Watson Rounds v. Eighth Jud. Dist. Ct. , 2015 NV 79 ( 2015 )

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131 Nev., Advance opinion
IN THE SUPREME COURT OF THE STATE OF NEVADA
WATSON ROUNDS, P.C., No. 65632
Petitioner,
vs.
THE EIGHTH JUDICIAL DISTRICT
COURT OF THE STATE OF NEVADA,
FILED
IN AND FOR THE COUNTY OF SEP 24 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.
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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 "[I]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 La 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
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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
'Bruce Himelfarb is the president of Himelfarb & Associates, LLC.
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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 [Himelfarb]" 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
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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
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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
MRS 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 MRS 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
Gunnery, 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, Gunnery does not compel the result Watson seeks
because it is materially distinguishable from the present matter. In
Gunnery, the rule and statute plainly and irreconcilably conflicted because
they provided different dates from which to calculate a strict 30-day
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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.
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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.
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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[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." 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
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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
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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
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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 September 9,
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
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Watson. However, if the district court again sanctions Watson, its order
must set forth reasoning and factual findings to support its decision.
J.
-CLICiaaar
Parraguirre
We concur:
, C.J.
Hardesty
J.
Douglas
aitt&
Cherry
Clyt;s6 J.
Saitta
Gibbons
J.
Pickering
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