Awada v. Shuffle Master, Inc.

• Decision Date: 27 December 2007
• Docket Number: No. 46174.,46174.
• Citation: 173 P.3d 707
• Parties: Yehia AWADA, an Individual; and Gaming Entertainment, Inc., a Nevada Corporation, Appellants, v. SHUFFLE MASTER, INC., a Minnesota Corporation; and Mark Yoseloff, an Individual, Respondents.
• Court: Nevada Supreme Court

173 P.3d 707

Yehia AWADA, an Individual; and Gaming Entertainment, Inc., a Nevada Corporation, Appellants, v. SHUFFLE MASTER, INC., a Minnesota Corporation; and Mark Yoseloff, an Individual, Respondents.

No. 46174.

Supreme Court of Nevada.

December 27, 2007.

Morris & Sullivan and Will A. Lemkul, North Las Vegas, for Appellants.

Jones Vargas and Kirk B. Lenhard, Scott M. Schoenwald, and Tamara Beatty Peterson, Las Vegas, for Respondents.

BEFORE THE COURT EN BANC.¹

OPINION

By the Court, GIBBONS, J.:

In this appeal, we consider the primary issue of whether a district court has the authority to bifurcate the legal and equitable claims presented in a single action, conduct a bench trial on an equitable claim, and then use the findings of fact and conclusions of law from that bench trial to dispose of the case. On this issue of first impression, we conclude that Nevada district courts have discretion to bifurcate legal and equitable claims in a single action and to first conduct a bench trial on an equitable claim. Furthermore, a district court that exercises such discretion may then use its findings of fact and conclusions of law as a basis for disposing of claims remaining in the case, so long as it does so in a manner consistent with Nevada law and our rules of civil procedure.

We also consider whether the district court abused its discretion by sua sponte disposing of the remaining claims in a summary judgment-like manner after conducting a bench trial on respondents' counterclaim for rescission. In this case, the district court did not abuse its discretion when it first considered respondents' counterclaim for rescission and rescinded the parties' agreement. Based on its findings and conclusions, the district court properly disposed of all of appellants' contract-based claims against respondent Shuffle Master, Inc., because those claims could not stand absent a valid contract. However, the district court improperly granted summary judgment as to the claims against respondent Mark Yoseloff and appellants' remaining claims against Shuffle Master because those claims can survive absent a valid contract between the parties. Additionally, the district court erred in resolving those claims without satisfying the procedural requirements of NRCP 56.

Accordingly, we affirm the district court's judgment as to appellants' claims for breach of contract and contract-based claims for breach of the implied covenant of good faith and fair dealing; we reverse the district court's judgment as to appellants' claims for fraud, civil conspiracy, conversion, unjust enrichment, and tortious interference with contractual relations/prospective economic advantage and as to appellants' claims against Yoseloff; and we remand this case to the district court for further proceedings consistent with this opinion.

FACTS AND PROCEDURAL HISTORY

Appellant Yehia Awada is a casino game developer who, through his company, appellant Gaming Entertainment, Inc. (GEI) (collectively referred to as Awada), develops and distributes games for the gaming industry. One of Awada's games, titled 3 Way Action (the game), combines the card games war, blackjack, and poker. After the Nevada Gaming Control Board approved the game, Awada applied for and received a patent in November 1999. He had previously registered the name 3 Way Action as his trademark.

After failing to successfully market the game on his own, Awada entered into an agreement with Shuffle Master, a manufacturer and distributor of casino games and equipment. Under the agreement, Awada became Shuffle Master's employee for a six-month period, during which his primary responsibility was to promote the game under Shuffle Master's direction. Awada also gave Shuffle Master "all of the rights including all intellectual property rights," as well as control and the exclusive right to promote and test-market the game during his six-month employment period. He further gave Shuffle Master the option to purchase, for a set price, an exclusive license for all rights to the game. The agreement required Shuffle Master to exercise its option, if at all, during the month of July 2000. In the agreement, Awada represented and warranted that he and GEI were the "sole owners of 3 Way Action . . . and all intellectual property related thereto free and clear of any claims by third parties."

Shuffle Master, in turn, promised to pay Awada for executing the agreement and give him a salary, plus benefits, for the term of his employment. Shuffle Master prepared the agreement, which the parties executed on December 28, 1999.

Shuffle Master later discovered that before signing the agreement, Awada had given International Game Technology, Inc. (IGT), the right to use the name and trademark 3 Way Action for its unrelated video poker game. Awada's agreement with IGT forced Shuffle Master to enter into a separate agreement with IGT in order to use the name 3 Way Action for its table game. However, Awada's agreement with IGT prevented Shuffle Master from developing a video version of the game using that title because it would infringe on IGT's rights to the 3 Way Action trademark.²

Shuffle Master did not exercise its option to buy an exclusive license to the game within the required six-month period. Each party blames the other for that breakdown. When the parties failed to resolve their differences, Shuffle Master informed Awada, by letter, that it was rescinding the agreement and ending their relationship. After some delay, Shuffle Master returned to Awada all of the 3 Way Action assets in its possession. Shuffle Master then began developing a similar game under the name Triple Shot.

Awada subsequently filed a complaint against Shuffle Master and its chief executive officer, Yoseloff, in September 2002, alleging breach of contract, fraud, civil conspiracy tortious interference with contractual relations/prospective economic advantage, breach of the implied covenant of good faith and fair dealing, conversion, and unjust enrichment. Awada also sought an accounting of profits and injunctive relief. Shuffle Master answered, asserting numerous affirmative defenses and counterclaims, seeking, among other things, rescission of the agreement on the grounds that Awada fraudulently induced it into signing the agreement and that Awada failed to perform under the agreement.

Initially, Shuffle Master moved for summary judgment, which the district court denied. However, the district court subsequently bifurcated Shuffle Master's request for rescission from the parties' other claims and conducted a bench trial only on Shuffle Master's counterclaim for rescission.

During the bench trial, several Shuffle Master employees testified that Awada initiated the relationship with Shuffle Master by approaching them and proposing the agreement with Shuffle Master. Those witnesses testified that Awada failed to fully disclose the true nature of his agreement with IGT before entering into the agreement with Shuffle Master. The district court also heard testimony concerning Awada's actions at the end of the six-month option period and Awada's intentional delays and rejection of Shuffle Master's option payment until after the six-month option period had ended. The district court also admitted into evidence correspondence from Shuffle Master to Awada indicating that it intended to exercise its option and attempted to extend the option deadline after Awada prevented Shuffle Master from exercising its option in a timely manner. At the conclusion of the bench trial, the district court found in favor of Shuffle Master and rescinded the agreement between Awada and Shuffle Master. In its findings of fact and conclusions of law, the district court detailed the portions of the evidence it found relevant and credible.

After conducting the bench trial and ordering the agreement rescinded, the district court attempted to settle the remaining claims. During that time period, the district court requested "letter briefs" from the parties addressing the impact of its findings and conclusions, entered as a result of the bench trial, on the remainder of the parties' claims. During a subsequent status check, the district court "[directed] the parties to quit wasting their time" and advised the parties that its findings of fact and conclusions of law from the bench trial disposed of all of the remaining claims in the case. Consequently, the district court entered a written order dismissing Awada's remaining claims, with prejudice, and holding that its prior order constituted a final judgment. Awada subsequently moved the district court to amend its findings of fact and conclusions of law and for a new trial. The district court denied the motion.

Awada now appeals the district court's order rescinding the agreement and dismissing his claims. He also appeals the district court's order denying his motion for a new trial. Awada argues that the district court violated his right to a jury trial by bifurcating Shuffle Master's counterclaim for rescission, conducting a bench trial related only to that equitable remedy, and using its findings of fact and conclusions of law from the bench trial to dispose of all his remaining claims, sua sponte, without a motion or a trial. He further argues that the district court's findings are unsupported by substantial evidence.

DISCUSSION

Awada's request for a jury trial

NRCP 42(b) generally provides the district court with discretion to separate "any claim, cross-claim, counterclaim, or third-party claim" and to conduct a separate trial thereon, so long as it "always preserv[es] inviolate the [constitutional] right of trial by jury." However, because the right to a jury trial does not extend to equitable matters,³ the question presented is whether the jury trial right is preserved when a district court exercises its discretion to consider a case's equitable claims first and, based on its conclusions with respect to those...