Court Opinion

ID: 5133561
Source: CourtListenerOpinion
Date Created: 2021-12-09 17:19:32.520158+00
Date Added: 2024-06-11T08:23:39.449730
License: Public Domain

134 Nev., Advance Opinion 24,
                      IN THE SUPREME COURT OF THE STATE OF NEVADA

                PEGGY CAIN, AN INDIVIDUAL;                        No. 69333
                JEFFREY CAIN, AN INDIVIDUAL;
                AND HELI OPS INTERNATIONAL,
                LLC, AN OREGON LIMITED
                                                                      FILED
                LIABILITY COMPANY,                                    APR 2 2012
                Appellants,
                vs.
                RICHARD PRICE, AN INDIVIDUAL;
                AND MICKEY SHACKELFORD, AN
                INDIVIDUAL,
                Respondents.
                PEGGY CAIN, AN INDIVIDUAL;                        No. 69889
                JEFFREY CAIN, AN INDIVIDUAL;
                AND HELI OPS INTERNATIONAL,
                LLC, AN OREGON LIMITED
                LIABILITY COMPANY,
                Appellants,
                vs.
                RICHARD PRICE, AN INDIVIDUAL;
                AND MICKEY SHACKELFORD, AN
                INDIVIDUAL,
                Respondents.
                PEGGY CAIN, AN INDIVIDUAL;                        No. 70864
                JEFFREY CAIN, AN INDIVIDUAL;
                AND HELI OPS INTERNATIONAL,
                LLC, AN OREGON LIMITED
                LIABILITY COMPANY,
                Appellants,
                vs.
                RICHARD PRICE, AN INDIVIDUAL;
                AND MICKEY SHACKELFORD, AN
                INDIVIDUAL,
                Respondents.

                          Consolidated appeals from a district court summary judgment
                and post-judgment orders awarding attorney fees and sanctions in a
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                       contract and tort action. Ninth Judicial District Court, Douglas County;
                       Thomas W. Gregory, Judge.
                                   Affirmed in part, reversed in part, and remanded.

                       Lemons, Grundy & Eisenberg and Robert L. Eisenberg, Reno; Matuska Law
                       Offices, Ltd., and Michael L. Matuska, Carson City,
                       for Appellants.

                       Oshinski & Forsberg, Ltd., and Mark Forsberg, Carson City,
                       for Respondents.

                       BEFORE HARDESTY, PARRAGUIRRE and STIGLICH, JJ.

                                                        OPINION

                       By the Court, STIGLICH, J.:
                                   In these appeals, we consider whether one party's material
                       breach of a contract releases the non-breaching party's contractual
                       obligation to a third-party beneficiary. We conclude that it does. Because
                       the promisor in this case failed to fulfill its contractual obligations to
                       appellants under a settlement agreement, respondents as third-party
                       beneficiaries were not entitled to the contract's release from liability. We
                       therefore reverse the district court's orders granting summary judgment
                       and other relief and remand with instructions.
                                        FACTS AND PROCEDURAL HISTORY
                                   Appellants Peggy and Jeffrey Cain, as owners of Heli Ops
                       International, entered into a joint venture agreement (JVA) with C4
                       Worldwide, Inc. The JVA provided that Heli Ops would loan $1,000,000 to
                       C4 for the purpose of acquiring and then leveraging Collateralized
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                 Mortgage Obligations (CMOs). In return, Heli Ops would receive the first
                 $20,000,000 in profits from C4's leveraging of the assets, while retaining a
                 49 percent security interest in the CMOs until C4 had paid out that amount.
                 The Coins transferred $1,000,000 to C4, but C4 did not distribute any
                 profits to the Cains
                              The Cains subsequently entered into a "Settlement Agreement
                 and Release of All Claims" with C4 and its CEO. In the Settlement
                 Agreement, C4 agreed to pay the Cains $20,000,000 "no later than 90 days
                 from February 25, 2010." In return, the Cains agreed to release C4 and its
                 officers from any liability for C4's "financial misfortunes and resultant
                 inability to timely pay." The Agreement further provided that California
                 law governed its construction and interpretation and that the prevailing
                 party in any action arising under the Settlement Agreement would be
                 entitled to fees and costs.
                              C4 failed to pay $20,000,000 by the date specified in the
                 Settlement Agreement. Consequently, the Cains sued C4 and six of its
                 officers, including the respondents in this case: Richard Price and Mickey
                 Shackelford. The Cains alleged breach of the Settlement Agreement, fraud,
                 civil conspiracy, negligence, conversion, and intentional interference with
                 contractual relations. After extended litigation, the district court awarded
                 default judgment against C4, its CEO, and two other C4 officers on all
                 claims in the amount of $20,000,000, plus costs and fees. Following the
                 default judgment, only Price, Shackelford, and a third officer remained as
                 defendants. The third officer subsequently settled with the Cains.
                              PriceS and Shackelford moved for summary judgment, claiming
                 that the Settlement Agreement released them from liability for C4's actions
                 and precluded the Cains' suit. The Cains opposed, arguing that the

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                Settlement Agreement was invalid for lack of consideration. The district
                court granted summary judgment to Price and Shackelford, reasoning that
                the Settlement Agreement was supported by consideration and that the
                Cains bound themselves to that Agreement's release provision when they
                elected to seek damages for C4's breach of contract.
                            The Gains appeal from that order granting summary judgment.
                They also appeal several interlocutory and post-judgment orders, as
                described further below.
                                               DISCUSSION
                The district court erred in granting summary judgment because the Cains
                are not bound by the Settlement Agreement's release provision
                            The Coins argue that summary judgment was inappropriate for
                two reasons. First, the Cains argue that the Settlement Agreement was
                invalid, so the release provision had no effect. Second, the Cains argue that,
                even if the Settlement Agreement was valid, C4's material breach of that
                Agreement released the Coins from their obligation under that Agreement
                not to sue C4's officers. Reviewing the district court's order granting
                summary judgment de novo, see Wood v. Safeway, Inc., 121 Nev. 724, 729,
                121 P.3d 1026, 1029 (2005), we conclude that summary judgment was
                improper.

                      The Settlement Agreement was a valid contract
                            The Coins first argue that the Settlement Agreement does not
                release Price and Shackelford from liability, because the Settlement
                Agreement was invalid for lack of consideration. 1 They argue that the

                      'The Coins also argue that the Settlement Agreement is invalid due
                to fraud in the inducement. The facts underlying this issue were not
                adequately developed at the district court level for this court to review.
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                     Settlement Agreement merely acknowledged C4's preexisting obligation to
                     pay the Cains $20,000,000 and thus provided no consideration to the Cains
                     in exchange for the release of liability. We disagree and affirm the district
                     court's ruling that the Settlement Agreement was supported by
                     consideration—namely, removal of a condition precedent to payment.
                                 To be legally enforceable, a contract "must be supported by
                     consideration." 2 Jones v. SunTrust Mortg., Inc., 128 Nev. 188, 191, 274 P.3d
                     762, 764 (2012). "Consideration is the exchange of a promise or
                     performance, bargained for by the parties." Id. A party's affirmation of a
                     preexisting duty is generally not adequate consideration to support a new
                     agreement. See Cty. of Clark v. Bonanza No. 1, 96 Nev. 643, 650, 615 P.2d
                     939, 943 (1980). However, where a party's promise, offered as
                     consideration, differs from that which it already promised, there is
                     sufficient consideration to support the subsequent agreement. 3 Williston
                     on Contracts § 7:41 (4th ed. 2008).
                                 When contracting, a promisor may incorporate into the
                     agreement a "condition precedent"—that is, an event that must occur before
                     the promisor becomes obligated to perform. McCorquodale v. Holiday, Inc.,
                     90 Nev. 67, 69, 518 P.2d 1097, 1098 (1974). An implicit condition precedent
                     can be inferred from a contract's terms and context, even when the contract

                           2We note that the Settlement Agreement's choice-of-law clause
                     potentially raises a question as to whether California law or Nevada law
                     governs this and other issues in this case. However, neither party's
                     briefings address this choice-of-law issue; they both cite Nevada caselaw as
                     governing, as does the district court's relevant orders. Therefore, we treat
                     the choice-of-law provision as waived by mutual consent of both parties and
                     apply Nevada law throughout this opinion.
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                  does not explicitly so provide. Las Vegas Star Taxi, Inc. v. St. Paul Fire &
                  Marine Ins. Co., 102 Nev. 11, 12, 714 P.2d 562, 562 (1986).
                              Here, the JVA provided that C4 would pay the Coins "Mho first
                  twenty million USD ($20,000,000) received from the proceeds and profits of
                  leveraging the CMOs." Implicit in that statement is that there must be
                  $20,000,000 in "proceeds and profits" for the Coins to receive that money.
                  Thus, the existence of $20,000,000 in "proceeds and profits" was a condition
                  precedent to the Coins receiving $20,000,000 from C4. 3
                              The Settlement Agreement, by contrast, contains no condition
                  precedent. It unconditionally obligates C4 "to pay the sum of $20,000,000,
                  plus all accumulated interest, to Coins no later than 90 days from February
                  25, 2010." Thus, the effect of the Settlement Agreement was to remove the
                  condition precedent from C4's $20,000,000 obligation. Elimination of that
                  condition precedent constitutes adequate consideration for the Settlement
                  Agreement to be legally enforceable. See Jones, 128 Nev. at 191, 274 P.3d
                  at 764. Therefore, the district court correctly held that the Settlement
                  Agreement was a valid contract.
                        C4's breach of the Settlement Agreement releases the Gains from their
                        obligation under that Agreement
                              The Coins next contend that, assuming the Settlement
                  Agreement was a valid contract, the district court nonetheless erred in
                  holding that the Settlement Agreement released Price and Shackelford

                          At oral argument before this court, the Coins' counsel argued that,
                  the JVA's language notwithstanding, a promissory note attached to the JVA
                  unconditionally obligated C4 to pay $20,000,000. That argument is
                  untenable given this language within the promissory note: "C4 . . . promises
                  to pay. . . the amount of Twenty Million USD . . . as per the terms specified
                  in the Joint Venture Agreement." (Emphasis added.)
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                from liability. In particular, they attack the district court's conclusion that
                the Cains bound themselves to the terms of the Settlement Agreement when
                they declined to rescind that Agreement and instead sought damages for
                C4's breach. The Cains argue that their suit for damages does not bind
                them to the terms of the Settlement Agreement. We agree with the Cains.
                            When parties exchange promises to perform, one party's
                material breach of its promise discharges the non-breaching party's duty to
                perform. Restatement (Second) of Contracts § 237 (Am. Law Inst. 1981). If
                the non-breaching party's duty was to a third-party beneficiary, the same
                principle applies: the breaching party's "failure of performance" discharges
                the beneficiary's right to enforce the contract. 4 Id. at § 309(2) & cmt. b.
                Moreover, a material breach of contract also "gives rise to a claim for
                damages." Id. at § 243(1). Thus, the injured party is both excused from its
                contractual obligation and entitled to seek damages for the other party's
                breach. See id. § 243 cmt. a, illus. 1.
                            Here, the Settlement Agreement was an exchange of one
                promise to perform for another promise to perform. That is, C4 promised
                the Cains $20,000,000 in exchange for the Cains' promise to release C4's
                officers from liability for C4's conduct. The Cains were bound by their
                promise until C4 materially breached the contract 90 days after February
                25, 2010, the date on which C4's $20,000,000 was due. At that point, the

                      `While there are several possible exceptions to this rule—for example,
                where the beneficiary changes its position in reliance on the agreement, or
                where the contract expressly or implicitly guarantees a beneficiary's right
                regardless of other parties' performance, see Restatement (Second) of
                Contracts § 309 cmt. b—the facts of this case do not implicate those
                exceptions.
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                Coins were released from their promise not to sue C4's officers.   See id. at
                § 309(2).
                            The complication in this case stems from the $20,000,000
                default judgment previously awarded to the Coins In briefing before the
                district court, the Coins elected to enforce that default judgment and
                rejected the possibility of rescinding the Settlement Agreement. Based on
                those facts, the district court reasoned that the Coins elected to honor the
                Agreement and therefore bound themselves to its terms—namely, the
                promise not to hold C4's officers liable.
                            In so reasoning, the district court conflated two remedy
                concepts: specific performance and damages for total breach of contract.
                Specific performance requires the parties to perform as they promised in
                the original agreement. See Mayfield v. Koroghli, 124 Nev. 343, 351, 184
                P.3d 362, 367-68 (2008) (discussing when it is appropriate for a court to
                order specific performance). Damages for total breach, by contrast, awards
                the non-breaching party a monetary award sufficient to place that party in
                the position it expected to find itself had all parties honored the contract.
                See Restatement (Second) of Contracts § 347.
                             In the present case, the district court erroneously interpreted
                the $20,000,000 default judgment to be an order for specific performance.
                That misinterpretation likely occurred because $20,000,000 would have
                been the appropriate amount had the district court ordered specific
                performance. But the Coins never sought specific performance of the
                Settlement Agreement, and that is not what the district court ordered when
                it granted default judgment to the Coins. Rather, the district court awarded
                damages for breach of contract, fraud, and other claims. While $20,000,000
                may greatly exceed the amount of damages the Coins actually suffered, the
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                       propriety of that amount is not presently before this court. Because the
                       default judgment awarded damages rather than specific performance, it did
                       not bind the Cains to their original promise within the Settlement
                       Agreement. See Restatement (Second) of Contracts § 243 cmt. a, illus. 1.
                                    In sum, C4's breach of the Settlement Agreement relieved the
                       Cains of their obligation to Price and Shackelford, third-party beneficiaries
                       under that Agreement. We therefore reverse the district court's order
                       granting summary judgment to Price and Shackelford. We also vacate the
                       district court's order awarding $95,843.56 in attorney fees to Price and
                       Shackelford as prevailing parties. They are no longer prevailing parties, so
                       that award is inappropriate. See Wheeler Springs Plaza, LLC v. Beeman,
                       119 Nev. 260, 268, 71 P.3d 1258, 1263 (2003) (involving the reversal of an
                       award of attorney fees where the district court's judgment on the verdict
                       was overturned).
                       The district court abused its discretion when it denied the Gains' motion to
                       compel discovery of Price and Shackelford's personal financial documents
                                    Prior to the district court's grant of summary judgment, the
                       Cains moved to compel discovery of Price and Shackelford's personal
                       financial documents. The Cains sought those documents as evidence to
                       support their fraud claim against Price and Shackelford. In denying the
                       Canis' request, the district court found that the Cains presented an
                       inadequate factual basis for fraud to support a punitive damages claim, so
                       discovery of personal financial documents was inappropriate under Hetter
                       v. Eighth Judicial District Court, 110 Nev. 513, 519-20, 874 P.2d 762, 765-
                       66 (1994).
                                    This court generally reviews discovery orders for an abuse of
                       discretion. Club Vista Fin. Servs., LLC v. Eighth Judicial Dist. Court, 128
                       Nev. 224, 228, 276 P.3d 246, 249 (2012). However, this court reviews
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                  f.
                whether a district court has applied the proper legal standard de novo.
                Staccato v. Valley Hosp., 123 Nev. 526,530 n.4, 170 P.3d 503, 506 n.4(2007).
                            Discovery is proper for any matter that is not privileged and is
                relevant to the subject matter of the action before the court. NRCP 26(b)(1).
                However, due to privacy concerns and the potential for "abuse and
                harassment," a defendant's personal financial information can "not be had
                for the mere asking." Hetter, 110 Nev. at 520, 874 P.2d at 766. To discover
                that information, a "plaintiff must demonstrate some factual basis for [a]
                punitive damage claim." Id. To succeed on a punitive damage claim in this
                contractual context, the plaintiff must show by clear and convincing
                evidence that the defendant was guilty of "oppression, fraud or malice."
                NRS 42.005(1).
                            Here, the Gains pursued punitive damages on claims of fraud,
                civil conspiracy, and conversion. The Gains presented evidence showing
                that their loan proceeds were distributed to C4 officers rather than being
                used to purchase CMOs, as per the JVA. While that evidence might not
                amount to "clear and convincing" evidence that Price and Shackelford
                committed "oppression, fraud, or malice," NRS 42.005(1), such alleged
                misuse of funds contrary to the JVA constitutes "some factual basis" for
                those claims such that discovery was proper. Hetter, 110 Nev. at 520, 874
                P.2d at 766; see also Sherwin v. Infinity Auto Ins. Co.,   No. 2:11—CV-00043—
                JCM—LRL, 2011 WL 4500883, at *3 (D. Nev. Sept. 27, 2011) (distinguishing
                plaintiffs' burdens at the discovery stage from their burdens at the trial
                stage). We therefore conclude that the district court improperly denied
                discovery of Price and Shackelford's personal financial documents.
                The Gains' remaining claims are without merit
                            The Gains appeal several additional orders entered by the

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                in bifurcating trial and resolving issues of personal jurisdiction and alter
                ego in a pretrial evidentiary hearing. Reviewing the district court's decision
                to bifurcate for an abuse of discretion, see Awada v. Shuffle Master, Inc.,
                123 Nev. 613, 621, 173 P.3d 707, 712 (2007), we find no abuse and therefore
                affirm.
                            Second, the Cains appeal post-judgment orders from the district
                court related to subpoenas and sanctions. In those orders, the district court
                found that the Cains had abused the discovery process by serving subpoenas
                on Price and Shackelford after the case was dismissed, so the district court
                quashed the subpoenas and awarded $9,514 in attorney fees to Price and
                Shackelford pursuant to NRS 18.010(2)(b) (authorizing courts to award
                attorney fees for claims "maintained without reasonable ground or to harass
                the prevailing party"). Having reviewed the court's decisions for an abuse
                of discretion, see Bahena v. Goodyear Tire & Rubber Co., 126 Nev. 243, 249,
                235 P.3d 592, 596 (2010) (stating the standard of review for a district court's
                order imposing sanctions); Consol. Generator-Nev., Inc. v. Cummins Engine
                Go., 114 Nev. 1304, 1312, 971 P.2d 1251, 1256 (1998) (same for an order to
                quash subpoenas), we see no cause to reverse the district court's orders. We
                agree with the district court's conclusion that there was no "reasonable
                ground" to serve subpoenas on the defendants after the case was dismissed.
                NRS 18.010(2)(b). We reject the CaMs' argument that our reversal of
                summary judgment also requires reversal of these post-judgment orders.

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                While our reversal of the district court's final disposition requires us to
                reverse a grant of attorney's fees to the extent that the fees were granted
                because a party prevailed, 5 see Gibby's, Inc. v. Aylett, 96 Nev. 678, 681, 615
                P.2d 949, 951 (1980), we may reverse a district court's final disposition
                while affirming a district court's award of sanctions pursuant to NRS
                18.010(2)(b). Thus, we affirm the district court's order granting Price and
                Shackelford $9,514 as a litigation sanction against the Cains.

                                                 CONCLUSION
                              Absent exceptions not relevant here, one party's material
                breach of a contract discharges the non-breaching party's duty to perform
                under that contract. In this case, C4's failure to pay the Cains the promised
                sum released the Coins from their promise not to hold C4's officers liable.
                Therefore, we reverse the district court's grant of summary judgment and
                remand this matter to the district court for proceedings consistent with this
                opinion.

                                                      .Acits2
                                                      Stiglich

                We concur:

                                             ,   J.
                Hardesty

                Ler
                Parraguirre
                                                 J.

                      5Asnoted above, we reverse the order granting attorney fees to Price
                and Shackelford as prevailing parties.
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