Court Opinion

ID: 3004950
Source: CourtListenerOpinion
Date Created: 2015-09-26 00:07:31.929732+00
Date Added: 2024-06-11T11:45:58.877663
License: Public Domain

131 Nev., Advance Opinion 71
       IN THE SUPREME COURT OF THE STATE OF NEVADA

WATSON ROUNDS, P.C.,                                  No. 65632
Petitioner,
vs.
                                                                  r
THE EIGHTH JUDICIAL DISTRICT
COURT OF THE STATE OF NEVADA,
IN AND FOR THE COUNTY OF                                  SEP 2 if 2015
CLARK; AND THE HONORABLE
ELIZABETH GOFF GONZALEZ,
DISTRICT JUDGE,
Respondents,
   and
HIMELFARB & ASSOCIATES, LLC, A
NEVADA LIMITED LIABILITY
COMPANY; AND BRUCE HIMELFARB,
AN INDIVIDUAL,
Real Parties in Interest.

            Original petition for a writ of mandamus challenging a district
court order awarding attorney fees jointly and severally, as a sanction,
against petitioner law firm.
            Petition granted.

Lemons, Grundy & Eisenberg and Robert L. Eisenberg, Reno,
for Petitioner.

Kolesar & Leatham, Chtd., and Matthew T. Dushoff and Daniel S.
Cereghino, Las Vegas,
for Real Parties in Interest.

       aorreekeci ree orzkr -44.1 41245.
                                                                      ?e8 q
                BEFORE THE COURT EN BANC.

                                                      OPINION
                By the Court, PARRAGUIRRE, J.:
                             NRS 7.085 allows a district court to make an attorney
                personally liable for the attorney fees and costs an opponent incurs when
                the attorney "[f] ile[s], maintain [s] or defend [s] a civil action. . . [that] is
                not well-grounded in fact or is not warranted by existing law or by [a good-
                faith] argument for changing the existing law." Here we are asked to
                determine whether (1) Nevada Rule of Civil Procedure (NRCP) 11
                supersedes NRS 7.085, and (2) the district court abused its discretion in
                sanctioning the law firm under NRS 7.085. We conclude NRCP 11 does
                not supersede NRS 7.085 because each represents a distinct, independent
                mechanism for sanctioning attorney misconduct. However, we also
                conclude the district court abused its discretion in sanctioning the
                petitioner under NRS 7.085 without making adequate findings.
                Accordingly, we grant petitioner's request for a writ of mandamus and
                direct the district court to vacate the portion of its order making petitioner
                liable for attorney fees and costs.

                                                      FACTS
                             FortuNet, Inc., is a gaming company that leases bingo
                equipment to casinos. In 2011, FortuNet filed the initial version of its
                complaint in an action against former FortuNet employees and an entity
                they created; the claims centered on allegations that the employees
                breached various duties to FortuNet and improperly used FortuNet's
                intellectual property. FortuNet later retained petitioner Watson Rounds,
                P.C. (Watson), as its new counsel, and Watson prepared a second amended

SUPREME COURT
        OF
     NEVADA
                                                         2
(0) 1947A
                complaint adding real parties in interest Bruce Himelfarbl and Himelfarb
                & Associates, LLC (collectively Himelfarb), as defendants. All claims
                against Himelfarb derived from an alleged kickback scheme and the
                alleged theft of FortuNet's intellectual property.
                            Each of FortuNet's claims against Himelfarb survived
                summary judgment. The parties proceeded to trial, but before the jury
                entered a verdict, the district court dismissed several of FortuNet's claims
                against Himelfarb for lack of evidence under NRCP 50(a). FortuNet also
                voluntarily dismissed several other claims against Himelfarb. The
                remaining claims against Himelfarb made it to the jury, which had the
                option of finding that Himelfarb was involved in the kickback scheme, the
                theft of FortuNet's intellectual property, both, or neither. The jury
                rejected FortuNet's claims against Himelfarb, found for Himelfarb on its
                counterclaims, and specifically asked the district court if it could include
                Himelfarb's attorney fees when calculating the damages Himelfarb
                suffered from FortuNet's breach of the implied covenant of good faith and
                fair dealing. The district court instructed the jury that it could not add
                attorney fees because such fees, if any, would be assessed posttrial.
                            The district court eventually determined that FortuNet would
                be liable for Himelfarb's attorney fees and costs in the amount of
                $551,216.83. Additionally, the district court determined Watson was
                jointly and severally liable with FortuNet for those fees and costs
                pursuant to NRS 7.085. The district court explained that Watson's
                liability was proper because, "despite not being well-grounded in fact and

                      1-Bruce   Himelfarb is the president of Himelfarb & Associates, LLC.

SUPREME COURT
        OF
     NEVADA
                                                       3
(0) 1947A
                not warranted by existing law or a good faith argument for a change in
                existing law, [Watson] filed and maintained FortuNet's claims against
                [Himelfarb] and defended FortuNet against [Himelfarb's] counterclaims as
                contemplated by NRS 7.085."
                            The district court sanctioned Watson under NRS 7.085 based
                on (1) "its review of the various pre-trial motions," (2) "the evidence
                presented at trial," (3) "NRCP 50(a) rulings," (4) "FortuNet's voluntary
                dismissal with prejudice of certain claims," (5) "the jury's unanimous
                verdict in favor of [Himelfarb]," and (6) "the jury's expressed desire to
                award [Himelfarb its] entire attorney's fees incurred relating to this case."
                The district court also cited the fact that "the deposition and trial
                testimony of FortuNet's [CEO] and principal witness. . . [stated] that
                counsel was responsible for `99.99%' of the factual and legal content of
                FortuNet's pleadings." Finally, the district court found that Watson "could
                not have made the required inquiries prior to filing" the second amended
                complaint against Himelfarb, "could not have reassessed the evidentiary
                support for FortuNet's claims against [Himelfarbr before filing, and
                "could not have had a reasonable belief that the claims against
                [Himelfarb] were well-grounded in either fact or law."
                            Watson now seeks a writ of mandamus vacating the portion of
                the district court's order making Watson jointly and severally liable for
                Himelfarb's attorney fees.

                                               DISCUSSION
                            Watson contends that (1) this court should exercise its
                discretion to consider Watson's petition, (2) NRCP 11 supersedes NRS
                7.085 such that the award against Watson is improper, and (3) the district

SUPREME COURT
        OF
     NEVADA
                                                      4
(0) I947A
                court abused its discretion in making Watson liable for Himelfarb's
                attorney fees under NRS 7.085 without making adequate findings.

                This court will exercise its discretion to consider Watson's petition
                            "Whether extraordinary writ relief will issue is solely within
                this court's discretion." MountainView Hosp., Inc. v. Eighth Judicial Dist.
                Court, 128 Nev., Adv. Op. 17, 273 P.3d 861, 864 (2012). "Generally, an
                extraordinary writ may only be issued in cases 'where there is not a plain,
                speedy and adequate remedy' at law." Id. (quoting NRS 34.170 and NRS
                34.330). "The right. . . to appeal in the future, after a final judgment is
                ultimately entered, will generally constitute an adequate and speedy legal
                remedy precluding writ relief." D.R. Horton, Inc. v. Eighth Judicial Dist.
                Court, 123 Nev. 468, 474, 168 P.3d 731, 736 (2007).
                            Sanctioned attorneys do not have standing to appeal because
                they are not parties in the underlying action; therefore, extraordinary
                writs are a proper avenue for attorneys to seek review of sanctions.    See
                Emerson v. Eighth Judicial Dist. Court, 127 Nev., Adv. Op. 61, 263 P.3d
224, 227 (2011); see also Albany v. Arcata Assocs., Inc., 106 Nev. 688, 690,
                799 P.2d 566, 567-68 (1990). Here, Watson was not a party to the
                underlying case, and it cannot appeal the district court's order making it
                jointly and severally liable for more than $500,000 in attorney fees and
                costs. Therefore, Watson lacks a plain, speedy, and adequate legal remedy
                and is entitled to seek extraordinary writ relief. As such, this court must
                now assess whether Watson is entitled to the writ relief it seeks.

                NRCP 11 does not supersede NRS 7.085
                             This court reviews sanctions awarding attorney fees for an
                abuse of discretion. Emerson, 127 Nev., Adv. Op. 61, 263 P.3d at 229; see
                also Semenza v. Caughlin Crafted Homes, 111 Nev. 1089, 1095, 901 P.2d
SUPREME COURT
        OF
     NEVADA
                                                       5
(0) 1947A
                684, 687 (1995). However, we review interpretations of statutes and the
                NRCP de novo. State v. Catanio, 120 Nev. 1030, 1033, 102 P.3d 588, 590
                (2004); Moseley v. Eighth Judicial Dist. Court, 124 Nev. 654, 662, 188 P.3d
1136, 1142 (2008).
                            Watson argues that NRCP 11 supersedes NRS 7.085 because
                NRS 7.085 is a procedural statute last amended in 2003 and NRCP 11 is a
                procedural rule that was materially amended in 2004. According to
                Watson, NRCP 11's 2004 amendment added safe harbor rules that
                supersede NRS 7.085, such that the statute (1) is now totally superseded
                by NRCP 11, or (2) at least incorporates NRCP 11's safe harbor provisions.
                NRCP 11's safe harbor provisions prevent attorneys from being sanctioned
                until they have the opportunity to cure the sanctionable conduct or appear
                at an order to show cause hearing. NRCP 11(c). We reject Watson's
                argument.
                            Watson relies on State v. Connery, 99 Nev. 342, 661 P.2d 1298
                (1983), to support its position that procedural rules supersede conflicting
                procedural statutes when the rule is enacted after the statute. In
                Connery, the issue was whether the time for appeal was governed by (1) a
                statute requiring appeal within 30 days of a district court's oral
                pronouncement of an order, or (2) a later-enacted appellate rule requiring
                appeal within 30 days of the district court's entry of a written order. Id. at
                344, 661 P.2d at 1299. This court held that the subsequently enacted
                procedural rule superseded the statute. Id. at 345-46, 661 P.2d at 1300.
                            However, Connery does not compel the result Watson seeks
                because it is materially distinguishable from the present matter. In
                Connery, the rule and statute plainly and irreconcilably conflicted because
                they provided different dates from which to calculate a strict 30-day

SUPREME COURT
        OF
     NEVADA
                                                      6
(0) 1947A
                appeal window. In this case, however, Watson has not articulated any
                reason why this court cannot give effect to both NRCP 11 and NRS 7.085,
                and there is nothing to suggest that the rule and statute cannot be read in
                harmony. See Bowyer v. Taack, 107 Nev. 625, 627-28, 817 P.2d 1176, 1178
                (1991) ("[A]pparent conflicts between a court rule and a statutory
                provision should be harmonized and both should be given effect if
                possible."), superseded by statute and rule on other grounds as recognized
                by McCrary v. Bianco, 122 Nev. 102, 131 P.3d 573 (2006). Moreover,
                persuasive authority and Nevada's rules for statutory interpretation
                strongly support treating NRCP 11 and NRS 7.085 as independent
                sanctioning mechanisms.
                               Nevada adopted the 1993 version of Federal Rule of Civil
                Procedure (FRCP) 11 "in its entirety." NRCP 11, Drafter's Note 2004
                Amendment. As the Advisory Committee Notes on the 1993 amendments
                to FRCP 11 make clear, FRCP 11 does not supersede or supplant 28
                U.S.C. § 1927 (2014), which makes attorneys personally liable for the
                unreasonable and vexatious multiplication of proceedings. 2 FRCP 11,
                Advisory Committee Notes, 1993 Amendment, Subdivision (d).

                      2 28   U.S.C. § 1927 (2014) states:

                               Any attorney or other person admitted to conduct
                               cases in any court of the United States or
                               any Territory thereof who so multiplies the
                               proceedings in any case unreasonably and
                               vexatiously may be required by the court to satisfy
                               personally the excess costs, expenses, and
                               attorneys' fees reasonably incurred because of
                               such conduct.

SUPREME COURT
        OF
     NEVADA
                                                            7
(0) 1947A
                             Rule 11 is not the exclusive source for control
                             of improper presentations of claims, defenses,
                             or contentions. It does not supplant statutes
                             permitting awards of attorney's fees to prevailing
                             parties or alter the principles governing such
                             awards. It does not inhibit the court in punishing
                             for contempt, in exercising its inherent powers, or
                             in imposing sanctions, awarding expenses, or
                             directing remedial action authorized under other
                             rules or under 28 U.S.C. § 1927.
                 Id. While federal courts have declined, as a matter of discretion, to allow
                 § 1927 to be used as a means of sidestepping FRCP 11's safe harbor
                 provisions where the misconduct involved is clearly covered by FRCP 11,
                 see New England Surfaces v. E.I. DuPont de Nemours & Co., 558 F. Supp.
2d 116, 124 n.12 (D. Me. 2008) (citing cases), they recognize that FRCP 11
                 and § 1927 apply to different types of misconduct and provide independent
                 mechanisms for sanctioning attorney misconduct. See, e.g., Hutchinson v.
                 Pfeil, 208 F.3d 1180, 1183-86 (10th Cir. 2000); Nw. Bypass Grp. v. U.S.
                 Army Corps of Eng'rs, 552 F. Supp. 2d 137, 142-43 (D. N.H. 2008)
                 ("Although there is no First Circuit authority directly on point, [the 2d,
                 4th, 6th, 10th, and 11th Circuits] have ruled that the safe harbor
                 provisions in Rule 11 do not apply to § 1927 claims."). The relationship
                 between the Nevada statute and rule is analogous to that between § 1927
                 and FRCP 11. Thus, federal authority strongly indicates that NRCP 11
                 does not supersede NRS 7.085.
                             Nevada's statutory interpretation rules also support treating
                 NRCP 11 and NRS 7.085 as separate sanctioning mechanisms. This court
                 has "previously indicated that the rules of statutory interpretation apply
                 to Nevada's Rules of Civil Procedure." Webb, ex rel. Webb v. Clark Cnty.

SUPREME COURT
        OF
     NEVADA
                                                      8
(0) 1947A ).1.
                Sch. Dist., 125 Nev. 611, 618, 218 P.3d 1239, 1244 (2009) (citing Moseley,
124 Nev. at 662 n.20, 188 P.3d at 1142 n.20). Further, "whenever possible,
                a court will interpret a rule or statute in harmony with other rules or
                statutes." Nev. Power Co. v. Haggerty, 115 Nev. 353, 364, 989 P.2d 870,
                877 (1999); see also Bowyer, 107 Nev. at 627-28, 817 P.2d at 1178. The
                simplest way to reconcile NRCP 11 and NRS 7.085 is to do what federal
                courts have done with FRCP 11 and § 1927; treat the rule and statute as
                independent methods for district courts to award attorney fees for
                misconduct. Therefore, we conclude NRCP 11 does not supersede NRS
                7.085.

                The district court failed to make adequate findings supporting sanctions
                against Watson
                            Watson contends the district court abused its discretion in
                concluding that it violated NRS 7.085 because the court's findings are
                insufficient to support that conclusion. We agree.
                            NRS 7.085 allows the district court to make an attorney
                personally liable for the attorney fees and costs an opponent incurs when
                the attorney "Mile [s], maintain Es] or defend [s] a civil action. . . [that] is
                not well-grounded in fact or is not warranted by existing law or by [a good
                faith] argument for changing the existing law." We have previously held,
                in the context of an attorney fees award, that a district court abuses its
                discretion by making such an award without including in its order
                "sufficient reasoning and findings in support of its ultimate
                determination." Barney v. Mt. Rose Heating & Air Conditioning, 124 Nev.
821, 829, 192 P.3d 730, 736 (2008) (quoting Shuette v. Beazer Homes
                Holdings Corp., 121 Nev. 837, 865, 124 P.3d 530, 549 (2005)).
                            According to the district court's order, its award against
                Watson is based on (1) the jury's express desire to award Himelfarb
SUPREME COURT
        OF
     NEVADA
                                                       9
(0) 1947A
                attorney fees; (2) a review of pretrial motions; (3) the evidence presented
                at trial; (4) the court's NRCP 50(a) rulings; (5) FortuNet's voluntary
                dismissal of certain claims; (6) the jury's unanimous verdict in Himelfarb's
                favor; (7) a statement by FortuNet's CEO that Watson was 99.99%
                responsible for the contents of pleadings; and (8) its determination that
                Watson could not have (a) made the required inquiries before filing the
                second amended complaint, (b) reassessed the evidence underlying
                FortuNet's claims, and (c) reasonably believed FortuNet's claims were
                well-grounded in fact or law. This reasoning does not support the
                imposition of sanctions against Watson.
                            First, the district court's order improperly relies on the jury's
                question to the district court about awarding Himelfarb attorney fees for
                FortuNet's breach of the implied covenant of good faith and fair dealing.
                NRS 7.085 does not empower juries to sanction attorneys. Even though
                juries can award attorney fees as a consequential damage for the breach of
                an obligation, such an award is only permissible if a request for attorney
                fees was pleaded in accord with NRCP 9(g). Sandy Valley Assocs. v. Sky
                Ranch Estates Owners Ass'n, 117 Nev. 948, 956-57, 35 P.3d 964, 969
                (2001), receded from by Hogan v. Felton, 123 Nev. 577, 586, 170 P.3d 982,
                988 (2007). The record does not demonstrate that Himelfarb pleaded such
                a request in accord with NRCP 9(g). More importantly, there is no
                authority indicating that Watson could be liable for consequential
                damages caused by its client's breach. As such, the jury's impulse to
                award Himelfarb some attorney fees has no logical bearing on whether
                Watson can be sanctioned under NRS 7.085.
                            Additionally, the district court's order contains several
                unsupported conclusions, making meaningful review of the sanctions

SUPREME COURT
        OF
     NEVADA
                                                     10
(0) 1947A
                impossible. In regard to Watson's purported violation of NRS 7.085, the
                district court does not explain (1) what defects in Watson's pretrial
                motions show it should be sanctioned; (2) how the evidence presented at
                trial was deficient; or (3) why it believes Watson could not have made any
                required inquiries before filing the second amended complaint, reassessed
                the evidence underlying FortuNet's claims, or reasonably believed that
                FortuNet's claims were well-grounded in fact or law. Although these
                conclusions may be supported by the facts in this case, this court cannot
                properly review the issue because the district court did not provide
                sufficient factual detail and reasoning to explain its decision.
                            Moreover, it is not clear the NRCP 50(a) rulings and
                FortuNet's voluntary dismissal of some claims support an award for
                attorney fees. Indeed, there are many cases in which attorneys are not
                made personally liable for fees even though some claims are dismissed
                before trial. See, e.g., Semenza, 111 Nev. at 1096, 901 P.2d at 688 (noting
                that voluntarily dismissing claims before trial does not necessarily
                indicate frivolity). Again, the district court does not explain how the pre-
                verdict dismissals here indicate that Watson brought or maintained
                groundless claims. Further, despite several claims being eliminated by
                NRCP 50(a) and voluntary dismissal, all those claims survived summary
                judgment, demonstrating the district court believed there might have been
                sufficient evidence to support them. Additionally, the core factual issues—
                whether Himelfarb was involved in the kickback scheme or the theft of
                FortuNet's intellectual property—still went to a jury.
                             Finally, the only piece of evidence the district court identifies
                does not explain why the award against Watson is justified. FortuNet's
                CEO stated that Watson was 99.99% responsible for the decision to add

SUPREME COURT
        OF
     NEVADA
                                                       11
(0) 1947A
                Himelfarb to the second amended complaint. The district court cites this
                statement as evidence that Watson filed or maintained claims not well-
                grounded in fact or law. However, this evidence says nothing about
                whether the claims were well-grounded. Instead, it assigns blame to
                Watson for any groundlessness that may have existed, without supporting
                an actual finding of groundlessness. Therefore, we conclude that the
                district court abused its discretion in sanctioning Watson because its
                findings are insufficient to justify making Watson liable for attorney fees
                and costs under NRS 7.085.

                                              CONCLUSION
                             This court will exercise its discretion to hear Watson's writ
                petition because, as a nonparty in the underlying action, it has no right to
                appeal. This court rejects Watson's argument that NRCP 11 supersedes
                NRS 7.085 and concludes that NRCP 11 and NRS 7.085 are distinct and
                independent methods for sanctioning attorney misconduct. Nevertheless,
                this court concludes Watson is entitled to writ relief because the district
                court's order does not sufficiently explain why Watson should be liable for
                attorney fees under NRS 7.085. Although sufficient facts may exist to
                sanction Watson under NRS 7.085, the district court failed to articulate
                those facts in its order.
                             Accordingly, our intervention is warranted, and we grant the
                petition and direct the clerk of this court to issue a writ of mandamus
                instructing the district court to vacate the portion of its Septemberre -
                2013, order holding Watson Rounds, P.C., jointly and severally liable for
                Himelfarb's attorney fees and costs. Nothing in this opinion prevents
                Himelfarb from renewing its motion for NRS 7.085 sanctions against

SUPREME COURT
        OF
     NEVADA
                                                     12
(0) 1947A
Watson. However, if the district court again sanctions Watson, its order
must set forth reasoning and factual findings to support its decision.

                                                 ac24")t
                                                  Parraguirre

We concur:

    I          et                       , C.J.
Hardesty

         "1   0"17,4                        J.
Douglas

                                            J.

   C:111L            imNIMMINIM.1....101,   J.
Saitta

                                            J.
Pickering

                                                   13