CONNOLLY, J.
Prime Realty, Inc. (Prime), acted as general partner for two limited partnerships, Brook Valley Limited Partnership (BVLP) and Brook Valley II, LTD (BVII) (collectively the partnerships). Unbeknownst to the partnerships' limited partners, Prime took out two loans from Nebraska State Bank of Omaha (the Bank) and, by deed of trust, secured the loans with the partnerships' property. The Bank ultimately sold the collateral and applied the proceeds to the loans. The partnerships sued the Bank for conversion. The partnerships alleged that the loans were for a nonpartnership purpose. As such, they alleged that under the partnership agreements, Prime lacked authority to offer the partnerships' property as collateral without the limited partners' consent (which Prime did not have). So the Bank allegedly converted the partnerships' property when it sold the collateral and applied the proceeds to the loans.
The primary issues are whether (1) the statute of limitations has run; (2) the Bank converted the partnerships' property and, if so, the amount of damages; (3) the partnerships ratified the loans; and (4) the district court properly awarded prejudgment interest. We conclude that the partnerships filed their complaint within 4 years from the Bank's sale of the collateralized lots, so their complaint was timely. We conclude that the Bank converted the partnerships' property when it applied the sale proceeds to loans, though the court improperly awarded damages in the full amount of the proceeds applied to the loans because a portion of the first loan served a partnership purpose. Also, the partnerships did not ratify the loans. Finally, we conclude there was a reasonable controversy regarding the amount due and the partnerships' right to recover on the first loan, but not the second. So prejudgment interest was proper only on the amount the Bank applied to the second loan.
Midlands Financial Services, Inc., was the holding company and parent corporation of the Bank. During this litigation, the Bank merged into Mutual of Omaha Bank. And Omaha Financial Holdings, Inc., Mutual of Omaha Bank's holding company, acquired Midlands Financial Services. So Mutual of Omaha Bank and Omaha Financial
The partnerships' principal purpose was to develop, own, and sell real estate in Sarpy County, Nebraska. The limited partners were not involved in the partnerships' day-to-day operations. Instead, Prime, as the general partner, was in charge of the partnerships' operations. James McCart was Prime's president.
The partnerships' partnership agreements were essentially identical and provided broad power to the general partner to act in the best interests of the respective partnership. But following this broad grant of power, the agreements imposed limitations on the general partner's authority. Specifically, the agreements provided:
(Emphasis supplied.) The record shows that the Bank had copies of the partnerships' agreements and that it knew about this restriction of the general partner's authority.
In July 2000, Prime applied for and received a loan from the Bank for $1,000,133. The stated purpose of the July loan was to consolidate and renew several prior loans to various entities and advance business capital. As collateral for the loan, Prime executed a deed of trust for 18 real estate lots owned by BVII. The Bank received purported signed consent forms from BVII's limited partners authorizing the transaction.
But the record shows that each consent form was a fraud and that the limited partners had not consented to the transaction. Moreover, the consent forms' fraudulent nature was readily apparent — the signature lines were askew, indicating that the signatures were "cut and paste[d]" onto the form; several of the forms contained different fonts within the form; and the signatures were on separate pages from the property description. Furthermore, the signatures were dated months before the July loan and were not notarized.
Nevertheless, the Bank authorized the July loan and accepted the deed of trust collateralizing BVII's lots. The record shows that the July loan consolidated and renewed several prior loans from the Bank to Prime ($35,040), McCart ($274,046), BVII ($250,040), BVLP ($50,030), and Spring Valley XI Joint Venture ($180,924), another business entity. Additionally, from the July loan, the Bank provided "new" money in the form of a check payable to Prime and Heartland Title Services (Heartland) for $209,960.
In October 2000, the Bank became aware of "suspicious activity" regarding McCart's financial dealings, both personally and for businesses he was involved in. The Bank discovered that McCart had been "kiting" checks. In the words of one of the Bank's former officers, McCart had been "making deposits — or drawing checks on one bank while — and making deposits from another bank, playing the float, and sometimes not having money." The federal government indicted McCart for check kiting, to which he eventually pleaded
The Bank confronted McCart on how he planned to cover the overdraft. McCart proposed, and the Bank agreed, that the Bank "loan" Prime additional money in the exact amount of the check kite ($2,721,328.47). And as collateral for the October loan, McCart (for Prime) pledged the same BVII lots from the July loan. Other property was later added as additional collateral, including two tax lots owned by BVLP. The record shows that the Bank did not obtain consent from the limited partners of BVLP or BVII regarding the October loan. The record also shows that although the October loan was labeled a "loan," the plan was always to sell the collateralized properties to repay the Bank for the $2.7 million overdraft.
Later in 2000 and during 2001, the Bank sold off many of the collateralized lots and applied the proceeds to Prime's loans. As of June 28, 2002, the collective balance remaining on the loans was $144,935.35. The district court made factual findings regarding the sales of the various lots and how the Bank applied those proceeds to the loans. The court apparently made those findings from the Bank's discovery responses.
In 2004, the partnerships sued the Bank, alleging conversion, breach of fiduciary duty, failure to comply with commercially reasonable standards, and collusion. Several limited partners testified regarding their business relationships with Prime and McCart. They also testified to their lack of knowledge regarding the reasons for the Bank's loans to Prime and the collateralization of the partnerships' property. Several of the Bank's former officers testified regarding their knowledge of McCart's check-kiting scheme, the circumstances surrounding both loans, and how the Bank processed the lot sales. The partnerships offered expert testimony demonstrating that any purported consent forms from the limited partners were fraudulent and that the Bank had not complied with commercially reasonable banking standards in processing the loans.
Following trial, the court determined that the partnerships lacked standing to sue the appellants and dismissed the case. We reversed the court's decision on appeal.
The court jointly awarded the partnerships $2,267,056.86 in damages and also awarded $2.8 million in prejudgment interest. The appellants moved for a new trial and to alter or amend the judgment. The court overruled the appellants' motions.
The appellants assign, consolidated and restated, that the court erred in:
(2) concluding that the Bank, through its encumbering and sale of the partnerships' lots, had converted the partnerships' property;
(3) concluding that the partnerships had not ratified the July and October loans;
(4) calculating damages and, specifically, failing to award damages for the July loan based only on that portion which was for a nonpartnership purpose, and granting judgment jointly to the partnerships; and
(5) awarding prejudgment interest.
In a bench trial of a law action, the trial court's factual findings have the effect of a jury verdict, which we will not disturb on appeal unless clearly wrong. And we do not reweigh the evidence but consider the judgment in the light most favorable to the successful party and resolve evidentiary conflicts in favor of the successful party.
We review de novo whether a court should award prejudgment interest.
Although the appellants devote the first portion of their brief to discussing whether the deed of trust securing the July loan was void or voidable, we read their argument as essentially arguing that the partnerships' action regarding the July loan (but not the October loan) was time barred. The appellants note that the statute of limitations for conversion is 4 years, that the loan occurred in July 2000, and that the partnerships did not sue the Bank until August 2004. So the appellants argue the statute of limitations has run.
The appellants are correct that under Nebraska law, the statute of limitations for a conversion claim is 4 years.
The making of the July loan, by itself, did not constitute a conversion. Instead, and as the court recognized, the alleged conversion was complete when the Bank wrongfully retained the proceeds from the sale of each lot.
Conversion is "any unauthorized or wrongful act of dominion exerted over another's property which deprives the owner of his property permanently or for an indefinite period of time."
We conclude that whether the loans served a partnership purpose is a factual finding, which we review for clear error.
The more difficult question is whether the partnerships proved that the July loan was for a nonpartnership purpose. The record shows that the purpose of the July loan was to consolidate and renew prior loans from the Bank to several entities and to advance business capital. The July loan consolidated prior loans to Prime ($35,040), McCart ($274,046), BVII ($250,040), BVLP ($50,030), and Spring Valley XI Joint Venture ($180,924). From the July loan, the Bank also issued a check payable to Prime and Heartland for $209,960 as "new" money. The court found that "[t]he only benefit provided to the partnerships was approximately $300,000.00 of debt reduction by virtue of the July loan. The remainder went to other entities." So the court found that the July loan — other than the portion renewing the partnerships' prior loans — was for a non-partnership purpose.
The court's finding that renewal of the prior BVII loan was for a partnership purpose was obviously not clearly wrong. But an issue arises regarding the renewal of the BVLP loan. The court reasoned that because the renewal of the BVLP loan benefited BVLP, it served a partnership purpose. But remember that Prime pledged only BVII property as collateral for the July loan. Thus, the inquiry should have been whether renewing the prior BVLP loan served BVII's purposes. As explained in more detail later in this opinion, we are remanding this cause with directions to modify the judgment regarding the July loan. The purpose of renewing
The question remains whether the renewal of the other three prior loans and the check payable to Prime and Heartland were also for a partnership purpose. The appellants argue that the court erred in finding they were not. The appellants argue that it was the partnerships' burden to prove a nonpartnership purpose, which they failed to do. In support of this contention, the appellants point to evidence that the payment to Heartland was to clear title to the collateralized BVII lots. The appellants also claim that the other entities benefited by the July loan might have borrowed money from the Bank to lend to BVII and that BVII might have been paying off its debts.
The appellants' latter assertion is speculation. That could have been the case, but the record does not support such a conclusion. There is evidence, however, that the check payable to Heartland and Prime was to clear title to BVII lots. If that were the purpose of that portion of the July loan, then that would qualify as a partnership purpose.
But the court determined that the portion of the July loan other than the renewal of the partnerships' prior loans did not serve a partnership purpose. And we cannot say, based on this record, that the court was clearly wrong in that determination. The record shows that the Bank made these loans to various separate business entities. The court could reasonably have found, based on the testimony, that the consolidation and renewal of prior loans for business entities other than BVII was a nonpartnership purpose.
For example, one former officer of the Bank testified in response to the partnerships' direct examination as follows:
Although the witness backtracked, the court could have concluded from this testimony that payment to other nonpartnership entities was a nonpartnership purpose.
The partnerships' expert witness on banking standards also seemed to suggest that payment to nonpartnership entities was a nonpartnership purpose:
(Emphasis supplied.) The court could infer from this testimony that the majority
The record also shows that McCart was guilty of kiting checks and that McCart had an interest in each of the other entities, in one form or another. In addition to his obvious interest in loans to himself personally and to Prime, McCart (through Prime) had an interest in both Spring Valley XI Joint Venture and Heartland. Although McCart's suspicious activity apparently only came to light in October 2000, after the July loan, the court could have concluded that the July loan money was used for a nonpartnership purpose — to fund McCart's check-kiting scheme. Furthermore, although the records contain testimony from the Bank's former officers that the "new" money was meant to pay Heartland to clear the title on the collateralized BVII lots, that explanation is undermined by Prime's being a payee on the check.
In sum, the court determined that the October loan and a majority of the July loan were for nonpartnership purposes. Those factual findings are not clearly wrong. So the Bank's accepting the partnerships' property as collateral, followed by the sale of the property and application of the proceeds to the loans, was an "unauthorized or wrongful act of dominion exerted over" the partnerships' property.
Nevertheless, the appellants argue that even if its actions were improper, the limited partners' subsequent acts ratified the July and October loans. So the appellants argue that they cannot be liable for conversion.
Ratification is the acceptance of a previously unauthorized contract.
The appellants argue that the partnerships ratified the July and October loans through later transactions involving some of the limited partners. Specifically, the appellants argue that some of the limited partners borrowed money from the Bank to buy some of the collateralized lots. When a dispute arose about the repayment of those loans, those limited partners entered into settlement agreements with the Bank in March and April 2004. The agreements released those limited partners'
But the court found that the partnerships (through the limited partners) had not ratified the July and October loans, and we determine that factual finding is not clearly wrong. Even assuming that the limited partners who entered into the settlement agreements had ratified the July and October loans, the partnerships did not ratify them: "In cases where a partner's act is not within the scope of the partnership's business and is not authorized by the partners, the transaction is still binding on the partnership if it is ratified by those partners who would have had the power to authorize the act."
The appellants argue only that a "majority" of the limited partners ratified the act. But the partnership agreements required all of the limited partners' consent to authorize the loans. So there could be no ratification based only on the actions of a majority of the limited partners.
In calculating damages, the court found that the appellants had applied $1,064,600.73 to the July loan and $1,202,456.13 to the October loan, for a total of $2,267,056.86 in damages. The court entered judgment against Mutual of Omaha Bank, as the Bank's successor, for the full amount. The court also entered judgment against Omaha Financial Holdings for the amount applied to the October loan, because the Bank had assigned the October loan to Midlands Financial Services, Omaha Financial Holding's predecessor.
The record supports the judgment amount for the October loan, and so the court was not clearly wrong in that determination. But we remand the cause with directions for the court to modify the judgment regarding the July loan. First, the July loan's renewal of the prior BVII loan served a partnership purpose and so applying sale proceeds for that amount to the July loan was not a conversion. So the court must reduce the July loan judgment. Second, as discussed earlier, the court improperly reasoned that renewing the prior BVLP loan served a partnership purpose because it benefited BVLP. But only BVII property served as collateral for the July loan, so the question is whether renewing the prior BVLP loan served BVII's purposes. On remand, the court should make that finding and adjust the July loan judgment if needed. Finally, we note that the partnerships (as different limited partnerships) are separate entities.
The appellants argue that the court erred in awarding prejudgment interest because the partnerships' claims were not liquidated as required under Neb.Rev.Stat. § 45-103.02 (Reissue 2010). Specifically, the appellants argue that there was a reasonable controversy over both the partnerships' right to recover and the amount of any such recovery. Not surprisingly, the partnerships take the opposite stance and argue that their claims were liquidated or, alternatively, that prejudgment interest was proper under Neb.Rev.Stat. § 45-104 (Reissue 2010).
The parties dispute the proper legal framework for addressing the award of prejudgment interest. The appellants contend that §§ 45-103.02 and 45-104 are not alternate routes to recover prejudgment interest, but that the reasonable controversy requirement must be met regardless whether the case is a type enumerated in § 45-104.
We see no need to resolve this issue because we conclude this case is not a type enumerated under § 45-104. So regardless which approach is correct, whether prejudgment interest is proper depends on whether this case presented a reasonable controversy. Section 45-104 provides, in relevant part:
(Emphasis supplied.) The parties dispute whether this case involves "money received to the use of another and retained without the owner's consent."
The meaning of a statute is a question of law,
Section 45-103.02(2) provides, in relevant part, that "interest as provided in section 45-104 shall accrue on the unpaid balance of liquidated claims from the date the cause of action arose until the entry of judgment." Prejudgment interest may only be recovered under § 45-103.02(2) when the claim is liquidated.
Regarding the July loan, we agree that a reasonable controversy existed concerning the amount due and the partnerships' right to recover. Based on the distribution of the July loan money, it was unclear whether the July loan served a partnership purpose. The court was required to weigh conflicting evidence and determine whether the July loan served a partnership purpose. As such, prejudgment interest on the amount applied to the July loan was improper.
But regarding the October loan, we conclude that there was no reasonable controversy concerning the amount due and the partnerships' right to recover. There was no reasonable dispute about the amount due — it was a simple matter to determine how much money the Bank applied to the October loan. There was also no reasonable dispute about the partnerships' right to recover — there was only one purpose for the October loan, to cover McCart's check kite, and that was not a partnership purpose. This was clearly a conversion, and for an undisputed amount. As such, prejudgment interest at 12 percent per annum was proper on that amount.
We affirm the court's judgment regarding the October loan. We also affirm in part the court's judgment regarding the July loan, but reverse the judgment in part and remand the cause so that the court may adjust the July loan judgment in accordance with this opinion. We direct the court to enter separate judgments as to each plaintiff partnership. Finally, we affirm the court's granting of prejudgment interest regarding the October loan, but reverse the court's granting of prejudgment interest regarding the July loan.
AFFIRMED IN PART, AND IN PART REVERSED AND REMANDED WITH DIRECTIONS.
HEAVICAN, C.J., and STEPHAN and CASSEL, JJ., not participating.
