Court Opinion

ID: 2714317
Source: CourtListenerOpinion
Date Created: 2014-08-06 15:42:20.226598+00
Date Added: 2024-06-11T12:51:51.055016
License: Public Domain

FACTS AND PROCEDURAL HISTORY
                            The underlying case involved over 900 plaintiffs comprised of
                homeowners and homeowner associations within the Sun City Summerlin
                housing development. The case began as an attempted class action, but
                after the district court denied class certification, it proceeded as a joinder
                action. The primary defect raised by plaintiffs involved the stucco system
                used in constructing the homes. Following a trial and jury deliberations
                that spanned several months, the jury returned a verdict awarding
                damages to 71 plaintiffs but nothing to the remaining plaintiffs. Plaintiffs
                appealed and defendants cross-appealed.
                                               DISCUSSION
                            On appeal, appellants/cross-respondents (hereinafter referred
                to as appellants) argue that the district court (1) improperly indicated to
                the jury that appellants were required to prove both that defects existed
                and that those defects caused physical damage apart from the defects
                themselves; (2) abused its discretion in not granting class action
                certification; (3) incorrectly ruled that numerous appellants who had sold
                their homes, and had thus transferred ownership, should be dismissed
                from the case while simultaneously ruling that the new homeowners could
                not be substituted into the place of the previous homeowners; and (4) gave
                the jury erroneous jury instructions on the issue of willful misconduct.
                            On cross-appeal, respondents/cross-appellants (hereinafter
                referred to as respondents) assert that the jury verdicts and judgments in
                their favor should be affirmed. But they challenge the verdicts and
                judgments in favor of the successful appellants, arguing that appellants
                had to prove damages to their homes in addition to just proving that there

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                was a construction defect. Thus, respondents contend that the district
                court improperly instructed the jury on this point. Additionally,
                respondents argue that the district court erred by denying their motion for
                judgment as a matter of law as to all of appellants' claims, based on
                appellants' failure to meet the notice and opportunity to repair
                requirements established under NRS Chapter 40 for construction defect
                cases.
                Recovery for a construction defect
                            We begin by considering the issue of whether recovery for a
                construction defect is permissible once a defect is proven, or if other
                physical damage caused by the defect must be established. Appellants
                assert that the district court made an erroneous ruling early in the
                proceedings when it ruled that they were required to prove resulting
                physical damage from the defects. They contend that this ruling resulted
                in jury confusion and conflicting jury verdicts. As a result, appellants
                argue that this court must reverse the judgment and remand for a new
                trial as to the claims on which the jury found both a defect and negligence,
                but failed to award damages. Conversely, respondents argue that because
                appellants seek recovery for NRS Chapter 40 construction defects based
                on a negligence cause of action, appellants must prove that the defect
                caused physical damage in order to recover. Respondents assert that
                proving a defect only establishes a duty and breach of duty, and thus, the
                elements of causation and damages necessary to recover under a
                negligence theory cannot be established without resulting physical
                damage. Appellants counter that they met the necessary requirements of

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                causation and damage by proving that the defect in the stucco system was
                itself the damage because it caused the need for repair.
                            The parties' arguments implicate the economic loss doctrine,
                which differentiates recovery under tort and contract theories and
                mandates that a plaintiff cannot recover solely economic losses under a
                negligence-based theory because such losses are limited to contract and
                warranty theories of law. Calloway v. City of Reno, 116 Nev. 250, 256-57,
                993 P.2d 1259, 1263 (2000), overruled on other grounds by Olson v.
                Richard, 120 Nev. 240, 89 P.3d 31 (2004). But this court has previously
                determined that the economic loss doctrine does not apply in Chapter 40
                residential construction defect claims, Olson, 120 Nev. at 243-44, 89 P.3d
                at 32 33; see also Terracon Consultants W, Inc. v. Mandalay Resort Grp.,
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                125 Nev. 66, 71 n.3, 206 P.3d 81, 85 n.3 (2009) (recognizing Olson's
                conclusion that the economic loss doctrine does not apply to prevent tort
                claims "in which the plaintiffs seek to recover purely economic losses
                resulting from alleged construction defects"), and thus, a plaintiff can
                recover under a negligence theory for solely economic losses resulting from
                a defect. Id., see Skender v. Brunsonbuilt Constr. & Dev. Co., 122 Nev.
1430, 1435, 148 P.3d 710, 714 (2006). Consequently, we conclude that
                respondents' argument that the negligence cause of action cannot be
                maintained without proof of resulting physical damage is unpersuasive.'

                      'In light of this conclusion, we need not address the parties'
                statutory construction arguments.

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                Terracon Consultants, 125 Nev. at 71 n.3, 206 P.3d at 85 n.3; Olson, 120
Nev. at 243-44, 89 P.3d at 32-33.
                             Whether proving a defect is sufficient to establish a right to
                recovery of damages remains unanswered, however. 2 The construction
                defect scheme set forth in NRS Chapter 40 does not create any new
                theories of liability; thus, appellants can only recover on a recognized
                common law theory. See Westpark Owners' Ass'n v. Eighth Judicial Dist.
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                Court, 123 Nev. 349, 357, 167 P.3d 421, 427 (2007). Here, the issue is
                whether appellants can recover on their negligence claim by proving only
                that a defect exists, without any further proof that an economic loss or
                some measurable form of damages has actually occurred. Recovery on a
                negligence cause of action requires proof of a duty, breach of that duty,
                causation, and damages. See Turner v. Mandalay Sports Entm't, LLC, 124
Nev. 213, 217, 180 P.3d 1172, 1175 (2008). While appellants can recover
                solely economic losses as damages, they still must prove that they have
                suffered an economic loss.
                             In order to recover damages, appellants must show that a
                repair of the defect is actually necessary. This does not require showing
                that a defect has caused damage, but it does require showing that a defect
                is reasonably likely to cause damage. The only damages appellants seek
                to recover are the cost of repair of the stucco system on each home.

                      2 We conclude that respondents' argument that the jury did not find
                that a construction defect existed lacks merit.

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                Accordingly, we conclude that appellants must show that such a repair is
                necessary in order to meet the damages requirement for their negligence
                cause of action. Such an outcome harmonizes appellants' burden of
                proving each factor for their negligence cause of action with this court's
                prior decisions concluding that a plaintiff can recover for solely economic
                losses. As the issue of whether a repair is necessary is a question of fact
                for the jury, and the jury was not asked to determine this issue in the
                prior trial, we reverse the judgment against all appellants for which the
                jury found respondents negligent but did not award damages and remand
                this matter to the district court for a new trial on causation and damages
                as to those appellants. 3

                      3 Respondents   contend that a new trial is not warranted because the
                jury was instructed by the district court that no physical damages were
                required, and therefore, the jury was instructed according to appellants'
                theory and still did not award most appellants damages. We reject this
                argument as the district court incorrectly ruled initially that physical
                damages were required and the parties tried the case under this erroneous
                ruling, which was only corrected during jury deliberations after the jury
                had been instructed and closing arguments had occurred. This resulted in
                jury confusion and conflicting jury verdicts. Accordingly, a new trial on
                causation and damages is necessary so that the jury can properly consider
                whether a repair is necessary as to appellants' homes in order to
                determine if they are entitled to damages for respondents' negligent
                construction. See Cook v. Sunrise Hosp. & Med. Ctr., LLC, 124 Nev. 997,
                 1006, 194 P.3d 1214, 1219 (2008) (holding that when there is error in a
                jury instruction "prejudice must be established in order to reverse a
                district court judgment," and this is done by "showing that, but for the
                error, a different result might have been reached").

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            In regard to respondents' cross-appeal challenging the
judgment awarding damages to 71 plaintiffs, we affirm the district court's
judgment. In light of our decision as to what is required for recovery of a
construction defect in a negligence-based cause of action, we conclude that
the jury verdict sufficiently demonstrates that these 71 plaintiffs met the
necessary burden of proof such that the jury's verdict awarding damages
to these plaintiffs will not be disturbed on appeal.
Issues on remand
            Appellants raise two arguments that they assert the district
court improperly decided and that need to be addressed as part of a
remand for a new trial. First, appellants argue that the district court
abused its discretion in ruling that the homeowners' trial testimony about
damages to their homes would be limited by their deposition testimony
and that the homeowners could not testify to any new damages that
occurred between the time of their deposition and trial. Second,
appellants argue that it was an abuse of discretion to instruct the jury on
comparative negligence and failure to mitigate damages, asserting that
these defenses were inapplicable. Respondents did not address the first
issue in their answering brief, but they counter the second issue and argue
that the evidence they presented at trial entitled them to the jury
instructions on both defenses.
            In regard to the homeowners' testimony, appellants correctly
argue that NRCP 26(e) does not require lay witnesses to supplement their
deposition testimony before trial. The drafter's note to NRCP 26(e) states
that the rule provisions concerning supplementing disclosures and
responses apply only to expert depositions. This conclusion has also been

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reached in several jurisdictions addressing the issue.   See Pilates, Inc. v.
Georgetown Bodyworks, 201 F.R.D. 261, 262 (D.D.C. 2000) (recognizing
that "Mlle Federal Rules of Civil Procedure impose no affirmative duty for
deponents to supplement deposition testimony");          Titus Cnty. Hosp.
Dist./Titus Cnty. Mem? Hosp. v. Lucas, 988 S.W.2d 740, 740 (Tex. 1998)
(holding that the similar Texas rule does not apply to deposition testimony
and requiring supplementing of deposition testimony would "impose too
great a burden on litigants"); see also UnitCd States ex rel. Ubl v. IIF Data
Solutions, 650 F.3d 445, 456-57 (4th Cir. 2011) (recognizing that the
federal rule equivalent to NRCP 26(e) generally does not require
supplementing nonexpert deposition testimony). Accordingly, we conclude
that the district court abused its discretion in preventing the homeowners
from testifying as to further damage to their homes that allegedly
occurred after their depositions.
            As for appellants' challenge concerning comparative
negligence and failure to mitigate damages, we conclude that the district
court properly presented these defenses to the jury for consideration
because both of these issues involved questions of fact.      See Shuette v.
Beazer Homes Holding Corp., 121 Nev. 837, 859-60, 124 P.3d 530, 545-46
(2005) (explaining when comparative negligence and failure to mitigate
damages may appropriately be raised as defenses in a construction defect
case).

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                Class action certification
                            We next consider appellants' argument that the district court
                abused its discretion in denying class action certification. 4 NRCP 23(a)
                outlines the requirements for certifying a class action:
                            One or more members of a class may sue . . . as
                            representative parties on behalf of all only if (1)
                            the class is so numerous that joinder of all
                            members is impracticable, (2) there are questions
                            of law or fact common to the class, (3) the claims
                            or defenses of the representative parties are
                            typical of the claims or defenses of the class, and
                            (4) the representative parties will fairly and
                            adequately protect the interests of the class.
                In addition to these four prerequisites, a class action can only be certified
                if one of three subsections outlined in NRCP 23(b) are met. In the present
                case, appellants sought certification under NRCP 23(b)(3), which requires

                      4We  reject respondents' contention that appellants lack standing to
                challenge the district court's ruling concerning class action certification.
                Respondents provide no legal authority to support their standing
                argument, and therefore, this court does not need to address this issue.
                See Edwards v. Emperor's Garden Rest., 122 Nev. 317, 330 n.38, 130 P.3d
1280, 1288 n.38 (2006) (explaining that this court need not consider claims
                that are not cogently argued or supported by relevant authority).
                Regardless, several federal and state courts have held that a party who
                loses on an individual claim or whose individual claim becomes moot still
                has standing to challenge the denial of class certification on appeal. See
                Alexander v. Gino's, Inc., 621 F.2d 71, 73 (3d Cir. 1980); Horn v. Associated
                Wholesale Grocers, Inc., 555 F.2d 270, 276 (10th Cir. 1977); Robichaud v.
                Hewlett Packard Co., 848 A.2d 495, 498 (Conn. Ct. App. 2004). Here,
                appellants have successfully challenged the district court judgment
                against them on their negligence cause of action, and therefore, they have
                an even stronger basis for standing.

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                that the district court "find[ ] that the questions of law or fact common to
                the members of the class predominate over any questions affecting only
                individual members, and that a class action is superior to other available
                methods for the fair and efficient adjudication of the controversy." NRCP
                23(b)(3). These requirements are referred to as predominance and
                superiority. Shuette, 121 Nev. at 850-52, 124 P.3d at 540-41. This court
                reviews a district court's class action certification ruling for an abuse of
                discretion. Id. at 846, 124 P.3d at 537.
                             Based on our ruling that appellants must show that repair of
                the defect is necessary in order to recover damages, we conclude that
                appellants cannot meet the predominance requirement. Under
                predominance,     "[t]he importance of the common questions must
                predominate over the importance of questions peculiar to individual class
                members."    Id. at 850-51, 124 P.3d at 540. This requirement looks to
                whether the claims of the class members are sufficiently similar and based
                on the same legal theories such that the common questions of the class
                predominate over individual issues of class members or defenses raised
                against individual class members. Id. at 850-51, 124 P.3d at 540. As each
                appellant must prove that it is necessary for his or her home to be
                repaired, which is a factual determination for the jury, we conclude that
                the common class question does not predominate over the individualized
                issues. Thus, the district court did not abuse its discretion in denying
                class action certification.

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                Substitution of subsequent homeowners
                            Appellants also argue on appeal that the district court abused
                its discretion by denying the substitution of the new homeowner
                purchasers and simultaneously dismissing the former homeowners. They
                assert that, under NRCP 25(c), the district court had to either allow
                substitution or allow the previous homeowners to continue to proceed. We
                review the district court's decision on whether to allow substitution for an
                abuse of discretion.   Cf. Lummis v. Eighth Judicial Dist. Court, 94 Nev.
114, 116, 576 P.2d 272, 273 (1978) (applying an abuse of discretion
                standard to a district court's substitution decision under NRCP 25(a)); see
                also Rahmati v. Mehri, 452 A.2d 638, 640-41 (Conn. 1982) (stating that a
                court has discretion in ruling on a motion to substitute).
                            First, we conclude that the district court did not abuse its
                discretion in denying the motion to substitute the new homeowners, since
                that motion was not filed until after the plaintiffs' presentation of their
                evidence. Second, while appellants correctly assert on appeal that an
                original party can continue to proceed in an action if substitution is not
                allowed, see ELCA Enters., Inc. v. Sisco Equip. Rental & Sales, Inc., 53
F.3d 186, 190 91 (8th Cir. 1995); Triple Quest, Inc. v. Cleveland Gear Co.,
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                627 N.W.2d 379, 383 (N.D. 2001), appellants failed to make this argument
                in the district court before the district court entered judgment as a matter
                of law against the original homeowners. The original homeowners never
                requested to remain as parties in the district court proceedings if the new
                homeowners were not permitted to substitute, and thus, we conclude that
                this argument is waived. See Old Aztec Mine, Inc. v. Brown,      97 Nev. 49,
                52, 623 P.2d 981, 983 (1981) (stating that this court will not consider an

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                issue raised for the first time on appeal). Moreover, the original
                homeowners had a judgment entered against them and there was
                technically no "claim" pending for which the new homeowners could be
                substituted. Cf. NRAP 25(c). Accordingly, we affirm the district court's
                decision on the substitution issue.
                Willful misconduct jury instruction
                            In the district court, appellants argued that no statute of
                repose should apply in this case. Under NRS 11.202, there is no statute of
                repose in cases where a construction defect was the result of willful
                misconduct. The issue of willful misconduct was presented to the jury,
                and the jury returned a verdict finding no willful misconduct by
                respondents. Appellants argue on appeal that the district court
                incorrectly instructed the jury on what constituted willful misconduct for
                statute of repose purposes under NRS 11.202.
                            This court reviews a district court's jury instruction for an
                abuse of discretion, Allstate Ins. Co. v. Miller, 125 Nev. 300, 319, 212 P.3d
318, 331 (2009), and an error in a jury instruction warrants reversal only
                if the error was prejudicial. See Cook v. Sunrise Hosp. & Med. Ctr., LLC,
                124 Nev. 997, 1006, 194 P.3d 1214, 1219 (2008) (holding that when there
                is error in a jury instruction, "prejudice must be established in order to
                reverse a district court judgment," and this is done by "showing that, but
                for the error, a different result might have been reached"). Appellants
                argue that willful misconduct existed if respondents knew or should have
                known that they were building in a manner that was inconsistent with
                established standards of care. But this court has held that willful
                misconduct requires an intent to harm. Tahoe Village Homeowners Ass'n

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                v. Douglas Cnty., 106 Nev. 660, 663, 799 P.2d 556, 558 (1990) (addressing
                NRS 11.202 and explaining that "[w]illful misconduct requires some
                degree of intent to do harm"). As the district court instructed the jury on a
                standard lower than this, the district court abused its discretion, but a
                remand for a new trial is unnecessary given that the jury found that
                appellants failed to meet even the lower burden on which the district court
                based its jury instruction. Therefore, appellants cannot show the
                necessary prejudicial harm. 5 Cook, 124 Nev. at 1006, 194 P.3d at 1219.
                Accordingly, we affirm the district court's dismissal of those appellants
                whose claims were brought beyond the applicable statute of repose.
                Chapter 40 notice requirements
                            On cross-appeal, respondents argue that appellants failed to
                meet the notice requirements outlined under NRS Chapter 40 and, as a            •

                result, all of appellants' claims should be dismissed pursuant to NRS
                40.647(2)(a). But NRS 40.647(2)(b) clearly states that if dismissal would
                prevent a claimant from pursuing a claim because the statute of
                limitations or statute of repose had expired, then only a stay of the
                proceedings is warranted. As such was the situation here, subsection 2(b)
                applies instead of 2(a). Thus, respondents' argument that dismissal is
                mandated lacks merit. Respondents fail to provide any authority for their

                      5We   reject appellants' contention that the district court's errors on
                the issue of whether resulting physical damage was necessary to recover
                for a construction defect caused jury confusion on the issue of willful
                misconduct. Further, we conclude that appellants waived their challenge
                to the scope of the jury instruction on willful misconduct by failing to
                object to this portion of the jury instruction in district court.

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                remaining arguments on cross-appeal as to this issue; therefore, we need
                not consider the issue further.    See Edwards v. Emperor's Garden Rest.,
                122 Nev. 317, 330 n.38, 130 P.3d 1280, 1288 n.38 (2006). Accordingly, we
                reject respondents' cross-appeal on this issue.
                              Based on the foregoing, we
                              ORDER the judgment of the district court AFFIRMED IN
                PART AND REVERSED IN PART AND REMAND this matter to the
                district court for proceedings consistent with this order. 6

                                                                   C.J.
                                         Gibbons

                                                                                      , J.
                Pickering                                   Hardesty

                P01,4.)ta
                Parraguirre                                 Douglas
                                                                                      '   J.

                Cherry
                                                            (1.
                                                            Saitta

                      6 Based On our resolution of this appeal, the award of attorney fees
                and costs in favor of respondents as to those appellants entitled to a new
                trial on causation and damages is necessarily reversed and remanded. We
                affirm the award of attorney fees and costs in favor of the 71 plaintiffs who
                recovered damages and reject respondents' contention that these plaintiffs
                cannot recover the damages, attorney fees, and costs awarded based on a
                failure to meet the Chapter 40 notice requirements.

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                cc: Sterling Law, LLC
                      Wolf, Rifkin, Shapiro, Schulman & Rabkin, LLP/Las Vegas
                      Lewis Roca Rothgerber LLP/Las Vegas
                      Koeller Nebeker Carlson & Haluck, LLP/Las Vegas
                      Eighth District Court Clerk
                     Hon. Susan Johnson

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