Freedom Fin. Group v. Woolley

a punishment in many cases. But as the referee said, “[a]t some
point, mitigation must yield to considerations of protection of
the public.” We have passed that point.
In sum, we cannot ignore that Switzer disobeyed a direct
order of this court. We previously suspended Switzer, but he
continued to practice, flouting our previous ruling. A suspen-
sion order is a command, not a suggestion. The offenses admit-
ted are serious, and the need to deter others from this type of
conduct weighs heavily. If attorneys ignore our suspension
orders without consequence, it undermines the authority of
this court. We determine that the only appropriate discipline
is disbarment.
CONCLUSION
We adopt the referee’s recommendation. We find that Switzer
violated his oath of office and several rules governing attor-
neys. It is the judgment of this court that Switzer should be
disbarred from the practice of law.
Judgment of disbarment.
freedOm fIN. grOUp v. WOOLLey 	825
Cite as 280 Neb. 825
freedom financial group, inc., et al .,
appellants , v. Janice m. Woolley,
individually, et al ., appellees.
792 N.W.2d 134
filed November 12, 2010. 	No. S-09-1302.
1. Summary Judgment. Summary judgment is proper when the pleadings and
evidence admitted at the hearing disclose no genuine issue as to any material fact
or as to the ultimate inferences that may be drawn from those facts and that the
moving party is entitled to judgment as a matter of law.
2. Summary Judgment: Appeal and Error. In reviewing a summary judgment, an
appellate court views the evidence in a light most favorable to the party against
whom the judgment is granted and gives such party the benefit of all reasonable
inferences deducible from the evidence.
3. Corporations: Actions: Parties. As a general rule, a shareholder may not bring
an action in his or her own name to recover for wrongs done to the corporation
or its property. Such a cause of action is in the corporation and not the sharehold-
ers. The right of a shareholder to sue is derivative in nature and normally can be
brought only in a representative capacity for the corporation.
Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
11/01/2026 04:46 AM CST

4. Corporations: Actions: Parties: Proof. If a shareholder can establish an indi-
vidual cause of action because the harm to the corporation also damaged the
shareholder in his or her individual capacity, then the individual can pursue his or
her claims.
5. ____: ____: ____: ____. In order to establish an individual harm, the shareholder
must allege a separate and distinct injury or a special duty owed by the party to
the individual shareholder.
6. Corporations: Actions: Parties: Damages. even if a shareholder establishes that
there was a special duty, he or she may only recover for damages suffered in his
or her individual capacity, and not injuries common to all the shareholders.
7. ____: ____: ____: ____. If a shareholder is permitted to bring an action person-
ally to recover his or her proportionate share of the damages suffered by the
corporation, a subsequent recovery by or for the corporation would be equivalent
to a double recovery for him or her.
8. Corporations: Actions: Parties. even though all shares of stock of a corpora-
tion may be owned by a small number of shareholders or by one shareholder
alone, a shareholder cannot sue individually concerning rights which belong to
the corporation.
9. Malpractice: Attorney and Client: Negligence: Proof: Proximate Cause:
Damages. In a civil action for legal malpractice, a plaintiff alleging professional
negligence on the part of an attorney must prove three elements: (1) the attorney’s
employment, (2) the attorney’s neglect of a reasonable duty, and (3) that such
negligence resulted in and was the proximate cause of loss to the client.
10. Attorney and Client: Parties. A lawyer owes a duty to his or her client to use
reasonable care and skill in the discharge of his or her duties, but ordinarily this
duty does not extend to third parties, absent facts establishing a duty to them.
11. Attorney and Client: Parties: Negligence: Liability. A common set of cohesive
principles for determining the extent of an attorney’s duty, if any, to a third party
includes: (1) the extent to which the transaction was intended to affect the third
party, (2) the foreseeability of harm, (3) the degree of certainty that the third
party suffered injury, (4) the closeness of the connection between the attorney’s
conduct and the injury suffered, (5) the policy of preventing future harm, and (6)
whether recognition of liability under the circumstances would impose an undue
burden on the profession.
Appeal from the district Court for douglas County: marlon
a. polk, Judge. Affirmed.
Thomas A. grennan and francie C. riedmann, of gross &
Welch, p.C., L.L.O., for appellants.
michael L. Schleich and Timothy J. Thalken, of fraser
Stryker, p.C., L.L.O., for appellees.
H eavican, 	c.J., 	WrigHt, 	connolly, 	gerrard, 	stepHan,
mccormack, and miller-lerman, JJ.
826 	280 NeBrASkA repOrTS

H eavican, C.J.
INTrOdUCTION
freedom financial group, Inc. (ffg), as well as related
entities, Bethel enterprises Limited Liability Company (Bethel
enterprises); freedom group, Inc.; freedom financial, Inc.;
freedom Asset management, Inc.; mid-America employment
Services, Inc.; and U.S. Securities management, LLC (collec-
tively appellants), appeal the decision of the douglas County
district 	Court 	granting 	summary 	judgment 	to 	Janice 	m.
Woolley, individually; marks Clare & richards, L.L.C. (marks
Clare); and Janice m. Woolley, p.C., L.L.O. (collectively appel-
lees). ffg filed a legal malpractice action against appellees,
alleging that Woolley failed to provide competent legal serv-
ices, resulting in monetary loss to appellants.
The district court determined that Woolley owed no legal
duty to the related entities and entered summary judgment
against them. The district court also held that ffg was pro-
hibited from recovering damages rightly accruing to presidents
Trust Company, L.L.C. (presidents Trust), or that were com-
mon to all members of presidents Trust. Upon finding that ffg
did not allege individual damages, the district court granted
appellees’ motion for summary judgment.
fACTS
presidents Trust was an independent, nondepository lim-
ited 	liability 	company 	(LLC) 	chartered 	in 	South 	dakota.
ffg was the sole shareholder of presidents Trust. Bethel
enterprises is the parent company to ffg, freedom group,
freedom financial, freedom Asset management, mid-America
employment Services, and U.S. Securities management. Simply
stated, Bethel enterprises owned ffg, which was in turn the
sole owner of presidents Trust.
On or about July 10, 2003, presidents Trust, through vari-
ous marketing agents, began soliciting individuals to invest
in its “fixed Income Trust” concept (fIT program). david
klasna, president of both ffg and presidents Trust, stated
in his deposition that presidents Trust was the only entity
allowed to market the fIT program, an investment concept.
freedOm fIN. grOUp v. WOOLLey 	827
Cite as 280 Neb. 825

The marketing materials for the fIT program made reference
only to presidents Trust.
On July 18, 2003, presidents Trust sought legal counsel
from Woolley, of marks Clare, regarding the legalities of the
fIT program. Woolley and marks Clare provided an opinion
letter to presidents Trust, addressed to klasna. In that letter,
Woolley stated that the fIT program was exempt from reg-
istration under South dakota statutes. In the opinion letter,
Woolley indicated that she and marks Clare had “confined
our review to the South dakota statutes, administrative rules
and federal statutes.” Subsequent to the issuing of the opinion
letter, presidents Trust began marketing the fIT program in
earnest. The Securities exchange Commission (SeC) began an
investigation shortly thereafter.
The fIT program, as marketed through presidents Trust,
was identified as “an individual Income Trust . . . designed
to provide a secured income.” The marketing materials state
that the fIT program is “established by [the investor] with
presidents Trust Company as trustee. [presidents Trust] is a
South dakota Chartered Trust Company and subject to all
Banking regulations and Compliance of the State.” The docu-
mentation provided for the fIT program by presidents Trust
made no mention of any parent or sister company.
On September 4, 2003, the SeC sent a cease-and-desist
letter to presidents Trust. The SeC determined that the fIT
program was selling unsecured promissory notes and was
an unregistered investment company. The SeC also deter-
mined that the investment program had been misrepresented
to investors, that it was a highly risky venture, and that
presidents Trust was strapped for cash. The SeC determined
that presidents Trust had advertised the program through
both independent sales agents and an affiliated broker-dealer
network known as freedom financial, one of the related enti-
ties. presidents Trust was placed into receivership in South
dakota, and a receiver was appointed pursuant to South
dakota state law.
On January 13, 2006, appellants filed suit against appellees,
alleging that Woolley had been negligent in opining that the
fIT program was not a security. ffg and the related entities
828 	280 NeBrASkA repOrTS

claimed that their reliance on Woolley’s advice resulted in sig-
nificant damages to all of the companies.
Jon patrick pierce, president of Bethel enterprises, stated in
his deposition that over the telephone and in e-mails, he had
requested Woolley to look into the securities issues. pierce said
that Woolley met with some of the investors after questions
were raised regarding whether the fIT program was a security.
pierce claimed that Woolley assured him that the fIT program
was exempt from registration.
In his affidavit, pierce stated that presidents Trust was a
wholly owned subsidiary of ffg and that presidents Trust
was a “‘pass through’ entity,” so that all profits and losses
would pass through presidents Trust to ffg. presidents Trust
was intended to provide administrative services for the fIT
program. pierce stated that freedom financial was also a
wholly owned subsidiary of ffg and served as a broker-dealer
for the fIT program and ffg. pierce claimed that Woolley was
aware of the interrelationships between the companies.
pierce alleged that Woolley’s advice led to the failure of
the fIT program and the financial collapse of the companies.
pierce stated that ffg was the company that had originally
hired Woolley and marks Clare to give legal advice regarding
the fIT program. pierce provided affidavits from two attorneys
who opined that Woolley’s advice failed to meet the profes-
sional standard for an attorney under the circumstances and
that the fIT program could have been marketed in such a way
to meet the federal securities regulations.
In klasna’s deposition, he also stated that he had asked
Woolley to look at federal securities law as well as South
dakota state banking law, but that there is no record of that
request. klasna stated that he was aware that “things of this
nature were regulated as securities” and that they were hoping
to find an exemption. He also claimed to have said as much to
Woolley. klasna admitted that he did not remember whether he
had specifically asked Woolley to look into securities law, but
he said that it was implied, if not stated outright.
klasna stated that ffg had collected funds for the sale of
the fIT program before Woolley rendered her opinion, but that
those funds were put in safekeeping until they were certain the
freedOm fIN. grOUp v. WOOLLey 	829
Cite as 280 Neb. 825

fIT program could be released. klasna admitted that they did
not ask Woolley whether the fIT program was a security until
after investors raised the issue. klasna alleged that even after
investors questioned whether the fIT program required regis-
tration, Woolley continued to assure him that the fIT program
met the definition of a trust and was exempt. klasna also stated
he did not believe that Woolley understood the fIT program or
the potential securities problems.
One of the agents for ffg stated that Woolley was adamant
that the fIT program was not a security. He also stated that he
was under the impression that Woolley did not truly understand
the fIT program and that he felt a second opinion was needed.
The agent stated that Woolley’s opinion letter was utilized in
the marketing material for the fIT program.
Various experts were called to testify for appellants, includ-
ing an expert witness who said that he believed the loss to ffg
was $2,124,557. He testified that his calculations were based
on the assumption that presidents Trust would have sold over
$49 million worth of product and that his interest rate calcula-
tions were correct. Another expert witness was also deposed
on ffg’s behalf and testified in his deposition that presidents
Trust would have seen a return of at least 24 percent. Another
expert witness also agreed that the fIT program had been
very successful before being shut down. An attorney testified
that a competent attorney would have noted that presidents
Trust raised a security issue and would have notified the client
of such.
In Woolley’s deposition, she stated that she did not remem-
ber 	discussing 	securities 	with 	ffg 	or 	presidents 	Trust.
Woolley said that she did not recall reviewing securities law
because the primary issues ffg had were with banking and
trust law. Woolley stated that she knew ffg had consulted
with another law firm on pieces of the fIT program, so she
did not consider federal securities law. Woolley stated that her
understanding was that ffg’s concern regarding securities
law was limited to South dakota state law. Woolley claimed
that she was asked to determine what the ramifications would
be if any part of the fIT program was determined to be
a security.
830 	280 NeBrASkA repOrTS

The district court granted Woolley’s motion for summary
judgment, finding that neither ffg nor the related entities had
standing to sue. We affirm.
ASSIgNmeNTS Of errOr
Appellants assign, consolidated and restated, that the district
court erred when it (1) determined that ffg could not bring
a direct action for its lost earnings as the sole member of an
LLC and (2) determined that Woolley did not owe a duty to the
related entities.
STANdArd Of reVIeW
[1] Summary judgment is proper when the pleadings and
evidence admitted at the hearing disclose no genuine issue as
to any material fact or as to the ultimate inferences that may be
drawn from those facts and that the moving party is entitled to
judgment as a matter of law.1
[2] In reviewing a summary judgment, an appellate court
views the evidence in a light most favorable to the party against
whom the judgment is granted and gives such party the benefit
of all reasonable inferences deducible from the evidence.2
ANALySIS
ffg H as no standing to sue
We first turn to whether ffg has standing to bring this suit.
It is undisputed that Woolley had an attorney-client relation-
ship with both presidents Trust and ffg. As noted, presidents
Trust, an LLC, is a wholly owned subsidiary of ffg. presidents
Trust is not a party to this suit, and the South dakota receiver
declined to pursue a professional negligence action against
Woolley or marks Clare.
ffg claims that it lost profits which would flow through
presidents Trust to ffg as the sole member of the LLC. ffg
also claims that it lost the value of its investment in presidents
Trust, which was allegedly rendered worthless when presidents
Trust was placed in receivership in South dakota. The district
1 Sack v. Castillo, 278 Neb. 156, 768 N.W.2d 429 (2009).
2 Id.
freedOm fIN. grOUp v. WOOLLey 	831
Cite as 280 Neb. 825

court determined that ffg was attempting to recover damages
belonging to presidents Trust and its receiver, or that were
common to all members of presidents Trust, and concluded
that ffg did not have standing to bring suit. We agree.
[3] As a general rule, a shareholder may not bring an action
in his or her own name to recover for wrongs done to the cor-
poration or its property. Such a cause of action is in the corpo-
ration and not the shareholders. The right of a shareholder to
sue is derivative in nature and normally can be brought only in
a representative capacity for the corporation.3
[4-6] In Meyerson v. Coopers & Lybrand,4 we held that if a
shareholder can establish an individual cause of action because
the harm to the corporation also damaged the shareholder in
his or her individual capacity, then the individual can pursue
his or her claims. In order to establish an individual harm,
the shareholder must allege a separate and distinct injury or a
special duty owed by the party to the individual shareholder.5
even if a shareholder establishes that there was a special
duty, he or she may only recover for damages suffered in his
or her individual capacity, and not injuries common to all
the shareholders.6
ffg argues that the district court failed to correctly apply
the factors found in Meyerson as to when a shareholder may
recover in a direct suit. ffg also argues that because it had a
special relationship to Woolley, its suit falls into an exception
to the rule that a shareholder cannot recover for a wrong done
to a corporation.7 We find the damages ffg alleges belong in
total to the receiver for presidents Trust.
South dakota banking law provides that the receiver is the
“owner” of any presidents Trust assets, including claims against
third parties. The applicable South dakota statute provides in
part that “[t]he receiver, under the direction of the director,
3 Meyerson v. Coopers & Lybrand, 233 Neb. 758, 448 N.W.2d 129 (1989).
4 Id.
5 Id.
6 Id.
7 See id.
832 	280 NeBrASkA repOrTS

shall take charge of any insolvent trust company and all of its
assets and property and liquidate the affairs and business for
the benefit of clients, creditors, and owners.”8 ffg claims that
it can recover lost profits because those profits would “pass
through” presidents Trust and accrue to ffg; but those alleged
profits now belong to the receiver for presidents Trust under
South dakota law.
[7] We note that Meyerson, while applicable to the case at
bar, is not helpful to ffg’s claim. In that case, we stated that
“‘[i]f a stockholder is permitted to bring an action personally
to recover his proportionate share of the damages suffered by
the corporation, a subsequent recovery by or for the corpora-
tion would be equivalent to a double recovery for him.’”9
[8] A “‘diminution in value of a stockholder’s investment is
a concomitant of the corporate injuries resulting in lost prof-
its.’”10 We stated that “[e]ven though all shares of stock of a
corporation may be owned by a small number of shareholders
or by one shareholder alone, a shareholder cannot sue individ-
ually concerning rights which belong to the corporation.”11
ffg has also failed to establish that Woolley owed it a spe-
cial duty. In Meyerson, we found that a special duty existed,
because we assumed that the plaintiffs “alleged conduct on
the part of [the defendant] outside the scope of the auditing
contracts, for which conduct [the defendant] owed plaintiffs
a direct duty of care.”12 The same reasoning as applied to
attorneys and what constitutes a special duty can be found
in Livingston v. Adams & Fouts, P.L.L.C.,13 where the court
found that a law firm owed a fiduciary duty to the plaintiff
and two closely held corporations. The court determined
that the duty owed by the law firm did not rise to the level
8 S.d. Codified Laws § 51A-6A-45 (2004).
9 Meyerson, supra note 3, 233 Neb. at 763-64, 448 N.W.2d at 134.
10 Id. at 764-65, 448 N.W.2d at 134.
11 Id. at 765, 448 N.W.2d at 135.
12 Id. at 766, 448 N.W.2d at 135.
13 Livingston v. Adams & Fouts, P.L.L.C., 163 N.C. App. 397, 594 S.e.2d 44
(2004).
freedOm fIN. grOUp v. WOOLLey 	833
Cite as 280 Neb. 825

of a “special duty,” however, because the duty owed to the
plaintiff was not “separate and distinct” from that owed to
the other entities.14 We find the reasoning of Livingston to
be persuasive, and we adopt that definition of “special duty”
within this context.
Applying the definition of “special duty” to the present case,
ffg cannot demonstrate that Woolley owed it a special duty.
ffg alleges that it was harmed because it relied on the advice
Woolley provided, but Woolley rendered the same opinion let-
ter to both ffg and presidents Trust. Woolley’s duty to ffg
is therefore neither separate nor distinct from the duty owed to
presidents Trust. As such, ffg has failed to show that it can
recover any damages.
We also note that ffg’s argument would allow a member of
an LLC to use the corporate form as a shield to protect itself
from personal liability for acts taken by an LLC while still
allowing an individual to collect damages, such as lost profits,
incurred by the LLC. Under Neb. rev. Stat. § 21-2629 (reissue
2007), “[a] member of [an LLC] shall not be a proper party to
proceedings by or against [an LLC] except when the object is
to enforce a member’s right against or liability to the [LLC].”
As a member of an LLC, ffg is not a proper party to this suit,
because Woolley’s alleged liability is to presidents Trust and
any potential damages would also belong to presidents Trust.
ffg may not attempt to use the corporate form of the LLC
to shield itself from liability and then use the same corporate
form as a sword to recover damages or enforce liability to
the LLC.
We therefore find that ffg did not have standing, and ffg’s
first assignment of error is without merit.
Woolley did not oWe duty
to related entities
[9] In its second assignment of error, ffg claims the dis-
trict court erred when it determined that Woolley did not
owe a duty to any of the other related companies and that
the related entities did not have standing. In a civil action for
14 Id. at 405, 594 S.e.2d at 50.
834 	280 NeBrASkA repOrTS

legal malpractice, a plaintiff alleging professional negligence
on the part of an attorney must prove three elements: (1) the
attorney’s employment, (2) the attorney’s neglect of a reason-
able duty, and (3) that such negligence resulted in and was the
proximate cause of loss to the client.15 No one disputes that
ffg and presidents Trust were the only parties that had an
attorney-client relationship with Woolley. Instead, appellants
argue that Woolley owed a duty to the related entities as third-
party beneficiaries.
[10,11] “In Nebraska, a lawyer owes a duty to his or her
client to use reasonable care and skill in the discharge of his
or her duties, but ordinarily this duty does not extend to third
parties, absent facts establishing a duty to them.”16 In Perez v.
Stern,17 we outlined a common set of cohesive principles for
determining the extent of an attorney’s duty, if any, to a third
party: (1) the extent to which the transaction was intended to
affect the third party, (2) the foreseeability of harm, (3) the
degree of certainty that the third party suffered injury, (4) the
closeness of the connection between the attorney’s conduct
and the injury suffered, (5) the policy of preventing future
harm, and (6) whether recognition of liability under the cir-
cumstances would impose an undue burden on the profession.
We also stated that “when an attorney is retained specifically
to advance the interests of third parties, absent countervailing
circumstances,” as in Perez, we will impose a duty.18
Appellants cite three pieces of evidence they say support
their claim that the related entities were third-party benefi-
ciaries: the fact that (1) presidents Trust’s marketing material
listed “affiliated entities” that included three of the related
entities, (2) pierce showed Woolley an organizational chart
that demonstrated the relationship between the entities, and (3)
Woolley had contact with one of the employees of freedom
financial. But none of the factors found in Perez weigh in favor
15 Wolski v. Wandel, 275 Neb. 266, 746 N.W.2d 143 (2008).
16 Perez v. Stern, 279 Neb. 187, 191, 777 N.W.2d 545, 550 (2010).
17 Perez, supra.
18 Id. at 193, 777 N.W.2d at 551.
freedOm fIN. grOUp v. WOOLLey 	835
Cite as 280 Neb. 825

of finding that Woolley and marks Clare owed a duty to anyone
other than ffg and presidents Trust.
Unlike the plaintiffs in Perez, ffg has not demonstrated that
Woolley knew her opinion would benefit the related entities or
that the alleged harm to the related entities was foreseeable.
ffg has also failed to specifically allege damages suffered by
the related entities and has been unable to allege a sufficiently
close connection between Woolley’s actions and the claimed
damages. ffg has been unable to demonstrate that impos-
ing liability under these circumstances would prevent future
harm. And, finally, we find that imposing liability under the
circumstances would impose an undue burden on the legal pro-
fession. Therefore, ffg’s second assignment of error is also
without merit.
CONCLUSION
We find that ffg did not have standing to sue, because any
damages would go to the receiver and not to ffg. We also
find that ffg did not demonstrate that Woolley owed it a “spe-
cial duty” separate and distinct from the duty Woolley owed
presidents Trust. ffg cannot use the corporate form of an
LLC as a shield from liability while still attempting to recover
profits it claims to have lost. We also find that the related enti-
ties do not have standing to sue because there was no attorney-
client relationship between the related entities and Woolley,
and we decline to impose liability on the basis that the related
entities were third-party beneficiaries.
affirmed.
836 	280 NeBrASkA repOrTS