Court Opinion

ID: 1033232
Source: CourtListenerOpinion
Date Created: 2013-07-09 19:53:22.369939+00
Date Added: 2024-06-11T09:18:35.829573
License: Public Domain

129 Nev., Advance Opinion    2J
                       IN THE SUPREME COURT OF THE STATE OF NEVADA

                ROCK BAY, LLC; AND MAYBOURNE,                         No. 61646
                INC.,
                Petitioners,
                vs.
                THE EIGHTH JUDICIAL DISTRICT
                COURT OF THE STATE OF NEVADA,
                                                                     FILED
                IN AND FOR THE COUNTY OF                              APR 0 4 2013
                CLARK; AND THE HONORABLE
                STEFANY MILEY, DISTRICT JUDGE,
                Respondents,
                   and
                REDWOOD RECOVERY SERVICES,
                LLC; AND ELEVENHOME LIMITED,
                Real Parties in Interest.

                            Original petition for writ of prohibition challenging district
                court orders refusing to quash subpoenas as to petitioners.
                            Petition denied in part and granted in part.

                Gordon Silver and Eric D. Hone and Joel Z. Schwarz, Las Vegas,
                for Petitioners.

                Jolley Urga Wirth Woodbury & Standish and L. Christopher Rose and
                Brian C. Wedl, Las Vegas,
                for Real Parties in Interest.

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

                                                 OPINION

                By the Court, HARDESTY, J.:
                            In this opinion, we must determine when discovery of a

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                nonparty's assets is permissible under NRCP 69(a), which permits post-
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                judgment discovery in aid of execution of a judgment. We conclude that
                discovery of a nonparty's assets under NRCP 69(a) is not permissible
                absent special circumstances, which include, but are not limited to, those
                in which the relationship between the judgment debtor and the nonparty
                raises reasonable suspicion as to the good faith of asset transfers between
                the two, or in which the nonparty is the alter ego of the judgment debtor.
                                  FACTUAL AND PROCEDURAL HISTORY
                              In March 2011, real parties in interest Redwood Recovery
                Services, LLC, and Elevenhome Limited (collectively, the judgment
                creditors) obtained judgments in Florida against Jeffrey Kirsch and
                various entities that he created throughout the United States (collectively,
                the judgment debtors).' The judgment debtors form limited liability
                companies with third-party investor funds and purchase pools of
                residential mortgages, which are then resold for a profit. According to the
                judgment creditors, the judgments were based on the judgment debtors'
                unfulfilled promises to pay back promissory notes and obligations owed
                under a settlement agreement obtained in March 2008 and amended in
                August 2008.
                              In addition to the judgment debtor entities, Kirsch created
                other companies, including Rock Bay, which is a small limited liability
                company that administers pools of investor-purchased residential
                mortgages. Rock Bay was organized in Delaware in August 2008, around
                the time that the amended settlement agreement was signed, and that
                same year, Kirsch reserved the name and registered Rock Bay as a
                Nevada company. Rock Bay was listed as "doing business as" American

                      1-The   judgment debtors are not parties to this writ proceeding.

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                Residential Equities, LLC, which is the name of one of the judgment
                debtors.
                             According to the 2010 and 2011 annual lists of officers and
                directors filed with the Secretary of State, Rock Bay's managing member
                is Maybourne, which is a Nevada corporation organized in 2008 by the
                judgment debtors' in-house counsel. Kirsch was listed as an officer of
                Maybourne, and he signed Rock Bay's 2009 initial list as Maybourne's
                president and the 2010 annual list as Rock Bay's authorized signatory.
                             After the Florida litigation began, a series of monetary
                transfers occurred between Rock Bay and the judgment debtors. In
                December 2011, when the judgment creditors were unsuccessful in
                executing their Florida judgments on the judgment debtors' assets, they
                domesticated the Florida judgments in Nevada. Rock Bay was voluntarily
                dissolved by Kirsch approximately one week later. Undeterred, the
                judgment creditors served a subpoena on the Las Vegas accounting firm of
                McNair & Associates, which performed accounting services for the
                judgment debtors, Rock Bay, and Maybourne. The subpoena sought all
                McNair records related to the judgment debtors, Rock Bay, and
                Maybourne.
                             Rock Bay and Maybourne moved to quash the McNair
                subpoena on the ground that they were not parties to the underlying
                litigation. The district court denied the motion to quash because it found
                that the relationship between Rock Bay and the judgment debtors raised
                reasonable suspicion of good faith as to the asset transfers because Kirsch
                had reserved Rock Bay's name in Nevada, there were multiple transfers of
                money between Rock Bay and the judgment debtors after the Florida
                litigation began, and Rock Bay was voluntarily dissolved shortly after the

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                Florida judgments were registered in Nevada. The district court further
                found that there was a reasonable inference of a relationship between
                Maybourne and the judgment debtors because Maybourne has the same
                address as the judgment debtors, Maybourne's incorporator was in-house
                counsel for the judgment debtors, and Kirsch was initially registered as a
                corporate officer of Maybourne. As such, the district court declined to
                quash the McNair subpoena as to Rock Bay and Maybourne. 2
                            The judgment creditors then subpoenaed Rock Bay's financial
                records from U.S. Bank. Rock Bay filed a motion to quash the U.S. Bank
                subpoena or, in the alternative, to limit the scope of discovery to the
                judgment debtors' assets. It argued that the U.S. Bank subpoena sought
                highly sensitive financial information that was protected from disclosure.
                The district court denied the motion to quash for the same reasons that it
                denied the prior motion to quash the McNair subpoena, and it declined to
                limit the scope of the subpoena because it found that disclosure would not
                harm Rock Bay. This petition for a writ of prohibition followed.
                                              DISCUSSION
                            Writ relief is an "extraordinary remedy, and therefore the
                decision to entertain a petition lies within the discretion of this court."
                State v. Dist. Ct. (Jackson), 121 Nev. 413, 416, 116 P.3d 834, 836 (2005).
                A petitioner bears the burden of "demonstrat[ing] that extraordinary relief
                is warranted." Valley Health System v. Dist. Ct., 127 Nev. „ 252
                P.3d 676, 678 (2011). A writ of prohibition may be granted when the

                      2The subpoena also sought the records related to another nonparty,
                Sloan Park, LLC, who is not a party to this writ proceeding because the
                district court quashed the subpoena as it related to Sloan Park's
                independent records.

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district court exceeds its jurisdiction. NRS 34.320. Thus, it is an
"appropriate remedy for the prevention of improper discovery." Valley
Health System, 127 Nev. at n.5, 252 P.3d at 678 n.5; Wardleigh v.
District Court, 111 Nev. 345, 350, 891 P.2d 1180, 1183 (1995).
             However, this relief, designed to prevent the district court
from acting beyond its authority, is not available when there is a "plain,
speedy and adequate remedy in the ordinary course of law." NRS 34.170;
Ashokan v. State, Dep't of Ins., 109 Nev. 662, 665, 856 P.2d 244, 246
(1993). Although the right to appeal is generally an adequate legal
remedy that would preclude writ relief, Pan v. Dist. Ct., 120 Nev. 222, 224,
88 P.3d 840, 841 (2004), an appeal is not available here because
petitioners are not parties to the action below, NRAP 3A(a), and because a
post-judgment order denying a motion to quash is not substantively
appealable. NRAP 3A(b). Further, while we typically decline to consider
writ petitions challenging discovery orders unless certain exceptions exist,
Valley Health System, 127 Nev. at , 252 P.3d at 678-79, here, the writ
is necessary to prevent improper post-judgment disclosure of private
information, the issues are novel and important to Nevada jurisprudence,
and those issues might avoid appellate review were we not to consider
them now. See, e.g., Callie v. Bowling, 123 Nev. 181, 160 P.3d 878 (2007)
(explaining when a judgment creditor must proceed against a nonparty in
an independent action). Thus, we exercise our discretion to entertain this
writ petition.
Discovery of nonparty assets under NRCP 69(a) is permissible in limited
circumstances
             When interpreting Nevada's Rules of Civil Procedure, we turn
to the rules of statutory interpretation. Webb v. Clark County School
Dist., 125 Nev. 611, 618, 218 P.3d 1239, 1244 (2009). "Statutory

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                interpretation is a question of law that we review de novo." Consipio
                Holding, BV v. Carlberg, 128 Nev. „ 282 P.3d 751, 756 (2012).
                "When a statute is clear and unambiguous, this court gives effect to the
                plain and ordinary meaning of the words and does not resort to the rules
                of construction." Id.
                             NRCP 69(a) provides that "[in aid of the judgment or
                execution, the judgment creditor. . . may obtain discovery from any
                person, including the judgment debtor, in the manner provided in these
                rules." Rock Bay and Maybourne concede that this rule permits the
                judgment creditors to obtain discovery from nonparties, but they argue
                that such discovery must be limited. To the extent discussed herein, we
                agree.
                             As the federal courts have recognized when examining this
                issue, obtaining post-judgment discovery from nonparties is generally
                limited to a judgment debtor's assets, and a judgment creditor may not
                inquire into the nonparties' own assets. See Caisson Corporation v.
                County West Building Corp., 62 F.R.D. 331, 334 (E.D. Pa. 1974) (holding
                that inquiries of nonparties under FRCP 69(a) "must be kept pertinent to
                the goal of discovering concealed assets of the judgment debtor and not be
                allowed to become a means of harassment" of the nonparties); Burak v.
                Scott, 29 F. Supp. 775, 776 (D.D.C. 1939) (holding that "a judgment
                creditor [does not have] any right to . . . require the disclosure of assets of
                persons other than the judgment debtor" under FRCP 69). 3 However, this

                         3 NRCP
                             69(a) is modeled after its federal counterpart, FRCP 69(a)(2),
                and thus, cases interpreting the federal rule are strongly persuasive. See
                Executive Mgmt. v. Ticor Title Ins. Co., 118 Nev. 46, 53, 38 P.3d 872, 876
                (2002) ("Federal cases interpreting the Federal Rules of Civil Procedure
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                general rule should not be "applied mechanically." Magnaleasing, Inc. v.
                Staten Island Mall, 76 F.R.D. 559, 562 (S.D.N.Y. 1977). Because the
                purpose of post-judgment discovery is to locate the judgment debtor's
                assets, discovery of a nonparty's assets is permissible if it will lead to
                discovery of "hidden or concealed assets of the judgment debtor." Caisson
                Corporation, 62 F.R.D. at 334.
                            Thus, we conclude that discovery of a nonparty's assets is
                permissible in certain limited circumstances. These circumstances
                include, for example, a situation "where the relationship between the
                judgment debtor and the nonparty is sufficient to raise a reasonable doubt
                about the bona fides of the transfer of assets between them,"
                Magnaleasing, 76 F.R.D. at 562; see also Alpern v. Frishman, 465 A.2d
                828, 829 (D.C. 1983), or where the nonparty is the alter ego of the
                judgment debtor. See Falicia v. Advanced Tenant Services, Inc., 235
                F.R.D. 5, 9 (D.D.C. 2006) (holding that post-judgment discovery of
                nonparties was permissible in light of evidence suggesting that the
                nonparties were "mere extensions" and "possible successor entities of a
                judgment debtor"). We now must determine whether there were certain
                limited circumstances present in this case to support the district court's
                denial of the motions to quash the subpoenas seeking discovery of Rock
                Bay's and Maybourne's assets.

                ...continued
                'are strong persuasive authority, because the Nevada Rules of Civil
                Procedure are based in large part upon their federal counterparts."
                (quoting Las Vegas Novelty v. Fernandez, 106 Nev. 113, 119, 787 P.2d
                772, 776 (1990))).

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                Denial of the motions to quash
                            The judgment creditors subpoenaed all of McNair's records
                related to the judgment debtors, Rock Bay, and Maybourne. They also
                subpoenaed Rock Bay's financial records from U.S. Bank. The district
                court ultimately declined to quash these subpoenas after finding that
                there was a reasonable inference of a close relationship between the
                judgment debtors, Rock Bay, and Maybourne.
                      The McNair subpoena
                            Rock Bay argues that the district court abused its discretion
                by declining to quash the McNair subpoena because there was no evidence
                supporting its conclusion that the asset transfers between Rock Bay and
                the judgment debtors might not have been in good faith. We disagree.
                            The district court found that the apparent relationship
                between Rock Bay and the judgment debtors, and the overall timing of
                events, raised reasonable suspicion as to the good faith of the asset
                transfers because Kirsch reserved the name for Rock Bay in Nevada, there
                was evidence of money being transferred between Rock Bay's and the
                judgment debtors' bank accounts, and Rock Bay was voluntarily dissolved
                shortly after the judgment creditors registered their judgment in Nevada.
                In addition, there was evidence before the district court that Rock Bay was
                registered as doing business under the name of one of the judgment debtor
                entities, the signer of Rock Bay's operating agreement was the judgment
                debtors' in-house counsel, and the form listing Maybourne as the
                managing member of Rock Bay was signed by Kirsch. We conclude that
                the relationship established by this evidence is sufficient to raise a
                reasonable suspicion as to the good faith of the asset transfers between
                Rock Bay and the judgment debtors. As the district court acted within its

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                discretion in so concluding, it has not exceeded its authority over Rock Bay
                such that a writ of prohibition is warranted as to the McNair subpoena. 4
                             However, we cannot reach the same conclusion as to
                Maybourne. As Maybourne points out, there is no evidence that
                Maybourne ever held or transferred assets with the judgment debtors. In
                addition, the judgment creditors never argued or established that
                Maybourne was the judgment debtors' alter ego. 5 Thus, because the
                judgment creditors did not demonstrate anything about the relationship
                between Maybourne and the judgment debtors that raises suspicion
                sufficient to require access to Maybourne's financial records, the district
                court improperly declined to quash the McNair subpoena as to Maybourne.
                      The U.S. Bank subpoena
                             Rock Bay also argues that the district court exceeded its
                authority in allowing the U.S. Bank subpoena to endure because in it, the
                judgment creditors impermissibly sought to acquire highly confidential

                      4 We  decline to consider Rock Bay's argument as to the
                confidentiality of the records sought by the McNair subpoena because
                Rock Bay did not argue that the McNair records were confidential and
                private before the district court. See In re AMERCO Derivative
                Litigation, 127 Nev. n.6, 252 P.3d 681, 697 n.6 (2011) ("[W]e
                decline to address an issue raised for the first time" before this court.).

                      5 Inorder to show that Maybourne was the alter ego of the judgment
                debtors, the judgment creditors would have needed to establish by a
                preponderance of the evidence that (1) Maybourne is "influenced and
                governed by" the judgment debtors, (2) there is a "unity of interest and
                ownership' between the two such that they are essentially the same
                company, and (3) "adherence to the corporate fiction of a separate entity
                would, under the circumstances, sanction [a] fraud or promote injustice."
                LFC Mktg. Group, Inc. v. Loomis, 116 Nev. 896, 904, 8 P.3d 841, 846-47
                (2000) (alteration in original) (quoting Polaris Industrial Corp. v. Kaplan,
                103 Nev. 598, 601, 747 P.2d 884, 886 (1987)).

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                and private financial information. 6 Although Nevada does not recognize a
                privilege for financial documents, see NRS Chapter 49 (detailing Nevada's
                evidentiary privileges), this court has recognized that "public policy
                suggests that. . . financial status [should] not be had for the mere asking."
                Hetter v. District Court, 110 Nev. 513, 520, 874 P.2d 762, 766 (1994). In
                the context of post-judgment discovery, courts have recognized that a
                nonparty's privacy interests "must be balanced against the need of the
                judgment creditor" for the requested information.      Blaw Knox Corp. v.
                AMR Industries, Inc., 130 F.R.D. 400, 403 (E.D. Wis. 1990). Thus, a
                nonparty's financial assets are generally protected where "the information
                sought was critical to the financial health of the non-party's business and
                was being requested by a direct competitor." Falicia, 235 F.R.D. at 10.
                            However, the need of a judgment creditor to examine a
                nonparty's financial records outweighs the nonparty's privacy interest
                where, as in this case, there are reasonable doubts as to the good faith of
                the transfer of assets between the nonparty and the judgment debtor, and
                the judgment creditor is not a competitor of the nonparty. Id. at 9-10. In
                Falicia, the court held that disclosure of a nonparty's bank records was
                appropriate because there was a "reasonable belief that inspection of the
                bank records by the (judgment creditor] could lead to the discovery of
                concealed assets of the judgment debtors." Id. at 10. After considering the
                content and recipient of the requested documents, the court concluded that

                      6 Maybourne  also challenges the U.S. Bank subpoena on the basis of
                confidentiality and privacy. However, it appears that Maybourne was not
                included in the U.S. Bank subpoena, and Maybourne moved to quash only
                the McNair subpoena. Therefore, we do not consider Maybourne's
                argument. See In re AMERCO, 127 Nev. at n.6, 252 P.3d at 697 n.6.

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                protection of the nonparty's financial information was not warranted
                because the judgment creditors were not competitors of the judgment
                debtors. Id.
                               Similarly, in this case, the judgment creditors are not
                competitors of Rock Bay. Moreover, the financial records requested from
                U.S. Bank are relevant and pertain to financial account activity that
                occurred throughout the underlying litigation, as Rock Bay was not
                created in Nevada until after the judgment creditors commenced the
                Florida lawsuit. Therefore, we conclude that the district court did not act
                in excess of its jurisdiction when it declined to quash the U.S. Bank
                subpoena. 7
                               Accordingly, we grant the petition as to Maybourne because
                the district court improperly declined to quash the McNair subpoena as to
                Maybourne. Thus, we direct the clerk of this court to issue a writ of
                prohibition instructing the district court to quash the McNair subpoena as
                it pertains to Maybourne. However, we deny the petition as to Rock Bay
                because the relationship between Rock Bay and the judgment debtors

                      7 The parties also dispute whether Rock Bay previously rejected a
                confidentiality agreement. In support of this argument, the judgment
                creditors rely on a letter their counsel sent to Rock Bay stating that the
                nonparties had not answered the judgment creditors' request for a
                proposed confidentiality agreement. However, Rock Bay argues that the
                proposed agreement was not sufficient, and that the agreements it
                alternatively proposed were similarly rejected by the judgment creditors.
                We do not address this issue because it is a question of fact, and it was not
                raised in the district court. See State v. Rincon, 122 Nev. 1170, 1177, 147
                P.3d 233, 238 (2006) ("This court does not act as a finder of fact . . ."); In
                re AMERCO, 127 Nev. at n.6, 252 P.3d at 697 n.6.

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                raises reasonable suspicion as to the good faith of the asset transfers
                between them, and because no privacy interest will be impacted in a way
                sufficient to overcome the judgment creditors' interest in discovering any
                concealed assets. 8

                                                                                  J.
                                                  Hardesty

                We concur:

                                               C.J.

                Saitta

                         8As
                          such, we deny as moot Rock Bay's and Maybourne's petition for
                rehearing of the order denying their motion for a stay.

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