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Can a court set aside a judgment solely based on new or changed precedent?

Posted on by Jeff Jaeger

Ford v. Branch Banking & Trust Co. (Nev. Supreme Ct. – July 23, 2015)

Nevada Rule of Civil Procedure (NRCP) 60(b)(5) allows the district court to set aside a judgment when, in material part, a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that an injunction should have prospective application. The issue is whether new or changed precedent from the Nevada Supreme Court justifies NRCP 60(b)(5) relief.

In 2004, the Fords guaranteed two commercial loans made by Colonial Bank. The FDIC subsequently acquired the loans when it was appointed as the receiver for Colonial Bank. The FDIC, in turn, assigned the loans to Branch Banking and Trust Company (BB&T) in August 2009. The properties securing the commercial loans were foreclosed August 29, 2011, and BB&T brought a breach of guaranty action against the Fords in December 2011. After a partial summary judgment hearing, the district court determined that the amount of damages was the only issue remaining for trial.

At trial, the parties disputed whether NRS 40.459(1)(c) (2013) (current version codified at NRS 40.459(3)(c)), which reduces the amount of some deficiency judgments, could limit the amount the Fords owed BB&T. The district court concluded that former NRS 40.459(1)(c) only applied prospectively. Further, it concluded the statute would have an impermissible retroactive effect if applied to loans, like this one, that were assigned before NRS 40.459(1)(c) took effect on June 10, 2011. Therefore, NRS 40.459(1)(c) could not apply to the Fords’ loans, and they were liable for the full deficiency. The Fords never appealed the district court’s final judgment.

More than one year after the district court entered its judgment, the Nevada Supreme Court published Sandpointe Apartments v. Eighth Judicial District Court, 129 Nev., Adv. Op. 87, 313 P.3d 849 (2013). Sandpointe holds that NRS 40.459(1)(c) only applies prospectively, and an application of the statute is prospective if there has been no foreclosure sale on the underlying loan as of June 10, 2011, the date the statute was enacted. Whether or when a loan is assigned is not material. Therefore, the Court noted that the district court erred in holding that NRS 40.459(1)(c) would be retroactive if applied to the Fords’ loans because the foreclosure sale occurred August 29, 2011, more than two months after NRS 40.459(1)(c) took effect. Shortly after the Sandpointe opinion was published, the Fords asked the district court to set aside the judgment against them pursuant to NRCP 60(b)(5). The district court denied the Fords’ motion, holding that NRCP 60(b)(5) was not an appropriate avenue for seeking relief based on new or changed precedent. The Fords appealed that decision.

On appeal, the Fords argued they can invoke NRCP 60(b)(5) to set aside the judgment against them because (1) Sandpointe reversed a prior judgment upon which the judgment against them was based, and (2) it was no longer equitable to enforce the judgment against them in light of this court’s Sandpointe opinion.

The Nevada Supreme Court explained that the material portions of NRCP 60(b)(5) allow the district court to set aside a judgment when [1] a prior judgment upon which the challenged judgment is based has been reversed or otherwise vacated, or [2] it is no longer equitable that an injunction should have prospective application. Rule 60(b) of the Nevada Rules of Civil Procedure is modeled on Rule 60(b) of the Federal Rules of Civil Procedure, as written before the FRCP’s amendment in 2007. Federal cases interpreting the Federal Rules of Civil Procedure are strong persuasive authority, because the Nevada Rules of Civil Procedure are based in large part upon their federal counterparts.

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May a third party be joined to a divorce action?

Posted on by Jeff Jaeger

Anderson v. Sanchez (Nev. Ct. App. – July 23, 2015)

This case involves the enforceability of a divorce settlement agreement in the face of a claim that the agreement distributes property belonging to a third party. The issue is whether the district court erred in denying a party’s motion to set aside the parties’ settlement agreement, and join his sister to the underlying divorce proceeding, because she claimed an interest in property that was treated as community property in the settlement agreement.

This case arose out of a divorce between Mark and Sophia. Mark filed a complaint for divorce in March 2012. Thereafter, the parties immediately agreed to participate in mediation before retired district court judge Robert Gaston, but not pursuant to a court order or district court rule, which can be used to set the parameters of the mediation. At the conclusion of the mediation, the parties executed a written Memorandum of Understanding (MOU), which provided the framework for dividing their various assets and debts. The award of the Wilson property, a residence located on East Wilson Avenue, Orange, California, was the only term of the MOU challenged on appeal. Under the terms of the MOU, Mark was to receive the Wilson property in exchange for the payment of a portion of his retirement funds to Sophia.

After the parties executed the MOU, Mark filed a notice of withdrawal of his signature, stating, without any explanation or citation to law, that he was revoking his signature from the MOU. In response, Sophia filed a motion to enforce the MOU, asserting that the parties had entered into a legally binding contract and requesting that the district court enter a divorce decree based on the terms of the MOU. Mark then filed, among other things, an opposition to the motion to enforce, a countermotion to set aside and deem the MOU unenforceable, and a countermotion for joinder of his sister, Cheryl. Cheryl also filed a motion to intervene in the divorce proceeding based on the same factual allegations set forth in Mark’s opposition and countermotion regarding joinder, and she asked for a finding and order that the Wilson property was held in constructive trust, declaratory relief, an injunction, and attorney fees.

In his opposition and countermotions, Mark argued that the MOU was void because it improperly distributed property that did not belong to Mark and Sophia. Further, Mark argued the MOU was subject to rescission because it was based on a mutual mistake, a misrepresentation, or unconscionable terms. In support of these arguments, Mark alleged Cheryl had an ownership interest in the Wilson property, which he and Cheryl had received as beneficiaries of the Jack and Lavonne Trust, which previously held that property. Mark claimed he and Cheryl had agreed Cheryl would keep the Wilson property in exchange for Mark receiving other trust assets. Cheryl currently lives on the Wilson property.

Continuing his arguments in support of joinder and setting aside the MOU, Mark alleged that, between May 2005 and May 2006, he and Sophia entered into two agreements with Cheryl in which Cheryl allowed them to use the Wilson property as collateral to secure loans. In order to obtain financing, the second agreement required Mark and Cheryl, as trustees of the Jack and Lavonne Trust, to convey the Wilson property to Mark and Sophia. Mark and Sophia then transferred the Wilson property to their own newly created trust, the Anderson Trust. The Anderson Trust provided that the Wilson property was to be conveyed to Cheryl should she survive both Mark and Sophia. Additionally, David, Cheryl’s son, was named as a beneficiary of the Anderson Trust, should he survive Cheryl, Mark, and Sophia. The Anderson Trust was not made a party in this case. None of Mark and Sophia’s five other properties are held in a trust.

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Must the court hold an oral hearing before withholding target notice of a grand jury proceeding?

Posted on by Jeff Jaeger

State v. Beaudion (Nev. Supreme Ct. – July 2, 2015)

NRS 172.241 affords the target of a grand jury investigation the opportunity to testify before them unless, after holding a closed hearing on the matter, the district court determines that adequate cause exists to withhold target notice. In this case, the district judge supervising the grand jury entered an order authorizing the State to withhold target notice based on the district attorney’s written request and supporting affidavit, without conducting a face-to-face oral hearing. The issue is whether this procedure satisfies NRS 172.241’s closed hearing requirement.

NRS 172.241(1) provides that a person whose indictment the district attorney intends to seek may testify before the grand jury if the person requests to do so and executes a valid waiver in writing of the person’s constitutional privilege against self-incrimination. To facilitate exercise of this right, NRS 172.241(2) requires the district attorney to give the target reasonable notice, sometimes called Marcum notice, of the grand jury proceeding, unless the court determines that adequate cause exists to withhold notice. Addressing the circumstances in which target notice may be withheld, NRS 172.241(3) specifies that the district attorney may apply to the court for a determination that adequate cause exists to withhold notice, if the district attorney determines that the target poses a flight risk, cannot be located or, as relevant here, that the notice may endanger the life or property of other persons.

The State alleged that Beaudion committed battery causing substantial bodily harm constituting domestic violence against his then-girlfriend when he tied her to their bed and poured boiling water over her exposed torso, burning her so severely that she required skin grafts. The State further alleged that Beaudion intimidated or threatened the victim with additional harm if she cooperated in his prosecution.

Initially, the State attempted to proceed against Beaudion by information, rather than indictment. Each time the date scheduled for the preliminary hearing arrived, the victim failed to appear and, eventually, she vanished. After three failed attempts at conducting the preliminary hearing, the State dismissed its criminal complaint against Beaudion without prejudice.

Several years later, detectives located the victim. The district attorney’s office renewed its efforts to charge Beaudion, this time utilizing the grand jury, which conducts its proceedings largely in secret. Before presenting its case against Beaudion to the grand jury, the district attorney’s office submitted a written application to the court supervising the grand jury for permission to withhold target notice from Beaudion. As grounds for withholding target notice, the application asserted that Beaudion would threaten or harm the victim and/or her family to prevent the victim from testifying if Beaudion knew the grand jury was considering his indictment. The ex parte application was supported by an affidavit from the prosecutor relating that previously the Defendant intimidated the victim to the point where she would not appear for court; that, when the victim had to be hospitalized for her burns, Beaudion had driven her from Nevada to California to avoid being caught for committing the crimes in this case; and that there was a good faith basis to believe that if the Defendant learns of the State’s intentions of indicting him he will again intimidate or harm the victim to prevent her from testifying. After considering the written application and supporting affidavit, but without holding an oral hearing, the court entered a written order finding cause for and authorizing the State to proceed without notice to Beaudion.

The victim testified before the grand jury, which returned a true bill, and the State filed an indictment against Beaudion in district court. Under local court rule EDCR 1.31, the case was administratively assigned to a different department of the district court than had impaneled the grand jury and so had issued the order dispensing with target notice. Beaudion filed a motion to dismiss in the department of the district court to which his criminal case was assigned. He argued that the order authorizing the district attorney’s office to withhold Marcum notice was deficient because it had not been preceded by the closed hearing required by NRS 172.241(4) and that this deficiency invalidated the indictment.

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When are an independent contractor’s actions within the scope of a specialized repair?

Posted on by Jeff Jaeger

D & D Tire v. Ouellette (Nev. Supreme Ct. – July 2, 2015)

In Nevada, employers and coemployees of a person injured in the course of employment are immune from liability for the injury under the exclusive remedy provision of the workers’ compensation statutes. Additionally, some subcontractors and independent contractors are accorded the same status as employers or coemployees of the injured employee and are thus immune from liability. However, a subcontractor or independent contractor is not considered to be a statutory employee when it is performing a major or specialized repair that the injured worker’s employer is not equipped to handle with its own work force.

The issue is when is an independent contractor’s actions within the scope of a major or specialized repair so as to prevent it from claiming immunity as a statutory employer or coemployee.

Ouellette was employed by Allied Nevada Gold Corporation (Allied) to perform tire service work, including the installation, removal, repair, and replacement of tires on various pieces of mining equipment. Purcell Tire & Rubber Company was a commercial tire retailer. Among other things, it provided tire changing and repair services to mining companies.

As part of his job, Ouellette drove and operated a tire changing boom truck owned by Purcell and leased to Allied. When a problem developed with the boom truck’s power take off unit (PTO), Purcell contacted an independent repair company, Dakota Diesel, who sent repairman Durick to make specialized repairs to the PTO. Purcell, as owner of the truck, also sent Wintle, a tire technician for Purcell with responsibilities similar to those of Ouellette, to assist with the repairs.

After the initial repairs were completed, Wintle and Durick filled the truck with hydraulic oil. Wintle then got into the truck to move it to another area before testing the PTO. While backing up the truck, Wintle struck and pinned Ouellette against a dumpster, causing Ouellette to suffer a shoulder injury.

Ouellette filed a personal injury claim against Purcell. At trial, Purcell moved for a judgment as a matter of law on the grounds that it was a statutory employee of Allied and was thus immune from liability under the Nevada Industrial Insurance Act (NIIA). The district court denied Purcell’s motion. Purcell also requested a mere happening jury instruction, which the district court declined to give. The jury returned a verdict in favor of Ouellette. Purcell then renewed its motion for judgment as a matter of law on the grounds that it was a statutory employee of Allied. Alternatively, it moved for a new trial, arguing that the district court’s error in refusing to give Purcell’s mere happening jury instruction materially affected its substantial rights. The district court denied Purcell’s motion. Purcell appealed

Purcell argued that the district court erred in denying its motion for judgment as a matter of law because Purcell was a statutory employee of Allied at the time of Ouellette’s injury and would thus be immune from liability for the injury under the NIIA. Purcell also argued that the district court abused its discretion by refusing to give a mere happening jury instruction.

Ouellette argued that the district court did not err in denying Purcell’s motion for judgment as a matter of law because Purcell was performing a specialized repair at the time of Ouellette’s injury and thus was not a statutory employee of Allied. Ouellette also argued that the district court did not err in refusing to give Purcell’s proffered jury instruction because it misstated Nevada law and was adequately covered by other instructions given to the jury.

An independent contractor is not immune from liability when performing specialized repairs

In Nevada, employers and coemployees of a person injured in the course of employment are immune from liability under the NIIA. Additionally, the NIIA is uniquely different from industrial insurance acts of some states in that sub-contractors and independent contractors are accorded
the same status as employees and are immune from liability.

However, the Nevada Supreme Court explained that not all types of subcontractors and independent contractors are considered to be statutory employees under NRS 616A.210. A subcontractor or independent contractor is not a statutory employee if it is not in the same trade, business, profession or occupation as the employer of the injured worker.

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Is dismissal under NRS 18.130 appropriate if a nonresident plaintiff files security prior to dismissal?

Posted on by Jeff Jaeger

Biscay v. MGM Resorts Int’l (Nev. Supreme Ct. – July 2, 2015)

The issue is whether dismissal is appropriate under NRS 18.130(4) when a nonresident plaintiff files security with the court clerk for the defendant’s costs more than 30 days after receiving notice that the security is required, but before the district court has dismissed the case.

Biscay slipped and fell at a hotel owned by MGM Resorts International (MGM). Biscay filed a complaint against MGM for various torts relating to her fall. On September 26, 2012, MGM filed a demand for security of costs pursuant to NRS 18.130. Over six months later, Biscay filed a notice stating that she had filed the required security with the court clerk. Nine days after Biscay filed her bond, MGM moved the court to dismiss the case pursuant to NRS 18.130(4), which the district court ultimately did.

The district court concluded that NRS 18.130(4) required that plaintiffs file security with the court clerk within 30 days of receiving notice that security is required. Thus, the district court concluded that even though Biscay filed the required bond before MGM moved the court to dismiss the case, dismissal was appropriate because Biscay filed her bond well outside of 30 days from receiving notice that security was required. Biscay appealed.

Biscay argued that pursuant to NRS 18.130(4), dismissal is inappropriate as long as the plaintiff files the required security with the court clerk before the case is dismissed.

NRS 18.130 allows defendants to protect themselves from the dangers of litigating against nonresident plaintiffs. In cases where security is required by the defendant, all proceedings in the action are stayed until tthe plaintiff files the security. NRS 18.130(4) provides that after the lapse of 30 days from the service of notice that security is required, upon proof thereof, and that no undertaking as required has been filed, the court or judge may order the action to be dismissed.

Based on a plain reading, the Nevada Supreme Court concluded that neither NRS 18.130(1) nor 18.130(4) gives a mandatory time frame in which the security must be filed. Instead, upon providing proof that 30 days has passed and no security has been filed, the defendant may move to dismiss the case or the district court may dismiss the case on its own. Thus, the 30-day requirement is a prerequisite for dismissal, not filing the security. The Court explained that once 30 days has passed, the defendant has the right to ask the district court to dismiss the case, or the district court has the authority to dismiss the case on its own. Until the case is dismissed, however, the plaintiff is still free to file the security.

The Court concluded that it is an abuse of discretion for the district court to dismiss the case if the plaintiff has filed the required security with the court clerk at any time before the court dismisses the case. Accordingly, because Biscay filed her bond before the case was dismissed, the Court found that the district court abused its discretion in granting MGM’s motion to dismiss.

Must a bank statement contain check images to provide notice of unauthorized transactions?

Posted on by Jeff Jaeger

C. Nicholas Pereos, Ltd. v. Bank of Am. (Nev. Supreme Ct. – July 2, 2015)

Williams, a long-time employee of Pereos, Ltd., law firm, was a signator on the firm’s operating account with Bank of America. In September 2006, the firm’s solo practitioner, Pereos, removed Williams as a signator on the account, leaving Pereos as the sole signator. Pereos told Williams to let the Bank of America account “run itself out” to cover any outstanding checks, but he never took any action to affirmatively close the account.

In 2010, Pereos discovered that Williams had been embezzling money since 2006. Despite being removed as a signator on the account, Williams deposited checks made out to Pereos, Ltd. into the Bank of America account and would then write and sign checks for her own personal use. Pereos notified the bank of the unauthorized transactions on January 28, 2010. The next month, Pereos, Ltd. filed a complaint against Bank of America based on Williams’ use of unauthorized signatures to withdraw funds from the account from 2006 to 2010. When it was discovered that Williams had enrolled the Pereos, Ltd. account in online banking and the bank statements had not been mailed, Pereos amended the complaint to include an allegation that Bank of America had failed to make Pereos, Ltd.’s statements available as required by NRS 104.4406(1).

Bank of America moved to dismiss the amended complaint, or alternatively for summary judgment, on the ground that Pereos, Ltd.’s claims for unauthorized transactions were time-barred either because they were not reported by Pereos, Ltd. within 30 days under NRS 104.4406(4)(b) or within the one-year period of repose under NRS 104.4406(6). The bank argued that, notwithstanding Pereos, Ltd.’s contention that the account statements were not mailed to it, Pereos’ deposition testimony revealed that Pereos had on occasion personally picked up some of Pereos, Ltd.’s bank account statements from Bank of America in 2006, 2007, and 2008. The bank attached copies of the account’s statements to its motion and argued that the unauthorized transactions were contained in the bank statements that were made available to Pereos. In opposition, Pereos, Ltd. argued that the statements he obtained were insufficient to provide it with notice of the unauthorized signatures as they were only a single page or two-page document that showed check numbers and the amount of the check, and balances and nothing more. Moreover, he contended that the statements were insufficient because they did not contain a copy of the canceled checks. Pereos also argued that his claims for unauthorized checks cashed within the year preceding his notification to the bank were not time-barred. Conversely, Bank of America argued that, because the same wrongdoer committed all of the wrongful transactions, all claims were time-barred by Pereos, Ltd.’s failure to give the bank notice within 30 days after receiving the account statements.

The district court granted summary judgment in favor of Bank of America, finding that it was irrelevant whether Pereos, Ltd. Received copies of the checks because NRS 104.4406(1) does not require the inclusion of check images. Moreover, the district court found that there was no dispute that the bank statements received by Pereos contained item numbers, amounts, and dates of payment, and thus, the account statements Pereos received were sufficient to notify him of the unauthorized activity on the firm’s account. Accordingly, all claims were time-barred under NRS 104.4406(4)(b) and NRS 104.4406(6). Pereos appealed.

The Nevada Supreme Court explained that Nevada’s version of the Uniform Commercial Code generally absolves a bank of liability for payment on an unauthorized transaction when it provides the customer with information that would allow the customer to identify any unauthorized transactions, such as an account statement, and the customer then fails to timely act in response to unauthorized transactions reflected therein.

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Is a debtor subject to criminal contempt for refusal to participate in a debtor’s examination?

Posted on by Jeff Jaeger

Alper v. Eighth Jud. Dist. Ct. (Nev. Supreme Ct. – June 25, 2015)

A bankruptcy court entered an order lifting an automatic stay to permit the district court to determine whether a judgment debtor’s prior refusals to participate in debtor’s examinations in the district court were subject to criminal contempt. The automatic stay provisions of 11 U.S.C. § 362(b)(1) of the Bankruptcy Code do not stay the commencement or continuation of a criminal action or proceeding against the debtor.

The issue is whether the subsequent district court order finding the judgment debtor in contempt, but allowing him to avoid incarceration by participating in a debtor’s examination, exceeded the scope of the bankruptcy court’s lift stay order.

In August 2010, the district court entered judgment in excess of $16,000,000 against Plise and in favor of Alper. Thereafter, Alper obtained an order for examination of Plise’s assets and liabilities to satisfy the judgment.

Plise did not attend the first scheduled debtor’s examination, and Alper moved for an order to show cause why Elise should not be held in contempt of court. The district court ordered Plise to appear, produce documents, and fully comply with the order or he would be held in contempt of court.

Plise appeared at the next scheduled exam, but asserted a Fifth Amendment privilege in response to every question except his name. Alper filed a status report indicating Plise did not produce the documents the court previously ordered him to produce, nor did he answer questions during the exam. At a subsequent status hearing, the district court ordered Plise to answer Alper’s questions. Alper scheduled a new debtor’s examination, and Plise requested several continuances, but ultimately Plise did not appear. Fifteen days later, Alper sought an order to show cause why Plise should not be held in contempt of court. But, two days before the hearing on that motion, Plise filed a bankruptcy petition.

Alper participated in the bankruptcy proceeding, and as a result, obtained an order from the bankruptcy court granting relief from the automatic stay and allowing the district court to conduct a hearing and enter an order with regard to the alleged criminal contempt of Plise. Alper again moved in district court for an order to show cause as to why Plise should not be held in contempt for his failure to appear at the debtor’s examination. Plise opposed any order for contempt, arguing that, based on its punishment, contempt is a misdemeanor and the statute of limitations had run on any of Plise’s alleged contemptuous conduct.

At the hearing, the district court found Plise guilty of contempt of court and sentenced Plise to 21 days incarceration. However, the district court also provided that Plise could purge his contempt and be released from confinement if he fully participated in a judgment debtor examination. In doing so, he could avoid serving the remainder of his sentence.

Alper filed a writ petition arguing that the district court exceeded the scope of the bankruptcy court’s order granting relief from the automatic stay, thereby violating 11 U.S.C. § 362(a), when it conditionally allowed Plise to avoid criminal contempt punishment, thus transforming the contempt proceeding from criminal to civil. Plise responded by arguing that the statute of limitations had already run on any criminal contemptuous conduct. Plise also argueed that Alper waived his argument by not objecting during the sentencing.

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Can a recorded tax lien be recognized as a mortgage lien?

Posted on by Jeff Jaeger

State, Dep’t of Taxation v. Kawahara (Nev. Supreme Ct. – June 25, 2015)

The United States Bankruptcy Court for the District of Nevada certified two questions to the Nevada Supreme Court concerning the priority of two competing liens on the proceeds of a property sale. The first question asked whether a Certificates of Tax Lien has the effect and priority of a nonconsensual judgment lien or the effect and priority of a consensual mortgage lien. The second asked which lien has priority over the proceeds of a 2012 property sale: a 2009 deed of trust, first recorded in 2011, or a tax lien, created and recorded in 2010.

The Kawaharas loaned the Allisons $400,000. The Allisons executed a note to the Kawaharas in that amount secured by a deed of trust on a Reno property. In July 2009, the note was delivered to the Kawaharas. Although all parties believed the deed of trust had been recorded at that time, it was not recorded until February 2011.

The Allisons owned Allison Automotive Group, Inc., a car dealership in Reno. The dealership became delinquent in taxes owed to the Nevada Department of Taxation (Department). It submitted a signed payment agreement to the Department, which obligated the dealership to pay $438,044.68 pursuant to a payment schedule. In connection with that submission, the Allisons personally guaranteed payment to the Department. In December 2010, the Department recorded certificates of tax lien against the Allisons.

The Allisons filed for bankruptcy in November 2011. As part of the administration of the bankruptcy estate, the bankruptcy court approved the sale of the Reno property with liens attaching to the sale proceeds in the order of their priority. The bankruptcy court’s certified questions concerned the dispute between the Kawaharas and the Department over the priority of their respective liens on the Reno property and, more directly, which party was entitled to be repaid first from the $482,000 in remaining proceeds from the property’s sale.

To record a mortgage or real property lien in Nevada, NRS 111.312(1) requires that the filed document contain certain formalities, including the grantee’s address and the conveyed parcel’s county-assigned number. In contrast, to record a tax lien, NRS 360.473(1) provides that the Department may simply file a certificate of delinquency setting forth (1) the amount due, (2) the name and address of the debtor, and (3) the Department’s statement that it has complied with all procedures required by law.

The Nevada Supreme Court explained that in this case, the Department filed a tax lien, not a mortgage. The bankruptcy court stated that the Department filed a tax lien certificate. The bankruptcy court’s finding was supported by the record, which showed that the Department’s filings refer to tax statutes and did not include parcel numbers.

The Department requested that the Court give the certificates of tax lien the effect and priority of a mortgage. But, the Court reasoned that it would defeat the purpose of a centralized recording system if the law protected people who filed the wrong liens. Here, the Department filed certificates of tax lien, not a mortgage or any instrument that fulfilled the formalities of a mortgage lien. Third parties reviewing the public records would not see a mortgage on the property, but only a tax lien with the Allisons’ address. The Department further argued that their interest arose from a guarantee, not by operation of law, and therefore could not legally be a tax lien. The Court explained that may be true, but then the Department should not have recorded tax lien certificates. Thus, the Court concluded the Department’s filings have the effect and priority of exactly what they recorded: tax liens. Because the Department’s tax lien was given the effect of a judgment lien, the Court determined the Department was not protected by Nevada’s recording statutes.

Because Nevada’s recording statutes did not protect the Department against unrecorded conveyances, the rule applicable to this case was the common law rule of “first in time, first in right.” The Kawaharas’ deed of trust was valid and attached in 2009, when their interest was created. The Department’s tax lien certificates were filed, and thereby attached, in 2010. Therefore, the Court concluded the Kawaharas’ deed of trust had priority over the Department’s tax lien.

Did the government’s disclosure of its plan to acquire property in 2028 constitute a taking?

Posted on by Jeff Jaeger

NDOT v. Eighth Jud. Dist. Ct. (Nev. Supreme Ct. – June 25, 2015)

The issues is whether the district court erred by determining that Nevada’s Department of Transportation (NDOT) owed just compensation for taking Ad America’s property in conjunction with Project Neon, a freeway improvement plan, based on NDOT’s and the City of Las Vegas’ precondemnation activities. Specifically, did a taking occur under either the United States or Nevada Constitutions because NDOT publicly disclosed its plan to acquire Ad America’s property to comply with federal law, the City independently acquired property that was previously a part of Project Neon, and the City rendered land-use application decisions conditioned on coordination with NDOT for purposes of Project Neon.

Project Neon

NDOT is the lead agency for Project Neon, a six-phase, 20- to 25-year freeway improvement project for the Interstate Highway 15 (I-15) corridor between Sahara Avenue and the U.S. Route 95/I-15 interchange in Las Vegas. With an estimated cost of between $1.3 and $1.8 billion dollars, the completion of Project Neon depends primarily on funding from the Federal Highway Association (FHWA). To procure this funding, NDOT complied with the National Environmental Policy Act (NEPA) by performing an environmental assessment of Project Neon between 2003 and 2009. NEPA required NDOT to publicly release all reasonable development alternatives it was considering for public comment. Each of these alternatives included the commercial rental property owned by Ad America.

Based on the results of the environmental assessment, NEPA also required NDOT to complete an environmental impact statement (EIS). In 2011, after the approval of the EIS, FHWA allocated $203 million to NDOT for Phase 1 of Project Neon. Notably, at that time, NDOT did not anticipate acquiring Ad America’s property for another 17 years during Phase 5, assuming funding was available.

To reduce the impacts associated with Project Neon, NDOT coordinated efforts with the City of Las Vegas and other agencies. Anticipating the development of an arterial improvement (the MLK Connector) that was no longer a part of Project Neon, the City amended its Master Plan to allow for certain road widening and, on October 24, 2007, purchased a tract of land from a private party. Additionally, the City approved 19 land-use applications for development rights of properties in proximity to Project Neon.

Ad America

Ad America acquired its property between 2004 and 2005, planning to redevelop existing business space into higher-end commercial offices with multilevel parking. To that end, Ad America hired a surveyor and architect, the latter having drafted a preliminary design. Ad America then retained a political consultant to obtain necessary development permits. After speaking with members of the City Planning Department and one City Council member, the consultant opined that there was a de facto moratorium on development in the path of Project Neon. Based on this opinion, Ad America chose not to submit development applications for its property.

In October 2007, Ad America began informing its tenants that its property would be acquired for Project Neon. Although Ad America’s net rental income remained steady from 2007 to 2010, it decreased by approximately 37 percent in 2011. Ad America had not had its property appraised or attempted to sell it. As of August 2012, Ad America could no longer meet its mortgage commitments.

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Does the sale of an LLC affect a restrictive covenant against its former employee?

Posted on by Jeff Jaeger

Excellence Cmty. Mgmt. v. Gilmore (Nev. Supreme Ct. – June 25, 2015)

The issue is whether the sale of 100 percent of the membership interest in a limited liability company affects the enforcement of an employee’s employment contract containing a restrictive covenant.

Excellence Community Management (ECM) is a Las Vegas based Nevada limited liability company (LLC) that provides condominium and homeowners’ association (HOA) management services. Gilmore was employed by ECM as a community association manager from 2005 to 2012 and was directly responsible for managing multiple associations. In April 2011, Gilmore signed an employment agreement that prohibited her from revealing trade secrets and disclosing ECM’s confidential information for a period of 24 months after termination of her employment. The employment agreement also included an 18-month nonsolicitation clause and an 18-month noncompetition clause, requiring Gilmore to refrain from soliciting persons or entities contractually engaged in business with ECM. The employment agreement did not include an assignment clause.

At the time Gilmore signed the employment agreement, ECM was owned and operated the McCaffertys. In May 2011, 90 percent of the McCaffertys’ membership interest in ECM was purchased by First Service Residential Management Nevada (FSRM). One year later, the McCaffertys sold or relinquished their remaining membership interest in ECM to FSRM. The purchase agreement between the McCaffertys and FSRM specifically stated that the McCaffertys would sell, assign and transfer the purchased interest to FSRM, and FRSM would purchase the purchased interest from the McCaffertys, free and clear of any encumbrance.

In early June 2012, Gilmore submitted her resignation to ECM and informed ECM that, upon final termination of her employment, she would begin working for Mesa Management, LLC. Upon receiving Gilmore’s notification, ECM’s president decided to terminate Gilmore. Approximately three weeks later, ECM sent Gilmore a cease-and- desist letter, which alleged that Gilmore violated her 2011 employment agreement by contacting ECM’s clients to inform them she was no longer employed by ECM and soliciting them to hire Mesa. Notwithstanding ECM’s cease-and-desist letter, Mesa’s owner sent a solicitation letter to numerous HOA boards announcing the start of Gilmore’s employment with Mesa.

ECM filed a complaint seeking damages and injunctive relief against Gilmore and Mesa, and subsequently filed a motion for a preliminary injunction to enforce the employment agreement pending the district court’s resolution of the case. During the preliminary injunction hearing, the district court asked ECM whether, if successful on its case, money damages could be calculated and could make ECM whole. Counsel conceded that money damages would make ECM whole, but also pointed to caselaw from other jurisdictions holding that irreparable harm is presumed where an employee has breached a restrictive covenant.

The district court denied ECM’s motion for preliminary injunction for two reasons. First, the court relied upon Traffic Control Services, Inc. v. United Rentals Northwest, Inc., 120 Nev. 168, 87 P.3d 1054 (2004), to conclude that the agreement was not assignable to FSRM absent a clause permitting the assignment or an agreement with the employee consenting to the assignment. Second, the district court determined that a preliminary injunction was unwarranted because ECM had failed to show irreparable harm for which compensatory damages were not an adequate remedy.

ECM appealed, arguing that the district court erred in relying on Traffic Control in denying ECM’s motion for a preliminary injunction because the LLC membership sale that took place in this case was not an asset sale for which an employee must consent to the assignment of his or her employment agreement to the asset purchaser. Furthermore, ECM contends that the district court abused its discretion in determining that the requirements for a preliminary injunction were not met because there was insufficient evidence of irreparable harm.

The district court relied upon Traffic Control to conclude that the employment agreement was not assignable to FSRM absent a clause permitting the assignment because a new entity was introduced after the sale. ECM argued that HD Supply Facilities Maintenance, Ltd. v. Bymoen, 125 Nev. 200, 210 P.3d 183 (2009), and the case it primarily relied upon, Corporate Express Office Products, Inc. v. Phillips, 847 So. 2d 406 (Fla. 2003), provide that in the type of corporate transaction where 100 percent of the shares of a corporation are sold, the enforceability of any restrictive covenants are unaffected, because under such circumstances, there is no new employer. ECM further argued that the membership interest sale of an LLC, such as was conducted here, is equivalent to a stock sale in a corporation, not an asset sale as was the case in Traffic Control. The Nevada Supreme Court agreed and concluded that the 100-percent membership sale of the LLC that took place in this case was equivalent to the sale of 100 percent of the stock in a corporation. Neither transaction results in a new entity.

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