Title: Webb v. Shull

State: nevada

Issuer: Nevada Supreme Court

Document:

me

 

128 Nev., Advance Opinion B
IN THE SUPREME COURT OF THE STATE OF NEVADA

SCOTT J. WEBB, AN INDIVIDUAL, No. 55153
Appellant/Cross-Respondent,
vs,
HARRY H, SHULL, AN INDIVIDUAL,
Respondent, FILED
and
CELEBRATE PROPERTIES, LLC, A
NEVADA LIMITED LIABILITY
COMPANY,
Respondent/Cross-Appellant.

 

Appeal and cross-appeal from a district court judgment in a
contract action. Eighth Judicial District Court, Clark County; Valerie
Adair, Judge.

Affirmed in part, vaci remand

 

Maddox, Isaacson & Cisneros, LLP, and Norberto J. Cisneros, Las Vegas,
for Appellant/Cross-Respondent.

Coleman Law Associates and Edward S. Coleman, Las Vegas,
for Respondent and Respondent/Cross-Appellant.

BEFORE DOUGLAS, HARDESTY and PARRAGUIRRE, JJ.

OPINION
By the Court, HARDESTY, J.:

‘This is an appeal and cross-appeal from a district court
judgment awarding appellant homebuyer treble damages against

respondent seller, a limited liability company, but refusing to find that the

1a - 06587

 
individual respondent, a former manager of the limited liability company,
is liable for the judgment as the company’s alter ego.

We first consider the seller's cross-appeal, in which we address
whether the district court’s award of treble damages under NRS
113.160(4), a statute which awards treble damages for a seller's delayed
disclosure or nondisclosure of property defects, requires a predicate
finding of willfulness, or mental culpability. In this case, the district court,
did not make a finding concerning the seller's statutory liability that it
acted willfully. Because we conclude that no such mental state was

 

required, we affirm the district court on this issue. We conclude that the
Legislature has the authority to establish the elements and measure of
damages in a statutorily created claim. ‘Thus, when a statute lacks an
express or implicit mental culpability element, we presume that the
Legislature intended to omit such an element. Furthermore, deferring to
legislative intent, we decline to imply a heightened level of mental
culpability to a statute that is not punitive in nature.

We also briefly address the district court's denial of appellant's
assertion that the individual manager is the alter ego of the company, But
because the district court in this case failed to explain its reasoning for
denying alter ego status, we are unable to review the alter ego issue.
Accordingly, we affirm in part and vacate in part the district court's
judgment, and we remand this matter to the district court on the alter ego

isaue.

 

 
one

 

EACTS AND PROCEDURAL HISTORY!

Appellanticross-respondent Scott Webb purchased a home

from respondent/cross-appellant Celebrate Properties, LLC. Celebrate

was initially co-managed by respondent Harry Shull and another person,

but management was later tran; one of which was
also managed by Shull.

Unbeknownst to Webb, the home had been sold once before.

wrred to two compai

   

‘The initial purchasers of the home discovered soil-related construction
defects and, pursuant to NRS Chapter 40, served notice of the construction
defects, attaching an expert report in support of their claims. To settle
that matter, respondents purchased the home back from the initial
purchasers. In the repurchase, however, Celebrate could not obtain
proper financing, so Shull purchased the home in his own name and then
sold the residence to Celebrate for one dollar, with Shull’s name remaining
on the mortgage. The soil problems were not addressed, nor were they
disclosed to Webb prior to purchase on the standard disclosure forms
provided to him or otherwise, in violation of statutes that require such
disclosures.

Upon discovering problems with the soil, Webb sued
respondents, alleging various claims regarding the failure to disclose the
soil-related construction defects and arguing that Shull was the alter ego

1A trial transcript was not included in the record on appeal. Thus,
we must assume the record supports the district court's findings. See
Borgerson v, Scanlon, 117 Nev. 216, 221, 19 P.3d 236, 239 (2001) (stating
that ““[w}hen evidence on which a district court's judgment rests is not
properly included in the record on appeal, it is assumed that the record
supports the lower court’s findings” (alteration in original) (quoting
Rajshbrook v. Estate of Bayley, 90 Nev. 415, 416, 528 P.2d 1331, 1331
(1974)).

 
of Celebrate. Webb sought, among other things, treble damages pursuant
to NRS 113.150(4), a statute that awards treble damages for a seller's
nondisclosure or delayed disclosure of known property defects. The
district court found that Celebrate made negligent misrepresentations
about the soil defects and failed to disclose them, and the court awarded
treble damages under NRS 113.160(4). ‘The district court also concluded,
however, that Shull was not the alter ego of Colebrate and consequently
rendered the judgment against Celebrate only. Webb appeals, challenging
the district court's alter ego determination; Celebrate cross-appeals to
challenge the award of treble damages. We address the cross-appeal first.
DISCUSSION

NRS 113,150 governs remedies for a seller's delayed disclosure
‘or nondisclosure of defects in a sale of residential property. NRS
113.150(4) provides, in pertinent part, that with limited exceptions not
applicable here, treble damages are warranted when a seller sells
residential property without disclosing known defects:

if a seller conveys residential property to a
purchaser without complying with the
requirements of NRS 113.130 or otherwise
providing the purchaser . . . with written notice of
all defects in the property of which the seller is
aware, and there is a defect in the property of
which the seller was aware before the property
was conveyed to the purchaser and of which the
cost of repair or replacement was not limited by
provisions in the agreement to purchase the
property, the purchaser is entitled to recover from
the seller treble the amount necessary to repair or
replace the defective part of the property, together
with court costs and reasonable attorney's fees.

Here, the district court awarded Webb treble damages on the

ground that Celebrate was aware of the soil defects and breached its duty

 

 
to disclose them. However, while the district court denied relief on Webb's
claim for intentional misrepresentation, it did not make a finding that
Celebrate acted willfully or intentionally in awarding damages under NRS
113.150(4). On cross-appeal, Celebrate argues that the district court erred
when it awarded treble damages without finding grossly negligent,
reckless, or intentional misconduct, because such a finding is required due
to the treble damages’ punitive nature, In response, Webb argues that
because no level of mental culpability is mentioned in the statute, and
because the statute states that the purchaser is “entitled to” treble
damages for an undisclosed defect, the district court must award treble
damages, regardloss of the seller's mental state,
ict

culpability level

‘This court reviews issues of statutory construction de novo.
Hardy Companies, Inc. v. SNMARK, LLC, 126 Nev. __, __, 245 P.3d
1149, 1153 (2010). When interpreting a statute, we first look to its
language, and “[w]hen the language . .. is clear on its face, ‘this court will
not go beyond [the] statute's plain language.” J.E, Dunn Nw. v, Corus

Constr. Venture, 127 Nev. __, __, 249 P.3d 501, 505 (2011) (second
alteration in original) (quoting Great Basin Water Network v. State Eng’,

126 Nev. __, __, 234 P.3d 912, 918 (2010).

‘The language of NRS 113.150(4) lacks any reference to the
seller's mental state. Confronting a similar issue, the United States
Supreme Court declined to infer an intent requirement into a statute that
did not expressly or implicitly contain such a requirement. Dean v. United
States, 556 U.S. _, __, 129 S. Ct. 1849, 1853 (2009). ‘The Supreme
Court explained that it “ordinarily resist[s} reading words or elements

into a statute that do not appear on its face.” Id, at _, 129 S. Ct. at 1853

 

 
7

 

(quoting Bates v. United States, 522 U.S. 23, 29 (1997). ‘Thus, because
the statute did “not require that the [action at issue] be done knowingly or
intentionally, or otherwise contain words of limitation,” id, at _, 129 S.
Ct. at 1853, and because nothing in the statute's syntax or structure
suggested that intent was required, the Court declined to “contort{] and
stretch{] the statutory language to imply an intent requirement.” Id, at
129 §. Ct, at 1854. Similarly, NRS 113.150 does not expressly require
that the seller's nondisclosure be knowing or intentional, or otherwise
contain words of limitation. Further, the statute's structure supports our
conclusion that no heightened level of mental culpability is required, NRS
113.150(6) provides exceptions to the provision entitling a purchaser to
treble damages, applicable in instances in which the seller relied on
certain government or contractor statements in omitting information
regarding a property defect:

A purchaser may not recover damages from a
seller pursuant to subsection 4 on the basis of an
error or omission in the disclosure form that was
caused by the seller's reliance upon information,
provided to the seller by:
(a) An officer or employee of this State or
any political subdivision of this State in the
ordinary course of his or her duties; or
()A contractor, engineer, land surveyor,
certified inspector as defined in NRS 645D.040 or
pesticide applicator, who was authorized to
practice that profession in this State at the time
the information was provided.
If intent were required to award treble damages in the first instance, there
likely would be no need to include these exceptions for relying on
government or contractor statements, because doing so would

automatically negate the intent requirement. See Southern Nev.

 
one

 

Homebuilders v. Clark County, 121 Nov. 446, 449, 117 P.3d 171, 173
(2005) (explaining that this court interprets statutory provisions in
harmony with the statutory scheme and to avoid absurd results).
Accordingly, we conclude that the treble damages provision of NRS
113.160 does not expressly or implicitly require a heightened level of

mental culpability.

 

Nonetheless, Celebrate argues that even if NRS 113.150(4) is

silent on a mental culpability requirement, the Legislature must have
intended to include such a requirement because treble damages are
punitive in nature, and obtaining punitive damages requires proof of
intentional wrongdoing. See, e.g., NRS 42.005(1) (governing statutory
punitive damages and expressly requiring “clear and convincing evidence
that the defendant has been guilty of oppression, fraud or malice”
(emphasis added)). But even if all punitive-natured damages require proof
of intentional wrongdoing, we conclude that NRS 113.150(4) does not,
because it is not strictly punitive in nature.

Punitive damages are awarded not as compensation to the
victim but to punish the offender for severe wrongdoing. Bongiovi_ v.
Sullivan, 122 Nev. 656, 580, 138 P.8d 433, 450 (2006). In contrast to
punitive damages, as recognized by the United States Supreme Court, “it

  

is important to realize that treble damages have a compensatory side,
serving remedial purposes in addition to punitive objectives.” Cook
County v. United States ex rel. Chandler, 538 U.S. 119, 180 (2003).
Indeed, as one commentator has expressed, “[tJreble damages are not
easily characterized because they contain both punitive and remedial

elements. Despite the hybrid nature of treble damages, at least one-third

 
nen >

 

of treble damages is remedial; the jury finds those damages necessary to
‘compensate the victim for his loss.” Robert $. Murphy, Arizona RICO,
‘Treble Damages, and Punitive Damages: Which One Does Not Belong?, 22
Ariz, St. LJ. 299, 302 (1990) (internal footnotes omitted). For example,
the United States Supreme Court has found a provision awarding treble
damages for antitrust violations remedial, based not only on legislative
remarks, but also because the provision ““ma{de] awards available only to
injured parties, and measure[d] the awards by @ multiple of the injury
actually proved... ..” Mitsubishi Motors v. Soler Chrysler-Plymouth, 473
U.S. 614, 635-36 (1985) (quoting Brunswick Corp, v, Pueblo Bowl-O-Mat,
Inc, 429 U.S, 477, 485-86 (1977).

Some jurisdictions have generally concluded that statutory
treble damages are penal;? however, “cases have placed different statutory
treble-damages provisions on different points along the spectrum between
purely compensatory and strictly punitive awards.” PacifiCare Health
Systems, Inc, v, Book, 538 U.S. 401, 405 (2003) (referring to several
United States Supreme Court cases that explain the nature of treble

 

damages). “[T]he tipping point between payback and punishment defies
general formulation [and is] dependent on the workings of a particular

*See,2.c Southmay Corp, v. Matronsl Metropolitan Realty, 206 S.W.3d 250,
257 (Ark. Ct. App. 2005); Imperial Merchant Services, Inc, v. Hunt, 212
P.3d 736, 744 (Cal. 2009); Goodrow v. Lane Bryant, Inc., 732 N.E.2d 289,
299 (Mass. 2000); Cole v. Wilson, 661 N.W.2d 706, 710 (Neb. Ct. App.
2003); Debra F. Fink v. Ricoh Corp., 889 A.2d 942, 980 (N.J. Super. Ct.
Law Div. 2003); Heights Associates v. Bautista, 683 N.Y.S.2d 372, 974
(App. Term 1998); Maxwell v, Samson Resources Co,, 848 P.2d 1166, 1172
(Okla. 1993); Tri-Tech Corp. v. Americomp Services, 646 N.W.2d 822, 827
(Wis. 2002).

 
statute and the course of particular litigation ....” Cook County, 538 U.S.
at 130. As the District of Columbia Court of Appeals explained,

‘Statutory provisions for double or treble damages
often do serve the same purposes as punitive
damages....When the award of multiple
damages is intended to serve penal purposes, it is
a substitute for punitive damages, and the same
or similar proof requirements usually must be
satisfied.

On the other hand, multiple damages
provisions may be enacted to serve remedial
rather than punitive purposes, such as ensuring
full compensation or encouraging _ private
enforcement of the law..... When treble damages
are awarded for remedial purposes, they are not a
substitute for punitive damages and the
heightened proof requirements for punitive
damages do not apply.

District Cablevision Ltd. v, Bassin, 828 A.2d 714, 726-27 (D.C. 2003)

(internal citations omitted). Based on these considerations, we decline to

 

 

declare that treble damages are per se punitive, Rather, we look to NRS
118.150(4) to determine whether an award of treble damages under that
statute is intended to penalize or compensate. See Cook County, 538 U.S.
at 130; see also Barth v. Canyon County, 918 P.2d 576, 581 (Idaho 1996)
(explaining that “[w]hen a statute allows an award beyond actual
damages, [a court] must decide whether the award is intended to be a
penalty or compensation”).

While NRS 113.150 does not characterize the treble damages
as a penalty or compensation, it is significant that the Legislature
declined to include a mental state element within the statute. It appears
that the overriding purpose of NRS 113.150 is to create a statutory private

right of action to award a victim adequate compensation to remedy an

 

 
error or omission in disclosures made in the sale of a personal residence.
On its face, the statute is more concerned with compensating the victim
than with penalizing a defendant's conscious wrongdoing. See Barth, 918
P.2d at 582 (concluding that an award of treble damages was not a penalty
when a particular statute did not refer to “penalty” in its title or body);
also Bullman v. D & R Lumber Co,, 464 8.E.2d 771, 76 (W. Va. 1995)

(concluding that a statute that awarded treble damages was not punitive

 

in nature because it w:

 

concerned with the prohibitive conduct, “not with
the state of mind of the wrongdoer,” and explaining that “{tJhe statute
does not directly or indirectly speak to punishment or penalties, but refers
entirely to damages suffered by the plaintifi, and tJhus, we find the

 

overriding purpose of the treble damages provision is to award the
adequate compensation’)

‘There is no indication that the Legislature intended to require
a heightened level of mental culpability for claims brought pursuant to
NRS 113,150(4). Because it appears that the nature of the damages are
concerned with the prohibitive conduct of the seller rather than his state
of mind, we conclude that treble damages awarded pursuant to that
statute are remedial, not punitive in nature, Thus, we reject Celebrate’s
argument that we must imply an element of mental culpability.

In this case, the parties do not dispute that Celebrate knew of
the soil defect problem and failed to disclose that defect to Webb when he
purchased the residence. Therefore, the district court properly awarded as

damages against Celebrate treble the amount of Webb's costs to repair or
replace the defect, and we affirm that portion of the district court's
judgment.

 

 
 

wurt failed to si ort its conclu Shull

‘was not the alter ego of Celebrate

Webb argues that the district court abused its discretion when
it found that he failed to prove that Shull was Celebrate’s alter ego under
NRS 78.747. That statute provides that a stockholder, director, or officer
is not liable for the debt of a corporation, unless the corporation is
influenced and governed by the individual, the corporation and the
individual are inseparable from each other through unity of interest and
ownership, and adherence to the corporate fiction of a separate entity
would sanction fraud or promote a manifest injustice. NRS 78.747. “The
district court’s determination with regard to the alter ego doctrine will be
upheld on appeal if substantial evidence exists to support the decision.”

Lorenz v. Beltio, Ltd., 114 Nev. 795, 807, 963 P.2d 488, 496 (1998).

In this case, the district court made several findings that
relate to Webb's alter ego claim, including that Shull was a managing
member of Celebrate; that Shull purchased the home at issue in his own
name and then sold it to Celebrate for one dollar, with Shull’s name
remaining on the mortgage: that Shull had been a managing member of at
least 70 single-transaction limited liability companies, which were created

*The parties assume that NRS 78.747, which is part of the statutory
chapter governing corporations, applies to the alter ego assertion against
Shull and Celebrate, an LLC. Accordingly, for purposes of this appeal, we
likewise assume, without deciding, that the statute applies and analyze
their alter ego arguments under that standard. See Montgomery v.
sTreppid Technologies, LLC, 548 F. Supp. 2d 1175, 1180-81 (D. Nev. 2008)
(recognizing that federal and state courts have consistently applied to
LLCs corporate laws for piercing the corporate veil under the alter ego
doctrine); In_re Giampietro, 317 B.R. 841, 845-46 (Bankr. D. Nev. 2004)
(recognizing that whether the alter ego/corporate veil doctrine applies to
LLCs in Nevada is a question of first impression).

 

 
ome Be

 

to handle only one transaction and then close; that the financial
statements provided by Celebrate showed numerous loan transactions

between Shull’s many different business entities; and that Celebrate was

 

out of business. Webb maintains that each of these findings supports a
conclusion that Shull was the alter ego of Celebrate. However, the district
court concluded, without explanation, that Webb failed to prove that Shull

is an alter ego of Celebrate Propertie

 

Because the district court failed to articulate its reasoning, we
are unable to review whether the district court abused its discretion. Our
review is further hindered by the district court's findings of fact that
appear to be at odds with its decision. Since the district court failed to
explain its reasoning for denying alter ego status, it is unclear what
evidence the district court considered in reaching its decision or whether it
reached its conclusion in error. Accordingly, we remand this matter to
the district court for it to make findings and conclusions as to whether
Shull was the alter ego of Celebrate. See Frantz v. Johnson, 116 Nev. 455,
470-71, 999 P.2d 351, 361 (2000) (remanding because the district court
entered judgment without considering an applicable statute); see also
Wilford v, Wilford, 101 Nev. 212, 215, 699 P.2d 105, 107 (1985) (‘The
district court . . is required to make specific findings of fact sufficient to
indicate the basis for its ultimate conclusions.’)

For the reasons stated above, we affirm the district court's
judgment, except for the portion of the judgment concerning the alter ego

“Indeed, even respondents argue that “there being no trial transcript
and scant trial exhibits in the record, it is impossible for [this court to
determine whether [the district court's alter ego] finding was clearly
erroneous and not supported by substantial evidence.”

12

 
issue, which we vacate. We remand the matter to the district court for

further proceedings consistent with this opinion,

ph aN J