Five Star Capital Corp. v. Ruby

• Decision Date: 30 October 2008
• Docket Number: No. 48480.,48480.
• Parties: FIVE STAR CAPITAL CORPORATION, Appellant, v. Michael W. RUBY, Individually and as Trustee of the Ruby Revocable Trust, Respondent.
• Court: Nevada Supreme Court

194 P.3d 709

FIVE STAR CAPITAL CORPORATION, Appellant, v. Michael W. RUBY, Individually and as Trustee of the Ruby Revocable Trust, Respondent.

No. 48480.

Supreme Court of Nevada.

October 30, 2008.

Scarpello & Huss, Ltd., and Mark R. Forsberg, Carson City, for Appellant.

Thorndal, Armstrong, Delk, Balkenbush & Eisinger, and Brian K. Terry and Boone L. Cragun, Las Vegas, for Respondent.

Before the Court En Banc.¹

OPINION

By the Court, SAITTA, J.

This appeal raises the issue of whether claim preclusion applies to prevent a party from bringing a second lawsuit when the first lawsuit was dismissed under a local court rule for failure to attend a pretrial calendar call. In resolving this issue, we clarify the tests for determining when claim preclusion or issue preclusion applies. We then conclude that claim preclusion applies in the present case and therefore affirm the district court's order granting summary judgment in favor of respondent based on its ruling that claim preclusion prevents appellant from bringing this second lawsuit.

FACTS

This matter involves a dispute over a contract to purchase real property that resulted in two district court lawsuits. In the initial suit, counsel for appellant Five Star Capital Corp. (Five Star) failed to appear at a pretrial calendar call because he mistakenly went to the wrong department. When counsel failed to attend the calendar call, the district court dismissed the suit. Five Star's counsel later discovered the error and went to the correct department, but the case had already been dismissed. Five Star then filed a motion to reinstate the case, based on its discovery that the court minutes had incorrectly stated the department for the calendar call, resulting in Five Star's counsel appearing in the wrong department. The district court granted the motion and reinstated the case.

The calendar call was rescheduled for a new date. Before the second calendar call, Five Star changed counsel. At the time of the second calendar call, new counsel for Five Star also failed to appear. Respondent Michael W. Ruby, individually and as Trustee of the Ruby Revocable Trust, again requested dismissal, which was granted by the court pursuant to Eighth Judicial District Court Rule (EDCR) 2.69(c). That rule allows for an action's dismissal for failure to attend a calendar call. Apparently, Five Star's new attorneys were confused as to which one of them was to attend the conference, and thus neither appeared.

Five Star did not appeal from the dismissal order but instead filed a new action based on the same contract. Ruby subsequently filed a motion for summary judgment based on res judicata, which was granted. This appeal followed.

DISCUSSION

On appeal, Five Star contends that claim preclusion should not apply to preclude its second suit because in the first action it only sought specific performance, but in its second action it sought, in addition to specific performance, a breach of contract claim. Additionally, it contends that the first suit was not decided on the merits and therefore does not preclude a second suit. Both parties argue the application of claim preclusion under a three-factor test enunciated in University of Nevada v. Tarkanian,² which provides that

(1) the issue decided in the prior litigation must be identical to the issue presented in the current action; (2) the initial ruling must have been on the merits and have become final; and (3) the party against whom the judgment is asserted must have been a party or in privity with a party to the prior litigation.³

Subsequent to our decision in Tarkanian, however, we held that these factors only pertain to issue preclusion as opposed to claim preclusion.⁴ Thus, the parties incorrectly argue the application of claim preclusion under these factors. Notwithstanding, we recognize that there is a lack of clarity in this court's caselaw defining the proper tests for claim preclusion and issue preclusion. Accordingly, we first clarify the proper tests for both claim and issue preclusion and then address the merits of this appeal based on the application of the claim preclusion test.

History of claim and issue preclusion

The meaning of the term "res judicata" has evolved over time in the judicial system and confusion continues among courts as to what "res judicata" encompasses.⁵ In some jurisdictions the term includes both claim and issue preclusion, while in other jurisdictions claim and issue preclusion are separated, with "res judicata" referring to claim preclusion and "collateral estoppel" referring to issue preclusion.⁶ There is a growing trend towards separating the two legal doctrines and referring to them as claim and issue preclusion in order to avoid confusion.⁷ This change of terminology to claim and issue preclusion is useful, as the two doctrines have different preclusive effects.⁸

Nevada's caselaw has similarly blurred the concepts of claim and issue preclusion but has moved towards adopting the terminology of claim and issue preclusion as separate legal doctrines. For many years the term "res judicata" was used to refer to either claim or issue preclusion. In the seminal res judicata case, University of Nevada v. Tarkanian, the court recognized a difference between claim and issue preclusion but still stated that both claim and issue preclusion fell under the doctrine of res judicata, stating that the concepts were "two different species of res judicata."⁹ The Tarkanian court enunciated the three-factor test outlined above but stated that the factors applied to res judicata generally; the court did not create different tests for claim and issue preclusion. The court, however, went on to outline differences between claim and issue preclusion.

In addressing claim preclusion, the Tarkanian court stated that the doctrine "is triggered when a judgment is entered. A valid and final judgment on a claim precludes a second action on that claim or any part of it."¹⁰ Further, the court recognized that the claim preclusion doctrine "embraces all grounds of recovery that were asserted in a suit, as well as those that could have been asserted, and thus has a broader reach" than the issue preclusion doctrine.¹¹ In regards to issue preclusion, the Tarkanian court noted that it could apply when issues addressed in an earlier suit arose in a later suit between the parties. In order for issue preclusion to apply, there must be a common issue that "was actually decided and necessary to the judgment in the earlier suit. . . ."¹² This court emphasized that "[t]he doctrine provides that any issue that was actually and necessarily litigated in one action will be estopped from being relitigated in a subsequent suit."¹³

Following the Tarkanian decision, this court again addressed claim and issue preclusion in Executive Management v. Ticor Title Insurance Co.¹⁴ In Executive Management, the court recognized that the term "res judicata" refers to only claim preclusion¹⁵ and reiterated the explanation of differences between claim and issue preclusion previously outlined in Tarkanian.¹⁶ The court held that the three-part test stated in Tarkanian applied to issue preclusion only, not claim preclusion.¹⁷ While no definitive test for claim preclusion was set forth, the opinion contains the following summary:

Pursuant to the rule of claim preclusion, a valid and final judgment on a claim precludes a second action on that claim or any part of it. Claim preclusion applies when a second suit is brought against the same party on the same claim. . . . We have further stated that the modern view is that claim preclusion embraces all grounds of recovery that were asserted in a suit, as well as those that could have been asserted, and thus has a broader reach than issue preclusion.¹⁸

Thereafter, in LaForge v. State, University System, this court reaffirmed that the Tarkanian three-factor test only applied to issue preclusion.¹⁹ It also clarified issue preclusion further, stating that "[i]ssue preclusion may apply `even though the causes of action are substantially different, if the same fact issue is presented.'"²⁰ The LaForge opinion did not discuss claim preclusion.

The lack of a clear test for claim preclusion was further evident in Ayala v. Caesars Palace, when, in a footnote citing to Executive Management, the court stated that the test for claim preclusion was the same as for issue preclusion, except that it "embraces not only the grounds of recovery that were asserted in the prior suit but those that could have been asserted."²¹ This statement conflicted with the holding in Executive Management that the test pronounced in Tarkanian was only for determining whether issue preclusion applies.

Finally, in Edwards v. Ghandour,²² this court recently articulated a four-factor test for applying claim preclusion: "(1) whether the parties are the same, (2) whether the first and second complaint are based on the same set of common facts, (3) whether the same relief is sought in the two complaints, and (4) whether an identity of causes of action exists between the two complaints."²³ Edwards cites to a 1965 opinion, Zalk-Josephs Co. v. Wells Cargo, Inc.,²⁴ as support for this test. While Zalk-Josephs relied on these factors to conclude that res judicata applied in that case, the factors were referred to in an effort to show the similarity between the cases filed, not as a strict test for application of claim preclusion. Thus, Edwards improperly relied on Zalk-Josephs for its four-factor test, when that case did not provide sufficient authority to support such a test.²⁵

Furthermore, while Edwards finally sets forth a test for claim preclusion, the test is overly rigid in light of the purposes of claim preclusion previously established by this court. In particular, the third factor could be interpreted in such a way that a party could avoid claim preclusion by merely adding an additional claim for relief in their second suit. Such an...