Rio Properties, Inc. v. Stewart Annoyances, Ltd.

• Decision Date: 03 March 2006
• Docket Number: No. 2:01 CV 0459 LRH PAL.,2:01 CV 0459 LRH PAL.
• Citation: 420 F.Supp.2d 1127
• Parties: RIO PROPERTIES, INC., a Nevada corporation, Plaintiff, v. STEWART ANNOYANCES, LTD., et al. Defendants.
• Court: U.S. District Court — District of Nevada

420 F.Supp.2d 1127

RIO PROPERTIES, INC., a Nevada corporation, Plaintiff, v. STEWART ANNOYANCES, LTD., et al. Defendants.

No. 2:01 CV 0459 LRH PAL.

United States District Court, D. Nevada.

March 3, 2006.

COPYRIGHT MATERIAL OMITTED

Kristina Pickering, Steve Morris, Morris, Pickering, Peterson & Trachok, Los Vegas, NV, for Plaintiff.

Louis R. Miller, Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro LLP, Los Angeles, CA for Defendant.

ORDER

HICKS, District Judge.

The following are currently pending before the court:

Defendants' Objections to Plaintiff's Proposed Judgment (# 406¹), filed October 5, 2005; and Plaintiff's Response to Defendants' Objections (# 408), filed October 12, 2005.

Plaintiff's Response to the Court's Sanctions Order of October 11, 2005 (# 420) ("Sanctions Order"), filed November 10, 2005; Defendants' Objections to Plaintiff's Response (# 422), filed December 5, 2005; Defendants' Supplement to its Objections to Plaintiffs Response (# 424), filed December 9, 2005; and Plaintiff's Motion to Strike Defendants' Objections to Plaintiffs Response and Defendants' Supplement thereto (# 425).

I. DEFENDANTS' OBJECTIONS TO LAINTIFF'S PROPOSED JUDGMENT

A. BACKGROUND

Trial in this action commenced on August 23, 2005 and ended on September 7, 2005. The jury was charged with deciding whether the contract at issue allowed Defendants to retain $2,000,000 received as compensation for a concert Mr. Stewart ("Stewart") did not perform, or, on the other hand, whether Plaintiff Rio Properties, Inc ("Rio") was entitled to a refund of those funds. At the conclusion of the trial, the jury returned the following verdict:

We find that the parties did not enter into an enforceable contract because they did not mutually consent to the same material terms with respect to rescheduling and/or refund of the guaranteed compensation. By way of refund, we find in favor of Plaintiff Rio Properties, Inc. and against the Defendants, Stewart Annoyances, Ltd. and Roderick Stewart, and assess Plaintiffs damages in the sum of $2 million plus accrued interest from the 9th day of November, 2000.

On September 14, 2005, the court ordered Plaintiffs counsel to submit a proposed judgment, and the court allowed for the filing of objections by Defendants (See # 405). Plaintiff complied with the court's order. On October 5, Defendants filed their Objections (# 406), along with its own proposed judgment, and Plaintiff subsequently filed its Response to Objections (# 408). The court now considers the proposed judgments and the argument presented by both sides.

B. DISCUSSION

I. PREJUDGMENT INTEREST

In its proposed order, Plaintiff calculated the prejudgment interest at California's statutory rate of 10% on the $2,000,000 from November 9, 2000 through October 5, 2005,² see Cal. Civ.Code § 3289, concluding that Defendants owe Plaintiff $981,926.40 in statutory prejudgment interest. They further concluded that they were entitled to the earned trust account interest of at least $79,081.51, for a total judgment of $3,061,007.91.

Defendants object to Plaintiffs calculation of the prejudgment interest on two grounds. First, in spite of the fact that the March 1999 Agreement contains a California choice-of-law clause, see March 1999 Agreement, ¶ D(4), they argue that Nevada law, not California law, applies to the calculation of prejudgment interest.

In diversity jurisdiction, state law governs all awards or pre-judgment interest, Lund v. Albrecht, 936 F.2d 459, 464-65 (9th Cir.1991); see also Docket No. 76, p. 14, and a federal court sitting in diversity applies the forum state's choiceof-law rules. Abogados v. AT&T, Inc., 223 F.3d 932, 934 (9th Cir.2000); Northern Ins. Co. of N.Y v. Allied Mut. Ins. Co., 955 F.2d 1353, 1359 (9th Cir.1992). Therefore, the court will apply Nevada's choice-of-law rules in deciding whether or not the California choice-of-law clause should be enforced. Nevada routinely honors choice-of-law provisions. See Engel v. Ernst, 102 Nev. 390, 724 P.2d 215, 216-217 (1986).

Despite the fact that Nevada routinely enforces choice-of-law provisions, Defendants claim that the choice-of-law provision in the parties' contract, which states that California law shall govern the parties' agreement, see March 1999 Agreement, ¶ D(4), is not applicable to prejudgment interest because the jury found "that the parties did not enter into an enforceable contract." As a result, Defendants allege that the California choice-of-law clause in the March 1999 Agreement is also unenforceable and that the court must apply Nevada's default choice-of-law rules. Unfortunately, Defendants do not provide any authority for the proposition that where a contract is unenforceable because of mistake regarding a separate material clause, the choice-of-law provision is also unenforceable.

Plaintiffs argue that the choice-of-law provision in the parties' contract remains in force even though the jury found that the contract was unenforceable because the parties "did not mutually consent to the same material terms with respect to rescheduling and/or refund of the guaranteed compensation." Jury Verdict. They claim that the lack of mutual consent goes only to the refund/rescheduling obligation and not to choice-of-law agreement. As authority for their position, they cite to the Restatement (Second) of Conflict of Laws, which states:

The fact that a contract was entered into by reason of misrepresentation, undue influence or mistake does not necessarily [mean] that a choice-of-law provision contained therein will be denied effect. This will only be done if the misrepresentation, undue influence or mistake was responsible for the complainant's adherence to the [choice-of-law] provision . . .. Otherwise, the choice-of-law provision will be given effect .

Restatement (Second) of Conflict of Laws § 201 cmt. c (1971); see also § 187 cmt. b.

Unfortunately, Nevada has neither adopted or rejected the view set forth in the Restatement. In the absence of controlling precedent from the Nevada Supreme Court, this Court must use its own best judgement to predict how the state court would decide the relevant substantive issues. Dimidowich v. Bell & Howell, 803 F.2d 1473, 1482 (9th Cir.1986), reh'g denied, modified, 810 F.2d 1517 (9th Cir. 1987); Takahashi v. Loomis Armored Car Service, 625 F.2d 314, 316 (9th Cir.1980); Associated Aviation Underwriters, Inc. v. Vegas Jet, L.L.C., 106 F.Supp.2d 1051, 1053 (D.Nev.2000). "In doing so, this Court may look to state court decisions from sister jurisdictions, treatises and other helpful resources." Vegas Jet, 106 F.Supp.2d at 1053.

As Plaintiff points out, the Ninth Circuit has previously stated that § 201 of the Restatement provides "the traditional view" as to the enforceability of a choice-of-law provision where the contract is otherwise invalid. Sparling v. Hoffman Constr. Co., Inc., 864 F.2d 635, 641 (9th Cir.1988). In that same case, the court assumed that Washington, which had not decided the issue, would accept the traditional view as stated in the Restatement. Id. Specifically, the court found that Washington courts would enforce a choice-of-law provision in a contract unless that clause itself was obtained by a misrepresentation. Id. Thus, when the United States District Court for the District of Arizona had to decide how a Nevada court would rule on § 201, it applied the Sparling analysis and held that "Mike the Ninth Circuit did in Sparling, this Court assumes that the courts of Nevada would adopt the traditional view.'" Southern Union Co. v. Southwest Gas Corp., 165 F.Supp.2d 1010, 1027-1028 (D.Ariz.2001).

The court agrees with the analysis in Sparling and Southern Union, and it finds that the Nevada Supreme Court would adopt the "traditional view" as described in § 201 of the Restatement of Conflicts (Second). The court's decision is further bolstered by the fact that both parties have relied on California law throughout the pendency of this case, including in drafting the jury instructions and verdict forms, and this is the first suggestion made by Defendants that Nevada law should apply to the contract. Thus, Plaintiff correctly calculated prejudgment interest under Cal. Civ.Code § 3289.

2. STATUTORY INTEREST AND ACTUAL ACCRUED INTEREST

Defendants argue that Plaintiff is not entitled to both statutory interest on the $2,000,000 and actual accrued interest on the $500,000 held in Defendants' law firms' trust account.³ They claim that such a result is "double dipping" and would constitute an impermissible penalty. City of Milwaukee v. Cement Div. Nat'l Gypsum Co., 515 U.S. 189, 197, 115 S.Ct. 2091, 132 L.Ed.2d 148 (1995) ("[P]rejudgment interest is not awarded as a penalty; it is merely an element of just compensation.") Plaintiff admits that seeking both forms of interest amounts to compounding. However, they argue that compounding is allowed where the case is rooted in equity and the judgment debtor has protracted and multiplied the litigation expensively and unnecessarily. Cf. Webb v. GAF Corp., 949 F.Supp. 102, 110 (N.D.N.Y.1996) (recognizing that a long delay in the return of owed funds can, in appropriate cases, warrant compounding); In re Den, 1868 WL 910, 35 Cal. 692, 694 (1868). However, the court need not determine whether "double dipping" amounts to compound interest and whether compound interest would be allowable under California law. To the extent Defendants have "protracted and multiplied the litigation expensively and necessarily," the Court has already dealt with that conduct through its previous Sanctions Order (# 407). Therefore, Plaintiff will not be allowed both its statutory and actual accrued interest on the $500,000.

Next, Defendants argue that Plaintiff is not entitled to statutory interest on the $500,000 held in trust; instead, Plaintiff should only be awarded actual accrued interest on the $500,000. They argue that since Mr. Stewart has not had use of the $500,000, Pla...