not attempt to identify KPG clients from the
information conveyed in the spreadsheet. The managing share-
holder stated that Bland has never utilized the spreadsheet to
solicit KPG clients or for any other competitive purpose. Dick
testified that after sending the spreadsheet to Bland, he never
looked at the information again.
(g) Job Offer and 10-Percent Commission
By August 2015, Bland had offered Dick a job. At Bland,
all accountants receive an extra payment of 10 percent of
the billings on the first year of collections for all clients they
personally bring to the firm. This has been Bland’s policy for
quite some time. In 2015, approximately 50 Bland employees
received such a commission. Dick’s position as an accountant
at Bland meant he also would receive such a commission. The
court excluded expert testimony proffered by KPG that Bland’s
10-percent commission system violated the rules of profes-
sional conduct of the NSBPA.
- 620 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599(h) KPG Clients That Left
Dick testified that he did not talk to any clients before
resigning from KPG about his move to Bland, and there was
no evidence contradicting this testimony. After his resignation,
Dick did send out emails to some former clients informing
them of his new place of employment and stating that he would
appreciate having the opportunity to continue providing them
services. Ultimately, 23 clients chose to follow Dick to Bland,
while 37 clients stayed with KPG.
Koski testified that in the 18 months following Dick’s resig-
nation, 83 clients were “lost,” while 37 stayed. Of those 83 cli-
ents, according to Koski, 38 originally followed Dick but only
23 remained with Dick a year after his departure from KPG.
Koski could not strictly account for where the other long-
term health care clients went, but opined that their loss was
related to the “disruption” and “consternation” ­surrounding
Dick’s resignation.
The executives of nine of the clients who followed Dick
from KPG to Bland testified that Dick did not reach out to
them or solicit their business following his departure. Rather,
they discovered Dick’s departure from KPG employees, dur-
ing a regular bidding process, or by other means. These clients
then reached out to Dick directly.
In total, the executives of 13 clients who followed Dick
testified. They all testified Dick never made any disparaging
comments about KPG or offered to undercut KPG’s pricing.
Indeed, Dick assured one of those clients that KPG was fully
equipped to continue to serve its needs. No evidence was
presented that any former KPG client followed Dick to Bland
because of better pricing.
According to Koski, Dick’s departure resulted in a decline
in KPG’s revenue due to the loss of clients as well as the cost
of the present litigation. KPG’s expert witness testified that due
to lost clients, KPG had experienced approximately $1.8 mil-
lion in lost profits over a projected 10-year period and based
on a 6.04-percent compounding growth in the clients’ billings.
The 10-year period was based on past longevity of KPG’s
- 621 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599long-term health care clients. The expert also testified, over
Dick’s objection, that KPG had experienced “clawback” dam-
ages in the amount of $48,247.
KPG’s expert admitted on cross-examination that he was
directed which clients to include in the lost-profits calculation,
and he did not investigate why the clients had left. He did not
know whether any of those clients were one-time engagements,
went to firms other than Bland, or were no longer in business.
Furthermore, he included in his lost-profits calculations clients
who had remained with KPG but whose billings decreased.
KPG’s expert also testified that he had made no judgment
in determining clawback damages whether Dick had worked
diligently on behalf of KPG during the 4-month period he was
negotiating with Bland prior to resigning.
During the expert’s examination, KPG’s counsel asked the
court to allow the expert to recalculate the lost profits by
removing certain clients Dick claimed to have identified during
cross-examination that should have been excluded. The court
sustained Dick’s objection to such a late revision of the expert’s
report, but allowed the expert to testify as to the mathematical
formula by which such a calculation could be made.
Dick’s expert witness testified that only former clients of
KPG that followed Dick to Bland should have been included
in KPG’s expert’s calculations of lost profits. Clients who
continued to have their work done by KPG and former cli-
ents who had contracted with KPG for a onetime project
should have been excluded from KPG’s expert’s calculations,
but were not. Dick’s expert witness also opined that using
6.04 percent as the predicted growth rate was unreasonable.
And she also took issue with the 10-year projection, noting
that “to assume that every one of these is going to last ten
years would be really overstating the life of that client base.”
Finally, Dick’s expert witness opined that the approximately
$200,000 for KPG’s legal fees should not have been part of a
lost-profits analysis.
According to her own analysis, Dick’s expert witness tes-
tified that KPG did not suffer any lost profits as a result of
- 622 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599Dick’s resignation. Dick’s expert witness testified that the lost
revenue of clients who went to Bland was less than the amount
KPG previously had to pay for Dick’s salary.
(i) No Closing Under Shareholder
Buyout Provision
Dick testified that he had been prepared to proceed under the
Shareholder Agreement’s buyout provision with a closing date
of 60 days from the operative event of his resignation, which
would have been November 29, 2015. According to Dick’s
calculations under the formulas set forth in the Shareholder
Agreement, his shares had a total value of $470,312.51 and,
under the Shareholder Agreement, KPG should have paid him
approximately $60,000 per year over a 10-year payment plan
outlined in the Shareholder Agreement, with the first monthly
payment due on November 29.
Dick’s expert witness confirmed those calculations, while
KPG’s expert calculated the value of the shares at $302,696.
Although there was still an outstanding lien under the promis-
sory note to Koski, Dick testified that he had been prepared to
pay off that balance in connection with closing on the shares.
On October 3, 2015, Dick and Koski had a conversation
wherein Dick made clear that he wanted his shares to be val-
ued and repurchased. Koski asked Dick what he wanted for
his shares. Dick responded that he wished for KPG to cal-
culate the purchase price as provided under the terms of the
Shareholder Agreement—though he might be willing to take
a lesser amount in a lump sum “just to move on.” According
to Dick, Koski refused to purchase the shares under the terms
of the Shareholder Agreement, stating that “there’s too much
money at stake; we’re going to fight you.” Thornburg testified
that 2014 was the highest-revenue year in the history of the
firm, which would result in “a pretty significant payout” for a
departing shareholder.
According to Koski, he did not say, “We’re going to fight
you,” but offered to try to work something out. Nevertheless,
Koski believed that the Shareholder Agreement did not control
- 623 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599KPG’s obligations, because Dick had not acted in good faith.
Thus, any agreed-upon payout amount would not be com-
mensurate to the sum under the formula of the Shareholder
Agreement. Koski also testified, “[Dick] never offered to pay
and deliver [the shares] free and clear of liens. He never
offered it.”
Dick testified that since his resignation, he has received no
distributions or other income based on his shares and has no
control over KPG operations, yet he has had to pay yearly taxes
on KPG income by virtue of his continuing status as a share-
holder. Dick testified that he has never had possession of any
physical shareholder certificate—the shareholder agreements
being the only documentation of the same. There was no evi-
dence that physical shareholder certificates ever existed.
8. Motion for Directed Verdict Against Dick
on Claim for Breach of Contract
Near the close of trial, before KPG rested, KPG moved for
a directed verdict against Dick on its cause of action under the
Shareholder Agreement. Specifically, KPG argued that Dick
had failed to rebut, by demonstrating good faith, KPG’s prima
facie case for its affirmative defense that Dick had breached his
fiduciary duty toward KPG. The court pronounced that it was
overruling the motion.
The court observed that KPG’s claim appeared primarily to
be based on the alleged act of disclosing confidential informa-
tion through the email disclosing billings. The court consid-
ered it to be a question for the jury whether such information
was confidential. While KPG asserted that additionally, Dick’s
concealment of his negotiations with Bland was a breach of a
fiduciary duty of “utmost honesty with his partners,” the court
did not agree.
The court noted that the case law did not support the
proposition that an officer or shareholder who merely pre-
pares to compete upon departure breaches a fiduciary duty.
And the court rejected KPG’s premise that Dick had commit-
ted a breach of fiduciary duty by soliciting clients after he
- 624 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599resigned at KPG—an act which the court noted was explicitly
contemplated by the Shareholder Agreement. With regard to
KPG’s argument that Dick had a postresignation fiduciary duty
because he was still a shareholder, the court said:
Well, that’s kind of a circular argument here, that you
won’t buy him back, so he’s still a shareholder. You
won’t buy him back ’cause you say, Well, I don’t have to
because he breached his fiduciary duty. That’s the posi-
tion [KPG’s] taken, so what’s he supposed to do?
The court also found little merit to the contention that Dick
had “stole[n]” KPG clients, when there was no agreement not
to compete.
Further, the court believed that postresignation conduct was
not alleged as part of KPG’s claim for breach of fiduciary duty.
The court expressed the belief that any breach of fiduciary duty
or tortious interference could not as a matter of law operate as
an affirmative defense to Dick’s claim for breach of contract.
The court stated that there was no shifting of the burden of
proof without first proving Dick engaged in a breach of fidu-
ciary duty, and KPG had not done so.
The court overruled renewed motions for a directed verdict
against Dick on his breach of contract claim at the close of
KPG’s counterclaim and at the close of all the evidence.
9. Suppression of Evidence of Postresignation
Acts in Alleged Breach of
Fiduciary Duty
On the ground that the issue was not presented in the plead-
ings, the court later sustained during trial an objection by Dick
preventing KPG from offering evidence of Dick’s continuing
fiduciary duty toward KPG as a shareholder after his resigna-
tion from KPG and becoming employed by Bland. The court
reasoned that the issue was not pleaded. The court noted that
under the allegation of breach of fiduciary duty, there were
numerous specific facts pleaded under “[allegations] A through
F,” all of which described acts before resignation. The court
explained, “[T]here is no G that includes, By continuing to
- 625 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599compete while continuing to be a shareholder, and that’s a
pretty big allegation.”
The court also found no merit to a claim based on Dick’s
continuing duty as a shareholder when KPG refused to redeem
Dick’s shares. Finally, the court noted that there was nothing
pleaded regarding any alleged failure to tender the shares.
KPG did not make an offer of proof.
10. Motion to Amend Pleadings
The court overruled a related motion to amend the pleadings
to conform to the evidence. Specifically, the court rejected any
attempt by KPG to interject at such a late juncture the theory
that Dick had a continuing fiduciary duty toward KPG by
virtue of still being a shareholder. The court noted that in the
amended pleadings filed 2 years after Dick’s resignation and
consisting of 143 paragraphs with numerous specific allega-
tions of alleged breaches of fiduciary duty, “[n]owhere does it
talk about breaching, continuing to breach his fiduciary duty by
virtue of holding on to his shares.”
The court also again observed that Dick had wanted to
redeem his shares and that KPG “didn’t take the position they’re
not worth as much,” but, rather, “took the position I don’t have
to pay him anything.” The court found it to be a “circular argu-
ment” that “[w]e won’t buy his shares and he can’t compete
by virtue he still has fiduciary obligation.” That was “a pretty
big issue” that “should have been dealt with, if it needed to be
dealt with, it should have been dealt with before.”
11. Motions for Directed Verdict on KPG’s
Counterclaim and Cross-Claim
After KPG presented its evidence on its counterclaim and
third-party claims, KPG moved for a directed verdict on those
claims. Dick moved for a directed verdict on his claim against
KPG for breach of the Shareholder Agreement and against
KPG on its counterclaims. Bland also moved for a directed
verdict in its favor on KPG’s third-party claims, including its
- 626 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599claim for malicious prosecution. The court overruled all the
motions, and the parties discussed jury instructions.
12. Jury Instructions
At the jury instructions conference, KPG proposed numerous
instructions and special verdict forms that the court ultimately
refused to give and which will be set forth in more detail in
the analysis section. Forty-seven instructions were given by the
court to the jury.
The jury was instructed in instruction No. 2 regarding the
theories under which KPG alleged it had not just a defense
against Dick’s breach of contract claim but counterclaims
against Dick and third-party claims against Bland for damages.
It provided in part:
[KPG] alleges that it does not have to repurchase the stock
because Dick breached his fiduciary duty as an employee
and shareholder of [KPG] by disclosing alleged confiden-
tial information of [KPG] and by discussing employment
possibilities with Third Party Defendant Bland . . . while
still an employee and shareholder of [KPG].
[KPG] has asserted claims against Dick for:
•  Breach of fiduciary duty
•  Breach of Shareholder Agreement
•  Breach of [KPG’s] Corporate by-laws
•  Misappropriation of [KPG] trade secrets
•  Tortious interference with business relationships and/or
expectancy
•  Civil conspiracy
•  Unjust enrichment
[KPG] has asserted claims against Bland for:
•  Tortious interference with business relationships and/or
expectancy
•  Aiding and abetting Dick’s alleged breach of fiduciary
duty to [KPG]
•  Malicious prosecution
•  Misappropriation of [KPG’s] trade secrets
- 627 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599•  Civil conspiracy
•  Unjust enrichment
Further instructions elaborated on the elements of these
claims. These included instructions describing the elements
of aiding and abetting a breach of fiduciary duty and mali-
cious prosecution.
Regarding breach of fiduciary duty, instruction No. 5
informed the jury that because Dick was an officer, direc-
tor, and shareholder, a fiduciary relationship existed between
Dick and KPG. This relationship “imposes the responsibility
to disclose any conflicts between Dick’s interests and KPG’s
interests that might make him act in his own best interests at
the expense or the detriment of [KPG].” Furthermore, “[a]s a
fiduciary, Dick must exercise the utmost good faith in all his
dealings with the other [KPG] shareholders and must always
act for the common benefit of all.”
Instruction No. 8 stated that “[s]hareholder employees in a
close corporation owe one another substantially the same fidu-
ciary duty in the operation of the enterprise that partners owe
to one another, to act among themselves in the utmost good
faith and loyalty.” But the instruction described that “[a]n indi-
vidual’s fiduciary duty ends upon termination of the employ-
ment relationship.” “However,” it further explained, while an
employee has a duty not to compete with his or her employer
during employment,
employees, including employees with fiduciary duties,
may plan and prepare for their competing business while
still employed without breaching the duty of loyalty.
Employees, including employees with fiduciary duties,
are allowed to discuss job offers, while still employed, to
engage in future competition with their employer without
incurring liability.
While planning and preparing for a competing business
is permissible, an employee may not act in direct competi-
tion with his or her employer while still employed. Factors
showing that an employee acted in direct competition
- 628 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599during his or her employment include the following:
use of confidential and trade secret information acquired
from the employer to compete; soliciting customers and
clients to join the competing business before the end
of the employment relationship; or committing some
other fraudulent or unlawful act aimed at destroying the
employer’s business. To give rise to liability, the alleged
disloyal acts must substantially hinder the employer in the
continuation of its business.
Instruction No. 9 informed the jury that KPG asserted that
Dick breached his fiduciary duty to KPG “in one or more of
the following ways: . . . Violated [KPG’s] bylaws by disclosing
[KPG’s] alleged confidential information to Bland; . . . Failed
to send out an Engagement Letter to [two named entities] in an
effort to undermine [KPG’s] relationships with clients.”
Instructions Nos. 11 through 15 described claims based
on misappropriation of “trade secret/confidential information.”
Instruction No. 12 set forth:
Confidential information and trade secrets are defined
as information including, but not limited to, a drawing,
formula, pattern, compilation, program, device, method,
technique, code, or process that:
(a) derives economic value, actual or potential, from
not being known to, and not being ascertainable by proper
means by, other persons who can obtain economic value
from its disclosure or use; and
(b) is the subject of efforts that are reasonable under
the circumstances to maintain its secrecy.
Confidential and trade secret information must have
independent economic value. To be considered confiden-
tial and trade secret information, possession of the secret
information must confer a competitive advantage.
Matters of public knowledge or of general knowledge
in an industry are not confidential information or trade
secrets; confidential information or a trade secret is some-
thing known to only a few and not susceptible of general
knowledge. Confidential information and trade secrets
- 629 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599must be particular secrets of [KPG] and not the general
secrets of the trade in which [KPG] is engaged. If infor-
mation is ascertainable at all by any means that are not
improper, the information is not confidential information
or a trade secret.
Instruction No. 13 stated:
If an alleged trade secret or confidential information
does not have independent economic value, the informa-
tion is not entitled to confidential information or trade
secret protection under Nebraska law. To be considered
confidential and trade secret information, possession of the
secret information must confer a competitive advantage.
Information disclosed to customers without any confi-
dentiality requirement, including pricing information, is
not confidential information.
Instruction No. 14 set forth the definition of the term “mis-
appropriation” under Nebraska’s Trade Secrets Act.
In addition to general instructions, the court gave the jury
the following 11 special verdict forms:
(a) Dick’s Claim for Stock
Repurchase (Form 1)
The jury was asked in special verdict form 1 to determine
Dick’s claims against KPG for stock repurchase pursuant to the
Shareholder Agreement.
(b) KPG’s Claims Against Dick
(Forms 2 Through 4)
The jury was asked in special verdict forms 2 through 4 to
determine KPG’s claims against Dick for (1) breach of fiduciary
duty, (2) tortious interference with a business relationship or
expectancy, (3) misappropriation of trade secrets or confidential
information, (4) unjust enrichment, and (5) civil conspiracy.
(c) KPG’s Conspiracy Claim Against
Dick and Bland (Form 5)
The jury was asked in special verdict form 5 to determine
KPG’s claim of civil conspiracy against Dick and Bland.
- 630 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599(d) KPG’s Claims Against Bland
(Forms 6 Through 9)
The jury was asked in special verdict forms 6 through 9 to
determine KPG’s claims against Bland for (1) tortious interfer-
ence with a business relationship or expectancy, (2) misap-
propriation of trade secrets or confidential information, and (3)
unjust enrichment.
(e) KPG’s Damages Calculations
(Forms 10 and 11)
Special verdict forms 10 and 11 were simple damages forms
with blanks for the jury to fill in the amount of damages in
the event the jury found for KPG on “any of its claims.”
Instruction No. 10 referred generally to claims by KPG against
Dick, while instruction No. 11 referred generally to claims by
KPG against Bland.
13. Jury Verdict
On October 15, 2018, the jury found against KPG on all
claims presented by the special verdict forms and in favor
of Dick on his claim for stock repurchase, awarding Dick
$470,312.51, which the jury determined to be the repur-
chase price.
KPG timely filed a notice of appeal following entry of the
final judgment. Dick and Bland cross-appeal.
III. ASSIGNMENTS OF ERROR
KPG assigns that the district court erred by (1) granting
Dick and Bland twice as many peremptory strikes as KPG;
(2) denying KPG’s motion for directed verdict on the ground
that Dick had breached his fiduciary duty; (3) denying KPG’s
motion for directed verdict on the ground that Dick failed
to prove he acted in good faith; (4) excluding evidence of
Dick’s breach of fiduciary duty after his resignation as a KPG
officer or, alternatively, refusing to allow KPG to amend its
pleadings to conform to the evidence; (5) refusing to instruct
the jury on KPG’s affirmative defense that Dick’s breach of
- 631 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599fiduciary duty could constitute a prior material breach of the
Shareholder Agreement that excused KPG from performance;
(6) refusing to instruct the jury on KPG’s affirmative defense
that Dick’s breach of KPG’s bylaws could constitute a prior
material breach of the Shareholder Agreement that excused
KPG from performance; (7) refusing to instruct the jury on
KPG’s affirmative defense that Dick’s breach of the covenant
of good faith and fair dealing could constitute a prior material
breach of the Shareholder Agreement that excused KPG from
performance; (8) refusing to instruct the jury that it must find
Dick satisfied all conditions precedent in order to find the
Shareholder Agreement enforceable; (9) refusing to instruct
the jury on the corporate opportunity doctrine; (10) refusing to
instruct the jury on equitable clawback damages; (11) instruct-
ing the jury that KPG bore the entire burden of proving Dick
breached his fiduciary duty to KPG; (12) instructing the jury
on the lower duty of loyalty owed by an employee, instead
of the fiduciary duty owed by an officer and shareholder in a
close corporation; (13) instructing the jury that KPG’s claim
for breach of fiduciary duty was based on two grounds only,
the violation of KPG’s bylaws and Dick’s failure to send an
engagement letter to KPG clients before his resignation, when
KPG pled and offered evidence at trial of Dick’s concealment,
sharing confidential information with a competitor, and other
actions demonstrating a failure to exercise the utmost good
faith; (14) instructing the jury that KPG’s confidential infor-
mation must satisfy the legal definition of a trade secret to
be protected; and (15) holding as a matter of law that Bland’s
payment of the commissions to Dick did not violate the rules
of professional conduct of the NSBPA and excluding evidence
of the improper commissions from trial.
Dick and Bland asserted cross-appeals in their briefs. Dick
assigned in his brief on cross-appeal that the district court
erred by overruling his motion for directed verdict against
KPG on its counterclaims against him, because KPG failed to
prove that any alleged misconduct by Dick proximately caused
KPG damages and also because KPG had failed to establish
- 632 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599damages with reasonable certainty. Bland similarly assigned
on cross-appeal in its brief that the district court erred by over-
ruling its motion for directed verdict against KPG on its third-
party claims against it, because KPG failed to prove that any
alleged misconduct by Bland proximately caused damages and
failed to establish any damages with reasonable certainty.
IV. STANDARD OF REVIEW
[1] The allocation of peremptory challenges in a multiparty
civil suit is left to the discretion of the trial court and will be
reviewed for an abuse of discretion. 2
[2] A judicial abuse of discretion exists when a judge, within
the effective limits of authorized judicial power, elects to act or
refrain from acting, but the selected option results in a decision
which is untenable and unfairly deprives a litigant of a substan-
tial right or a just result in matters submitted for disposition
through a judicial system. 3
[3] To establish reversible error from a court’s failure to
give a requested jury instruction, an appellant has the burden
to show that (1) the tendered instruction is a correct statement
of the law, (2) the tendered instruction was warranted by the
evidence, and (3) the appellant was prejudiced by the court’s
failure to give the requested instruction. 4
[4] A party may not complain of the failure of the trial
court to instruct on issues that are outside the scope of the
pleadings. 5
2
See, Tidemann v. Nadler Golf Car Sales, Inc., 224 F.3d 719 (7th Cir.
2000); Blount v. Plovidba, 567 F.2d 583 (3d Cir. 1977); Globe Indemnity
Co. v. Stringer, 190 F.2d 1017 (5th Cir. 1951); Sommerkamp v. Linton, 114
S.W.3d 811 (Ky. 2003); Premier Therapy, LLC v. Childs, 75 N.E.3d 692(Ohio App. 2016); Gallegos v. Southwest Com. Health Services, 117 N.M.
481, 872 P.2d 899 (N.M. App. 1994).
3
Krejci v. Krejci, 304 Neb. 302, 934 N.W.2d 179 (2019).
4
Foundation One Bank v. Svoboda, 303 Neb. 624, 931 N.W.2d 431 (2019).
5
Deck v. Sherlock, 162 Neb. 86, 75 N.W.2d 99 (1956).
- 633 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599[5] Jury instructions must be read together; they must be
read conjunctively, rather than separately in isolation. 6
[6] If the jury instructions given, which are taken as a whole,
correctly state the law, are not misleading, and adequately cover
the issues submissible to a jury, there is no prejudicial error
concerning the instructions and necessitating a reversal. 7
[7] When a motion for directed verdict made at the close of
all the evidence is overruled by the trial court, appellate review
is controlled by the rule that a directed verdict is proper only
where reasonable minds cannot differ and can draw but one
conclusion from the evidence, and where the issues should be
decided as a matter of law. 8
[8] Permission to amend a pleading is addressed to the dis-
cretion of the trial court, and an appellate court will not disturb
the trial court’s decision absent an abuse of discretion. 9
V. ANALYSIS
KPG argues that the jury’s verdict in Dick’s breach of con-
tract claim should be reversed because KPG was deprived of
a fair trial by virtue of the district court’s allocation of three
peremptory strikes each to Dick and Bland, rather than three
shared peremptory strikes. In the event we are unpersuaded
that the allocation of peremptory challenges requires a new
trial, KPG asserts that a new trial on Dick’s breach of contract
claim is necessary because KPG was prejudiced by the district
court’s failure to instruct the jury that prior material breaches
by Dick of his fiduciary duty, corporate bylaws, or his obli-
gations of good faith and fair dealing would excuse KPG’s
performance under the Shareholder Agreement and that there
6
Malone v. American Bus. Info., 264 Neb. 127, 647 N.W.2d 569 (2002).
7
InterCall, Inc. v. Egenera, Inc., 284 Neb. 801, 824 N.W.2d 12 (2012).
8
See United Gen. Title Ins. Co. v. Malone, 289 Neb. 1006, 858 N.W.2d 196(2015).
9
Id.- 634 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599can be no breach of a promise until all conditions precedent
have been performed.
KPG argues that the judgments against it on its counterclaims
for breach of fiduciary duty and for breach of corporate bylaws
should also be reversed. On KPG’s counterclaim for breach of
fiduciary duty, KPG asserts that the court should have granted
its motion for a directed verdict. Alternatively, KPG asserts
that a new trial is required on its counterclaim for breach of
fiduciary duty because the court (1) instructed that Dick’s fidu-
ciary duty ended upon his resignation and excluded evidence
of Dick’s postresignation conduct; (2) failed to instruct that
Dick’s conduct presumptively breached his fiduciary duty and
that therefore, the burden shifted to Dick to prove his actions
were in good faith; (3) failed to instruct on the corporate oppor-
tunity doctrine; and (4) failed to instruct on equitable clawback
damages. On KPG’s counterclaim for breach of the corporate
bylaws, KPG argues that it was prejudiced by jury instructions
that defined a trade secret and confidential information the
same way.
Lastly, KPG argues that we should reverse the judgment
against it on its cross-claim against Bland for tortious interfer-
ence. KPG argues it was prejudiced by the court’s exclusion of
expert testimony that the 10-percent commission paid to Dick
by Bland on all new clients was unethical under the NSBPA.
1. Peremptory Challenges
(Assignment of Error No. 1)
We first address KPG’s assertion that the judgment in favor
of Dick on his breach of contract claim must be reversed and
that the cause must be remanded for a new trial due to the
unwarranted allowance of peremptory challenges. KPG argues
that Dick and Bland were on the “same side” of the lawsuit,
that their interests were not adverse to each other, and that
thus, both error and prejudice must be presumed by their six-
to-three advantage in peremptory challenges.
- 635 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599[9-11] In Nebraska, the number of peremptory chal-
lenges allowable in civil actions is governed by case law and
“‘“unwritten rules of court.”’” 10 A party can exercise the
peremptory challenge to remove a potential juror on the basis
of that party’s belief that the juror’s status as a member of
some cognizable group will prejudice his or her attitude toward
that party’s case. 11 We have said that under these rules, where
there are multiple parties on the same side of a lawsuit, each
side of the lawsuit is entitled to a total of three peremptory
challenges, unless the multiple parties’ interests are adverse to
each other. 12
[12,13] In Gestring v. Mary Lanning Memorial Hosp., 13 we
reversed the judgment obtained after the trial court granted
three peremptory challenges to the plaintiff, who was a
deceased patient’s personal representative, while also grant-
ing three peremptory challenges each to multiple defendants
involved in the deceased’s care. We explained that additional
peremptory challenges should be granted to multiple parties
on the same side of a civil lawsuit only after the trial court has
considered all of the circumstances of the case and determined
that the interests of those multiple parties are adverse to each
other. We elaborated that multiple parties on the same side of
a civil lawsuit are adverse to each other when a good-faith
controversy exists between them over an issue of fact that the
jury will decide. 14 The fact that one party may have to defend
against a theory of recovery not asserted against the other does
not in itself mean that the two parties’ interests are adverse. 15
10
Gestring v. Mary Lanning Memorial Hosp., 259 Neb. 905, 912, 613
N.W.2d 440, 448 (2000).
11
See Swain v. Alabama, 380 U.S. 202, 85 S. Ct. 824, 13 L. Ed. 2d 759(1965).
12
Gestring v. Mary Lanning Memorial Hosp., supra note 10.
13
See id.14
See id.15
See id.- 636 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599[14] Focusing on multiple defendants who are on the same
side of a civil lawsuit, we held in Gestring that relevant cir-
cumstances to determine whether the defendants’ interests are
adverse to each other include but are not limited to (1) whether
separate acts of misconduct were alleged against the sepa-
rate defendants, (2) whether comparative negligence principles
applied to the case, (3) the type of relationship among the
defendants, (4) whether cross-claims or third-party complaints
had been filed and the positions taken therein, (5) informa-
tion disclosed on pretrial discovery, and (6) representations
made by the parties. 16 Other jurisdictions allow additional
peremptory challenges to multiple parties whose interests are
“‘diverse,’” considering similar factors and including whether
the parties’ interests are antagonistic as one of the factors to
be considered. 17
We have never directly addressed a circumstance such as that
presented here where the parties that were each granted three
peremptory strikes are a plaintiff and a third-party defend­ant
who are on the “same side” of the defendant’s counterclaims
and third-party claims. The lawsuit was brought by Dick
against KPG, alleging breach of contract and violations of the
Nebraska Wage Payment and Collection Act (a claim that was
later dismissed). Bland had no interest in those claims and was
brought into the action by KPG, which asserted jointly against
Bland and Dick tortious interference, conspiracy to commit
tortious interference, misappropriation of trade secrets, and
unjust enrichment. KPG also asserted a claim for tortious inter-
ference against Dick and asserted a claim against Bland for
aiding and abetting that breach. But KPG asserted third-party
claims of malicious prosecution and unlawful commissions
against Bland, which KPG did not assert against Dick. Further,
KPG asserted counterclaims of breach of the Shareholder
16
See id.17
See Carraro v. Wells Fargo Mortg. & Equity, 106 N.M. 442, 443, 744 P.2d
915, 916 (N.M. App. 1987).
- 637 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599Agreement and breach of corporate bylaws, which were not
asserted against Bland. To summarize, separate acts of miscon-
duct were alleged against Dick and Bland.
Nevertheless, in support of its assertion that the court erred
in its allocation of peremptory challenges, KPG points out
that Dick and Bland had a joint defense agreement whereby
the attorneys could share information. This is not disputed. At
issue is its import in an inquiry regarding allocation of peremp-
tory challenges.
We do not decide that question here, however, because KPG
has failed to preserve in the record evidence that it exhausted
all its peremptory challenges, thereby leaving the record insuf-
ficient to support its assignment of error even if we found
merit to KPG’s legal premise. In Steele v. Encore Mfg. Co., 18
the Nebraska Court of Appeals held that because there was no
record concerning the number of peremptory challenges that
the plaintiff had actually utilized, it could not address the plain-
tiff’s allegation that the trial court erred by refusing his request
to give him the same number of peremptory strikes as each of
the codefendants. Similarly, in Petsch & McDonald v. Hines, 19
we held that we could not address a defendant’s argument that
the trial court erred by failing to grant it and its codefendant
each the full number of three peremptory challenges, because
the record did not demonstrate the extent to which either
defend­ant exercised the peremptory challenges allotted.
It is true that in Gestring, we held that prejudice was pre-
sumed when the court granted the codefendants three peremp-
tory strikes each despite their not adverse interests. 20 We
reasoned that when no good-faith controversy exists between
multiparty defendants and they are awarded extra peremptory
challenges, the defendants can pool their challenges against the
plaintiff, affording them undue influence over the composition
18
Steele v. Encore Mfg. Co., 7 Neb. App. 1, 579 N.W.2d 563 (1998).
19
Petsch & McDonald v. Hines, 110 Neb. 1, 192 N.W. 963 (1923).
20
Gestring v. Mary Lanning Memorial Hosp., supra note 10.
- 638 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599of the jury and placing the single-party plaintiff at a distinct
tactical disadvantage that implicates the plaintiff’s right to a
fair trial. 21 And when additional challenges are granted to a
party absent a showing that his or her interests are adverse
to other parties on the same side of a civil lawsuit, prejudice
will be presumed and the judgment must be reversed. 22 We
explained that the proper allocation of peremptory challenges
is a substantial right pervading the trial process and that it
would be impossible for a complaining litigant to prove preju-
dice by reconstructing what might have been had the jury been
properly constituted. 23
[15] But we did not discuss in Gestring whether the record
reflected if the plaintiff actually utilized all the peremp-
tory strikes allocated. To the contrary, our opinion appears
to reflect an understanding that the parties utilized all their
peremptory challenges. We do not read Gestring as calling
into question the longstanding rule in Nebraska that a party
raising on appeal a denial of due process based on a disparate
number of peremptory challenges must demonstrate through
the record that the objecting party utilized the allotted peremp-
tory challenges. This rule is supported by other jurisdictions
that hold that in order to establish reversible error in the
allocation of peremptory challenges, a “minimal showing” of
prejudice must be made by demonstrating on the record that
the appellant exercised the peremptory challenges allotted. 24 It
is well established in the case law that one who does not exer-
cise all of his or her peremptory challenges cannot assign as
error the court’s refusal to allow a greater number or a lesser
number to the opposing parties. 25 The assignment of error is
21
See id.22
See id.23
See id.24
See Goldstein v. Kelleher, 728 F.2d 32, 37 (1st Cir. 1984). Accord State v.
Greer, 39 Ohio St. 3d 236, 530 N.E.2d 382 (1988).
25
See, Conn. Mut. Life Ins. Co. v. Hillmon, 188 U.S. 208, 23 S. Ct. 294, 47
L. Ed. 446 (1903); Kloss v. United States, 77 F.2d 462 (8th Cir. 1935).
- 639 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599based on the inequality of the challenges, but if the appellant
has failed to exhaust the challenges allotted, then the inequal-
ity was the appellant’s choice.
We find no merit to KPG’s contention that the allocation of
peremptory challenges requires a new trial.
2. Dick’s Breach of Contract Claim
(Assignments of Error Nos. 5 Through 8)
We turn next to KPG’s arguments that we should reverse
the judgment in favor of Dick on his breach of contract claim
due to the court’s refusal to give KPG’s requested jury instruc-
tions on prior material breach and failure to satisfy a condition
precedent. KPG argues that it was prejudiced by the court’s
refusal to instruct the jury on KPG’s affirmative defenses of
prior material breach based on either Dick’s prior breach of
fiduciary duty, Dick’s prior breach of KPG’s bylaws, or Dick’s
prior breach of the covenant of good faith and fair dealing.
Further, based on Dick’s failure to deliver written shares free
and clear of all liens, KPG asserts that the district court erred
by refusing to instruct the jury that it must find that Dick satis-
fied all conditions precedent in order to find the Shareholder
Agreement enforceable.
To establish reversible error from a court’s failure to give
a requested jury instruction, an appellant has the burden to
show that (1) the tendered instruction is a correct statement
of the law, (2) the tendered instruction was warranted by the
evidence, and (3) the appellant was prejudiced by the court’s
failure to give the requested instruction. 26 Furthermore, a party
may not complain of the failure of the trial court to instruct on
issues that are outside the scope of the pleadings. 27 On appel-
late review, jury instructions must be read together; they must
be read conjunctively, rather than separately in isolation. 28 If
the instructions given, which are taken as a whole, correctly
26
Foundation One Bank v. Svoboda, supra note 4.
27
Deck v. Sherlock, supra note 5.
28
Malone v. American Bus. Info., supra note 6.
- 640 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599state the law, are not misleading, and adequately cover the
issues submissible to a jury, there is no prejudicial error con-
cerning the instructions and necessitating a reversal. 29
[16-19] Shareholder agreements are construed according to
the principles of the law of contracts. 30 A suit for damages aris-
ing from breach of a contract presents an action at law. 31 The
meaning of an unambiguous shareholder agreement, like any
contract, is a question of law. 32 Matters seeking avoidance of a
valid contract are affirmative defenses. 33
(a) Failure to Satisfy All
Conditions Precedent
The alleged condition precedent KPG wished the jury to con-
sider was Dick’s obligation under the Shareholder Agreement
to deliver, in exchange for payment of the purchase price, the
certificates of any shares of the stock purchased, free and clear
of all liens, claims, security interests, and encumbrances, duly
endorsed. KPG tendered the following instruction:
To recover for breach of contract, . . . Dick must prove
that KPG made a promise, breached the promise, and
caused him damage and that any conditions precedent
were satisfied. Generally[,] there can be no breach of a
promise until all the conditions qualifying it have hap-
pened or been performed.
Further, KPG tendered a special verdict form for the jury to
state whether Dick had met his burden to show by a greater
weight of the evidence that he had satisfied a condition prec-
edent to enforcement of the Shareholder Agreement. We agree
29
InterCall, Inc. v. Egenera, Inc., supra note 7.
30
18A Am. Jur. 2d Corporations § 567 (2015).
31
Goes v. Vogler, 304 Neb. 848, 937 N.W.2d 190 (2020).
32
See, Brozek v. Brozek, 292 Neb. 681, 874 N.W.2d 17 (2016); Davenport
Ltd. Partnership v. 75th & Dodge I, L.P., 279 Neb. 615, 780 N.W.2d 416(2010); Pennfield Oil Co. v. Winstrom, 272 Neb. 219, 720 N.W.2d 886(2006).
33
17B C.J.S. Contracts § 891 (2011).
- 641 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599with the district court that KPG’s tendered instruction on
failure to satisfy conditions precedent was not warranted by
the evidence.
Dick’s claim against KPG was based on the provision of
the Shareholder Agreement entitled “Mandatory Sales and
Purchases,” found in article III. Under that provision, read
together with the definition of “Operative Event” in article I
and that of “Determination of Purchase Price on Account of
Other Operative Events” in article V, “[u]pon the occurrence
of” the “Operative Event” of “termination of a Shareholder’s
status as an employee of [KPG] occurring by reason of . . .
such Shareholder’s voluntary act,” the shareholder “shall be
required to sell and [KPG] shall be required to purchase all
of the Disposing Shareholder’s Stock of [KPG]” at “80% of
the adjusted book value per share of Stock as of the end of
[KPG’s] most recently completed fiscal year.”
“Adjusted Book Value” was defined as the sum of the
book value per share of stock of [KPG], computed exclusive
of goodwill, and the difference, divided by the number of
outstanding shares, between the retained annual billings and
deferred tax liability.
“Retained Annual Billings” were defined as “the total pro-
fessional fees billed by [KPG] during [its] most recently com-
pleted fiscal year less all professional fees billed to clients
who are no longer clients of [KPG] and are now being served
by the Disposing Shareholder one year subsequent to the
Operative Event.”
Under article V of the Shareholder Agreement,
the estimated purchase price shall be paid by the delivery
of a promissory note, in negotiable form, to the order of
the Disposing Shareholder, in which [KPG] engages to
pay the balance of such purchase price in one hundred
twenty (120) equal monthly installments, with interest on
the unpaid balance at the rate of five percent (5%) per
annum as of the closing date.
Further under article V, “The promissory note shall be
secured by the pledge of stock purchased thereby, with [KPG]
- 642 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599agreeing to execute security instruments covering such pledged
stock, unless such pledge arrangement is waived by the dispos-
ing shareholder.”
The condition precedent KPG alleged had not been satisfied
is contained under “Closing Date” in article VI. The provision
states in full:
Section 6.1. Delivery Of Written Documents; Closing
Date. Upon the closing of any purchase and sale pursuant
to this Agreement, the Disposing Shareholder, or his legal
representative, shall deliver to [KPG] or the Nondisposing
Shareholders, or both, as the case may be, in exchange
for payment of the purchase price, the certificate(s) of
shares of the Stock being purchased, free and clear of all
liens, claims, security interests and encumbrances, duly
endorsed for transfer and bearing any necessary docu-
mentary stamps, and such assignments, certificates of
authority, tax releases, consents to transfer by a fiduciary
or representative of the Disposing Shareholder, and any
instruments in evidence of the title of the Shareholder
and of the parties’ compliance with this Agreement, the
Federal and State securities laws, and any other agree-
ments or regulations, as may be recommended by legal
counsel for [KPG].
The closing date shall be within sixty (60) days after
the Operative Event giving rise to the transaction but oth-
erwise to be determined by [KPG] on ten (10) days prior
written notice to the Disposing Shareholder.
(Emphasis supplied.)
A provision for “General Compliance” under article VII,
“Shareholder Compliance and Consent,” states:
The parties hereto shall not hinder or interfere with, or
cause to be interfered with in any manner whatsoever, the
purchase or sale of the Stock of a deceased or Disposing
Shareholder pursuant to this Agreement, or the carrying
out of any of the terms of this Agreement to the prejudice
of any Disposing Shareholder or his estate as the case
may be.
- 643 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599A provision for “Shareholder Indebtedness to be Offset,”
also under “Shareholder Compliance and Consent,” states:
Notwithstanding anything appearing to the contrary in this
Agreement, the purchase price payable to the Disposing
Shareholder may be paid, partly or wholly, at [KPG’s]
option, by cancellation or offset of all or any portion
of any then outstanding indebtedness of such Disposing
Shareholder to [KPG]. Notwithstanding anything appear-
ing to the contrary in this agreement, the purchase price
payable to the Disposing Shareholder may be paid partly
or wholly, at [KPG’s] option, by payment to any third
party secured creditor of all or any portion of any then
outstanding indebtedness of such Disposing Shareholder
which is secured by the pledge of stock of [KPG] and any
payment to the third party secured creditor shall reduce
the amount of the purchase price herein.
[20,21] Courts have struggled for centuries with differentiat-
ing between conditions and promises. 34 A condition precedent
is a condition that must be performed before the parties’ agree-
ment becomes a binding contract or a condition which must be
fulfilled before a duty to perform an existing contract arises. 35
This is in contrast to a promise in a contract, the nonfulfillment
of which is a breach, i.e., the failure to perform that which
was required by a legal duty, and the remedy lies in an action
for damages. 36
[22,23] Whether language in a contract is a condition prec-
edent depends on the parties’ intent as gathered from the lan-
guage of the contract. 37 The words “as a condition for” are
34
Harmon Cable Communications v. Scope Cable Television, 237 Neb. 871,
468 N.W.2d 350 (1991).
35
Cimino v. FirsTier Bank, 247 Neb. 797, 530 N.W.2d 606 (1995).
36
See Harmon Cable Communications v. Scope Cable Television, supra
note 34.
37
Weber v. North Loup River Pub. Power, 288 Neb. 959, 854 N.W.2d 263(2014).
- 644 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599clearly language intended to create a condition precedent. 38
Terms such as “if,” “provided that,” “when,” “after,” “as soon
as,” “subject to,” “on condition that,” or some similar phrase
are evidence that performance of a contractual provision is a
condition; however, an intention to make a duty conditional
may be manifested by the general nature of an agreement, as
well as by specific language. 39 Where the parties’ intent is not
clear, the language is generally interpreted as promissory rather
than conditional. 40
There is nothing in the Shareholder Agreement suggesting
that delivery of certificates of shares of KPG stock, free and
clear of all liens, claims, security interests, and encumbrances,
was a condition precedent to KPG’s duty to purchase the shares
of the disposing shareholder, which is the general duty upon
which Dick’s breach of contract claim rests. Rather, KPG’s
duty to purchase was expressly triggered under the Shareholder
Agreement by “any Operative Event,” which expressly included
a shareholder employee’s voluntary departure.
Focusing on KPG’s more specific obligation to deliver a
promissory note, described under “Payment,” such obligation
is “at the closing of such purchase.” And the delivery of writ-
ten shareholder documents, upon which KPG’s affirmative
defense of failing to satisfy a condition precedent rests, is trig-
gered under the Shareholder Agreement “[u]pon the closing
of any purchase and sale pursuant to this Agreement” and “in
exchange for payment of the purchase price.”
[24,25] This is, at best, a description of a simultaneous
exchange, entailing mutual conditions precedent. 41 In such
a situation, liability under the contract by the first party is
38
Lee Sapp Leasing v. Catholic Archbishop of Omaha, 248 Neb. 829, 540
N.W.2d 101 (1995).
39
See id.40
Weber v. North Loup River Pub. Power, supra note 37.
41
13 Richard A. Lord, A Treatise on the Law of Contracts by Samuel
Williston § 38:8 (4th ed. 2003 & Supp. 2020).
- 645 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599triggered by an offer of tender by the second party, which is
conditional upon contemporaneous performance of the first. 42
Tender is an offer to perform a condition or obligation, cou-
pled with the present ability of immediate performance, so
that, were it not for the refusal of cooperation by the party to
whom tendered, the condition or obligation would be immedi-
ately satisfied. 43
[26,27] Thus we have noted that a formal tender of shares
is not necessary in order to fix liability on a purchaser for the
breach of the purchaser’s contract when the contract provides
that the seller is to hold the stock and deliver it when called
upon. 44 We have also noted that a formal tender of shares is not
required when the buyer declares his intention not to perform;
in such cases, it is sufficient that the seller is ready, willing,
and able to deliver the stock. 45 Tender before suit is filed is
waived where the party entitled to payment, by conduct or dec-
laration, proclaims that if a tender should be made, acceptance
would be refused. 46 Furthermore, acts which, in themselves,
are insufficient to make a complete tender may constitute proof
of readiness to perform, so as to protect the rights of a party
under a contract, where a proper tender is rendered impossible
by circumstances not due to the fault of the tenderer. 47
The evidence was undisputed that there were no written
certificates of shares Dick could have tendered. Additionally,
Koski clearly communicated his opinion that KPG had no
duty to purchase under the Shareholder Agreement because
Dick had stolen KPG’s clients—not because Dick had failed
to satisfy any condition precedent under the Shareholder
42
See id., §§ 38:8 and 47:1.
43
Caha v. Nelson, 195 Neb. 333, 237 N.W.2d 870 (1976).
44
See Cox v. Cox, 124 Neb. 706, 247 N.W. 898 (1933).
45
See id.46
See Canaday v. Krueger, 156 Neb. 287, 56 N.W.2d 123 (1952).
47
Cox v. Cox, supra note 44.
- 646 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599Agreement. Koski’s blanket refusal to acknowledge any duty
to purchase under the Shareholder Agreement clearly com-
municated that any tender by Dick would be futile. To the
extent Koski spoke for KPG, this proclamation was a waiver
of tender. 48
Regardless, Dick was obligated only to make an offer of
tender that was conditional upon KPG’s contemporaneous per-
formance. Undisputed facts in the record demonstrate that Dick
made such an offer of tender to Koski as a representative of
KPG, but KPG never performed. Dick manifested that he was
ready and willing to perform his obligations under the buyout
provisions of the Shareholder Agreement. At that time, some
of Dick’s shares were encumbered by a debt to Koski, but
there is no evidence that Dick was unable to pay the remainder
owed on the loan. Further, until KPG communicated whether
KPG would be reducing the purchase price by offsetting Dick’s
indebtedness to Koski under the provision for “Shareholder
Indebtedness to be Offset,” Dick could not know whether he
was required to pay the balance of the loan directly to Koski
before closing.
There was no basis under these facts to instruct the jury
on the affirmative defense of failure to satisfy a condition
precedent.
(b) Prior Material Breaches of Covenant of
Good Faith and Fair Dealing
and Fiduciary Duty
We also find no reversible error based on the court’s refusal
to instruct the jury on affirmative defenses of prior material
breaches of fiduciary duty or breaches of the covenant of good
faith and fair dealing.
First, KPG did not allege that a prior breach of fiduciary
duty or good faith and fair dealing operated as an affirmative
defense to Dick’s breach of contract claim. And a party may
not complain of the failure of the trial court to instruct on
48
See Canaday v. Krueger, supra note 46.
- 647 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599issues that are outside the scope of the pleadings. 49 The court’s
refusal to instruct on these matters can be affirmed for that
reason alone.
[28,29] We also note that the instructions were not war-
ranted. To constitute a defense to an action based on contract,
the matters must generally be germane to the cause of action
pleaded, in addition to presenting a legal reason why the plain-
tiff will not recover. 50 A claim of defense arising out of tort
concepts is not generally available where the claim of plaintiff
is premised upon contract. 51
As the district court noted in denying instructions on prior
material breach of fiduciary duty or good faith and fair dealing,
“the object of the agreement is what has [been] breached” in
the case law excusing performance. Here, there was no rela-
tion between the duties set forth in the Shareholder Agreement
regarding the repurchase of stock and the acts KPG alleged
constituted breaches of fiduciary duty and good faith and
fair dealing.
[30] Fiduciary duties arise from the relationship and not from
the terms of the agreement. 52 Thus, while a breach of fiduciary
duty may form the basis of a counterclaim, it is not ordinarily
an affirmative defense to a claim for a breach of contract. 53
It is true that breaches of fiduciary duty can, in certain cir-
cumstances, be grounds for alleging that a contract is void. 54
For example, a corporate officer’s or director’s right to com-
pensation can be forfeited through a breach of fiduciary duty
to the corporation, and thus provide a defense to an action by
49
Deck v. Sherlock, supra note 5.
50
17A C.J.S. Contracts § 859 (2011).
51
See id.
52
See Top of Iowa Co-op. v. Schewe, 149 F. Supp. 2d 709 (N.D. Iowa 2001).
53
See Anderson v. Burton Associates, Ltd., 218 Ill. App. 3d 261, 578 N.E.2d
199, 161 Ill. Dec. 72 (1991).
54
17B C.J.S., supra note 33.
- 648 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599the agent against the principal for compensation for services. 55
But we can find no support for the proposition that a breach of
an officer and shareholder’s general fiduciary duty to a corpora-
tion is an affirmative defense to a claim for breach of perform­
ance of a buyout provision in a shareholder agreement.
The case of Anderson v. Burton Associates, Ltd., 56 is instruc-
tive. The plaintiff in Anderson brought suit to have his stock
redeemed under a shareholder agreement for an accounting
firm, and the court rejected the alleged affirmative defense of
breach of fiduciary duty. The court noted that the defendant did
not challenge the existence of sufficient consideration or assert
that the plaintiff did not pay for his shares. The court held that
whether the plaintiff had breached a fiduciary duty to the cor-
poration by soliciting clients would not defeat his right to his
money under the stock redemption provision of the shareholder
agreement. 57 The court in the instant case correctly concluded
that an instruction on the affirmative defense of breach of fidu-
ciary duty was not warranted, because Dick’s acts that KPG
takes issue with bore no relation to the buyout provisions under
which Dick brought suit against KPG.
[31,32] As for the implied covenant of good faith and fair
dealing, KPG is correct that it exists in every contract and
55
See, e.g., Wadsworth v. Adams, 138 U.S. 380, 11 S. Ct. 303, 34 L. Ed. 984(1891); Wilshire Oil Company of Texas v. Riffe, 406 F.2d 1061 (10th Cir.
1969); Flint River Pecan Co. v. Fry, 29 F.2d 457 (5th Cir. 1928); Backus
v. Finkelstein, 23 F.2d 357 (D. Minn. 1927); T.A. Pelsue Co. v. Grand
Enterprises, Inc., 782 F. Supp. 1476 (D. Colo. 1991); Kassab v. Ragnar
Benson, Inc., 254 F. Supp. 830 (W.D. Pa. 1966); Chelsea Industries, Inc.
v. Gaffney, 389 Mass. 1, 449 N.E.2d 320 (1983); Toy v. Lapeer Farmers
Mut. Fire Ins. Ass’n, 297 Mich. 188, 297 N.W. 230 (1941); Venie v.
Harriet State Bank of Minneapolis, 146 Minn. 142, 178 N.W. 170 (1920);
American Timber & Trading Co. v. Niedermeyer, 276 Or. 1135, 558 P.2d
1211 (1976); Ranch Hand Foods v. Polar Pak Foods, Inc., 690 S.W.2d
437 (Mo. App. 1985) (applying Kansas law). See, also, 2 Restatement
(Second) of Agency § 469 (1958).
56
Anderson v. Burton Associates, Ltd., supra note 53.
57
See id.
- 649 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599requires that none of the parties to the contract do anything
which will injure the right of another party to receive the
benefit of the contract. 58 However, KPG overlooks the fact
that the scope of conduct prohibited by the covenant of good
faith is circumscribed by the purposes and express terms of
the contract.
[33] “The law does not allow the implied covenant of
good faith and fair dealing to be an everflowing cornucopia
of wished-for legal duties; indeed, the covenant cannot give
rise to new obligations not otherwise contained in a contract’s
express terms.” 59 Instead, a violation of the covenant of good
faith and fair dealing occurs only when a party violates, nul-
lifies, or significantly impairs any benefit of the contract. 60
Similarly to the alleged breach of fiduciary duty, KPG failed
to identify any express terms of the Shareholder Agreement
tied to the alleged breach of an implied covenant of good faith
and fair dealing. An instruction on the affirmative defense of
breach of the implied covenant of good faith and fair dealing
was not warranted by the evidence.
We find no merit to KPG’s arguments that the trial court erred
by refusing to instruct on the affirmative defense of breach of
either a fiduciary duty or the implied covenant of good faith
and fair dealing.
(c) Prior Material Breach of Bylaws
KPG tendered the instruction that a breach of the bylaws
in force at the time of purchase of stock in a corporation can
constitute a material breach excusing the nonbreaching party
from performance under the Shareholder Agreement. A mate-
rial breach was defined in the tendered instruction as “some-
thing that is so fundamental to a contract that the failure to
58
Coffey v. Planet Group, 287 Neb. 834, 845 N.W.2d 255 (2014).
59
Comprehensive Care Corp. v. RehabCare, 98 F.3d 1063, 1066 (8th Cir.
1996).
60
Coffey v. Planet Group, supra note 58.
- 650 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599perform that obligation defeats the essential purpose of the
contract or makes it impossible for the other party to per-
form under the contract.” The tendered instruction directed
that if the jury found a material breach of the contract, it
“must find that KPG is excused from performance under the
Shareholder Agreement.”
Additionally, KPG tendered the following instruction:
The management and internal affairs of a voluntary asso-
ciation are governed by its constitution and bylaws, which
constitute a contract between the members of the associa-
tion. The members of a corporation are as a general rule
conclusively presumed to have knowledge of its bylaws
and cannot escape a liability arising thereunder, or oth-
erwise avoid their operation, on a plea of ignorance of
them. This is also true of directors and other officers of
the corporation. Bylaws ordinarily are binding on the
shareholders or members whether they expressly consent
to them or not. Bylaws in force at the time of a pur-
chase of stock in a corporation form part of the contract
between the corporation and its shareholders. The corpo-
rate articles, bylaws, and the shareholder agreement must
be read together.
KPG then tendered a special verdict form for the jury to
set forth whether, in regard to Dick’s complaint against KPG,
KPG had met its burden to show by the greater weight of the
evidence that Dick “committed a prior material breach of the
Shareholder Agreement.”
KPG’s theory for these instructions was that Dick had
breached the provision of the bylaws stating that “[a]ll officers,
agents, and employees of [KPG] shall be required . . . to main-
tain and preserve confidentiality as to all business techniques,
commercial data, formulas, good will, operational methods,
product identifications, [etc.]” KPG asserted that the disclosure
of the information on the spreadsheet emailed to Bland vio-
lated this provision—though KPG has never made its theory
entirely clear as to which of the specified items Dick failed
- 651 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599to maintain and preserve the confidentiality of. KPG believed
that such a breach of the bylaws excused its failure to perform
under the buyout provisions of the Shareholder Agreement.
[34] The “prior material breach” doctrine upon which KPG
relies applies when a contract contemplates an exchange of
performances between the parties, and the doctrine holds that
one party’s failure to perform allows the other party to cease
its own performance. In order to constitute a possible prior
material breach, the obligation upon which a plaintiff has sued
in the breach of contract claim must have been dependent upon
the other thing that the plaintiff was to do and failed to do. 61 In
other words, prior material breach is
based on the principle that where performances are to be
exchanged under an exchange of promises, each party is
entitled to the assurance that he will not be called upon
to perform his remaining duties . . . if there has already
been an uncured material failure of performance by the
other party. 62
[35,36] “A duty under a separate contract is not
affected . . . , nor is a duty under the same contract affected if
it was not one to render a performance to be exchanged under
an exchange of promises . . . . Furthermore, only duties to ren-
der performance are affected.” 63 And the contention that a party
to a contract is excused from performance because of a prior
material breach by the other contracting party is an affirmative
defense that applies only when the breaching party breaches
the same contract on which he or she is suing. 64
KPG provides law in support of the idea that corporate
bylaws constitute a contract between the shareholders. We
agree that, broadly speaking, bylaws are also shareholders’
61
Eager v. Berke, 11 Ill. 2d 50, 142 N.E.2d 36 (1957).
62
2 Restatement (Second) of Contracts § 237 comment b. at 217 (1981).
63
See id., comment e. at 221.
64
Blackstone Medical v. Phoenix Surgicals, 470 S.W.3d 636 (Tex. App.
2015).
- 652 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599agreements. 65 And we agree with KPG that the Randall K.
Koski, P.C., bylaws appear to be the bylaws of KPG, as the
amendment to the articles of incorporation effected a name
change for the corporation. We thus deny as moot KPG’s
motion for this court to take judicial notice of allegations made
by Dick in a separate suit, in which Dick allegedly acknowl-
edged that the Randall K. Koski, P.C., bylaws governed KPG.
KPG fails, though, to support its assertion that the Randall
K. Koski, P.C., bylaws are part of the Shareholder Agreement
under which Dick brought his breach of contract claim. We
disagree with KPG’s claim that the bylaws and Shareholder
Agreement should be read together for purposes of determining
the applicability of the doctrine of prior material breach.
[37] Shareholder agreements may be freestanding of cor-
porate bylaws. 66 The Randall K. Koski, P.C., bylaws did not
purport to incorporate the Shareholder Agreement. Nor did the
Shareholder Agreement incorporate the Randall K. Koski, P.C.,
bylaws. To the contrary, the Shareholder Agreement provided
that it “contains the entire understanding among the parties
and supersedes any prior understanding among the parties and
agreements between them respecting the within subject mat-
ter.” The Shareholder Agreement stated further that there were
“no representations, agreements, arrangements or understand-
ings, oral or written, between or among the parties hereto relat-
ing to the subject matter of this Agreement which are not fully
expressed herein.”
Under the express terms of the Shareholder Agreement, it
was freestanding. The promise in the bylaws relating to main-
taining confidentiality of items such as “commercial data”
and “good will” was an independent promise that bore no
relationship to the mutual promises of the buyout provisions
of the Shareholder Agreement. Thus, the prior material breach
65
18A Am. Jur. 2d Corporations § 254 (2015).
66
1 F. Hodge O’Neal & Robert B. Thompson, O’Neal’s Close Corporation
and LLCs: Law and Practice § 4:33 (rev. 3d ed. 2018).
- 653 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599doctrine, based on Dick’s alleged breach of the confidential-
ity provision of the bylaws, was inapplicable as an affirmative
defense to Dick’s claim that KPG breached the buyout provi-
sions of the Shareholder Agreement.
[38] We also note that the jury found against KPG in its
counterclaim for breach of the bylaws. Factual issues necessar-
ily determined by a jury’s verdict on one claim in a case are
also deemed resolved with respect to other claims in the same
case. 67 And, as we will explain, we find no merit to KPG’s
contention that the jury rejected its breach of bylaws claim
because it was improperly instructed on the definition of con-
fidential information.
KPG was not prejudiced by the district court’s refusal to
instruct on prior material breach as an affirmative defense to
Dick’s breach of contract claim.
3. KPG’s Counterclaim Against Dick for Breach
of Fiduciary Duty (Assignments of Error
Nos. 2 Through 4 and 9 Through 15)
We turn next to KPG’s assignments of error relating to the
jury’s verdict against KPG in its counterclaim for breach of
fiduciary duty.
KPG asserts that the court erred by failing to grant its
motion for directed verdict on this counterclaim. KPG asserts
that the undisputed evidence of Dick’s (1) use of his wife’s
email to communicate with Bland to avoid KPG’s discovering
his negotiations with Bland, (2) meeting with Bland without
informing KPG, (3) sharing with Bland certain billing infor-
mation, and (4) accepting from Bland a 10-percent commis-
sion on new clients brought to Bland by Dick were all trans-
actions that shifted the burden to Dick to demonstrate good
faith. KPG then asserts that there was no evidence presented
67
See Lindsay Internat. Sales & Serv. v. Wegener, 301 Neb. 1, 917 N.W.2d
133 (2018). See, also, e.g., Zakibe v. Ahrens & McCarron, Inc., 28 S.W.3d
373 (Mo. App. 2000).
- 654 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599by Dick that he acted in good faith and that thus, as a matter
of law, before his resignation, Dick breached his fiduciary
duties as both a vice president and a shareholder of KPG and
the district court erred in failing to grant KPG’s motion for
directed verdict.
In the event we disagree with KPG’s contention that the dis-
trict court should have granted its motion for a directed verdict
on its counterclaim against Dick for breach of fiduciary duty,
KPG asserts that we should reverse the decision and remand
the cause for a new trial because of several alleged trial errors.
First, KPG asserts that the district court erred by failing to
instruct the jury on the same burden shifting that KPG believes
justified a directed verdict.
Second, KPG asserts it was prejudiced by the trial court’s
instructions that the breach of fiduciary duty claim was based
only on the purported breach of bylaws and Dick’s failure to
send engagement letters to KPG clients before resigning.
Third, KPG asserts that it was prejudiced by the court’s
exclusion of Dick’s breach of an allegedly ongoing, postresig-
nation fiduciary duty by virtue of Dick’s continuing status as
a shareholder, and, relatedly, by instructing that the fiduciary
duty ends upon the termination of the employment relationship.
To the extent the court precluded KPG from litigating a claim
based on postresignation conduct because it was not pleaded,
KPG argues that the court erred in its reading of the operative
pleading and, alternatively, that the court abused its discretion
in denying KPG’s motion to amend.
Finally, KPG argues it was prejudiced by the court’s refusal
to instruct the jury on the corporate opportunity doctrine and
equitable clawback damages.
[39-41] The existence of a fiduciary duty and scope of that
duty are questions of law for the court to decide. 68 The law of
trusts forms the basis for fiduciary duties. Fiduciaries in
68
Strohmyer v. Papillion Family Medicine, 296 Neb. 884, 896 N.W.2d 612(2017).
- 655 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599a corporation are not trustees in the strict sense because they
do not have title to the estate; they are instead fiduciaries to the
extent that they control the corporation’s property. 69 The scope
of fiduciary duties is flexible, reflecting the historical approach
of the courts of equity. 70
[42-44] The traditional rule has been that corporate share-
holders do not owe one another a fiduciary duty; rather,
corporate officers and directors owe shareholders such a
duty. 71 Exceptions have been found for majority sharehold-
ers of closely held corporations. 72 Minority shareholders do
not generally owe a fiduciary duty to each other or to the
corporation, 73 but some cases have imposed a fiduciary duty on
a minority shareholder in a close corporation who has control
over corporate actions. 74 An officer of a corporation occupies
a fiduciary relationship toward the corporation and its stock-
holders. 75 The existence of a fiduciary duty of an officer in a
closely held corporation depends on the ability to exercise the
status that creates it, and nominal corporate officers with no
management authority generally do not owe fiduciary duties
to the corporation. 76 Dick does not dispute that he was more
69
See John R. Van Winkle & Gary R. Welsh, Origin, Development, and
Current Status of Fiduciary Duties in Close Corporations: Has Indiana
Adopted a Strict Good Faith Standard?, 26 Ind. L. Rev. 1215 (1993).
70
See 2 Robert B. Thompson, O’Neal and Thompson’s Oppression of
Minority Shareholders and LLC Members § 7:3 (2009 & Supp. 2020).
71
Annot., 39 A.L.R.6th 1 (2008).
72
Id.; 3 William Wilson Cook, Treatise on the Law of Corporations Having
a Capital Stock § 14:16 (3d ed. 2010 & Supp. 2019).
73
See N.C. Corp. Law and Prac. § 18:27 (West 4th ed. 2019).
74
See 3 Cook, supra note 72.
75
See Rettinger v. Pierpont, 145 Neb. 161, 15 N.W.2d 393 (1944). See, also,
e.g., 2 Thompson, supra note 70.
76
Aon Consulting v. Midlands Fin. Benefits, 275 Neb. 642, 748 N.W.2d
626 (2008); Edwin W. Hecker, Jr., Fiduciary Duties in Business Entities
Revisited, 61 U. Kan. L. Rev. 923 (2013).
- 656 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599than a nominal corporate officer, though the extent to which he
controlled KPG was unclear. Dick concedes he owed KPG a
fiduciary duty prior to his resignation.
(a) Burden Shifting: Directed
Verdict and Instructions
[45] The plaintiff in an action for breach of fiduciary
duty has the burden to prove that (1) the defendant owed
the plaintiff a fiduciary duty, (2) the defendant breached the
duty, (3) the defendant’s breach was the cause of the injury
to the plaintiff, and (4) the plaintiff was damaged. 77 In the
law of trusts, while the beneficiary has the initial burden of
proving the existence of the fiduciary duty and the trustee’s
failure to perform it, once the trust beneficiary has established
a prima facie case by demonstrating the trustee’s breach of
fiduciary duty, the burden of explanation or justification shifts
to the fiduciaries. 78
[46] In an action for breach of fiduciary duty toward a cor-
poration, the plaintiff must establish a prima facie case of both
the existence of a fiduciary duty and its breach before the bur-
den shifts to the defendant to prove the defendant acted in an
open, fair, and honest manner such that no breach of fiduciary
duty occurred. 79 Only once a plaintiff demonstrates a breach of
the duty of care does the burden shift to the fiduciary to prove
that, notwithstanding the breach, the challenged transaction
was entirely fair. 80
It has been described that only the burden of production
shifts, not the burden of proof, otherwise known as the burden
77
See McFadden Ranch v. McFadden, 19 Neb. App. 366, 807 N.W.2d 785(2011).
78
76 Am. Jur. 2d Trusts § 618 (2016 & Supp. 2020).
79
See, e.g., Norlin Corp. v. Rooney, Pace Inc., 744 F.2d 255 (2d Cir. 1984);
Collier v. Bryant, 216 N.C. App. 419, 719 S.E.2d 70 (2011).
80
Cede & Co. v. Technicolor, Inc., 634 A.2d 345 (Del. 1993).
- 657 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599of persuasion. 81 In any event, there is with certain transac-
tions, once proved, a presumption that the fiduciary acted in
self-interest, which shifts the burden to the fiduciary to show
that he or she did not obtain secret profits and that the trans-
action was conducted fairly, honestly, and openly. 82 However,
for the burden to be placed on the fiduciary, the plaintiff must
prove that the fiduciary engaged in a transaction with the
principal that gives rise to the presumption of unfairness. 83
Contrary to KPG’s assertion, the mere allegation of such a
transaction is not enough. 84
KPG points out that we have said the burden of proof is
upon a party holding a confidential or fiduciary relation to
establish the perfect fairness, adequacy, and equity of a trans-
action with the party with whom he holds such relation. 85 Thus,
for instance, we have held that it is the burden of an officer,
who sets his or her own salary, to prove that such salary is rea-
sonable. 86 But that is a transaction with the party with whom
the officer holds a fiduciary relationship. 87 Here, the “transac-
tion” at issue was not with KPG, but with Bland.
Typically, a transaction with a third party that shifts the bur-
den to the fiduciary is one of self-dealing—a factual situation
in which a corporate fiduciary appears on both sides of a con-
tract or transaction with the fiduciary’s corporation. 88 Because
81
See Charles M. Yablon, On the Allocation of Burdens of Proof in Corporate
Law: An Essay on Fairness and Fuzzy Sets, 13 Cardozo L. Rev. 497(1991).
82
Simpson v. Spellman, 522 S.W.2d 615 (Mo. App. 1975).
83
Navigant Consulting, Inc. v. Wilkinson, 508 F.3d 277 (5th Cir. 2007).
84
1 Roger J. Magnuson, Shareholder Litigation § 10:20 (2012 & Supp.
2020).
85
See Evans v. Engelhardt, 246 Neb. 323, 518 N.W.2d 648 (1994). See, also,
e.g., Rettinger v. Pierpont, supra note 75.
86
Evans v. Engelhardt, supra note 85.
87
See id. See, also, e.g., Rettinger v. Pierpont, supra note 75.
88
See Sinclair Oil Corporation v. Levien, 280 A.2d 717 (Del. 1971).
- 658 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599the business judgment rule is a rebuttable presumption, it
places an initial burden on the party challenging a corporate
decision to demonstrate the decisionmaker’s self-dealing or
other disabling factor; and if a challenger sustains that initial
burden, then the presumption of the rule is rebutted, and the
burden of proof shifts to the defendants to show that the trans-
action was, in fact, fair to the company. 89
For example, in Anderson v. Clemens Mobile Homes, 90 the
plaintiff proved that an officer had realized a personal profit
on the sale of land and business ventures financed with cor-
porate funds, and we held it was the officer’s burden to prove
by a preponderance of the evidence that he did so in good
faith and did not act in such a manner as to cause or contrib-
ute to the injury or damage of the corporation, or deprive it
of business. 91 Likewise, in Sadler v. Jorad, Inc., 92 we shifted
the burden to the defendant majority shareholders to establish
fairness and reasonableness where the plaintiff had proved that
they had withdrawn excess salaries and distributions from the
corporation. In these cases applying burden shifting, which
were accounting actions, we noted that ordinarily the burden
would be entirely on the plaintiff, but that it would be unfair to
impose such a burden when the defendants had control of the
books and managed the business. 93
[47] As the district court noted, negotiating to leave one’s
fiduciary position with a closely held corporation and to enter
into competing employment elsewhere is not a transaction that
shifts the burden to the fiduciary to prove the ­negotiation’s
fairness. It is not, standing alone, a violation of fiduciary
89
19 Am. Jur. 2d Corporations § 2104 (2015).
90
Anderson v. Clemens Mobile Homes, 214 Neb. 283, 333 N.W.2d 900(1983).
91
See, also, e.g., Qualsett v. Abrahams, 23 Neb. App. 958, 879 N.W.2d 392(2016).
92
Sadler v. Jorad, Inc., 268 Neb. 60, 680 N.W.2d 165 (2004).
93
See, id.; Anderson v. Clemens Mobile Homes, supra note 90.
- 659 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599duty. 94 This is true regardless of whether the fiduciary in
­question was a shareholder and officer. 95 Indeed, KPG does
not challenge the court’s instruction that employees, including
employees with fiduciary duties, may plan and prepare for their
competing business while still employed without breaching the
duty of loyalty and that employees are allowed to discuss job
offers that would involve engaging in future competition with
their current employer without incurring liability.
[48] It is well settled that “‘[a]n employer’s right to demand
and receive loyalty must be tempered by society’s legitimate
interest in encouraging competition.’” 96 An at-will employee
with a fiduciary relationship with his or her employer may
properly plan to go into competition with the employer and
may take active steps to do so while still employed, and such
an employee has no general duty to disclose such plans to the
employer. 97 According to the Restatement (Third) of Agency:
In general, an employee or other agent who plans to
compete with the principal does not have a duty to dis-
close this fact to the principal. To be sure, the fact that
an agent has such a plan is information that a principal
would find useful, but the agent’s fiduciary duty to the
principal does not oblige the agent to make such disclo-
sure. . . . In this respect, the social benefits of furthering
competition outweigh the principal’s interest in full dis-
closure by its agents. 98
94
2 Restatement (Third) of Agency § 8.04, comment c. (2006).
95
See, e.g., Bancroft-Whitney Co. v. Glen, 64 Cal. 2d 327, 411 P.2d 921, 49
Cal. Rptr. 825 (1966); 2 Restatement (Third), supra note 94; 3 William
Meade Fletcher, Fletcher Cyclopedia of the Law of Corporations § 856
(2008); 8 Illinois Practice Series, Business Organizations § 14:17 (2d
ed. 2010); Christopher Lyle McIlwain, Backstab: Competing With the
Departing Employee, 29 Cumb. L. Rev. 615 (1999).
96
Navigant Consulting, Inc. v. Wilkinson, supra note 83, 508 F.3d at 284.
Accord Augat, Inc. v. Aegis, Inc., 409 Mass. 165, 565 N.E.2d 415 (1991).
97
Id.98
2 Restatement (Third), supra note 94 at 306.
- 660 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599Thus, the fact that Dick used his wife’s email to communicate
with Bland and met with other Bland shareholders without
telling anyone at KPG was not, as KPG contends, a breach of
Dick’s fiduciary duty as a matter of law.
KPG relies on statements made in Bode v. Prettyman 99 and
I. P. Homeowners v. Radtke 100 that partners must not “take
advantage” of one another “by the slightest concealment or
misrepresentation of any kind.” 101 This statement is taken
out of context and ignores that part of the proposition refer-
ring to taking advantage of one another. Certainly, there were
many things that Dick may have “concealed” from KPG but
which KPG had no right to know. Dick’s intention to leave
his employment at KPG was one such thing, and Dick did
not “take advantage” of KPG by concealing those plans. As
the district court noted in relation to its instructions, “even a
fiduciary . . . has the right to do certain things. He isn’t blindly
loyal, and he doesn’t have to disclose everything in the world
to his partners . . . .”
[49] There are, of course, limitations on the conduct of
an employee who plans to compete with an employer: The
employee may not (1) appropriate the employer’s trade secrets,
(2) solicit the employer’s customers while still working for the
employer, (3) solicit the departure of other employees while
still working for the employer, or (4) carry away confidential
information, such as customer lists. 102 The district court cor-
rectly instructed:
While planning and preparing for a competing business
is permissible, an employee may not act in direct competi-
tion with his or her employer while still employed. Factors
showing that an employee acted in direct competition
99
Bode v. Prettyman, 149 Neb. 179, 30 N.W.2d 627 (1948), modified 149
Neb. 469, 31 N.W.2d 429.
100
I. P. Homeowners v. Radtke, 5 Neb. App. 271, 558 N.W.2d 582 (1997).
101
Bode v. Prettyman, supra note 99, 149 Neb. at 188, 30 N.W.2d at 632.
102
See Navigant Consulting, Inc. v. Wilkinson, supra note 83.
- 661 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599during his or her employment include the following:
use of confidential and trade secret information acquired
from the employer to compete; soliciting customers and
clients to join the competing business before the end
of the employment relationship; or committing some
other fraudulent or unlawful act aimed at destroying the
employer’s business. To give rise to liability, the alleged
disloyal acts must substantially hinder the employer in the
continuation of its business.
Neither party takes issue with this instruction.
But such improper conduct in the pursuit of new employ-
ment is not the kind of “transaction” that results in burden
shifting. Indeed, in such circumstances, there would be no need
to shift the burden to show that the “transaction” complied with
the business judgment rule or was otherwise fair to the corpo-
ration. They are acts that, if proved, are inherently against the
corporation’s interests.
The jury was presented with evidence that Dick shared with
Bland certain billing information and then profited from that
by being offered and accepting from Bland employment that
included a 10-percent commission on new clients. The jury
could have found that such acts constituted breaches of Dick’s
fiduciary duty. It ultimately determined that they did not.
However, these acts did not shift the burden to Dick to show
they were done fairly.
There is no merit to KPG’s argument that the court should
have granted KPG’s motion for directed verdict based on
Dick’s alleged failure to satisfy his alleged burden to prove
good faith in his (1) use of his wife’s email to communi-
cate with Bland to avoid KPG’s discovering his negotiations
with Bland, (2) meeting with Bland without informing KPG,
(3) sharing with Bland certain billing information, and (4)
accepting from Bland a 10-percent commission on new clients
brought to Bland by Dick.
Likewise, the jury’s verdict is not called into question
because the court refused to give KPG’s proposed instruction
- 662 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599on burden shifting in relation to these acts. KPG’s proposed
instruction stated in relevant part:
Once evidence was presented by KPG that certain
transactions existed that allegedly breached . . . Dick’s
fiduciary duty, the burden shifted to . . . Dick to prove the
fairness of the transactions. . . . Dick therefore must prove
by a preponderance of the evidence that his actions were
taken in good faith and he did not act in such a manner as
to cause or contribute to the injury or damage of KPG, or
deprive it of business.
This instruction was not warranted by the evidence, because
there was no evidence of a burden-shifting transaction, as
already discussed.
Furthermore, the proposed instruction is overly broad and
is misleading. It fails to define what the “certain transactions”
could be. The prior paragraphs of the instruction do not tie
directly to the “certain transactions” and are themselves overly
broad by stating that the fiduciary “must at all times act for the
common benefit of all” and “must not take advantage of a part-
ner by the slightest concealment or misrepresentation of any
kind”—again, a point already discussed. Lastly, KPG’s pro-
posed instruction portrays as a foregone conclusion that Dick
engaged in those “certain transactions” inasmuch as it stated,
without condition, that Dick “must prove” that his actions were
taken in good faith.
We find no merit to KPG’s assertion that the district court
either should have granted its motion for directed verdict on
its claim for breach of fiduciary duty or should have given its
proposed instructions on burden shifting.
(b) Instruction That Breach Was
Based on Two Grounds Only
KPG assigned as error the court’s instruction that KPG’s
claim for breach of fiduciary duty was based on two grounds
only, the violation of KPG’s bylaws and Dick’s failure to
send engagement letters to KPG clients before his resignation.
- 663 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599Instruction No. 9 informed the jury that KPG asserted that Dick
breached his fiduciary duty to KPG “in one or more of the fol-
lowing ways: . . . Violat[ing] [KPG’s] bylaws by disclosing
[KPG’s] alleged confidential information to Bland; . . . Fail[ing]
to send out an Engagement Letter to [two named entities] in an
effort to undermine [KPG’s] relationships with clients.” KPG
asserts that it was prejudiced by this instruction because it
had pleaded and offered evidence at trial of Dick’s conceal-
ment, sharing confidential information with a competitor, and
other actions demonstrating a failure to exercise the utmost
good faith.
KPG did not argue this assignment of error in the argument
section of its brief. Errors that are assigned but not argued will
not be addressed by an appellate court. 103
For the sake of completeness, however, we also point out
that we have concluded that the concealment of negotiations
for new employment, upon which KPG based its claims, was
not actionable. And there were many instructions that touched
upon other aspects of KPG’s claim for breach of fiduciary duty.
These instructions included that Dick had a duty to “always
act for the common benefit of all,” “deal fairly and honestly
with [KPG],” “disclose any conflicts between Dick’s interests
and [KPG’s] interests that might make him act in his own best
interests at the expense or [to] the detriment of [KPG],” and
not “use . . . confidential [or] trade secret information acquired
from [KPG] to compete” during the employment relationship.
If the instructions given, which are taken as a whole, correctly
state the law, are not misleading, and adequately cover the
issues submissible to a jury, there is no prejudicial error con-
cerning the instructions and necessitating a reversal. 104 KPG
was not prejudiced by the court’s instruction No. 9.
103
Livingston v. Metropolitan Util. Dist., 269 Neb. 301, 692 N.W.2d 475(2005).
104
InterCall, Inc. v. Egenera, Inc., supra note 7.
- 664 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599(c) Conduct After Departure
Next, KPG asserts that it was prejudiced by the district
court’s order excluding evidence of Dick’s postresignation
breach. Relatedly, KPG asserts that the court erred by instruct-
ing on what KPG describes as “the lesser duty of loyalty,
not fiduciary duty,” 105 which was an instruction stating that
“fiduciary duty ends upon termination of the employment
relationship.” KPG argues we should remand the cause for a
new trial wherein it can offer evidence and argument related to
Dick’s alleged breach of fiduciary duty to KPG through Dick’s
postresignation conduct. KPG presumes that because KPG did
not buy back Dick’s shares, Dick never stopped owing KPG a
fiduciary duty as a shareholder, despite his resignation. KPG
also asserts that because the “closing date” of a buyout under
the Shareholder Agreement was 60 days after the operative
event of Dick’s departure, Dick would owe a postresignation
fiduciary duty “for up to 60 days after resignation,” even if
KPG had bought back Dick’s shares. 106 We find no merit to
KPG’s assignments of error relating to Dick’s postresigna-
tion conduct.
The court excluded evidence of Dick’s postresignation con-
duct on the ground that KPG did not plead such conduct suf-
ficiently to put Dick on notice that it would be the subject of
litigation. KPG points out that in the “Introduction” section
of its amended counterclaim, KPG referred to how “immedi-
ately after Dick’s departure,” Dick “used KPG’s confidential
business techniques and commercial data to raid KPG’s cli-
ent base and take over KPG’s niche practice.” KPG had also
alleged under the “Background Facts” section of its counter-
claim that “Dick has solicited current KPG clients by using
his knowledge of KPG’s confidential business techniques and
commercial data to attempt to underbid KPG’s services for
KPG’s existing clients and co-opt the niche developed by
105
Brief for appellant at 31.
106
Id. at 28.
- 665 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599KPG.” Finally, KPG further alleged under the “Background
Facts” section of its amended third-party complaint that Dick
“instructed former KPG clients not to pay outstanding invoices
issued by KPG,” after Dick’s departure. But, as the district
court noted, while KPG carefully set forth in its amended
counterclaim numerous specific allegations as to how Dick
had breached his fiduciary duty, KPG did not therein allege
any postresignation conduct. Under the circumstances, we find
no error in the court’s conclusion that KPG had not given Dick
notice that its claim of breach of fiduciary duty was based on
postresignation conduct.
We also find that the district court did not abuse its discre-
tion in denying KPG’s request for leave to amend the plead-
ings. KPG did not move to amend until well into trial.
Moreover, the specific allegations of postresignation conduct
that KPG relies on in its amended counterclaim relate to the
alleged use of confidential information and tortious interfer-
ence with a business relationship. And these claims were pre-
sented to and rejected by the jury. They are in effect the same
acts presented to the jury with regard to Dick’s preresignation
conduct. We cannot conclude that the jury would have viewed
these allegations differently if presented with the fact that Dick
continued these acts after his resignation.
[50] To the extent any other acts would have been presented
to the jury but for the court’s order excluding postresignation
conduct, the substance of such evidence was not presented
through an offer of proof and it is not apparent from the con-
text. Neb. Rev. Stat. § 27-103(1) (Reissue 2016) provides in
relevant part that “[e]rror may not be predicated upon a rul-
ing which admits or excludes evidence unless a substantial
right of the party is affected,” and that “[i]n case the ruling
is one excluding evidence, the substance of the evidence was
made known to the judge by offer or was apparent from the
context within which questions were asked.” Error may not be
predicated upon a ruling of a trial court excluding testimony
of a witness unless the substance of the evidence to be offered
- 666 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599by the testimony was made known to the trial judge by offer
or was apparent from the context within which the questions
were asked. 107
Having found no merit to the contention that the court erred
in excluding postresignation conduct, we also conclude that
the evidence failed to warrant an instruction on postresigna-
tion conduct.
Furthermore, we find the jury instruction given by the court
correctly stated the law and was not misleading, while KPG’s
proposed instruction would have been misleading. KPG takes
issue with that portion of instruction No. 8 stating “[a]n indi-
vidual’s fiduciary duty ends upon termination of the employ-
ment relationship.” Instruction No. 8 provided in full:
Shareholder employees in a close corporation owe
one another substantially the same fiduciary duty in the
operation of the enterprise that partners owe to one
another, to act among themselves in the utmost good faith
and loyalty.
An individual’s fiduciary duty ends upon termina-
tion of the employment relationship. Under Nebraska
law, every employee, including employees with fidu-
ciary duties, owes his or her employer a duty of loyalty
until the employment relationship is terminated. During
employment, an employee has a duty not to compete
with his employer concerning the subject matter of the
employment. However, employees, including employees
with fiduciary duties, may plan and prepare for their com-
peting business while still employed without breaching
the duty of loyalty. Employees, including employees with
fiduciary duties, are allowed to discuss job offers, while
still employed, to engage in future competition with their
employer without incurring liability.
107
Anderson/Couvillon v. Nebraska Dept. of Soc. Servs., 253 Neb. 813,
572 N.W.2d 362 (1998). See, also, Intercall, Inc. v. Egenera, Inc., supra
note 7; Sherman County Bank v. Kallhoff, 205 Neb. 392, 288 N.W.2d 24(1980).
- 667 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599While planning and preparing for a competing business
is permissible, an employee may not act in direct com-
petition with his or her employer while still employed.
Factors showing that an employee acted in direct compe-
tition during his or her employment include the following:
use of confidential and trade secret information acquired
from the employer to compete; soliciting customers and
clients to join the competing business before the end
of the employment relationship; or committing some
other fraudulent or unlawful act aimed at destroying the
employer’s business. To give rise to liability, the alleged
disloyal acts must substantially hinder the employer in the
continuation of its business.
The court refused to give the jury KPG’s proposed instruction,
which stated:
Generally, a shareholder’s fiduciary duty continues
after he resigns as an officer, director, or employee of a
close corporation. Resignation by a shareholder from the
position of officer and director does not relieve that per-
son of a fiduciary duty to the fellow shareholders because
the resignation does not change that person’s status as a
shareholder in the close corporation.
In arguing that it was prejudiced by instruction No. 8
and the court’s refusal to give its proposed instruction on
postresignation duty, KPG relies on Neb. Rev. Stat. § 67-424(Reissue 2018) of the Uniform Partnership Act of 1998, 108
which sets forth a duty to refrain from competing with the
partnership until final dissolution. 109 KPG connects this to our
case law in which we have said that shareholders in a close
corporation owe one another the same fiduciary duty as that
owed by one partner to another in a partnership. 110 KPG then
extrapolates that Dick still owes to this day a fiduciary duty to
108
Neb. Rev. Stat. §§ 67-401 to 67-467 (Reissue 2018).
109
See Bellino v. McGrath North, 274 Neb. 130, 738 N.W.2d 434 (2007).
110
See id. See, also, Anderson v. Bellino, 265 Neb. 577, 658 N.W.2d 645(2003).
- 668 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599KPG by virtue of the facts that Dick is still a shareholder and
that KPG has not dissolved. Again, the cases upon which KPG
relies are inapplicable to the facts of the case at bar.
Bellino v. McGrath North 111 was a professional negligence
action against a law firm based on advice given in connec-
tion with the severance of a business relationship. The client
was the president, director, and 50-percent shareholder in a
closely held corporation that operated a keno parlor under
a lottery operation contract with the city. On his counsel’s
advice, the president tendered his resignation as officer and
director effective upon termination of the city contract. Then,
before such termination, and thus before the effective date of
his resignation, the president formed a new corporation by
himself, through which he won the contract that had been put
up for public bidding.
In a separate action, we had affirmed a verdict in favor
of the closely held corporation for breach of fiduciary duty,
noting that although there was no noncompete agreement, a
corporate director may not compete with the corporation if
the director’s competition causes or contributes to the injury
or damage of the corporation, or deprives it of business. 112 In
Bellino v. McGrath North, we subsequently affirmed a judg-
ment in favor of the corporation’s president against the law
firm on the ground that it was malpractice to advise the former
president that he could avoid liability for usurping a corporate
opportunity simply by being up front and honest about it. In
the course of so concluding, we said that shareholders in a
close corporation owe one another the same fiduciary duty as
owed by one partner to another in a partnership and that a part-
ner has a duty to refrain from competing with the partnership
in the conduct of the partnership business before the dissolu-
tion of the partnership. 113
111
Bellino v. McGrath North, supra note 109.
112
See Anderson v. Bellino, supra note 110.
113
See Bellino v. McGrath North, supra note 109.
- 669 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599In the Seventh Circuit case relied on by KPG, Rexford Rand
Corp. v. Ancel, 114 the court held that a minority shareholder
violated his fiduciary duty to a closely held corporation by
secretly reserving the corporation’s trade names when they
became available, after an unintentional administrative dis-
solution of the corporation and a “freeze out” deprived the
minority shareholder of his position and the benefit of stock
ownership. The court reasoned that the minority shareholder
had taken it upon himself to retaliate, which violated his
continuing fiduciary duty—as he was technically still a share-
holder—to refrain from conduct intended to be detrimental to
the enterprise. 115 The court found it to be bad policy for frozen-
out shareholders to attempt to resolve disputes in this manner
rather than seek a judicial remedy. 116
Finally, KPG relies on a case from the appellate court of
Illinois, Hagshenas v. Gaylord. 117 In Hagshenas, a director,
vice president, and 50-percent shareholder of a closely held
corporation operating a travel agency resigned as vice presi-
dent and secretary and, the following day, opened a new travel
agency and began competing with the corporation, soliciting
the corporation’s customers, and hiring several travel agents
who had been working for the corporation. At the same time,
the former vice president did not give up his 50-percent control
over the corporation and continued to express an interest as a
shareholder in its ongoing affairs. When the other shareholders
and the former vice president could not reach an agreement as
to the corporation’s ongoing operations, the former vice presi-
dent sued for dissolution, and the other shareholders counter-
claimed for breach of fiduciary duty.
114
See Rexford Rand Corp. v. Ancel, 58 F.3d 1215, 1220 (7th Cir. 1995).
115
See id.116
See id.117
Hagshenas v. Gaylord, 199 Ill. App. 3d 60, 557 N.E.2d 316, 145 Ill. Dec.
546 (1990).
- 670 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599The court in Hagshenas rejected the former vice president’s
argument that he had ceased to owe a fiduciary duty after
his resignation. The court acknowledged that ordinarily an
officer or director owes no fiduciary duty to the corporation
after resignation and that a mere owner of stock in a company
does not owe a fiduciary duty to that company. But the court
held that 50-percent shareholders owe a fiduciary duty to each
other similar to that of partners. And the former vice president
had purposefully maintained his 50-percent shareholder status
and control. The court explained that if there were problems
that could not be resolved, then the proper course of action
would have been to negotiate a sale or buyout of the shares or
file for dissolution, and that until a final sale or order of dis-
solution, the former vice president owed a fiduciary duty to
the corporation. 118
None of these cases involve shareholder agreements with
buyout provisions in the express event of a shareholder’s
departure, much less buyout provisions that contemplate a pur-
chase price dependent upon the number of clients who decide
to continue with the departing shareholder at the new place
of employment. And none of these cases involve continuing
shareholder status by virtue of the corporation’s refusal to buy
out the shares. Unlike the shareholder in Hagshenas, Dick tes-
tified that he had no control over KPG’s operations after his
resignation, and there was no testimony refuting that statement.
Unlike the shareholder in Rexford Rand Corp., Dick was not
trying to circumvent legal avenues of relief through retalia-
tory action. 119 He simply changed his place of employment and
solicited the clients he had served while at KPG.
We find applicable cases holding that upon termination of
employment, a shareholder who is subject to a mandatory
buyout is divested of shareholder status immediately, and
that any reciprocal fiduciary obligations of the shareholders
118
Id.119
See Rexford Rand Corp. v. Ancel, supra note 114.
- 671 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599no longer exist even if the corporation has not yet redeemed
the employee’s stock. 120 This is distinct from cases holding in
the context of the fiduciary duty of the majority shareholders
toward a terminated employee shareholder that the corpora-
tion still owes certain duties to the shareholder during the
course of an expressly contemplated delay of the buyout or
when terminating shareholder status would “unfairly strip a
minority shareholder of all sharehholder rights while he [or
she] remains the legal owner of the shares.” 121 We can find
no authority for the proposition that a voluntarily departing
shareholder is bound by a general fiduciary duty not to com-
pete with a closely held corporation until the closing date of a
mandatory buyout provision—much less that such shareholder
is bound by virtue of the corporation’s unjustified refusal to
perform its buyout obligations until the matter can be resolved
through litigation.
While it may be true, as KPG points out, that the departing
shareholder can eventually recover or force specific perform­
ance through legal action, it would be against public policy
to allow the corporation to deprive the departing shareholder
of competing employment until such legal actions can be
taken. As stated, even corporate officers and directors, who
have fiduciary duties to the corporation, are free to resign
and go into competition as long as they remain loyal prior
to resigning. 122
We find no reversible error based on either the exclusion of
postresignation conduct or the court’s refusal to instruct on a
postresignation fiduciary duty.
120
See, Riesett v. W.B. Doner & Co., 293 F.3d 164 (4th Cir. 2002); Gallagher
v. Lambert, 74 N.Y.2d 562, 549 N.E.2d 136, 549 N.Y.S.2d 945 (1989). But
see Jenkins v. Haworth, Inc., 572 F. Supp. 591 (W.D. Mich. 1983).
121
See Drewitz v. Motorwerks, Inc., 706 N.W.2d 773, 785 (Minn. App.
2005), reversed in part on other grounds 728 N.W.2d 231 (2007). Accord
Stephenson v. Drever, 16 Cal. 4th 1167, 947 P.2d 1301, 69 Cal. Rptr. 2d
764 (1997).
122
Stuart C. Irby Co., Inc. v. Tipton, 796 F.3d 918 (8th Cir. 2015).
- 672 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599(d) Corporate Opportunity Doctrine
Next, KPG argues that it was prejudiced by the district
court’s refusal to give its proposed instruction on the corporate
opportunity doctrine. KPG asserts that the clients Dick served
while at KPG were KPG’s corporate opportunities.
KPG had proposed that the court instruct:
A business opportunity may “belong” to a corporation.
If a director of the corporation breaches his fiduciary duty
to the corporation to usurp that opportunity, the corpora-
tion is entitled to recover for that loss. The fact that the
proceeds from the usurpation may have ended up in the
hands of an innocent party does not defeat the corpora-
tion’s right to recover from those whose breaches of fidu-
ciary duty occasioned the loss.
This statement is derived from Trieweiler v. Sears, 123 in which
we considered the defendant directors’ formation of a new
corporation to open a new location for the bar business the
closely held corporation was in the business of operating and
which was financed and operated through an intertwining of
corporate affairs with the closely held corporation the plaintiff
was a shareholder of. We affirmed the district court’s find-
ing that the newly formed corporation had usurped a corpo-
rate opportunity. 124
We described that the doctrine of corporate opportunity pro-
hibits one who occupies a fiduciary relationship to a corpora-
tion from acquiring, in opposition to the corporation, property
in which the corporation has an interest or tangible expectancy
or which is essential to its existence. 125 The traditional remedy
imposed by courts upon a finding of a misappropriation of a
corporate opportunity is the equitable impression of a con-
structive trust in favor of the corporation upon the property.
We explained that a party seeking to establish the trust must
123
Trieweiler v. Sears, 268 Neb. 952, 689 N.W.2d 807 (2004).
124
See id.125
See id.- 673 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599prove by clear and convincing evidence that the individual
holding the property obtained title to it by fraud, misrepresen-
tation, or an abuse of an influential or confidential relationship
and that under the circumstances, such individual should not,
according to the rules of equity and good conscience, hold and
enjoy the property so obtained. 126 We rejected the argument
that the percentage of the proceeds of the corporate opportu-
nity distributed to an innocent investor defeated the corpora-
tion’s right to recover from those whose breaches of fiduciary
duty occasioned the loss, holding that
the fact that a director stole valuable assets from a cor-
poration and gave those assets to a presumably innocent
third party does not change the fact that the assets prop-
erly belonged to the corporation in the first place and that
the corporation should be compensated for the theft by
the wrongdoer. 127
[51] It was undisputed that Dick did not solicit any clients
until after his resignation, and we have already addressed that
such postresignation conduct does not breach a fiduciary duty.
More specifically to the doctrine of misappropriation of a cor-
porate opportunity with regard to postresignation conduct, at
least one jurisdiction has explained that whether the opportu-
nity rightfully belonged to the corporation is evaluated under
an interest or expectancy test. 128 And a past relationship with
customers alone is insufficient to create a reasonable expect­
ancy absent a continuing contractual agreement. 129 Customers
without exclusive contractual arrangements with corporations
or with whom a corporation has to annually renew contracts
are not corporate business opportunities. 130 Like with a law
126
See id.127
Id. at 986, 689 N.W.2d at 839.
128
See, In re Pervis, 512 B.R. 348 (N.D. Georgia 2014); Ins. Industry
Consultants, LLC v. Alford, 294 Ga. App. 747, 669 S.E.2d 724 (2008).
129
See id.130
See id.- 674 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599firm, absent a contract stating otherwise, an accountant’s cli-
ents have a right to select who will be their accountant; they
are not the accountancy firm’s property. 131
We agree with this reasoning. The evidence was undis-
puted that KPG clients had, at most, annually renewable con-
tracts. They were not KPG’s property. Thus, they could not be
misappropriated.
The facts did not warrant KPG’s requested instruction on the
corporate opportunity doctrine.
(e) Equitable Clawback
KPG also asserts that it was prejudiced by the district court’s
refusal to instruct the jury on equitable clawback damages in
relation to its counterclaim for breach of fiduciary duty. KPG’s
proposed instruction stated: “If you find KPG has proven that
. . . Dick breached his fiduciary duty to KPG, you may also
consider whether KPG is entitled to recover the compensation
it paid to . . . Dick during any periods of his breach of fidu-
ciary duty.”
KPG derived this instruction from Neece v. Severa. 132 The
plaintiff in Neece was a psychiatrist who had worked as an
independent contractor in the office she later left and sued for
an accounting, alleging billing failures under their contract.
The Court of Appeals quoted the “Restatement” rule on depriv-
ing an agent of compensation:
“An agent is entitled to no compensation for conduct
which is disobedient or which is a breach of his duty of
loyalty; if such conduct constitutes a wilful and deliber-
ate breach of his contract of service, he is not entitled to
compensation even for properly performed services for
which no compensation is apportioned.” 133
131
See Karen J. Dilibert, Fifty Ways to Leave Your Law Firm, 89 Ill. B.J. 323(2001).
132
Neece v. Severa, 5 Neb. App. 556, 560 N.W.2d 868 (1997).
133
Id. at 563, 560 N.W.2d at 873, quoting 2 Restatement (Second) of Agency,
supra note 55.
- 675 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599The Court of Appeals did not apply this principle, however,
because the plaintiff did not allege the office had willfully
breached its contract with her.
[52] Our appellate courts have not otherwise addressed the
concept of equitable clawback. Equitable clawback is a res-
titutionary remedy based on principles of unjust enrichment
and the faithless servant doctrine. 134 The doctrine establishes
a mandate that an agent who engages in activities that breach
the agent’s fiduciary duties to the principal is not entitled
to and must forfeit any compensation for services rendered
during the period of the breach. 135 The majority of the juris-
dictions adopt a bright-line rule that the agent must forfeit
all compensation paid or payable over the entire period of
the agent’s disloyalty, presuming, in effect, that the agent’s
misconduct tainted or otherwise permeated his or her entire
relationship with the principal from the original point of the
breach going forward. 136
Again, the jury was presented with the question of whether
Dick breached his fiduciary duty, which the court explained he
could do by:
act[ing] in direct competition with his or her employer
while still employed. Factors showing that an employee
acted in direct competition during his or her employ-
ment include the following: use of confidential and trade
secret information acquired from the employer to com-
pete; soliciting customers and clients to join the compet-
ing business before the end of the employment relation-
ship; or committing some other fraudulent or unlawful act
aimed at destroying the employer’s business. To give rise
to liability, the alleged disloyal acts must substantially
hinder the employer in the continuation of its business.
134
See Manning Gilbert Warren III, Equitable Clawback: An Essay on
Restoration of Executive Compensation, 12 U. Pa. J. Bus. L. 1135 (2010).
135
See id.136
See id.- 676 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599KPG has not challenged on appeal this portion of the
instruction.
While the jury was not specifically instructed on equitable
clawback damages, KPG’s expert witness testified as to the
amount of such damages and the jury was given a general ver-
dict form for damages. There was no instruction that negated
the possibility of equitable clawback damages.
[53] Any jury instruction is subject to the harmless error
rule, which requires a reversal only if error adversely affects
the substantial rights of the complaining party. 137 The appel-
lant has the burden of establishing the prejudicial effect. 138 We
conclude that KPG has failed to establish it was prejudiced
by the district court’s refusal to instruct the jury on equi-
table clawback.
4. Breach of Bylaws and Definition
of Confidential Information
Turning to its claim against Dick for breach of bylaws,
KPG argues it was prejudiced by the court’s jury instructions
that conflated “trade secret” with “confidential information.”
Instruction No. 12 set forth:
Confidential information and trade secrets are defined
as information including, but not limited to, a drawing,
formula, pattern, compilation, program, device, method,
technique, code, or process that:
(a) derives economic value, actual or potential, from
not being known to, and not being ascertainable by proper
means by, other persons who can obtain economic value
from its disclosure or use; and
(b) is the subject of efforts that are reasonable under
the circumstances to maintain its secrecy. Confidential
137
See Plambeck v. Union Pacific RR. Co., 232 Neb. 590, 441 N.W.2d 614(1989).
138
See id.- 677 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599and trade secret information must have independent eco-
nomic value. To be considered confidential and trade
secret information, possession of the secret information
must confer a competitive advantage.
Matters of public knowledge or of general knowledge
in an industry are not confidential information or trade
secrets; confidential information or a trade secret is some-
thing known to only a few and not susceptible of general
knowledge. Confidential information and trade secrets
must be particular secrets of [KPG] and not the general
secrets of the trade in which [KPG] is engaged. If infor-
mation is ascertainable at all by any means that are not
improper, the information is not confidential information
or a trade secret.
Instruction No. 13 stated:
If an alleged trade secret or confidential information
does not have independent economic value, the informa-
tion is not entitled to confidential information or trade
secret protection under Nebraska law. To be considered
confidential and trade secret information, possession of the
secret information must confer a competitive advantage.
Information disclosed to customers without any confi-
dentiality requirement, including pricing information, is
not confidential information.
KPG fails to delineate what parts of these descriptions of con-
fidential information were inaccurate and misleading. KPG
merely insists that not all confidential information constitutes
a trade secret and that the bylaws somehow presented some-
thing broader.
The “Bylaws of Randall K. Koski, P.C.” stated that it shall
be required to “maintain and preserve confidentiality as to all
business techniques, commercial data, formulas, good will,
operational methods, product identifications, service marks,
trademarks, trade names, and trade secrets.” It does not define
those terms. KPG does not identify how these specific concepts
relate to its allegations against Dick.
- 678 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599Most notably, the bylaws do not define “confidential infor-
mation” or “confidentiality.” They merely state that the “con-
fidentiality” of the items in the list shall be “preserve[d]” and
“maintain[ed].” Logically, to preserve and maintain confiden-
tiality, the information must have been confidential in the
first instance. And, on their face, the bylaws do not set forth
any new, broader definition of “confidential information” or
confidentiality.
As Dick points out, our case law reflects that we have often
treated “confidential information” and “trade secrets” inter-
changeably. 139 There is nothing in the bylaws that convinces us
that the court should have presented a different definition than
that set forth in jury instructions Nos. 12 and 13.
No conceivable definition of “confidential information”
changes the requirement in a breach of contract action that
the claimant prove both proximate causation and foreseeable
damages of a “kind which naturally follow a breach.” 140 Dick
argued at trial that the spreadsheet containing the summary of
Dick’s billings and fees, the types of services he provided, and
the states in which he worked was not confidential information
because it could be obtained through proper means. The jury
either so found or found that it did not confer a competitive
advantage or that KPG was not harmed by the disclosure of
the information.
We find no merit to KPG’s assertion that the verdict in its
counterclaim for breach of bylaws should be reversed because
of jury instructions that addressed trade secrets and confiden-
tial information interchangeably.
139
See, Gaver v. Schneider’s O.K. Tire Co., 289 Neb. 491, 856 N.W.2d 121(2014); Brockley v. Lozier Corp., 241 Neb. 449, 488 N.W.2d 556 (1992);
Chambers-Dobson, Inc. v. Squier, 238 Neb. 748, 472 N.W.2d 391 (1991);
Boisen v. Petersen Flying Serv., 222 Neb. 239, 383 N.W.2d 29 (1986);
Securities Acceptance Corp. v. Brown, 171 Neb. 701, 107 N.W.2d 540(1961).
140
Birkel v. Hassebrook Farm Serv., 219 Neb. 286, 290, 363 N.W.2d 148, 152
(1985).
- 679 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 5995. KPG’s Counterclaim Against Bland
for Tortious Interference
As for its counterclaim against Bland for tortious interfer-
ence, KPG asserts that the district court erred in holding as a
matter of law that Bland’s payment of commissions to Dick
did not violate the rules of professional conduct of the NSBPA
and thus excluding KPG’s proffered expert opinion that the
commissions violated the NSBPA. There was no evidence
submitted that the NSBPA itself has determined Bland’s com-
mission structure violates its rules of professional conduct or
that Bland is under investigation for the same. The jury was
presented with the theory that through the 10-percent commis-
sion, among other things, Bland had tortiously inferred with
KPG’s business expectations. Nevertheless, KPG claims it was
prejudiced by the exclusion of expert testimony on the alleged
NSBPA violation, because, without such testimony, KPG was
“required to prove that Dick and Bland committed ‘an unjus-
tified intentional act of interference’ with KPG’s business
relationships to prove its claim for tortious interference with a
business relationship.” 141
[54] To succeed on a claim for tortious interference with a
business relationship or expectancy, a plaintiff must prove (1)
the existence of a valid business relationship or expectancy, (2)
knowledge by the interferer of the relationship or expectancy,
(3) an unjustified intentional act of interference on the part of
the interferer, (4) proof that the interference caused the harm
sustained, and (5) damage to the party whose relationship or
expectancy was disrupted. 142 In order to be actionable, inter-
ference with a business relationship must be both intentional
and unjustified. 143
[55] Factors to consider in determining whether interference
with a business relationship was unjustified include: (1) the
141
Brief for appellant at 41.
142
Aon Consulting v. Midlands Fin. Benefits, supra note 76.
143
See Recio v. Evers, 278 Neb. 405, 771 N.W.2d 121 (2009).
- 680 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599nature of the actor’s conduct, (2) the actor’s motive, (3) the
interests of the other with which the actor’s conduct interferes,
(4) the interests sought to be advanced by the actor, (5) the
social interests in protecting the freedom of action of the actor
and the contractual interests of the other, (6) the proximity
or remoteness of the actor’s conduct to the interference, and
(7) the relations between the parties. 144 The issue is whether,
upon a consideration of the relative significance of the factors
involved, the conduct should be permitted without liability,
despite its effect of harm to another. 145
[56] This determination depends upon a judgment and
choice of values in each situation. 146 An individual’s interest
in prospective economic advantage receives less protection
than his or her enforceable contract rights. 147 The rationale for
the distinction is that an individual with a prospective business
relationship has a mere expectancy of future economic gain,
whereas a party to a contract has a certain and enforceable
expectation of receiving the benefits of his contract. 148
Furthermore, in the context of claims of tortious interfer-
ence with a business relationship or expectancy, we have
recognized the privilege of a competitor as described in the
Restatement of Torts. 149 “[V]alid competition,” including
inducement of third persons to do their business with one-
self rather than with a particular competitor, “cannot be the
144
Id.145
Aon Consulting v. Midlands Fin. Benefits, supra note 76.
146
Id.147
12 Robert L. Haig, Business and Commercial Litigation in Federal Courts
§ 121:39 (4th ed. 2016).
148
Lamar Co. v. City of Fremont, 278 Neb. 485, 771 N.W.2d 894 (2009). See,
also, Miller Chemical Co., Inc. v. Tams, 211 Neb. 837, 320 N.W.2d 759(1982), disapproved on other grounds, Matheson v. Stork, 239 Neb. 547,
477 N.W.2d 156 (1991); Restatement of Torts § 768 (1939).
149
Restatement of Torts, supra note 148.
- 681 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599basis for a tortious interference claim,” because such conduct
is justified. 150
[57,58] The party alleging tortious interference has the bur-
den of proving that the conduct did not fall within the competi-
tor’s privilege. 151 One is privileged purposely to cause a third
person not to enter into or continue a business relation with
a competitor of the actor if (1) the relation concerns a matter
involved in the competition between the actor and the com-
petitor, (2) the actor does not employ improper means, (3) the
actor does not intend thereby to create or continue an illegal
restraint of competition, and (4) the actor’s purpose is at least
in part to advance his or her interest in the competition with
the other. 152
[59] KPG argues that offering a commission allegedly in
violation of the rules of professional conduct of the NSBPA
constitutes improper means of competition; therefore, Bland’s
interference was unjustified. Improper means of competition
has been described as physical violence, fraud, civil suits, and
criminal prosecutions—though even these means may not be
forbidden, depending upon the relation between the actor and
the person induced, and the object sought to be accomplished
by the actor. 153
KPG’s only support for the contention that a violation of
the rules of professional conduct of the NSBPA constituted
improper means is a comment to the Restatement (Second) of
Torts dealing with intentional interference with a contract or
prospective contractual relation of another:
Business ethics and customs. Violation of recognized
ethical codes for a particular area of business activity
150
Lamar Co. v. City of Fremont, supra note 148, 278 Neb. at 498, 771
N.W.2d at 906.
151
See Amerinet, Inc. v. Xerox Corp., 972 F.2d 1483 (8th Cir. 1992).
152
Miller Chemical Co., Inc. v. Tams, supra note 148.
153
See, 4 Restatement (Second) of Torts § 767, comment on clause (a)
(1979); Restatement of Torts, supra note 148, comment on clause (b).
- 682 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599or of established customs or practices regarding disap-
proved actions or methods may also be significant in
evaluating the nature of the actor’s conduct as a factor in
determining whether his interference with the plaintiff’s
contractual relations was improper or not. 154
This comment was not directly made in relation to the privilege
to compete.
We addressed professional ethics in the context of a claim
for tortious interference with a business expectancy in Macke
v. Pierce. 155 We explained that the uncontroverted evidence of
the defendant’s breach of his physician’s duty of confidentiality
toward his patient did not, standing alone, establish that such
unauthorized disclosure of his patient’s medical condition to
her employer constituted tortious interference with a business
expectancy. 156 The physician testified that he had breached the
duty of confidentiality out of concern for the patient’s well-
being. We said that this testimony was sufficient to support the
jury’s conclusion that the physician had not tortiously inter-
fered with the plaintiff’s business expectancy. 157
In this case, we agree with the district court that the evi-
dence does not support the possible conclusion that Bland
violated the rules of professional conduct of the NSBPA by
offering the 10-percent commission compensation structure to
its employees. Leaving aside whether the compensation struc-
ture at issue constituted a prohibited “commission” under the
NSBPA rules, their plain language prohibits a certified public
accountant from “accepting” certain commissions, which Bland
clearly did not do.
Section 007 of the rules of professional conduct of the
NSBPA provides:
154
4 Restatement (Second) of Torts, supra note 153 at 32.
155
Macke v. Pierce, 266 Neb. 9, 661 N.W.3d 313 (2003).
156
Id.157
Id.- 683 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599007.01 Acts discreditable. A licensee shall not commit
an act that reflects adversely on his fitness to engage in
the practice of public accountancy.
007.02 Commissions and referral fees.
007.02A Prohibited Commissions. A licensee in public
practice shall not for a commission recommend or refer
to a client any product or service, or for a commission
recommend or refer any product or service to be supplied
by a client, or receive a commission, when the licensee or
the licensee’s firm also performs for that client:
007.02A1 an audit or review of a financial state-
ment; or
007.02A2 a compilation of a financial statement when
the licensee expects, or reasonably might expect, that
a third party will use the financial statement and the
licensee’s compilation report does not disclose a lack of
independence; or
007.02A3 an examination of prospective financial
information.
This prohibition applies during the period in which the
licensee is engaged to perform any of the services listed
above and the period covered by any historical financial
statements involved in such listed services.
007.02B Disclosure of Permitted Commissions. A
licensee in public practice who is not prohibited by this
rule from performing services for or receiving a commis-
sion and who is paid or expects to be paid a commission
shall provide written disclosure of that fact and the basis
for determining such commission to any person or entity
to whom the licensee recommends or refers a product or
service to which the commission relates.
007.02C Referral Fees. Any licensee who accepts a
referral fee for recommending or referring any service
of a CPA to any person or entity or who pays a referral
fee to obtain a client shall provide written disclosure of
- 684 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599such acceptance or payment and the basis for determin-
ing such fee to the client.
007.02D Written Disclosure Statements. Written dis-
closure statements, as set forth by Attachment 1 to this
Chapter, are to be executed in duplicate, with a receipt
acknowledgement signed and dated by the client, and
maintained by the licensee for a period of five years.
Licensees are subject to a random audit by the [NSBPA]
or its designee for compliance with the written disclosure
provisions of this rule.
007.02E Disclosure Form for commission, contin-
gent fee, or referral fee.
(Emphasis supplied.) The rules do not anywhere define the
term “commission.”
The rules then set forth a disclosure form which “is required
by the [NSBPA] for use by duly licensed Certified Public
Accountants (CPA’s) who intend to accept from any client
compensation in the form of a commission, a contingent fee
or a referral fee.” The rules explain that “CPA’s are prohibited
from accepting a commission or contingent fee as compensa-
tion from a client for whom the CPA or the CPA’s firm also
performs” the specified financial services. Nothing prohibits
offering a “commission.” The evidence was uncontroverted that
Bland did not accept a commission; it offered one to Dick.
Also, any wrong committed under the NSBPA rules was
against the client and concerned an accountant’s potential
conflict of interest vis-a-vis a client’s interests. And the com-
mission structure at Bland that KPG takes issue with was not
directed toward KPG; it was the bonus offered to all account­
ants for bringing in clients. The object sought was to reward
accountants for networking efforts that resulted in expanding
Bland’s client base. It was not dependent upon whether the
clients were previously being served by another account-
ing firm. Again, improper means depends upon the relation
- 685 -
Nebraska Supreme Court Advance Sheets
307 Nebraska Reports
DICK v. KOSKI PROF. GROUP
Cite as 307 Neb. 599between the actor and the person induced and upon the object
sought to be accomplished by the actor. 158
[60] As a matter of law, the excluded evidence would not
have been sufficient for KPG to satisfy its burden of proving
that the conduct did not fall within the competitor’s privilege.
In a civil case, the admission or exclusion of evidence is not
reversible error unless it unfairly prejudiced a substantial right
of the complaining party. 159 We find that KPG was not unfairly
prejudiced by the exclusions of expert opinion that Bland had
violated the NSBPA rules.
6. Dick’s and Bland’s Cross-Appeals
Dick assigns on cross-appeal that the district court erred
by denying his motion for a directed verdict against KPG on
KPG’s counterclaims, because KPG failed to present sufficient
evidence for the trier of fact either to find damages with rea-
sonable certainty or to find that any damages were proximately
caused by Dick’s wrongful conduct. Bland makes similar
assignments of error in its cross-appeal regarding KPG’s third-
party claims against it. Because we find no merit to KPG’s
appeal and affirm the judgment for that reason, it is unneces-
sary to address the cross-claims presenting alternative grounds
for affirming the judgment.
VI. CONCLUSION
For the foregoing reasons, we affirm the judgment of the
district court.
Affirmed.
Miller-Lerman, J., not participating.
158
See, Restatement (Second) of Torts, supra note 153, comment on clause
(a); Restatement of Torts, supra note 148, comment on clause (b).
159
O’Brien v. Cessna Aircraft Co., 298 Neb. 109, 903 N.W.2d 432 (2017).