Nevada Appellate Court Summaries (4-1-21)

By Joe Tommasino, Esq.

Supreme Court of Nevada

Corporations: (1) A shareholder seeking damages against individual directors and officers must proceed under NRS 78.138(7); and (2) the Court abrogated Foster v. Arata, 74 Nev. 143, 325 P.2d 759 (1958), and Shoen v. SAC Holding Corp., 122 Nev. 621, 640 n.61, 137 P.3d 1171, 1184 n.61 (2006), to the extent those cases adopted a standard that conflicts with NRS 78.138(7) and Chur v. Eighth Judicial District Court, 136 Nev. 68, 458 P.3d 336 (2020). A shareholder who sues a corporate director individually for breach of fiduciary duty must, under NRS 78.138(7), rebut the business-judgment rule and demonstrate that the alleged breach involved intentional misconduct, fraud, or a knowing violation of the law. Here, appellant Lisa Guzman filed a shareholder complaint against the individual directors of a corporation and its controlling stockholder, alleging breach of fiduciary duty and seeking damages from a merger. The district court dismissed Guzman’s complaint for failure to state a claim. Guzman appealed. Citing Foster v. Arata, 74 Nev. 143, 325 P.2d 759 (1958), Guzman contended  that she rebutted the business-judgment rule by alleging in her complaint that the individual directors were interested parties in the transaction,   In resolving this contention, the Supreme Court considered whether NRS 78.138(7) supplants the “inherent-fairness” standard adopted in Foster. Under that standard, the mere allegation that a director was an interested party in the transaction rebuts the business-judgment rule as a matter of law and shifts the burden to the director to prove the inherent fairness of the transaction. Here, the Court held that NRS 78.138(7) precludes such a standard. As the Court recently explained in Chur v. Eighth Judicial District Court, NRS 78.138(7) supplies “the sole avenue to hold directors and officers individually liable for damages arising from official conduct.” 136 Nev. 68, 72-73, 458 P.3d 336, 340 (2020) (emphasis added). Thus, the Court has now clarified that NRS 78.138 and Chur control, foreclosing the inherent-fairness standard that previously allowed a shareholder to automatically rebut the business-judgment rule and shift the burden of proof to the director. Guzman v. Johnson, 137 Nev. Adv. Op. No. 13, ___ P.3d ___ (March 25, 2021). https://nvcourts.gov/Supreme/Decisions/Advance_Opinions/

Criminal jury trials: (1) Pursuant to Andersen v. Eighth Judicial District Court, 135 Nev. 321, 448 P.3d 1120 (2019), the Supreme Court of Nevada announced a new rule that persons charged with misdemeanor domestic-battery offenses are entitled to a jury trial; and (2) pursuant to the retroactivity framework in Colwell v. State, 118 Nev. 807, 59 P.3d 463 (2002), the Court applies new constitutional rules of criminal procedure to all cases in which the conviction of the individual seeking application of the rule is not yet final. In the retroactivity analysis, a conviction is “final” when “judgment has been entered, the availability of appeal has been exhausted, and a petition for certiorari to the Supreme Court has been denied or the time for such a petition has expired.” Because the Supreme Court of Nevada decided Andersen before Petitioner Roman Hildt’s time for filing a petition for a writ of certiorari to the United States Supreme Court expired, Hildt’s misdemeanor conviction was not final, and thus, the new rule in Andersen applies to his case. Hildt (Roman) v. Dist. Ct. (City of Henderson), 137 Nev. Adv. Op. No. 12, ___ P.3d ___ (March 25, 2021). https://nvcourts.gov/Supreme/Decisions/Advance_Opinions/

Divorce: (1) Under EDCR 5.518(a)(1), the court clerk will issue a joint preliminary injunction (JPI) “[u]pon the request of any party at any time prior to the entry of a decree of divorce or final judgment” to enjoin the parties from transferring or selling community property “or any property that is the subject of a claim of community interest”; and (2) based on EDCR 5.518’s plain language, trusts may be parties to a divorce action, and EDCR 5.518 is mandatory, does not require the requesting party to first make a prima facie showing of community interest, and applies on remand here. A “party” is “a party personally, if unrepresented, or that party’s counsel of record, if represented.” Moreover, pursuant to EDCR 1.12(f), “[p]erson must include and apply to corporations, firms, associations and all other entities, as well as natural persons.” (emphasis added). Going further, NRS 0.039 states that “‘person’ means a natural person, any form of business or social organization and any other nongovernmental legal entity including, but not limited to, a corporation, partnership, association, trust or unincorporated organization.” (emphases added). Finally, a trust may also be a party to a lawsuit through its trustee. Thus, EDCR 5.518 applies to trusts. Nelson v. Dist. Ct. (Nelson), 137 Nev. Adv. Op. No. 14, ___ P.3d ___ (April 1, 2021). https://nvcourts.gov/Supreme/Decisions/Advance_Opinions/

Equitable tolling: (1) The two-year limitations period of NRS 11.190(4)(e) for commencing actions to recover for personal injuries or wrongful death is subject to equitable tolling when the plaintiff demonstrates reasonable diligence in pursuing his or her claims and extraordinary circumstances that prevented timely filing of the complaint; and (2) under this standard, the appellant failed to demonstrate that her circumstances warrant equitable tolling of NRS 11.190(4)(e), and her complaint was properly dismissed. NRS 11.190(4)(e) provides a two-year limitations period for “an action to recover damages for injuries to a person or for the death of a person caused by the wrongful act or neglect of another.” The two-year period for filing suit under NRS 11.190(4)(e) begins to run “when the wrong occurs and a party sustains injuries for which relief could be sought.” The appellant filed her complaint after the limitations period expired. However, she argued that the limitations period should be equitably tolled because she was unable to obtain evidence necessary to her claims during the limitations period. The doctrine of equitable tolling is a nonstatutory remedy that permits a court to suspend a limitations period and allow an otherwise untimely action to proceed when justice requires it. A statute of limitations such as NRS 11.190(4)(e) is primarily intended “to ‘[prevent] surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared.” Because the main purpose of a statute of limitations “is to encourage the plaintiff to pursu[e] his rights diligently, . . . when an extraordinary circumstance prevents him from bringing a timely action, the restriction imposed by the statute of limitations does not further the statute’s purpose.” Accordingly, it is “presume[d] that equitable tolling applies if the period in question is a statute of limitations and if tolling is consistent with the statute.” Based on Nevada’s evolving expansion of the equitable-tolling doctrine to other similar statutes of limitations and the presumption that the Legislature legislates with common-law principles like equitable tolling in mind, the Supreme Court saw no reason to reject the doctrine’s application to NRS 11.190(4)(e). Therefore, the Court expanded its application of the equitable-tolling doctrine and held that NRS 11.190(4)(e) is subject to equitable tolling. In a prior case, the Court utilized various nonexclusive factors when determining whether equitable tolling is appropriate. Several factors–primarily the plaintiff’s reliance on statements by an administrative agency and the employer’s deception–do not readily apply to nonadministrative agency cases. However, other factors–diligence of the claimant and any “equitable considerations appropriate in the particular case”–are generally applicable to tort-based claims barred by NRS 11.190(4)(e). Thus, the Court directed lower courts to consider relevant factors when determining whether to equitably toll NRS 11.190(4)(e). Moreover, when a plaintiff seeks to equitably toll the limitations period in NRS 11.190(4)(e), the plaintiff must demonstrate that he or she acted diligently in pursuing his or her claim and that extraordinary circumstances beyond his or her control caused his or her claim to be filed outside the limitations period. Fausto v. Sanchez-Flores, 137 Nev. Adv. Op. No. 11, ___ P.3d ___ (March 11, 2021). https://nvcourts.gov/Supreme/Decisions/Advance_Opinions/

Insurance: (1) When a court determines that an insurer never owed a duty to defend, the insurer expressly reserved its right to seek reimbursement in writing after defense was tendered, and the policyholder accepted the defense from the insurer, then the insurer is entitled to that reimbursement; (2) under generally applicable principles of unjust enrichment and restitution, the insurer has conferred a benefit on the policyholder; the policyholder appreciated the benefit; and, because it is reasonable for the insurer to accede to the policyholder’s demand, it is equitable to require the policyholder to pay; and (3) this result gives effect to the parties’ agreement, as well as the court’s judgment, by recognizing that the insurer was never contractually obligated to furnish a defense. Under most standard liability-insurance policies, the insurer owes a duty to defend its policyholder against suits by third parties seeking damages covered by the policy. Insurers and policyholders sometimes disagree as to whether the insurer’s duty to defend is triggered by a particular suit. As a practical matter, those coverage disputes can rarely be resolved before it becomes necessary to actively defend the third party’s suit. Accordingly, an insurer often offers to pay for the defense, while reserving its right to seek relief from the duty to do so. Here, the Supreme Court recognized that when a party to a contract performs a disputed obligation under protest and a court later determines that the contract did not require performance, the party may ordinarily recover in restitution. “An insurance policy [typically] creates two contractual duties between the insurer and the insured: the duty to indemnify and the duty to defend.” These duties are distinct, but related. “[A]n insurer’s duty to defend is triggered whenever the potential for indemnification arises, and it continues until this potential for indemnification ceases.” There is a potential for indemnification when the allegations in the third party’s complaint show that there is “arguable or possible coverage,” or when the insurer “ascertains facts which give rise to the potential of liability under the policy.” However, the duty to defend is not absolute. If neither the allegations of the complaint nor the facts known to the insurer show any possibility of coverage, then there is no duty to defend. In such a case, the insurance policy does not apply. Having concluded that the contract does not govern, the Supreme Court focused on the three elements of the unjust-enrichment claim. When the insurer furnishes a defense, it is clear that the insurer has conferred a benefit on the policyholder, and that the policyholder appreciates it. The issue is whether equity requires the policyholder to pay. Because an insurer risks unbounded liability if it loses the coverage dispute after refusing to defend a suit, it is generally “reasonable [for the insurer] to accede to the demand rather than to insist on an immediate test of the disputed obligation.” Under these circumstances, the Supreme Court concluded that when a court determines that the insurer never had a duty to defend, and the insurer clearly and expressly reserved its right to seek reimbursement, it is equitable to require the policyholder to pay. Therefore, the Court held that when a court finally determines that the insurer had no contractual duty to defend, the insurer may ordinarily recover in restitution if it has clearly reserved its right to do so in writing. The Court’s reasoning accords with the majority approach used in California. As Nevada law has more forcefully encouraged insurers to offer to defend doubtful claims, it is only fair to permit those insurers to recover costs that they never agreed to bear. Nautilus Ins. Co. v. Access Med., LLC (NRAP 5), 137 Nev. Adv. Op. No. 10, ___ P.3d ___ (March 11, 2021). https://nvcourts.gov/Supreme/Decisions/Advance_Opinions/


About the author: Joe Tommasino has served as Staff Attorney for the Las Vegas Justice Court since 1996. Joe is the President of the Nevada Association for Court Career Advancement (NACCA).

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