Weddell v. Sharp

• Decision Date: 28 May 2015
• Docket Number: 61329.,Nos. 60944,s. 60944
• Citation: 350 P.3d 80,131 Nev. Adv. Op. 28
• Parties: Rolland P. WEDDELL, An Individual, Appellant, v. F. Dearmond SHARP, Esq., An Individual; Robison Belaustegui Sharp & Low, A Nevada Professional Corporation; Chris D. Nichols, Esq., An Individual; Belding, Harris & Petroni ; Jeffrey L. Hartman, An Individual; and Hartman & Hartman, P.C., Respondents. Rolland P. Weddell, Appellant, v. F. Dearmond Sharp, Esq., An Individual; Robison Belaustegui Sharp & Low, A Nevada Professional Corporation; Chris D. Nichols, Esq., An Individual; Belding, Harris & Petroni ; Jeffrey L. Hartman, An Individual; and Hartman & Hartman, P.C., Respondents.
• Court: Nevada Supreme Court

350 P.3d 80

131 Nev. Adv. Op. 28

Rolland P. WEDDELL, An Individual, Appellant

v.F. Dearmond SHARP, Esq., An Individual;

Robison Belaustegui Sharp & Low, A Nevada Professional Corporation;

Chris D. Nichols, Esq., An Individual;

Belding, Harris & Petroni ;

Jeffrey L. Hartman, An Individual;

and Hartman & Hartman, P.C., Respondents.

Rolland P. Weddell, Appellant

v.F. Dearmond Sharp, Esq., An Individual;

Robison Belaustegui Sharp & Low, A Nevada Professional Corporation;

Chris D. Nichols, Esq., An Individual;

Belding, Harris & Petroni ;

Jeffrey L. Hartman, An Individual;

and Hartman & Hartman, P.C., Respondents.

Nos. 60944

61329.

Supreme Court of Nevada.

May 28, 2015.

Rehearing Denied July 23, 2015.

Day R. Williams, Carson City; Kenneth Dale Sisco, Norco, California, for Appellant.

Robison Belaustegui Sharp & Low and Keegan G. Low, Reno, for Respondents.

BEFORE THE COURT EN BANC.

OPINION

By the Court, SAITTA, J.:

In this appeal, we consider whether a defendant may validly use claim preclusion as a defense against a plaintiff's complaint even when that defendant was not a party or in privity with a defendant in an earlier action brought by the plaintiff based on the same type of claims. Despite lacking a common defendant or privity with a defendant, some courts have applied the doctrine of nonmutual claim preclusion in cases where the defendants in the second action can demonstrate that they should have been included as parties in the first action and the plaintiff cannot show a good reason for not having included them. As this concept of nonmutual claim preclusion is designed to obtain finality of litigation and promote judicial economy in situations where the rules of civil procedure governing noncompulsory joinder, permissive counterclaims, and permissive cross-claims fall short, we adopt the doctrine of nonmutual claim preclusion. We do so because, as this appeal exemplifies, the privity requirement can be unnecessarily restrictive in terms of governing when the defense of claim preclusion may be validly asserted. Accordingly, as set forth in this opinion, we modify the privity requirement established in Five Star Capital Corp. v. Ruby, 124 Nev. 1048, 194 P.3d 709 (2008), to incorporate the principles of nonmutual claim preclusion, meaning that for claim preclusion to apply, a defendant must demonstrate that (1) there has been a valid, final judgment in a previous action; (2) the subsequent action is based on the same claims or any part of them that were or could have been brought in the first action; and (3) the parties or their privies are the same in the instant lawsuit as they were in the previous lawsuit, or the defendant can demonstrate that he or she should have been included as a defendant in the earlier suit and the plaintiff fails to provide a “good reason” for not having done so. Here, because respondents established that they should have been named as defendants in an earlier lawsuit and appellant failed to provide a good reason for not doing so, we affirm the district court's dismissal of appellant's complaint on the basis of claim preclusion.

FACTS AND PROCEDURAL HISTORY

Appellant Rolland Weddell and nonparty Michael Stewart are former business partners who were engaged in multiple business ventures. Through time, several disputes arose between the partners regarding their business dealings. The partners agreed to informally settle their disputes by presenting them to a panel of three attorneys, the respondents herein. Because respondents had previous dealings with appellant and Stewart, both appellant and Stewart signed a Memorandum of Understanding in which they acknowledged the potential for conflicts of interest, waived those potential conflicts, recognized that respondents would be neutral in the dispute-resolution process, and agreed that the decision rendered by respondents would be “binding, non-appealable and c [ould] be judicially enforced.”

The Memorandum of Understanding did not specify the process by which respondents would go about rendering their decision, and the record on appeal does not clearly reflect the process that was actually taken. In any event, respondents issued a decision resolving the partners' disputes that, for the most part, was favorable to Stewart. Stewart then filed a lawsuit against appellant, seeking a declaratory judgment that respondents' decision was valid and enforceable. Appellant filed an answer and counterclaim to Stewart's complaint in which he asked the district court to enforce only the portion of respondents' decision that was favorable to him. In support of his requested relief, appellant questioned respondents' neutrality in rendering their decision, specifically alleging that respondents had failed to answer certain questions that appellant had wanted answered, that respondents had concealed pertinent facts from each other, and that respondents had concealed from appellant their knowledge that Stewart had defrauded appellant. Appellant, however, did not assert cross-claims against any of the respondents.

During the first day of a bench trial, appellant informed the district court that he would enter a confession of judgment acknowledging that respondents' decision was, indeed, valid and enforceable against him in its entirety. Appellant proceeded to confess judgment and stipulated to dismiss his counterclaim. Over two years later, however, appellant instituted the underlying action against respondents in which he asserted causes of action stemming from respondents' conduct in the dispute-resolution process. Respondents filed a motion to dismiss the complaint and requested attorney fees as sanctions, contending that, among other reasons, dismissal was warranted on claim preclusion principles and that appellant had filed the complaint without reasonable grounds, warranting sanctions under NRS 18.010(2)(b). The district court granted respondents' motion to dismiss, finding that the three factors for claim preclusion articulated by this court in Five Star Capital Corp. v. Ruby, 124 Nev. 1048, 194 P.3d 709 (2008), had been satisfied. The district court also entered a subsequent order granting the request for attorney fees. Appellant appealed both orders.

DISCUSSION

In Five Star, we clarified the conceptual differences between the defenses of claim preclusion and issue preclusion, and we identified the important policy purposes served by recognizing those defenses. In particular, we recognized that the purpose of claim preclusion “is to obtain finality by preventing a party from filing another suit that is based on the same set of facts that were present in the initial suit.”Id. at 1054, 194 P.3d at 712. In light of this purpose, we considered this court's previous four-factor test for claim preclusion, and we concluded that the test was “overly rigid,” as one of the factors required that the “same relief” be sought in both complaints, thereby making the test susceptible to manipulation by litigious plaintiffs. Id. at 1053–54, 194 P.3d at 712–13 (abrogating Edwards v. Ghandour, 123 Nev. 105, 159 P.3d 1086 (2007) ).

Five Star's test for applying claim preclusion

Consequently, Five Star modified the previous four-factor test for when claim preclusion could be asserted as a valid defense in favor of the following three-factor test, which is the test that the district court in the underlying matter employed: “(1) the parties or their privies are the same, (2) the final judgment is valid, and (3) the subsequent action is based on the same claims or any part of them that were or could have been brought in the first case.” Five Star, 124 Nev. at 1054, 194 P.3d at 713. In so doing, we expressed our belief that this three-factor test would sufficiently “maintain [ ] the well-established principle that claim preclusion applies to all grounds of recovery that were or could have been brought in the first case.” Id. at 1054–55, 194 P.3d at 713.

Here, appellant's primary argument on appeal is that the district court erroneously found the first factor to have been satisfied—i.e., that respondents were in privity with Stewart, the defendant against whom appellant asserted his counterclaim in Stewart's declaratory relief action. In so finding, the district court ruled that respondents were sufficiently in privity with Stewart because Stewart played a role in selecting respondents as the panel members and because both Stewart and respondents had an interest in upholding respondents' dispute-resolution decision. We agree with appellant that this relationship between respondents and Stewart does not fall within this court's previously used definition of privity, which recognizes that one person is in privity with another if the person had “ ‘acquired an interest in the subject matter affected by the judgment through ... one of the parties, as by inheritance, succession, or purchase.’ ” Bower v. Harrah's Laughlin, Inc., 125 Nev. 470, 481, 215 P.3d 709, 718 (2009) (quoting Paradise Palms Cmty. Ass'n v. Paradise Homes, 89 Nev. 27, 31, 505 P.2d 596, 599 (1973) ). Similarly, even under this court's recent adoption of the Restatement (Second) of Judgments section 41, see Alcantara v. Wal–Mart Stores, Inc., ––– Nev. ––––, ––––, 321 P.3d 912, 917–18 (2014), we conclude that privity does not exist between respondents and Stewart under an “adequate representation” analysis, as Stewart did not purport to represent respondents' interests during the declaratory relief action between him and appellant.

Thus, contrary to the district court's determination, we conclude that privity does not exist between respondents and Stewart and that Five Star 's test for claim preclusion was not satisfied in this instance. This conclusion, however, reveals that Five Star 's test for claim preclusion does not fully cover the important principles of finality and judicial economy that it intended to capture. Cf. Five Star, 124 Nev. at 1054–55, 194 P.3d at 713 (adopting the three-factor test based on the belief that those...