Bergmann v. Boyce

• Court: Nevada Supreme Court
• Writing for the Court: PER CURIAM; ROSE, C.J., and STEFFEN, SPRINGER, SHEARING, JJ., and ZENOFF
• Citation: Bergmann v. Boyce, 109 Nev. 670, 856 P.2d 560 (Nev. 1993)
• Decision Date: 20 July 1993
• Docket Number: No. 22983,22983
• Parties: Roger A. BERGMANN and Roger A. Bergmann, A Nevada Professional Corporation, Appellants/Cross-Respondents, v. Fred BOYCE and Harriett Boyce, Respondents/Cross-Appellants.

Page 560

856 P.2d 560

109 Nev. 670

Roger A. BERGMANN and Roger A. Bergmann, A Nevada Professional Corporation, Appellants/Cross-Respondents, v. Fred BOYCE and Harriett Boyce, Respondents/Cross-Appellants.

No. 22983.

Supreme Court of Nevada.

July 20, 1993.

As Amended July 30, 1993.

Lionel Sawyer & Collins and Pat Lundvall, Reno, for appellants/cross-respondents.

Osborne & Gamboa and Eric A. Stovall, Reno, for respondents/cross-appellants.

OPINION

PER CURIAM:

Fred and Harriett Boyce and their daughter Martha Boyce (collectivelyreferred to as "the Boyces") sued their former attorney Roger Bergmann and his law firm (collectively referred to as "Bergmann"), alleging six causes of action. Only one of the Boyces' claims was submitted to the jury, which returned a verdict in favor of Bergmann. Bergmann subsequently moved for an award of $84,840.50 in attorney's fees pursuant to NRCP 68 (offer of judgment), NRS 18.010(2)(b) (award of fees for defense of groundless claims), and as sanctions under NRCP 11. Bergmann also moved for an award of $9,501.38 in costs. The trial court denied the motion for attorney's fees and awarded Bergmann costs. We reverse the order denying attorney's fees and remand for a proper determination of whether Bergmann is entitled to recover the fees. We also reverse the award of certain costs.

FACTS

Bergmann is an attorney. In 1983, Bergmann successfully represented Fred and Harriett Boyce in a dispute concerning the Boyces' real estate investment. Subsequently, Fred and Harriett Boyce solicited Bergmann's advice regarding investment strategies for their savings. During the consultation, Bergmann mentioned that Lemons & Associates offered investors a high return by investing in promissory notes secured by first deeds of trust.

Fred and Harriett Boyce invested $113,000 with Lemons & Associates. Harriett Boyce also invested $17,000 on behalf of her daughter Martha Boyce. Lemons & Associates eventually became insolvent, and Steve Lemons was incarcerated.

The Boyces sued Bergmann, alleging six causes of action against him. ¹ Bergmann moved to dismiss the complaint pursuant to NRCP 12(b)(5) for failure to state a claim upon which relief can be granted. The trial court denied the motion. Prior to trial, Bergmann made an unapportioned joint offer of judgment pursuant to NRCP 68. ² The Boyces did not accept the offer.

After the Boyces presented their case-in-chief, the trial court dismissed three of their claims pursuant to NRCP 41(b). ³ Additionally, the trial court dismissed Martha Boyce's claim because she did not have standing to sue Bergmann. The trial court also refused to give an instruction regarding attorney malpractice, effectively dismissing that claim. Of the six original claims, only the claim for negligent misrepresentation was submitted to the jury. The jury found that Bergmann was not liable on this theory.

Bergmann moved for an award of attorney's fees pursuant to NRS 18.010(2)(b), NRCP 11, and NRCP 68. The trial court denied the award of fees pursuant to NRS 18.010(2)(b) and NRCP 11 because the Boyces' complaint had survived the NRCP 12(b)(5) motion to dismiss and because the court dismissed only a few of the Boyces' claims pursuant to NRCP 41(b). The trial court held that Bergmann was not entitled to recover attorney's fees pursuant to NRCP 68 because Bergmann's unapportioned joint offer of judgment was invalid. However, the trial court did award Bergmann his costs.

DISCUSSION

A. NRS 18.010(2)(b).

A trial court "may make an allowance of attorney's fees to a prevailing party ... when the court finds that the claim ... of the opposing party was brought without reasonable ground or to harass the prevailing party." NRS 18.010(2)(b). The decision whether to award attorney's fees is within the sound discretion of the trial court. County of Clark v. Blanchard Constr. Co., 98 Nev. 488, 492, 653 P.2d 1217, 1220 (1982); see National Tow v. Integrity Ins. Co., 102 Nev. 189, 191, 717 P.2d 581, 583 (1986). However, where a trial court exercises its discretion in clear disregard of the guiding legal principles, this action may constitute an abuse of discretion. Franklin v. Bartsas Realty, Inc., 95 Nev. 559, 562-63, 598 P.2d 1147, 1149 (1979); Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447, 2460, 110 L.Ed.2d 359 (1990) ("A district court would necessarily abuse its discretion if it based its ruling on an erroneous view of the law...."); Gakiya v. Hallmark Properties, Inc., 68 Haw. 550, 722 P.2d 460, 463 (Haw.1986) (disregarding rules or principles of law to substantial detriment of a party litigant constitutes abuse of discretion). In the instant case, the trial court applied an incorrect legal standard in determining whether it should award attorney's fees under NRS 18.010(2)(b).

A trial court may dismiss a complaint pursuant to NRCP 12(b)(5) only if it appears to a certainty that a plaintiff can prove no set of facts which would entitle him to relief. Edgar v. Wagner, 101 Nev. 226, 228, 699 P.2d 110, 112 (1985). All allegations pled must be accepted as true. Capital Mortgage Holding v. Hahn, 101 Nev. 314, 315, 705 P.2d 126, 126 (1985). In denying Bergmann's motion to dismiss on the pleadings, the trial court acknowledged that it engaged in a restricted analysis. The trial court noted that the parties had raised "a legion of factual matters which have not been subjected to even the barest form of discovery."

The standard applied to a motion to dismiss on the pleadings differs from the standard applied to a post-judgment motion for attorney's fees. In assessing a motion to dismiss, the trial court assumes that the underlying facts support the allegations of the complaint. In assessing a motion for attorney's fees under NRS 18.010(2)(b), the trial court must determine whether the plaintiff had reasonable grounds for its claims. Such an analysis depends upon the actual circumstances of the case rather than a hypothetical set of facts favoring plaintiff's averments. See Western United Realty, Inc. v. Isaacs, 679 P.2d 1063, 1069 (Colo.1984); Fountain v. Mojo, 687 P.2d 496, 501 (Colo.Ct.App.1984) (A claim is groundless if "the complaint contains allegations sufficient to survive a motion to dismiss for failure to state a claim, but which are not supported by any credible evidence at trial."). Thus, the fact that the Boyces' complaint survived a 12(b)(5) motion to dismiss was irrelevant to the trial court's inquiry as to whether the claims of the complaint were groundless. The trial court could not base its refusal to award attorney's fees upon the 12(b)(5) ruling.

The trial court also based its refusal to award fees upon the fact that it dismissed only a few of the Boyces' claims for failure to present sufficient evidence. In fact, only one of the Boyces' claims survived the trial. The prosecution of one colorable claim does not excuse the prosecution of five groundless claims. Trus Joist Corp. v. Safeco Ins. Co. of Am., 153 Ariz. 95, 735 P.2d 125, 140 (Ct.App.1986) (case remanded for trial court to apportion attorney's fees between grounded and groundless claims); Department of Revenue v. Arthur, 153 Ariz. 1, 734 P.2d 98, 101 (Ct.App.1986) ("The fact that not all claims are frivolous does not prevent an award of attorneys' fees."); Fountain v. Mojo, 687 P.2d at 501 ("[A] prevailing party must be afforded an opportunity to establish a reasonable proration of attorney fees incurred relative to the defense of a frivolous or groundless claim."). If, on remand, the trial court finds that some of the Boyces' claims were groundless, it should allocate Bergmann's attorney's fees between the grounded and groundless claims. The trial court may then exercise its discretion in determining the amount to award Bergmann for defense of the groundless claims. See Hornwood v Smith's Food King No. 1, 107 Nev. 80, 87, 807 P.2d 208, 213 (1991).

The record contains ample evidence to support a finding that some of the Boyces' claims were groundless. Because the trial court's application of an incorrect legal standard may have substantially affected Bergmann's rights, we cannot consider the trial court's error to be harmless. NRCP 61.

B. NRCP 11. ⁴

When an attorney violates NRCP 11, the court "shall impose" upon the attorney, the represented party, or both, "an appropriate sanction," which may include a "reasonable attorney fee." NRCP 11. As with an award of attorney's fees under NRS 18.010(2)(b), this court must review the decision of the trial court under an "abuse of discretion" standard. Cooter & Gell, 496 U.S. at 405, 110 S.Ct. at 2460; see Marshall v. District Court, 108 Nev. 459, 466, 836 P.2d 47, 52 (1992). Bergmann contends that the trial court abused its discretion by basing its ruling on an erroneous view of the law. Cooter & Gell, 496 U.S. at 405, 110 S.Ct. at 2460. We agree.

The trial court denied Bergmann attorney's fees under NRCP 11 "[f]or the reasons cited in the discussion of NRS 18.010(2)(b)." NRCP 11 sanctions should be imposed for frivolous actions. Marshall v. District Court, 108 Nev. at 465, 836 P.2d at 52. A frivolous claim is one that is "both baseless and made without a reasonable and competent inquiry." Townsend v. Holman Consulting Corp., 929 F.2d 1358, 1362 (9th Cir.1990); see Golden Eagle Distrib. Corp. v. Burroughs Corp., 801 F.2d 1531, 1537 (9th Cir.1986). Thus, a determination of whether a claim is frivolous involves a two-pronged analysis: (1) the court must determine whether the pleading is "well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification or reversal of existing law" (see Golden Eagle, 801 F.2d at 1537); and (2) whether the attorney made a reasonable and competent inquiry.

The first prong of this test has a component which is similar to the analysis required under NRS 18.010(2)(b): The trial court must examine the actual circumstances surrounding the case to determine whether...