Paws Up Ranch, LLC v. Martin

• Decision Date: 31 May 2020
• Docket Number: Case No. 2:18-cv-01101-RFB-EJY
• Citation: Paws Up Ranch, LLC v. Martin, 463 F.Supp.3d 1160 (D. Nev. 2020)
• Parties: PAWS UP RANCH, LLC, et al., Plaintiffs, v. Jonthan B. MARTIN, Defendant.
• Court: U.S. District Court — District of Nevada

463 F.Supp.3d 1160

PAWS UP RANCH, LLC, et al., Plaintiffs,

v.Jonthan B. MARTIN, Defendant.

Case No. 2:18-cv-01101-RFB-EJY

United States District Court, D. Nevada.

Signed May 31, 2020

D. Chris Albright, Daniel Reed Ormsby, Jorge L. Alvarez, Mark Albright, Albright Stoddard Warnick & Albright, Las Vegas, NV, for Plaintiffs.

Michael Paretti, Paul Swenson Prior, Snell & Wilmer, LLP, Las Vegas, NV, for Defendant.

ORDER

RICHARD F. BOULWARE, II, UNITED STATES DISTRICT JUDGE

I.INTRODUCTION

Before the Court is Plaintiffs' Motion to Certify Questions of Law to the Supreme Court of Nevada(ECF No. 51) and the parties' supplemental briefing on the application of Nevada Revised Statute 613.195(5)andGolden Road Motor Inn, Inc. v. Islam, 132 Nev. 476, 376 P.3d 151(2016) to the instant action.The Court denies the motion and concludes that NRS 613.195(5) may not be applied to the noncompete covenant at issue in this case, as such application would be an impermissible retroactive application.

II.PROCEDURAL BACKGROUND

On June 21, 2018, Defendant removed this matter from state court.ECF No. 1.Plaintiffs renewed a Motion for Preliminary Injunction and Temporary Restraining Order on January 2, 2019, ECF Nos. 27, 28, and a hearing was held on these and other motions on January 7, 2019, at which the Court denied the motions without prejudice, ECF No. 40.The Court subsequently requested supplemental briefing on the application of Nevada Revised Statutes 613.195(5)andGolden Road Motor Inn, Inc. v. Islam, 132 Nev. 476, 376 P.3d 151(2016) to this case.ECF No. 41.The Court stayed discovery pending resolution of the issue.Id.The parties filed their supplemental briefs on February 15, 2019.ECF Nos. 47, 48.Plaintiffs filed a "reply" to Defendant's brief on March 1, 2019, ECF No. 49, and Defendant filed a "response" to Plaintiffs' initial brief that same day, ECF No. 50.

Also on that day, Plaintiffs filed the instant Motion to Certify Questions of Law to the Supreme Court of Nevada.ECF No. 51.Defendant responded on March 15, 2019, ECF No. 52, and Plaintiffs replied on March 29, 2019, ECF No. 56.

III.FACTUAL BACKGROUND

In November 2015, Defendant began working for PlaintiffPaws Up Ranch, LLC as General Manager – Guest Relations.The Employment Agreement between Defendant and Plaintiffs became effective on December 22, 2015 and provided for a separately executed Confidentiality, Non-Solicitation and Non-Compete Agreement, which also became effective December 22, 2015.The Non-Compete agreement states in pertinent part:

In the event of a termination of this agreement by COMPANY or EMPLOYEE, and as specific condition of employment, EMPLOYEE agrees that EMPLOYEE will not compete against COMPANY by performing services for hospitality organizations in any manner within 300 miles of Missoula County, Montana, for a period of three (3) years from the date of the termination of this employment.

Defendant remained employed with Paws Up Ranch, LLC for sixteen months.In April 2017, he voluntarily terminated his employment.In or about March 2018, Defendant left his employment at The Resort at Pelican Hill in Newport, California, and accepted employment as the General Manager of The Ranch, located less than fifty miles from Paws Up Ranch, LLC.

IV.LEGAL STANDARD

Pursuant to Rule 5 of the Nevada Rules of Appellate Procedure("Rule 5"), a United States District Court may certify a question of law to the Nevada Supreme Court"upon the court's own motion or upon the motion of any party to the cause."Nev. R. App. P. 5(a)—(b).Under Rule 5, the Nevada Supreme Court has the power to answer such a question that "may be determinative of the cause then pending in the certifying court and ... [where] it appears to the certifying court there is no controlling precedent in the decisions of the Supreme Court of this state."Nev. R. App. P. 5(a).Rule 5 also provides that a certification order must specifically address each of six requirements:

(1) The questions of law to be answered;

(2) A statement of all facts relevant to the questions certified; (3) The nature of the controversy in which the questions arose;

(4) A designation of the party or parties who will be the appellant(s) and the party or parties who will be the respondent(s) in the Supreme Court;

(5) The names and addresses of counsel for the appellant and respondent; and

(6) Any other matters that the certifying court deems relevant to a determination of the questions certified.

Nev. R. App. P. 5(c).

V.DISCUSSION

After the hearing at which the Court denied Plaintiffs' preliminary injunction and temporary restraining order seeking to enjoin Defendant's employment with The Ranch, the Court requested supplemental briefing on the application of NRS 613.195(5)andGolden Road Motor Inn, Inc. v. Islam, 132 Nev. 476, 376 P.3d 151(2016) to the instant action.ECF No. 41.Before the Court had concluded whether and how NRS 613.195(5)andGolden Road apply to the instant action based on the supplemental briefing, Plaintiffs filed the instant Motion to Certify Questions to the Supreme Court of Nevada.As the issues raised in both sets of briefs are essentially identical, the Court considers both the arguments raised in the supplemental briefing and those raised in the instant motion to determine whether the applicability of the statute and Golden Road can be readily ascertained, and if not, whether it is appropriate to certify the proposed questions to the Supreme Court of Nevada.

Plaintiffs seek to certify the following questions of law to the Supreme Court of Nevada:

(1) Whether prospective application of NRS 613.195(5) should be effective upon the date the noncompetition covenant was entered into, the date the alleged breach of the noncompetition covenant occurred, or the date the employer brings an action seeking enforcement.

(2) Whether NRS 613.195(5) is to be applied "retroactively" to noncompetition covenants written prior to the statute's enactment, or is the statute only to be applied prospectively to noncompetition covenants entered into after the statute's enactment; [and]

(3) Whether NRS 613.195(5) provides an equitable remedy of reformation which is to be applied retroactively since it does not impair vested rights.

ECF No. 51at 11.

Nevada Revised Statute 613.195 became effective on June 3, 2017 and governs noncompetition covenants.It states, inter alia :

If an employer brings an action to enforce a noncompetition covenant and the court finds the covenant is supported by valuable consideration but contains limitations as to time, geographical area or scope of activity to be restrained that are not reasonable, impose a greater restraint than is necessary for the protection of the employer for whose benefit the restraint is imposed and impose undue hardship on the employee, the court shall revise the covenant to the extent necessary and enforce the covenant as revised.Such revisions must cause the limitations contained in the covenant as to time, geographical area and scope of activity to be restrained to be reasonable and to impose a restraint that is not greater than is necessary for the protection of the employer for whose benefit the restraint is imposed.

Nev. Rev. Stat. § 613.195(5).

The statute very clearly overturns a portion of the Supreme Court of Nevada's holding in Golden Rd. Motor Inn, Inc. v. Islam, 132 Nev. 476, 376 P.3d 151, 156(2016) in which it reiterated that "an unreasonable provision renders [a] noncompete agreement wholly unenforceable."Thus, while before the statute's passage, the law in Nevada did not permit courts to "blue pencil" a noncompete covenant in order to change or limit unreasonable provisions while still giving the covenant effect, after the passage of § 613.195(5), courts are required to "revise the covenant to the extent necessary and enforce" it as revised.

Thus, one critical issue in the present action is whether the statute applies to the noncompete at issue.In the supplemental briefing ordered by the Court, Plaintiffs argue that Golden Road does not preclude the enforcement of the instant noncompete, as its holding as to the unreasonableness of a non-compete agreement that "extends beyond what is necessary to protect [a company's] interest" is still good law, NRS 613.195(5) now permits courts to blue line those provisions to render them reasonable.ECF No. 47at 4-6.Plaintiffs further assert that Golden Road is inapposite, as it did not provide a per se rule as to unreasonableness, but instead reiterated the necessity of a fact-based inquiry to determine reasonableness, and the instant noncompete is reasonable as to time, geographical area, and scope of the activity to be restrained.Id. at 6-10.Further, even if Golden Road were applicable, a Nevada trial court held that it does not apply in the context of a limited specialized industry with a small niche clientele.Id. at 10-12(citing SSA Architecture, Small Studio Associates, LLC v. Hillyer, No. 18A771578, 2018 WL 5729032, at *1–2(Nev. Dist. Ct.Sep. 28, 2018) ).Finally, Plaintiffs assert that even if the Court finds the noncompete is unreasonable, the statute applies and permits the Court to blue pencil the agreement, as the statute is remedial in nature, and does not create a new substantive right.Id. at 12-15;ECF No. 49at 8-11.

In his supplemental briefing, Defendant argues Golden Road applies and the statute does not, and that Golden Road mandates a finding that the noncompete is unreasonable and therefore unenforceable.ECF No. 48at 1.Specifically, Defendant argues that the statute imposes a new duty on courts to revise an unreasonable noncompete, which impairs Defendant's right to have the entire agreement deemed unenforceable in accordance with governing law at the time he entered into the covenant, thereby rendering the statute's application to the noncompete retroactive.Id. at 4-5.Thus, because the legislature did not intend the statute to apply retroactively, it cannot be applied to ...