Foster v. Dingwall

• Decision Date: 25 February 2010
• Docket Number: No. 50166.,50166.
• Citation: 227 P.3d 1042
• Court: Nevada Supreme Court
• Parties: Ronald FOSTER; Patrick Cochrane; and Frederick Dornan, Appellants, v. Terry DINGWALL, an Individual, and Derivatively on behalf of Innovative Energy Solutions, Inc.; Michael Harman, Special Master, Hyun Ik Yang; and Hyunsuk Chai, Respondents.

227 P.3d 1042

Ronald FOSTER; Patrick Cochrane; and Frederick Dornan, Appellants, v. Terry DINGWALL, an Individual, and Derivatively on behalf of Innovative Energy Solutions, Inc.; Michael Harman, Special Master, Hyun Ik Yang; and Hyunsuk Chai, Respondents.

No. 50166.

Supreme Court of Nevada.

February 25, 2010.

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Bailus Cook & Kelesis, Ltd., and Marc P. Cook, Las Vegas, for Appellants Ronald Foster and Patrick Cochrane.

Holland & Hart LLP and J. Stephen Peek, Matthew J. Kreutzer, and Janet L. Rosales, Las Vegas, for Appellant Frederick Dornan.

Buchalter Nemer and Michael L. Wachtell, Los Angeles, CA, for Respondent Michael Harman.

Howard & Howard, PC, and James A. Kohl, Las Vegas, for Respondents Hyun Ik Yang and Hyunsuk Chai.

Lewis & Roca LLP and Daniel F. Polsenberg and Dan R. Waite, Las Vegas, for Respondent Terry Dingwall.

BEFORE THE COURT EN BANC.

OPINION

By the Court, HARDESTY, J.:

In this opinion, we address two main issues. First, we consider whether an order to strike appellants' pleadings was a proper discovery sanction in this case. Second, we address the burden of proof that a party must satisfy at an NRCP 55(b) prove-up hearing to establish damages, following the entry of default.

Because we conclude that appellants' conduct during discovery was repetitive, abusive, and recalcitrant, we uphold the district court's decision to strike the pleadings and enter default. We clarify that after an entry of default, at an NRCP 55(b)(2) prove-up hearing, the nonoffending party retains the burden of presenting sufficient evidence to establish a prima facie case for each cause of action as well as demonstrating by substantial evidence that damages are attributable to each claim. Accordingly, we uphold the award of compensatory damages to respondent Terry Dingwall because Dingwall presented a prima facie case for damages on each cause of action, which included substantially demonstrating that he was entitled to the relief sought. However, we reverse the compensatory damage award to respondents Hyun Ik Yang and Hyunsuk Chai because it was duplicative and because no evidence was presented to show the relationship between the tortious conduct and the requested award.

FACTS AND PROCEDURAL HISTORY

The underlying suit arose in August 2005 when Innovative Energy Solutions, Inc. (IESI), a full-service energy corporation, filed a suit against, among others, Dingwall, a director of IESI. In its complaint, IESI alleged that Dingwall breached his corporate fiduciary duties, usurped corporate opportunities, and engaged in civil conspiracy and conversion. On behalf of IESI, Dingwall filed an amended answer and third-party complaint, where he asserted claims¹ against appellants Frederick Dornan, Ronald Foster, and Patrick Cochrane, other directors of IESI, in their individual capacities. After Dingwall filed his third-party complaint, IESI shareholders Yang and Chai moved to intervene in the action. The district court granted the motion to intervene, and Yang and Chai asserted derivative claims on behalf of IESI and individual claims against Dornan, Foster, and Cochrane. Subsequently, Yang and Chai moved the district court for an appointment of a receiver alleging that IESI was mismanaging the corporate assets; however, the parties later agreed that a special master should be appointed to examine the records of IESI.

During discovery in November 2006, the parties agreed that depositions of Dornan, Foster, and Cochrane would occur on specified dates in January 2007. Dingwall's counsel agreed to fly to Canada to depose Dornan and Cochrane in their hometown and to depose Foster in Las Vegas, Nevada.

In December 2006, counsel for Dornan, Foster, and Cochrane moved the court to withdraw due to unpaid legal fees. While awaiting the court's decision on the motion, counsel for Dornan, Foster, and Cochrane notified Dingwall that the depositions could not proceed as scheduled because IESI's counsel was also withdrawing and IESI needed to retain new corporate counsel. In response, Dingwall expressed his intent to proceed with the depositions, maintaining that withdrawal of IESI's counsel had no affect on the depositions, and travel had already been arranged and expenses incurred.

After counsel for Dornan and Cochrane again informed Dingwall that neither Dornan nor Cochrane would be available for their depositions in Canada, Dingwall stated that he would proceed with the depositions unless the court issued a protective order. Dingwall also warned Dornan's and Cochrane's counsel that if they failed to attend without obtaining a protective order, he would seek severe sanctions, including striking all pleadings and an entry of default. A protective order was not obtained, and neither Dornan nor Cochrane appeared for his deposition.

Similarly, Foster also stated that he would not attend his deposition, citing his inability to afford legal counsel to represent him. Additionally, Foster notified Dingwall that IESI had filed for bankruptcy. In response, Dingwall maintained that Foster's inability to afford legal representation did not excuse him from attending his scheduled deposition, and absent a protective order, the deposition would continue as scheduled. Dingwall further informed Foster that if Foster failed to attend, he would seek sanctions, including a request to strike all pleadings. Foster replied, stating that he would nevertheless not attend his deposition because of health concerns. Foster did not appear for his deposition and no protective order was entered. During this time, Dornan, Foster, and Cochrane had also failed to provide complete responses to Dingwall's interrogatories and failed to produce requested documents.

The court ultimately granted Dornan, Foster, and Cochrane's counsel's motion to withdraw. Dornan, Foster, and Cochrane's counsel drafted the formal order granting the withdrawal motion, which the court signed on January 12, 2007. In the order, counsel listed a Henderson, Nevada, address where Dornan, Foster, and Cochrane could receive further notice. Also included in the withdrawal order was the following statement: "IT IS FURTHER ORDERED ADJUDGED AND DECREED, that the deposition of Counterdefendant/Third Party defendant, Ronald Foster is currently scheduled for January 18, 2007. (Stay pursuant to Bankruptcy filing)."² (Emphasis added.)

Thereafter, due to Dornan's, Foster's, and Cochrane's failures to appear for their noticed depositions and other alleged discovery violations, Dingwall filed his first motion seeking to strike the pleadings and enter default. Shareholders Yang and Chai joined. Neither Dornan, Foster, nor Cochrane opposed Dingwall's motion for sanctions. Thus, pursuant to Eighth Judicial District Court Rule (EDCR) 2.20(b), as it existed in 2007,³ the court deemed all allegations in Dingwall's motion admitted.

On March 1, 2007, the court entered an order issuing lesser sanctions against Dornan, Foster, and Cochrane and did not strike the pleadings at that time. The court clarified any confusion as to the January 12, 2007, withdrawal order, by deleting the "Stay pursuant to Bankruptcy filing" language because the stay did not apply to Dornan, Foster, and Cochrane. The court also compelled Dornan, Foster, and Cochrane to supplement their previously deficient responses to interrogatories and requests for production of documents within 10 days. In addition, the court ordered Dornan, Foster, and Cochrane to attend depositions within 30 days. The court expressly warned Dornan, Foster, and Cochrane about their discovery tactics, finding, in part, that they had been acting in bad faith. The court warned that Dornan's, Foster's, and Cochrane's failures to comply with the court's order would result in further sanctions, including an order to strike their pleadings and entry of judgment against them, including an award of fees and costs. Dingwall faxed and mailed multiple copies of the order to Dornan, Foster, and Cochrane at both the designated Henderson address and at IESI's address in Canada.

Dornan, Foster, and Cochrane failed to comply with the court's order. Dornan and Cochrane failed to attend their court-mandated depositions, despite the court's clarification that IESI's bankruptcy stay did not affect Dornan's, Foster's, and Cochrane's discovery obligations. And although Foster attended his deposition, the court determined that Foster refused to answer many relevant questions. In addition, Dornan, Foster, and Cochrane did not supplement their responses to interrogatories or requests for production of documents.

As a result, Dingwall filed a second motion seeking sanctions, again requesting that the court strike the pleadings against Dingwall and enter default against Dornan, Foster, and Cochrane. Neither Dornan, Foster, nor Cochrane opposed Dingwall's motion. Consequently, the court held an evidentiary hearing on the factors set forth in Young v. Johnny Ribeiro Building, 106 Nev. 88, 93, 787 P.2d 777, 780 (1990), to determine whether the sanction was proper. Following the evidentiary hearing, the court granted Dingwall's second sanction motion and struck Dornan's, Foster's, and Cochrane's pleadings and entered default against them. The court also announced that it would hold an NRCP 55(b)(2) prove-up hearing to determine the amount of damages.

At the subsequent prove-up hearing, the court first heard from Dingwall, who testified that he had worked with a certified public accountant to calculate an estimate of damages. He also presented demonstrative evidence to show how his asserted causes of action related to the damages sought. Second, the court heard from Yang, who testified that his derivative claims were based on the testimony and evidence presented by Dingwall.

Thereafter, the court entered a judgment detailing its findings of fact, conclusions of law, and award of damages. The court ultimately awarded Dingwall,...