Home Sav. Ass'n v. Aetna Cas. and Sur. Co.

• Decision Date: 15 June 1993
• Docket Number: No. 21569,21569
• Citation: 109 Nev. 558,854 P.2d 851
• Parties: HOME SAVINGS ASSOCIATION, Nevada Savings and Loan Association, and H.S. Services Corporation, Appellants, v. AETNA CASUALTY AND SURETY COMPANY, Respondent.
• Court: Nevada Supreme Court

Page 851

854 P.2d 851

109 Nev. 558

HOME SAVINGS ASSOCIATION, Nevada Savings and Loan Association, and H.S. Services Corporation, Appellants, v. AETNA CASUALTY AND SURETY COMPANY, Respondent.

No. 21569.

Supreme Court of Nevada.

June 15, 1993.

Beckley, Singleton, DeLanoy, Jemison & List, Las Vegas, for appellants.

Beasley, Holden & Brooks, Reno, for respondent.

OPINION

PER CURIAM:

Facts

In 1976, H.S. Service Corporation (H.S.) constructed a 301 unit apartment complex known as the Forest Lane Apartments. While H.S. was the general contractor on the project, the actual construction work was performed by independent subcontractors, and H.S. provided only inspection services. Following completion of the building in 1977, the building was sold to Marlene Michaels, who, through a triple escrow transferred the property to Forest Lane Associates (Forest Lane), a limited partnership. Building code violations resulted in substantial portions of the apartment complex being condemned. In 1979, Forest Lane commenced a suit against H.S. and its parent corporation, Home Savings Association (Home Savings). Home Savings had financed the construction of the Forest Lane Apartments, and it provided the permanent financing. Between October 13, 1977, and March 10, 1981, H.S. and Home Savings were insured by Aetna Casualty and Surety Company (Aetna) under various policies, including a primary policy and an excess umbrella policy. Although the property damage, which manifested itself first in May, 1978, was within the policy period of both the primary policy and the excess umbrella policy, Aetna denied coverage on both policies and declined to defend the lawsuit for either H.S. or Home Savings.

On November 6, 1986, Forest Lane obtained a judgment pursuant to a jury verdict of $9,318,507.14, with an additional award of $1,000,000.00 in punitive damages, against H.S. and Home/Nevada. ¹ Pre-litigation costs totaled $5,997.18 and were paid by Home Savings. From the commencement of the Forest Lane litigation through September 30, 1982, litigation defense costs amounted to roughly $165,000.00 and were paid by Home Savings. After the merger of Home Savings and Nevada Savings in 1982, Home/Nevada obtained new legal counsel, and from September 30, 1982, until August 19, 1983, defense costs amounting to roughly $174,000.00 were paid by Home/Nevada. In 1983, Home/Nevada retained separate counsel, John O'Brien (O'Brien), and H.S. continued to employ Beckley, Singleton, DeLanoy, Jemison & List (Beckley, Singleton), the law firm that had been conducting H.S. and Home/Nevada's joint defense since the Home/Nevada merger. From August, 1983, through December 20, 1985, Home/Nevada paid defense costs of approximately $84,000.00 incurred by John O'Brien, $413,000.00 incurred by Beckley, Singleton on behalf of H.S., and $135,000.00 incurred jointly by both parties. Beginning in 1986, H.S. paid costs of roughly $64,000.00 incurred by Home/Nevada, $331,000.00 incurred by H.S., and $190,000.00 incurred jointly by both parties. In total, Home Savings paid approximately $170,000.00 in defense costs, Home/Nevada paid approximately $820,000.00, and H.S. paid approximately $587,000.00.

Meanwhile, on November 13, 1981, H.S. and Home Savings brought a declaratory action against Aetna seeking a declaration of coverage and of a duty to defend. On December 22, 1983, Home Savings, H.S., and Home/Nevada filed an amended complaint. The district court bifurcated the action pursuant to NRCP 42(b), and H.S. proceeded alone against Aetna. On June 22, 1984, the district court issued its decision in favor of H.S., stating it would be willing to entertain: (1) a motion for certification of finality by H.S. under NRCP 54(b), and (2) a motion for summary judgment by Home/Nevada. On October 2, 1984, the district court entered a final judgment in favor of H.S. pursuant to NRCP 54(b) declaring H.S. to be covered by the Aetna policy for the Forest Lane claims and declaring Aetna to owe H.S. a duty to defend the claims. Home/Nevada failed to timely pursue summary judgment.

Aetna appealed the district court's judgment in favor of H.S. to this court, and on February 6, 1987, we ordered the appeal dismissed. Subsequently, Aetna agreed to permit its attorney to make a limited appearance on behalf of Home/Nevada in Home/Nevada and H.S.'s joint appeal from the Forest Lane judgment.

On July 10, 1987, H.S.'s attorneys, Beckley, Singleton, sent a request to Aetna for reimbursement for H.S. and Home/Nevada's attorney's fees of $1,153,967.34. Aetna's attorney responded with a letter dated July 21, 1987, which stated that a more detailed account of costs and attorney's fees would be required before Aetna could take any action. On September 23, 1987 H.S.'s attorneys sent an itemized bill to Aetna for $1,192,833.14 in defense fees and costs. In a letter dated December 8, 1987, Aetna specifically disavowed responsibility for certain items on the bill submitted by H.S. and Home/Nevada, including attorney's fees for Home/Nevada's attorney, O'Brien. In May, 1988, Aetna informed counsel for H.S. that, in Aetna's opinion, the matter could not be resolved without judicial assistance.

On October 11, 1988, Home/Nevada moved for summary judgment as to its action for declaratory relief, stating that the district court's declaration of coverage and of a duty to defend as to H.S. was binding in Home/Nevada's suit against Aetna. On October 17, 1988, Aetna moved to dismiss, asserting that Home/Nevada's failure to bring its case to trial within five years required dismissal pursuant to NRCP 41(e). ² On January 3, 1989, the district court granted Aetna's motion and on January 6, 1989, dismissed Home/Nevada's action. Pursuant to NRCP 41(e), this dismissal was presumed to be with prejudice, because the court did not otherwise provide. Thereafter, Home/Nevada filed a motion to have the order of dismissal amended to specify that the dismissal was without prejudice. On February 15, 1989, the district court denied this motion.

Meanwhile, on November 10, 1988, Home Savings filed a second complaint against Aetna seeking both declaratory relief and damages for breach of contract and bad faith. On November 7, 1989, Aetna filed a motion for partial summary judgment against both Home/Nevada and H.S. with respect to the legal fees incurred by both parties from March 8, 1979, through December 20, 1985, and paid by Home Savings and Home/Nevada. With respect to Home/Nevada, Aetna alleged that the NRCP 41(e) dismissal precluded any recovery. In the alternative, Aetna alleged that any action based on Home/Nevada's second complaint was barred by the six-year statute of limitations for contract actions set forth in NRS 11.190(1)(b) ³. With respect to H.S., Aetna alleged that H.S. lacked standing for its claim because its fees were paid by either Home Savings or Home/Nevada during that period, and that consequently, H.S. suffered no damages.

In response to Aetna's motion for partial summary judgment, Home/Nevada and H.S., on December 15, 1989, filed their own motion for partial summary judgment. On April 11, 1990, the district court granted Aetna's motion for partial summary judgment and denied H.S. and Home/Nevada's motion. The district court found that, because H.S.'s attorney's fees prior to December 20, 1985, were paid by either Home Savings or Home/Nevada, H.S. was not damaged and was not entitled to reimbursement of these fees. The district court determined that H.S. could only recover those costs and attorney's fees paid by H.S. after January 1, 1986. The district court also determined that both the NRCP 41(e) dismissal and the statute of limitations barred Home/Nevada's claim for defense costs and fees, and that judgment should be entered against it. The district court refused Home/Nevada's invitation to treat the NRCP 41(e) dismissal as being "without prejudice."

In order to facilitate immediate review of the district court's rulings by resolving with finality all the claims of all the parties, on September 10, 1990, Home/Nevada, H.S., and Aetna entered into a "Stipulation for Dismissal," which was signed by the district judge as an order. The parties agreed that the order of April 11, 1990, determined that: (1) H.S. was not entitled to attorney's fees and costs paid by Home Savings and Home/Nevada between March 8, 1979, and December 20, 1985; (2) H.S. had no claim in tort against Aetna, and therefore no recovery of punitive damages would be available; and (3) Home/Nevada's claims were barred by the statute of limitations and by the prior NRCP 41(e) dismissal with prejudice. H.S. and Home/Nevada then appealed from the September 10, 1990, order and all other orders made final and appealable through that order.

Discussion

Because Home/Nevada did not bring its case to trial within five years of the filing of the complaint, the district court was required to dismiss the action pursuant to NRCP 41(e), as dismissal in such a case is mandatory. See Erickson v. One Thirty-Three, Inc., 104 Nev. 755, 757, 766 P.2d 898, 899-900 (1988). However, the district court has discretion under NRCP 41(e) to dismiss with or without prejudice. See Lighthouse v. Great W. Land & Cattle, 88 Nev. 55, 57, 493 P.2d 296, 296-97 (1972). NRCP 41(e) was enacted as a measure of preventing unreasonable and unnecessary delays in the prosecution of a lawsuit. See Massey v. Sunrise Hospital, 102 Nev. 367, 369, 724 P.2d 208, 209 (1986). Because the law favors trial on the merits, however, dismissal with prejudice may not be warranted where such delay is justified by the circumstances of the case. Circumstances which this court has considered in deciding whether to uphold a discretionary dismissal by a district judge include the conduct and good faith belief of the parties and whether the underlying action has merit. See Northern Ill. Corp. v. Miller, 78 Nev. 213, 216-17, 370 P.2d 955, 956 (1962). "[W]hen justice so requires the court may...