Court Opinion

ID: 1033235
Source: CourtListenerOpinion
Date Created: 2013-07-09 19:53:25.434367+00
Date Added: 2024-06-11T09:29:11.849876
License: Public Domain

129 Nev., Advance Opinion 16
                       IN THE SUPREME COURT OF THE STATE OF NEVADA

                HOLCOMB CONDOMINIUM                                No. 57024
                HOMEOWNERS' ASSOCIATION, INC.,
                A NEVADA NONPROFIT
                CORPORATION,
                Appellant,
                vs.                                               FILED
                STEWART VENTURE, LLC, A NEVADA                     APR 0 4 2013
                LIMITED LIABILITY COMPANY;
                LUTHER DAVID BOSTRACK,
                INDIVIDUALLY; MARTHA ALLISON,
                INDIVIDUALLY; PAUL MCKINZIE,
                INDIVIDUALLY; AND Q & D
                CONSTRUCTION, INC., A NEVADA
                CORPORATION,
                Respondents.

                           Appeal from a district court order dismissing a construction
                defect action. Second Judicial District Court, Washoe County; Patrick
                Flanagan, Judge.
                           Reversed and remanded.

                Robert C. Maddox & Associates and Robert C. Maddox, Nancy A. Cyra,
                Bruce E. Cyra, Nancy H. Jasculca, and Eva G. Segerblom, Reno,
                for Appellant.

                Hoffman, Test, Guinan & Collier and David J. Guinan, Reno,
                for Respondent Martha Allison.

                Hoy & Hoy, PC, and Michael D. Hoy, Reno,
                for Respondent Paul McKinzie.

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                Kelly L. Turner, Reno,
                for Respondent Stewart Venture, LLC.

                Lee, Hernandez, Landrum, Garofalo & Blake, APC, and David S. Lee,
                Natasha A. Landrum, and Kelly L. Kindelan, Las Vegas,
                for Respondent Q & D Construction, Inc.

                Luther David Bostrack, Reno,
                in Proper Person.

                BEFORE PICKERING, C.J., HARDESTY and SAITTA, JJ.

                                                 OPINION

                By the Court, HARDESTY, J.:
                            In this appeal, we consider whether statutory limitations
                periods for constructional defect claims may be contractually modified by
                parties to residential unit purchase agreements. We conclude that, in
                general, statutory limitations periods may be reduced by contract provided
                there is no statute to the contrary and the reduced limitations period is
                reasonable and does not violate public policy.
                            The parties dispute whether a provision in an arbitration
                agreement validly reduced the limitations period for appellant Holcomb
                Condominium Homeowners' Association's (HCHA) constructional defect
                negligence and warranty claims. NRS 116.4116 expressly permits a
                contractual reduction of its six-year limitations period for warranty claims
                to not less than two years if, with respect to residential units, the
                reduction agreement is contained in a "separate instrument." Since the

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                reduction provision is within an arbitration agreement that is attached to
                and incorporated into a purchase contract, we conclude that the reduction
                provision does not qualify as a "separate instrument" and the arbitration
                agreement provision is unenforceable for HCHA's breach of warranty
                claims. As such, the district court improperly dismissed HCHA's breach of
                warranty claims as contractually time-barred.
                            We further conclude that the district court improperly relied
                upon NRS 116.4116, which only governs warranty claims, in dismissing
                HCHA's negligence-based claims, and in declining to allow HCHA to
                amend its complaint to add additional claims for intentional conduct on
                the ground that these claims were also contractually time-barred.
                Accordingly, we reverse the district court's orders and remand this matter
                for further proceedings.
                                 FACTS AND PROCEDURAL HISTORY
                            Holcomb Condominiums is a common interest community that
                was developed by respondent Stewart Venture, LLC. Respondents Paul
                McKinzie, Luther David Bostrack, and Q & D Construction, Inc., allegedly
                were involved in the development and construction of the condominiums,
                while respondent Martha Allison represented both the individual
                purchasers and Stewart Venture in the sale of the condominiums during
                July and August, 2002. Appellant HCHA is the homeowners' association
                for Holcomb Condominiums.
                            In 2007, HCHA served a notice of constructional defect claims
                pursuant to NRS 40.645. In 2009, HCHA filed, on behalf of itself and all
                Holcomb Condominium homeowners, a constructional defect complaint
                against respondents, alleging a variety of defects and claims for

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                    negligence, negligence per se, negligent misrepresentation, and breach of
                    express and implied warranties.
                                     Stewart Venture and Allison moved to dismiss HCHA's
                    complaint pursuant to NRCP 12(b)(5), asserting that the complaint was
                    time-barred by a contractual two-year limitations period found in nearly
                    identical arbitration agreements attached to each of the homeowner's
                    purchase contracts. 1 The arbitration agreements attached to the purchase
                    contracts contain a provision reducing the applicable statutory limitations
                    periods for constructional defect claims to two years from substantial
                    completion of the homeowner's property. In particular, the provision
                    states
                                     II. TIME LIMITATIONS TO COMMENCE
                                     ACTION FOR DISPUTE
                                           In the event that a Dispute arises,
                                     Buyer and Seller hereby waive the statute of
                                     limitations and statute of repose commencement
                                     requirements contained in Nevada Revised
                                     Statutes Chapter 11.190 to 11.206 inclusive, and
                                     Chapter 116.4116, and instead agree to submit all
                                     Disputes, under the procedures provided herein,
                                     within two (2) years from substantial completion
                                     of the Buyer's Property within the project. This
                                     limitation applies, without limitation, to known or
                                     unknown claims, claims which could have or
                                     could not have been discovered by a reasonable

                             1 The
                               parties do not address whether the district court had authority
                    to resolve issues relating to the interpretation of the arbitration
                    agreements even though the homeowners and Stewart Venture agreed to
                    submit future disputes to arbitration. Thus, we do not address whether
                    the issues on appeal should have first been submitted to arbitration
                    pursuant to the arbitration agreements.

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.   •
                            inspection, and claims which result from willful
                            misconduct or which were fraudulently concealed.
                The first lines of each arbitration agreement state that the agreement is a
                part of the purchase contract. In addition, paragraph 19 of the purchase
                contract states that the arbitration agreement is "attached" and
                "incorporated" into the purchase contract, and paragraph 25 requires the
                homeowner's initials to confirm that he or she received the arbitration
                agreement "incorporated herein and attached hereto."
                            The district court found that the arbitration agreements met
                the "separate instrument" requirement of NRS 116.4116 and that the
                reduced limitations period provision was not unconscionable. Thus, the
                court dismissed HCHA's complaint as time-barred by the two-year
                contractual limitations period. The court also denied as futile HCHA's
                oral request to amend its complaint to add causes of action for willful
                misconduct and fraudulent concealment based on missing roof
                underlayment because it found that this claim would also be time-barred
                by the contractual limitations period.
                            HCHA then filed a motion for reconsideration of the district
                court's order and moved in writing to amend its complaint to add causes of
                action for willful misconduct and fraudulent concealment. HCHA asserted
                that the proposed claim was the result of newly discovered evidence, which
                could not have been discovered previously because the roofing shingles
                were not removed until after the court heard HCHA's original motion.
                The district court denied both of HCHA's motions. It found that HCHA
                presented no evidence to alter the court's original findings that the
                arbitration agreements complied with the "separate instrument"
                requirement of NRS 116.4116, or that the proposed claim would also be
                time-barred by the contractual limitations period. HCHA now appeals.
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                                               DISCUSSION
                            On appeal, we are asked to determine whether the
                homeowners and Stewart Venture validly contracted to reduce the
                limitations periods applicable to HCHA's claims, and whether the district
                court properly refused to allow new claims for intentional conduct because
                they also would be barred by the contractual limitations period. To do so,
                we must determine in the first instance whether statutory limitations
                periods may be contractually modified. We conclude that, generally,
                statutory limitations periods may be contractually reduced, as long as
                there is no statute to the contrary and the reduced limitations period is
                reasonable and does not violate public policy.
                            NRS 116.4116 allows parties to contractually reduce the
                limitations periods for constructional defect warranty claims to two years
                provided the agreement to do so is contained in a "separate instrument."
                We determine that the arbitration agreements containing the reduced
                limitations period that are attached to and incorporated into the purchase
                contracts do not satisfy the "separate instrument" requirement of the
                statute. Therefore, we conclude that the district court improperly
                dismissed HCHA's breach of warranty claims as contractually time-
                barred.
                Standard of review
                             Under NRCP 12(b)(5 )'s failure-to-state-a-claim dismissal
                standard, "[a] complaint should not be dismissed unless it appears to a
                certainty that the plaintiff could prove no set of facts that would entitle
                him or her to relief." Cohen v. Mirage Resorts, Inc., 119 Nev. 1, 22, 62
                P.3d 720, 734 (2003). This is a rigorous standard, "as this court construes
                the pleading liberally, drawing every inference in favor of the nonmoving

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                    party." Citizens for Cold Springs v. City of Reno, 125 Nev. 625, 629, 218
                    P.3d 847, 850 (2009). "A court [may] dismiss a complaint for failure to
                    state a claim upon which relief can be granted [when an] action is barred
                    by the statute of limitations." Bemis v. Estate of Bemis, 114 Nev. 1021,
                    1024, 967 P.2d 437, 439 (1998); NRCP 12(b)(5). When the facts are
                    uncontroverted, as we must so deem them here, the application of the
                    statute of limitations is a question of law that this court reviews de novo.
                    Citizens for Cold Springs, 125 Nev. at 629, 218 P.3d at 850; Day v. Zubel,
                    112 Nev. 972, 977, 922 P.2d 536, 539 (1996). 2
                    Contractual reduction of statutory limitations periods
                                Whether a party may contractually modify a statutory
                    limitations period is an issue of first impression in Nevada. However, in
                    other jurisdictions, "it is well established that, in the absence of a
                    controlling statute to the contrary, a provision in a contract may validly
                    limit, between the parties, the time for bringing an action on such contract
                    to a period less than that prescribed in the general statute of limitations,
                    provided that the shorter period itself shall be a reasonable period." Order
                    of Travelers v. Wolfe, 331 U.S. 586, 608 (1947); see, e.g., William L. Lyon

                          2 McKinzie   contends that the appropriate standard of review in this
                    matter is the standard applied to an order granting summary judgment
                    under NRCP 56, because after HCHA provided homeowner affidavits in
                    support of its motions for reconsideration, the district court allowed HCHA
                    to offer testimony to show what evidence it could produce if the motions to
                    dismiss were treated as NRCP 56 motions for summary judgment.
                    However, we conclude that the appropriate standard of review is that of
                    an order granting an NRCP 12(b)(5) motion to dismiss, because the
                    district court did not rely on any of HCHA's additional evidence when
                    entering its order to dismiss.

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                & Assoc. v. Superior Court, 139 Cal. Rptr. 3d 670, 679-80 (Ct. App. 2012);
                Country Preferred Ins. Co. v. Whitehead, 979 N.E.2d 35, 42-43 (Ill. 2012);
                Robinson v. Allied Property and Cas. Ins., 816 N.W.2d 398, 402 (Iowa
                2012); Creative Playthings v. Reiser, 978 N.E.2d 765, 769-70 (Mass. 2012);
                DeFrain v. State Farm, 817 N.W.2d 504, 512 (Mich. 2012); Hatkoff v.
                Portland Adventist Medical Cent., 287 P.3d 1113, 1121 (Or. Ct. App.
                2012). The policy underlying this rule is the recognition of parties'
                freedom to contract.    See Nuhome Investments, LLC v. Weller, 81 P.3d
                940, 945 (Wyo. 2003) (holding that enforcing a contractual limitations
                period "comport[s] with the concept of freedom of contract"); see also Notre
                Dame v. Morabito, 752 A.2d 265, 273 (Md. Ct. Spec. App. 2000) (adopting
                this general rule "[i]n light of the[ I well-settled holdings recognizing that
                parties' freedom to contract should be given effect absent clear policy
                considerations to the contrary").
                             Because Nevada has long recognized a public "interest in
                protecting the freedom of persons to contract," Hansen v. Edwards, 83
                Nev. 189, 192, 426 P.2d 792, 793 (1967), we join these jurisdictions and
                hold that a party may contractually agree to a limitations period shorter
                than that provided by statute as long as there exists no statute to the
                contrary and the shortened period is reasonable, and subject to normal
                defenses including unconscionability and violation of public policy.         See
                generally Rivero v. Rivero, 125 Nev. 410, 429, 216 P.3d 213, 226 (2009)
                ("Parties are free to contract, and the courts will enforce their contracts if
                they are not unconscionable, illegal, or in violation of public policy.").
                            A contractually modified limitations period is unreasonable if
                the reduced limitations period "effectively deprives a party of the
                reasonable opportunity to vindicate his or her rights."      Hatkoff, 287 P.3d

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                at 1121; see also William L. Lyon & Assoc., 139 Cal. Rptr. 3d at 680
                ("Reasonable" in this context means the shortened period nevertheless
                provides sufficient time to effectively pursue a judicial remedy." (quoting
                Moreno v. Sanchez, 131 Cal. Rptr. 2d 684, 695 (Ct. App. 2003))). Thus, "a
                limitations provision that requires the plaintiff to bring an action before
                any loss can be ascertained is per se unreasonable." 3 Furleigh v. Allied
                Group Inc., 281 F. Supp. 2d 952, 968 (N.D. Iowa 2003).
                              In this case, the district court dismissed HCHA's asserted
                claims for negligence, negligence per se, negligent misrepresentation, and
                breach of express and implied warranties. In doing so, it relied upon NRS
                116.4116's provisions permitting reduction of the applicable statutory
                limitations period to two years as long as such reduction is in a "separate
                instrument." However, NRS 116.4116 only applies to HCHA's breach of
                warranty claims and does not apply to HCHA's claims for negligence,
                negligence per se, and negligent misrepresentation. Therefore, we
                conclude that the district court erred in relying on this statute to find that
                HCHA's negligence-based claims were time-barred. Accordingly, we
                reverse the district court's order as to HCHA's negligence-based claims
                and remand these claims to the district court for it to determine whether

                      3 The  provision in the arbitration agreement stated that the
                statutory limitations periods in NRS 11.190-11.206 and NRS 116.4116
                were "waive[d]." Although it appears from the language of the provision
                that the parties actually intended to reduce, and not waive, the limitations
                periods, a total waiver of a limitations period is unreasonable per se
                because it "effectively deprives a party of the reasonable opportunity to
                vindicate his or her rights." See Hatkoff v. Portland Adventist Medical
                Cent., 287 P.3d 1113, 1121 (Or. Ct. App. 2012).

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the contractually modified limitations period was reasonable given the
above factors. 4
             Because NRS 116.4116 expressly permits reduction of the
statutory limitations period to two years, the relevant consideration is
whether the reduction complies with the terms of the applicable statute.
The factors to be considered for purely contractual modification are
therefore not relevant to this analysis. Thus, HCHA's breach of warranty
claims will be time-barred if the arbitration agreement otherwise complies
with NRS 116.4116's requirements.
NRS 116.4116's "separate instrument" requirement
             "Statutory interpretation is a question of law that [this court]
review [s] de novo." Consipio Holding, BV v. Carlberg, 128 Nev. „
282 P.3d 751, 756 (2012). When interpreting statutes, the court's main
concern is the intent of the Legislature.        Hardy Companies, Inc. v.
SNMARK, LLC, 126 Nev. „ 245 P.3d 1149, 1153 (2010).
             Respondents argue that the arbitration agreement constitutes
a "separate instrument" because it is separate from the body of the main
agreement. We disagree. NRS 116.4116 permits parties "to reduce the
period of limitation to not less than 2 years" for breach of warranty claims

      4 We  note that, on appeal, HCHA argues that the arbitration
agreement is unconscionable because the reduced limitations period is
unreasonable. Because we conclude that reversal is warranted on other
grounds, we do not reach HCHA's unconscionability argument. Further,
HCHA does not raise this argument in the context of contractual
modification of limitations periods. The parties do not address whether
contractual modification of the limitations period for HCHA's negligence
claims was prohibited by a statute to the contrary, was unreasonable
within the test we have set forth above, or was against public policy.

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                arising under NRS 116.4113 or NRS 116.4114. NRS 116.4116(1). When
                residential-use units are involved, such agreements "must be evidenced by
                a separate instrument executed by the purchaser." Id. However, the term
                "separate instrument" is not defined in NRS Chapter 116 or in the
                Uniform Common Interest Ownership Act (UCIOA).            See NRS 116.4116;
                NRS 116.005-116.095 (providing definitions for NRS Chapter 116);
                Uniform Common Interest Ownership Act §§ 1-103, 4-116 (2009).
                            Because there is no statutory definition, we must look to the
                plain meaning of the term "separate instrument." See Consipio Holding,
                128 Nev. at , 282 P.3d at 756.             Black's Law Dictionary defines
                "separate" as "individual; distinct; particular; disconnected," 1487 (9th ed.
                2009), and "instrument" as "[a] written legal document that defines rights,
                duties, entitlements, or liabilities." Id. at 869. Applying these definitions,
                we conclude that a "separate instrument" under NRS 116.4116 is any legal
                document defining rights, duties or liability that is not attached to or
                incorporated into the primary agreement itself. 5
                            Our approach is consistent with that of another court
                addressing this issue. In 301 Clifton v. 301 Clifton Condominium
                Association, the Court of Appeals of Minnesota considered a similar
                statute adopted from the same provision of the UCIOA. 783 N.W.2d 551,
                566-67 (Minn. Ct. App. 2010). The court noted that the American
                Heritage College Dictionary defined "separate" as something that is "set or

                      5The parties do not argue, and we do not address, whether NRS
                116.4116 requires that the reduced limitations provision be in an
                instrument completely separate from any other instrument (including an
                arbitration agreement).

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                kept apart; disunited." Id. at 567. Applying this definition, the court held
                that an "attached exhibit" shortening the limitations period to two years
                was not a "separate instrument" because it was "incorporated into the
                purchase agreement by the language of the contract." Id.
                            Although the arbitration agreement is an "instrument" that
                defines the parties' rights and liabilities, it is attached to the purchase
                contract, and the purchase contract's language incorporates the
                arbitration agreement in three places. First, the opening paragraph of the
                purchase contract states that it and all of the attached addenda constitute
                one single agreement; second, paragraph 19 states that the arbitration
                agreement is "attached. . . and incorporated" into the purchase contract;
                and last, paragraph 25 requires the homeowner's initials to confirm that
                he or she received the arbitration agreement "incorporated herein and
                attached hereto." In addition, the first lines of the arbitration agreement
                state that it is a part of the purchase contract. Thus, the arbitration
                agreement was not "distinct" or "disconnected" because it was attached to
                and incorporated into the purchase contract by the language of the
                agreement and the purchase contract. Therefore, we conclude that the
                arbitration agreement is not a "separate instrument" under NRS
                116.4116.
                            Because the arbitration agreement is not a "separate
                instrument" under NRS 116.4116, the reduced limitations provision is not
                enforceable and did not effectively reduce the limitations period to two
                years for HCHA's breach of warranty claims. See 301 Clifton, 783 N.W.2d
                at 567. Absent valid contractual modification, the limitations period for a
                breach of warranty claim in a constructional defect action is six years from
                the date the "purchaser to whom the warranty is first made enters into

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                      possession" of the unit. NRS 116.4116(1)-(2)(a). As noted above, HCHA
                      provided the first notice of its constructional defect breach of warranty
                      claims five years after substantial completion of the units. Thus, HCHA's
                      breach of warranty claims under NRS 116.4113 and NRS 116.4114 were
                      timely, and the district court improperly dismissed HCHA's breach of
                      warranty claims as time-barred. 6
                      HCHA's motion to amend its complaint
                                  HCHA argues that the district court abused its discretion by
                      denying as futile the motion to amend its complaint because the
                      contractual limitations period does not apply to HCHA's proposed causes
                      of action for willful misconduct and fraudulent concealment. Leave to
                      amend should be 'freely given," Kantor v. Kantor, 116 Nev. 886, 891, 8
                      P.3d 825, 828 (2000) (quoting NRCP 15(a)), and this court will not disturb
                      a trial court's denial of leave to amend absent an abuse of discretion.
                      University & Cmtv. Coll. Sys. v. Sutton, 120 Nev. 972, 988, 103 P.3d 8, 19
                      (2004).
                                  In this case, the district court denied as futile HCHA's motion
                      to amend its complaint because it found that the contractual limitations
                      period barred all claims not commenced within two years. Because we
                      conclude that this provision was unenforceable, the district court's denial
                      of the motion to amend on this basis was improper. On remand, the

                            6 HCHA  also asserts that the contractually reduced limitations
                      period does not apply to it because it was not a party to the agreements.
                      Because we reverse and remand the district court's orders on other
                      grounds, we do not reach this issue.

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                district court must determine whether leave to amend should be given. 7
                                    Accordingly, we reverse and remand this matter to the district
                court for further proceedings consistent with this opinion.

                                                                   —1A,‘                 J.
                                                          Hardesty

                We concur:
                                 s•11.

                                                       C.J.

                Saitta

                         7 For
                         this same reason, we also reverse the district court's denial of
                HCHA's second motion to amend its complaint.

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