                                                                     F I L E D
                                                               United States Court of Appeals
                                                                       Tenth Circuit
                                   PUBLISH
                                                                       NOV 6 2000
                  UNITED STATES COURT OF APPEALS
                                                                  PATRICK FISHER
                              TENTH CIRCUIT                                Clerk



 AG SERVICES OF AMERICA, INC.,
 an Iowa corporation,

       Plaintiff-Appellee,
 v.

 JOHN D. NIELSEN, also known as
 JACK NIELSEN and DIAMOND
 HILL FARMS, CLOVIS, INC., a New
 Mexico corporation,
                                                      No. 99-2081
       Defendants-Third-Party
       Plaintiffs-Third-Party Counter-
       Defendants-Appellants,

 v.

 TERRY LUNDELL,

       Third-Party Defendant-
       Third-Party Counter-Claimaint.


        APPEAL FROM THE UNITED STATES DISTRICT COURT
               FOR THE DISTRICT OF NEW MEXICO
                 (D.C. No. CIV-96-1637-JC/WWD)


Joseph E. Manges (Paula A. Cook, with him on the brief), of Comeau, Maldegen,
Templeman & Indall, LLP, Santa Fe, New Mexico, for Plaintiff-Appellee.

Stephen S. Hamilton, Montgomery & Andrews, P.A., Santa Fe, New Mexico,
(Laurice Margheim, Curtiss, Moravek, Curtiss & Magheim, Alliance, Nebraska, with
him on the briefs) for Defendants-Appellants.
Before MURPHY and HOLLOWAY, Circuit Judges, and COOK, District Judge. *


HOLLOWAY, Circuit Judge.


      This is a diversity case arising from an agricultural loan. Plaintiff/appellee Ag

Services of America, Inc. (Ag Services), the lender, commenced the action in the

district court against Defendant/appellant John Nielsen and Diamond Hill Farms,

Clovis, Inc. (DHFC). Ag Services asserted under a number of different theories –

including conversion, fraud, negligent misrepresentation, unjust enrichment, piercing

the corporate veil, and partnership by estoppel – that Nielsen should be held liable

for an unpaid agricultural loan it had extended to Terry Lundell. Ag Services sought

recovery of some $691,000 in monetary damages, interest, costs, attorney’s fees, and

punitive damages in its complaint. I App. 38. As for DHFC, Ag Services alleged

that it had converted crop proceeds in which Ag Services held a security interest, an

interest which had been granted by Lundell as part of the loan agreement.

                                          I

                                          A

      At the bottom of this controversy is the fact that Ag Services made a loan to


      The Honorable H. Dale Cook, Senior United States District Judge for the
      *

Northern District of Oklahoma, sitting by designation.


                                         -2-
Lundell of almost $800,000 which he failed to repay. Lundell had leased a large

farm near Clovis, New Mexico, on which he planned to grow potatoes (on about one-

quarter of the farm) and other crops. The terms of the loan agreement contemplated

that the crops (for our purposes, especially the potatoes) and the proceeds from those

crops would be the primary collateral for the loan. The evidence was that the income

from the potatoes was slightly greater than the production costs. Ag Services,

however, received only $50,000 of the approximately $2 million of crop proceeds.

      Nielsen was associated with Lundell in the potato operation with Ag Services’

approval, but he had nothing to do with other crops Lundell was growing on the

Clovis farm. Shortly after the bulk of the advances had been made on the loan

agreement, Nielsen and Lundell formed DHFC. With few exceptions the eventual

potato proceeds went to DHFC and from its account into an account in the name of

Lundell Farms, the name under which Lundell was conducting the farming of other

crops on the Clovis farm.

      Having received only fifty thousand dollars from potato proceeds, Ag Services

eventually sued Lundell in state court in Iowa. That suit was settled with no cash

payment from Lundell. Ag Services then brought the instant suit against Nielsen.

One of Ag Services’ primary contentions was that Nielsen knowingly used DHFC to

avoid Ag Services’ security interest in the potatoes and potato proceeds.

      Nielsen’s defense was based largely on the contention that the potato proceeds


                                         -3-
in the Lundell Farms account were more than sufficient to repay the loan, but

Lundell took almost half the proceeds and used them to repay himself for his

contributions to the endeavor and for other personal uses. Nielsen received a much

smaller portion of the proceeds, approximately fifteen per cent, which reimbursed

only about half of his contributions to the enterprise, leaving him with a net loss

which he calculated to be $389,075.00.     1
                                                The rest of the proceeds had been paid to

other creditors.

       At the end of the 1992 season, Lundell acknowledged his receipt of funds in

excess of his contributions and gave Nielsen a promissory note in the amount of

$355,000.00. Nielsen later brought suit on this note in state court in Arizona and

was granted judgment by default, but Nielsen received no payments on this

judgment.   2



                                               B

       Below, the instant case proceeded to trial in which Ag Services’ legal claims

(conversion, fraud and negligent misrepresentation) were tried to a jury, with other,

equitable claims (piercing the corporate veil, partnership by estoppel and      quantum


       Nielsen’s evidence as to the final accounting for the 1992 Clovis potato
       1

operation was not contested at trial.

       Nielsen brought a third-party complaint against Lundell in the instant case,
       2

and Lundell filed a counterclaim against Nielsen. The district court’s grant of
summary judgment to Nielsen on Lundell’s counterclaim on   res judicata grounds is
the subject of a related appeal, No. 99-2094, in which our opinion is being filed
today.

                                               -4-
meruit ) being tried simultaneously to the judge by consent of the parties.       3
                                                                                      The jury

was thus instructed to decide whether Nielsen was liable to Ag Services under the

three legal theories first mentioned – conversion, fraud, and negligent

misrepresentation. The jury was instructed that as to conversion, it should determine

whether Nielsen and DHFC were liable. The jury found in favor of defendant

Nielsen on all three legal theories advanced against him – conversion, fraud and

negligent misrepresentation.         The jury found DHFC liable to Ag Services for

conversion and assessed $162,000 in damages against DHFC.                     DHFC has not

appealed that judgment against it.      4
                                             Nor has Ag Services appealed that award,

although it is for less than it sought.

       After the lengthy jury trial, the court heard additional argument on the

equitable claims against Nielsen and took the matter under advisement. The district

judge, during argument to him about the equitable claims, said the jury’s findings in

favor of Nielsen on the legal claims of conversion, fraud and negligent

misrepresentation “were erroneous.”      5
                                             The judge later issued his own findings of fact


       The district judge in effect granted judgment as a matter of law on several of
       3

Ag Services’ legal theories by declining to instruct the jury on those theories. Ag
Services has not appealed those rulings.
       4
        While DHFC joined in the notice of appeal with Nielsen, it did not join in the
brief, and we deem it to have abandoned its appeal.

      During the argument to the court, counsel for Mr. Nielsen said that the court
       5

was bound not just by the facts stated in the jury verdict, but also by any facts the
                                                                              (continued...)
                                               -5-
and conclusions of law, holding that Nielsen was liable to Ag Services for damages

of $412,352, plus prejudgment interest at the rate of ten per cent per annum. As we

read the court’s findings and conclusions, the judge held that Nielsen was liable for

this sum under the equitable theories of partnership by estoppel, piercing the

corporate veil, and quantum meruit or unjust enrichment.   1




      5
          (...continued)
jury must have necessarily found. 5 App. at 1548. Nielsen’s counsel further said the
jury was instructed that if they found that DHFC had converted potatoes or
proceeds, and if they found “that defendant Nielsen directed, controlled or ratified
the activity that lead to the conversion, then he is personally liable for damages.”
Id. Counsel pointed out the jury found no personal liability for damages as to
Nielsen, and if they followed the instruction, Instruction No. 8-S, I App. 341, which
we must assume they did, that meant that the jurors found that he did not direct,
control, approve or ratify the activity that constituted a conversion.    Id. The trial
judge interjected:
       In my opinion, there’s no way the jury should have found that. I mean,
       that’s clearly, to me, an erroneous jury verdict, so I’m sitting here in
       equity taking care of it on the other basis, and this is one of the times,
       one of the few times, when I disagree with the jury. I think they just
       reached a compromise verdict to get out of here. I mean, after several
       days of listening to you all, I think they were tired and probably a little
       bored and just wanted to get away.
Id. Thus the judge disregarded the jury’s findings, which we agree had been to the
effect that Nielsen did not direct, control, approve or ratify the conversion activity.
      1
       The parties dispute whether the district court also held that Nielsen was liable
as a corporate insider for the receipt of a preferential payment and, if so, whether
Nielsen had proper notice that such a theory was asserted. The theory does not
appear in the pretrial order and, as we read the district judge’s findings and
conclusions, he did not rule on this basis.
      While there is a finding that all of the assets received by Nielsen were
wrongful preferences, that appears to have been made in support of the court’s
conclusion that the corporate veil should be pierced. There are no other conclusions
of law addressing wrongful preference. The court also made a finding as to the
                                                                       (continued...)
                                          -6-
                                            II

                                            A

      Nielsen’s appeal challenges the court’s judgment entered against him which

the judge’s findings and conclusions said was for $412,352 and prejudgment interest,

as noted above.      Nielsen says that the judgment against him in effect is for

approximately $750,000 when interest is computed, and that the judgment is in error.

      First, Nielsen’s central argument is that his rights under the Seventh

Amendment to the United States Constitution were violated by the judge’s findings

and conclusions on the equitable claims. He argues that the judge was bound by all

jury findings expressly made and those implicit in the jury’s verdict on the legal

claims. Nielsen says that the jury had earlier completely exonerated him on the legal

claims of fraud, negligent misrepresentation and conversion, and that the jury had

found that Ag Services’ total damages were only $162,000 with interest included.

In addition, Nielsen argues there were other errors in the judge’s findings that he was

liable on the equitable claims presented.

                                            B



      1
          (...continued)
statute of limitations defense which specifically mentions three equitable theories of
relief, the ones discussed herein, but not wrongful preference. Similarly, the judge
made an alternative ruling which also mentioned the three equitable theories of
relief, but not wrongful preference. Accordingly, we need not address this issue
further.

                                          -7-
       We first turn to Nielsen’s Seventh Amendment argument which we find

dispositive. Nielsen argues that in deciding the equitable claims, the district judge

erred by rejecting the jury’s verdict and making findings of fact which conflict with

that verdict.

       Nielsen’s argument focuses on controlling principles that support his Seventh

Amendment argument. Those principles flow logically from the seminal decisions

of the Supreme Court protecting Seventh Amendment rights to trial by jury –        Dairy

Queen, Inc. v. Wood , 369 U. S. 469 (1962), and    Beacon Theatres, Inc. v. Westover   ,

359 U.S. 500 (1959). In applying those teachings we have held:

       The Seventh Amendment protects a party’s right to a jury trial by
       ensuring that factual determinations made by a jury are not thereafter
       set aside by the court, except as permitted under common law. . . . .
       Thus, under the Seventh Amendment, the court may not substitute its
       judgment of the facts for that of the jury; it may only grant a new trial
       if it concludes that the jury’s verdict was so against the weight of the
       evidence as to be unsupportable.
               The strictures of the Seventh Amendment are particularly
       applicable in a case where, due to the presence of both equitable and
       legal issues, trial is both to the jury and to the court. In such a
       situation, when a case involves both a jury trial and a bench trial, any
       essential factual issues which are central to both must be first tried to
       the jury, so that the litigants’ Seventh Amendment jury trial rights are
       not foreclosed on common factual issues. Moreover, the court is bound
       by the jury’s determination of factual issues common to both the legal
       and equitable claims.

Skinner v. Total Petroleum, Inc. , 859 F.2d 1439, 1442-43 (10th Cir. 1988) (emphasis

added; internal citations omitted).   See also Butler v. Pollard , 800 F.2d 223, 224-26

(10th Cir. 1986).

                                           -8-
      In Butler v. Pollard , the plaintiffs’ legal claim had been tried to a jury, which

had rendered a verdict in favor of some of the defendants. The trial judge then

decided that he was not bound by the jury verdict and issued an injunction against

all of the defendants. This court reversed, holding that the general verdict in favor

of the individual defendants undercut any basis for the injunction. The legal claim

was one of trespass. By deciding that claim in favor of the individual defendants,

our court held, the jury “of necessity” must have determined either that there had

been no entry upon the plaintiffs’ property or that any entry had been with

permission.   Id. at 225. Significantly for our purposes, the general verdict in that

case did not demonstrate which of these factual issues were decided in favor of the

individual defendants. This court examined the possible bases for the verdict,

however, and determined that either alternative would vitiate any ground for the

injunctive relief sought.

      Thus, in accord with   Butler v. Pollard , we must consider what findings are

explicit or necessarily implied by the verdict, including examining alternative bases

by which the jury could have reached its conclusion. We said in         Butler that the

matter was one of issue preclusion (formerly termed collateral estoppel), and the

general rule in applying issue preclusion appears to be in accord with our reading of

Butler . See 18 Charles A. Wright, Arthur R. Miller & Edward H. Cooper,        Federal

Practice & Procedure: Jurisdiction    § 4420, at pp. 186-87 (1981).


                                          -9-
       In defending the trial judge’s actions here in rejecting the jury’s earlier

findings and substituting his own to decide the equitable claims, Ag Services

contends that the jury verdict was, as the trial judge said, erroneous and a

compromise verdict, reached simply so the tired jurors could go home. The judge

did indeed make remarks to this effect at the subsequent hearing on the equitable

claims. 7 If the trial judge believed that the verdict was so against the evidence as to

be unsupportable, he could have set it aside.      See Fed. R. Civ. P. 59(a) (court may

order new trial sua sponte ). But here the trial judge did   not set aside the verdict and

order a new trial, notwithstanding his comments disparaging the verdict.          The trial

judge here instead made his own findings on the equitable claims. He left intact the

jury’s verdict and its explicit findings and those necessarily implicit from the verdict.

We also note that Ag Services did not file any post-trial motion to challenge the

verdict, nor is any challenge to the verdict made on appeal. Consequently, we

conclude that we must treat the verdict as binding under collateral estoppel or issue

preclusion principles.     See Robinson v. Volkswagenwerk AG       , 56 F.3d 1268, 1272

(10th Cir. 1995).

       The district judge, as we have noted, disregarded the jury verdict although he

did not set it aside. We conclude that this was error, depriving Nielsen of his right

to a jury determination of all issues common to the legal and equitable claims.        See


       7
           See note 5, supra , quoting the referenced remarks.

                                            -10-
Lytle v. Household Mfg., Inc.     , 494 U.S. 545, 552-53 (1990) (reversing judgment

based on trial judge’s findings on equitable claims; where properly joined legal

claims had been dismissed in error, entire judgment must be vacated and the case

retried with legal claims decided by a jury so that litigant’s right to jury trial is

preserved). We must therefore turn to an analysis of what findings were actually

made by the jury or were necessarily implicit in its verdict,   see Butler v. Pollard , 800

F.2d at 225, and whether the subsequent findings by the trial judge in deciding the

equitable claims may have been in conflict with the jury’s determinations. If there

is no conflict, the error would be harmless.

                                             III

       As we have already pointed out, the analysis in          Butler v. Pollard   did not

purport to determine the precise basis of the jury verdict, and we glean from that case

the teaching that such precise inferences are not always necessary for application of

issue preclusion. Instead, we examine the possible inferences from the verdict

against the findings and conclusions made by the district judge on the equitable

claims.

       Ag Services contends that the general verdict did not necessarily decide any

specific issue of fact and so properly was given no preclusive effect by the judge in




                                            -11-
deciding the equitable claims.      8
                                        See Brief of Appellee Ag Services of America, Inc.,

at 11. This argument has two branches, the first of which is the proposition that the

jury verdict was not binding on the district judge because the elements of the legal

claims decided by the jury are not the same as those of the equitable claims decided

by the court. We must reject this argument, which is based on a misinterpretation

of Skinner v. Total Petroleum, Inc.        , 859 F.2d 1439, 1443 (10th Cir. 1988).

       On the particular facts in       Skinner , we did say that in a “case under Title VII

and § 1981 arising out of the same facts, the commonality of factual issues between

the § 1981 and Title VII claims is nearly all-encompassing. The elements of each

cause of action have been construed as identical.” 859 F.2d at 1444. Therefore the

verdict on § 1981 liability would normally be conclusive in a parallel Title VII claim.

Id. However, the issue as we framed it in         Butler v. Pollard , 800 F.2d at 224, is one

of issue preclusion or collateral estoppel. Common elements of each cause of action,

as were presented in Skinner , are not required for the doctrine to apply. Under issue

preclusion principles, “once a court has decided an issue of fact or law necessary to

its judgment, that decision may preclude relitigation of the issue           in a suit on a

different cause of action      involving a party to the first case.”           Robinson v.

Volkswagenwerk AG , 56 F.3d 1268, 1272 (10th Cir. 1995) (citing          Allen v. McMurry ,

449 U.S. 90, 94 (1980)).


       8
           We note that this is in essence a harmless error argument.

                                                -12-
      The true test is whether the jury verdict by necessary implication reflects the

resolution of a common factual issue. If so, the district court may not ignore that

determination, and it is immaterial whether, as here, the district court is considering

equitable claims with elements different from those of the legal claims which the

jury had decided (as may often be the case).      See Butler v. Pollard , 800 F.2d at 225-

26.

      Further developing its argument that no specific fact findings can be inferred

from the jury verdict, Ag Services argues that the jury could have reached its

disposition by accepting any of several defenses offered at trial by Nielsen. To

evaluate this contention, we first proceed to examine the verdict in light of all the

evidence presented.

      We focus our analysis of the jury verdict on the distinction drawn by the jury

on the conversion claims, finding DHFC – but not Nielsen – liable for conversion.

The jurors were instructed to find Nielsen liable for conversion by DHFC if he

“directed, controlled, approved or ratified the activity that led to the conversion.”

I Aplt. App. 341. Because the jury found Nielsen not liable for DHFC’s conversion,

the inference is unavoidable that the jurors concluded that Mr. Lundell, not Mr.

Nielsen, was responsible for the conversion committed by DHFC. DHFC was owned

fifty per cent by Nielsen and fifty per cent by Lundell, and Lundell ultimately

controlled the Lundell Farms bank account into which almost all potato proceeds


                                           -13-
were transferred.

       We turn to Ag Services’ contention that the general verdict does not

necessarily imply any particular fact findings because of the assertion of multiple

defenses at trial. Ag Services’ argument fails because it has not demonstrated that

any of the possible jury rationales it identifies would imply wrongdoing by Nielsen

on which liability might have been properly based in equity.           In short, any

explanation for the jury’s decision that Nielsen did not convert the Frito-Lay

proceeds leads inexorably to the conclusion that the jury found no wrongdoing by

Nielsen.

       Thus although we have not found any specific factual findings which are

necessarily implied by the jury verdict, we do find necessary inferences from the

verdict indicating that certain views of the evidence were   not taken by the jury as

they could not have rationally supported the result. The most significant of these is

that Nielsen did not participate in or ratify the conversion by DHFC. There remains

the task of determining whether the trial judge’s findings on the equitable claims may

be reconciled with the verdict; we also must address other legal challenges to the

district court’s judgment.

                                            IV

       The district court held that Nielsen was liable to Ag Services under the

doctrine of quantum meruit for some $323,353.72 (proceeds from the business) and


                                           -14-
$89,000 (packing inventory). II Aplt. App. at 20. The New Mexico Supreme Court

has recognized that the terms unjust enrichment, quasi contract and contract-implied-

in-law are interchangeably used “to describe that class of implied obligations where,

on the basis of justice and equity, the law will impose a contractual relationship

between two parties regardless of their [lack of] assent thereto.”         Hydro Conduit

Corp. v. Kemble , 793 P.2d 855, 861 (N.M. 1990) (quoting        Paschall’s, Inc. v. Dozier ,

407 S.W.2d 150, 154 (Tenn. 1966)). The New Mexico high court has further said

that “in such cases the simple but comprehensive question is whether the

circumstances are such that equitably [the defendant] should restore to [the plaintiff]

what [he] has received.”     Allsup v. Space , 367 P.2d 531, 537 (N.M. 1961) (citing

Atlantic Coast Line R.R. v. Florida    , 295 U.S. 301, 310 (1935)).

       The judge found that Nielsen formed DHFC for the express purpose of

impairing Ag Services’ security interest in the potatoes. II Aplt. App. 414-15. There

is impeachment evidence in the record tending to support this finding. III Aplt. App.

997-99. Nielsen was called as an adverse witness in Ag Services’ presentation of its

case. On direct examination by counsel for Ag Services, this exchange occurred:

             Q: [S]o you entered into the subleases and formed this business,
       so you didn’t have to worry about Ag Services’ security interest in
       Lundell’s potatoes; isn’t that right?

              A: No, you’re saying the only reason I organized the business
       was to not worry about Ag Services’ security interest, and, no, that’s
       totally not right.


                                            -15-
Id. at 998. Counsel for Ag Services then attempted to impeach Nielsen with this

testimony he had earlier given in a deposition:

             Q: So you’re saying in 1992 you thought this through, and you
      didn’t worry about Ag Services’ security interest because Lundell didn’t
      own any of the potatoes?

            A: Well, yes, because that’s the way – the reason we structured
      the business that way.

Id. at 999.

      Thus, although there is some evidence to support the judge’s finding, there is

also evidence to the contrary. We think it plain that the jury did not find Nielsen

formed the corporation in order to impair Ag Services’ security interest because, if

it had, it would have found that Nielsen had converted the Frito-Lay proceeds.

Instead it found no conversion by Nielsen. Therefore, we must conclude that the

district court should have applied issue preclusion because of the finding by the jury

of no conversion by Nielsen. The court should have followed that jury finding and

should have found that Nielsen did not form the corporation to impair Ag Services’

security interest. The court erred by resolving this issue of fact contrary to the jury

verdict from which issue preclusion applied.

      The trial judge also found that Nielsen’s receipt of the Frito-Lay proceeds

($323,352) and the packing inventory ($89,000) amounted to wrongful preferences,

II Aplt. App. 418, ¶ 26, that is improper payments to a corporate insider in

derogation of the rights of third-party creditors. Because unjust enrichment is a

                                         -16-
remedy adaptable to many situations this conclusion could conceivably support the

imposition of liability on the unjust enrichment theory.

       The theory of wrongful preference serves to protect creditors of the

corporation, however, and Ag Services was a creditor of Lundell, not DHFC. Thus,

although Nielsen received the packing materials after knowledge that the corporation

was insolvent, we still do not see how that converts Ag Services into a creditor of

DHFC (instead of being a creditor of Lundell) which could invoke the wrongful

preference doctrine. In short, within the limits we perceive were created by the jury

verdict, we cannot find that there was anything inequitable in Nielsen’s receipt of the

Frito-Lay proceeds or the packing materials. Liability for unjust enrichment cannot

be premised on the unsupported conclusion that Nielsen received a wrongful

preference from DHFC.

       Although liability may be imposed under the theory of unjust enrichment for

conduct which does not constitute a tort or a breach of contract,    see Hydro Conduit

Corp. , 793 P.2d at 860, in the circumstances of this case, we believe any conduct by

Nielsen on which liability for the Frito-Lay proceeds could be based would have

amounted to conversion or negligent misrepresentation. The jury verdict, however,

precluded the trial judge from finding that either of these occurred. In stating that

he found the jury’s verdict “erroneous” in finding no conversion by Nielsen,   see note

5, supra , the trial judge in effect acknowledged that his findings were inconsistent


                                            -17-
with the verdict. As we have explained, however the judge was bound by the verdict

because he did not set it aside and order a new trial.

      We have examined the trial judge’s findings in a search for findings not

precluded by the verdict which would support the judge’s conclusion that liability

should be imposed for unjust enrichment. Having discovered none, we must reverse

the judgment insofar as it is based on this theory.

                                            V

      We also are persuaded by Nielsen’s arguments that the judgment of the district

court cannot be sustained on the theory of partnership by estoppel. Under the

applicable statute in effect at the time, Ag Services could establish a partnership by

estoppel either by showing that a representation of partnership was made directly to

Ag Services and that it relied thereon in extending credit, or by showing that

representations had been made so publicly that knowledge of the representations is

implied by law without the necessity of any further proof.   See Cheesecake Factory,

Inc. v. Baines , 964 P.2d 183, 187 (N.M. Ct. App. 1998) (applying now repealed

version of § 54-1-16).   9
                             For ease of discussion, we will refer to the two options

respectively as the private representation and the public representation alternatives.




      Effective July 1, 1997, New Mexico repealed its Uniform Partnership Act and
      9

adopted a revised version. Because the events at issue here occurred in 1991 and
1992, we deal with the former version of the act. N.M. Stat. Ann. § 54-1-16(A)
(Michie 1978) (repealed).

                                           -18-
       Several of the findings and conclusions by the district judge were clearly

intended to support the conclusion that Nielsen should be liable as a partner by

estoppel. Therefore, we have carefully examined each of the relevant findings and

conclusions. The district court apparently intended to base Nielsen’s liability on

both the private representation and the public representation types of partnership by

estoppel, and Ag Services appears to argue in its brief that liability was correctly

imposed under either branch of the estoppel doctrine.

       As to liability based on private representations, Ag Services points to findings

by the district judge that Ag Services had relied on representations, made to it by

both Nielsen and Lundell, that Nielsen was “in business” with Lundell, and that

Nielsen had acknowledged that the advances by Ag Services were “business

obligations.” See, e.g., Findings of Fact and Conclusions of Law, II Aplt. App. 413

at ¶ 9; 419 at ¶¶ 33 & 34. These findings do not support the conclusion that Nielsen

should be liable for Lundell’s loan as a partner by estoppel because there is no

finding that either man told Ag Services that they would be partners, nor is there a

finding that Ag Services relied in any way on the belief that they would be partners.

Indeed, the evidence, without contradiction, was that Ag Services did   not believe that

Lundell and Nielsen were partners. Instead, loan officer Knoploh testified, “Well,

I don’t think it was a partnership.        It was – they were exchanging labor and

equipment and this type of thing . . . .” II Aplt. App. 663.     See also id. at 641-42;


                                             -19-
676-77; 697 (“We were not looking at [Nielsen] to pay the loan.”).

       Ag Services did not require or expect Nielsen to participate as a partner, nor

did it ask him to guarantee repayment of Lundell’s loan, nor did it expect him to

repay the loan. Ag Services was relying on Nielsen assisting Lundell, not on

Nielsen’s financial strength. This distinguishes the instant case from      Anderson Hay

& Grain Co. v. Dunn , 467 P.2d 5 (N.M. 1970), on which Ag Services now relies.

       We are not aware of any case in which liability on the theory of partnership

by estoppel has been imposed in the face of specific admissions by the creditor that

it believed that the putative partners had some specific arrangement          other than a

partnership. We conclude that the district court erred in imposing liability based on

representations that Nielsen would be “in business” with Lundell, when the

undisputed evidence showed that Ag Services had a specific understanding that the

relationship between the two was to be something other than a partnership.

       We turn to the other alternative under the New Mexico statute, which involves

representations of partnership made publicly. This category of partnership law in

New Mexico was the subject of learned and respectful criticism by the intermediate

appellate court of that state in the recent case of   Cheesecake Factory, Inc. v. Baines   ,

964 P.2d 183, 186-190 (N.M. Ct. App. 1998). The particular point of controversy

was whether a plaintiff asserting partnership by estoppel based on public

representations not made to the plaintiff must prove reliance on the belief that a


                                              -20-
partnership existed, as a plaintiff must do when asserting that a private

representation of partnership was made directly to him. As one other court has

noted, the notion that reliance should not be necessary in the public representation

situation when it is necessary in the private representation situation is illogical.

National Premium Budget Plan Corp. v. National Fire Ins. Co          ., 234 A.2d 683, 729-

732 (N.J. Super. Ct. Law Div. 1967),     aff’d , 254 A.2d 819 (N.J. Super. Ct. App. Div.

1969). Nevertheless, forceful dictum from the New Mexico Supreme Court indicated

that reliance need not be shown in a case based on public representations.             See

Gilbert v. Howard , 326 P.2d 1085, 1087 (N.M. 1958).

       We believe that we must assume for purposes of this case that reliance is       not

required. Notwithstanding the force of the arguments in           Cheesecake Factory   and

National Premium , we are bound by the considered dicta of the states’ supreme

courts as well as by their holdings;   see Hawks v. Hamill , 288 U.S. 52, 58-59 (1933);

Hardy Salt Co. v. Southern Pacific Transportation Co.          , 501 F.2d 1156, 1163 (10th

Cir. 1974). We do not believe that it is our position to predict that the New Mexico

Supreme Court would overrule its precedent in the complete absence of any

indication from that court of its inclination to do so.   10



       Commenting on the public representation alternative for proving partnership


       10
         We note that this is an issue unlikely to recur. That is because the Revised
Uniform Partnership Act, since adopted in New Mexico, removes any doubt that
reliance is required. See N.M. Stat. Ann. § 54-1A-308 (Michie 1999 Supp.).

                                           -21-
by estoppel, the New Mexico Supreme Court has said that this doctrine

      extends liability beyond the common-law test of reliance so that when
      one has by his acts or his consent to the acts of others allowed or caused
      the general community to believe that he is a partner, then he is such by
      estoppel even though this particular creditor may not have heard the
      representation. . . . . However,           this test demands that the
      representations have been made in a “public manner” at the time that
      credit was extended so that at that time it was general community
      knowledge even though the representations might not have been
      communicated to this particular creditor.

Gilbert v. Howard , 326 P.2d at 1087 (emphasis added).   1



      The district judge did not make an explicit finding that the general community

had come to believe that Nielsen and Lundell were partners, but assuming that such

a finding was implied, we see very little support in the evidence for it. We do note,

however, that there was some evidence that trade creditors in the Clovis area may

have believed that Nielsen and Lundell were partners. We will assume, for purposes

of our analysis, that Lundell and Nielsen came to be viewed as partners by suppliers

in the Clovis area during the course of the 1992 crop season, which we believe the

evidence taken in the light most favorable to Ag Services established. This is

insufficient to support the judgment, however, because the representations must have


      1
       We note in passing that there has apparently been no effort to define the
“general community” in this transaction between an Iowa lender (Ag Services), a
borrower residing in Arizona or Utah when he was not in active military service
(Lundell), and an alleged co-obligor living in Nebraska (Nielsen), all of whom were
involved in farming in New Mexico. There is reason to doubt that the public
representations identified by the trial court became “general community knowledge”
in any community which included Ag Services.

                                         -22-
been publicly made in the “general community” at the time that credit was extended.

See Gilbert , 326 P.2d at 1087. No evidence has been identified, and we have found

none, which would establish that the representations had become public knowledge

before credit was extended, nor did the district court make such a finding.

Consequently Nielsen may not be held liable as a partner by estoppel.

                                              VI

       We are also persuaded the district court erred in ruling that Nielsen was liable

under the theory of piercing the corporate veil. Piercing the corporate veil is an

equitable remedy.    See Scott v. AZL Resources, Inc. , 753 P.2d 897, 900 (N.M. 1988);

Harlow v. Fibron Corp.      , 671 P.2d 40, 43 (N.M. Ct. App. 1983). The effect of

application of the doctrine is to hold a shareholder, officer or director personally

liable for an obligation of the corporation. Because the liability is derivative, the

liability of the shareholder cannot exceed that of the corporation.   See Eastridge Dev.

Co. v. Halpert Assoc., Inc. , 853 F.2d 772, 782 (10th Cir. 1988). In the instant case,

other than the jury’s verdict on conversion, no liability of the corporate entity,

DHFC, existed for which Nielsen could be held liable as it was Lundell’s obligation

to repay the loan. The district court’s findings and conclusions do not include any

imposition of liability on the corporation,     nor do they purport to find Nielsen liable

for the jury verdict against DHFC     .

       The second requirement for piercing the corporate veil is that the corporate


                                              -23-
form was used for an improper purpose. The improper purpose must be that of the

parent corporation or the shareholder against whom the remedy is sought.      See Scott

v. AZL Resources , 753 P.2d at 901; N.L.R.B. v. Greater Kansas City Roofing    , 2 F.3d

1047, 1053 (10th Cir. 1993) (applying federal law). The district judge clearly was

of the opinion that Nielsen used the corporate form to perpetrate a fraud on Ag

Services, as we noted in Part IV,   supra . We are unable to reconcile that view of the

evidence with the verdict of the jury, however. And, we note that the district court’s

findings rested largely on the informal manner of doing business, including financing

the endeavor through loans from the principals in lieu of capitalization. Where

undercapitalization is substantially a consequence of financing the business through

loans rather than capital contributions, New Mexico cases have cautioned that

“supplying money to a losing business does not constitute an improper purpose.”

Scott v. AZL Resources , 753 P.2d at 901; see also Harlow v. Fibron Corp. , 671 P.2d

at 44.

         We conclude that the judge’s finding of improper purpose is irreconcilable

with the jury verdict. Moreover, as we have noted, the district court erred by

imposing on Nielsen as a shareholder a liability which was not a corporate liability.

The judgment must be reversed insofar as it is based on this theory.

                                      Conclusion

         We believe that the jury verdict in favor of Nielsen, in light of all the


                                          -24-
particular circumstances of this case, precluded judgment against him on the

equitable theories presented to the district court.    We therefore hold that the

judgment against defendant/appellant Nielsen must be reversed. On remand, the

district court should enter judgment in favor of Nielsen on all claims. The judgment

against DHFC is undisturbed, it having abandoned its appeal.




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