Opinion
Nos. 30774, 30859.
September 15, 2000.
Consolidated appeals from a judgment of the district court in an action for declaratory and injunctive relief and an order denying an award of attorney's fees. Second Judicial District Court, Washoe County; Mills Lane, Judge.
Affirmed in part; reversed in part.
Robison Belaustegui Sharp Low, Reno; Newsom, Giffen Marne, San Rafael, California, for Appellant Pro-Max Corporation and Respondent Mary Ann Ferguson.
Lemons Grundy Eisenberg, Reno, for Respondent/Appellant Jack A. Ferguson.
Simon Berman, Las Vegas, for Respondent Wesley D. Adams.
BEFORE YOUNG, AGOSTI and LEAVITT, JJ.
OPINION
The primary issue presented in these appeals requires us to consider the scope of NRS 106.240, which extinguishes certain real property debts ten years after they become due absent recorded extensions, an issue of first impression. We conclude that the district court erred when it determined that the statute is applicable only to bona fide purchasers. For this reason, we reverse the district court's judgment that certain notes and deeds of trust are valid and enforceable. We affirm the district court's order denying Jack A. Ferguson's request for attorney's fees.
FACTS
The underlying dispute in these cases involves a substantial piece of real property in Verdi, Nevada ("Verdi property"). Pro-Max Corporation is a closely held corporation, which has as its sole asset an eighty percent interest in the Verdi property. Jack Ferguson ("Jack") served as president of Pro-Max from 1978 through 1996.
In 1982, Pro-Max borrowed money from seven of its shareholders to secure funding for the Verdi property. Pro-Max executed promissory notes to the shareholders, secured by deeds of trust on Pro-Max's interest in the Verdi property. The notes were executed on May 11, 1982, and became due two years later on May 14, 1984. The deeds of trust included a standard provision that the debt would become due upon sale of the property. No payment of principal or interest was ever made by Pro-Max on any of the notes. Although the shareholders and Pro-Max were purportedly unaware of it at the time, NRS 106.240 operates to extinguish any debt upon real property secured by a deed of trust ten years after the debt becomes due unless an extension is written and recorded. The notes were therefore extinguished by operation of the statute on May 14, 1994.
Jack Ferguson, Mary Ann Ferguson, James Ginella and Peter and Shirley Feenstra were among the shareholders who loaned money to Pro-Max.
The Verdi property is not income producing but is held as an investment for the benefit of the shareholders.
Over the years, the shareholders loaned additional money to Pro-Max for ongoing expenses related to the Verdi property. No new notes were executed for these subsequent loans.
Of the twenty percent interest in the Verdi property not owned by Pro-Max, Jack personally owned ten percent and his wife, Mary Ann Ferguson ("Mary Ann"), personally owned ten percent. In 1990, Jack and Mary Ann commenced divorce proceedings. The judicial proceedings concerning the divorce were complicated, contentious and ongoing for several years after 1990. These proceedings concerned the division of the Fergusons' marital estate.
In March 1996 at a meeting of the board of directors of Pro-Max, James Ginella was elected president in place of Jack. At the same meeting, the board of directors agreed to sell Pro-Max's interest in the Verdi property to Wesley Adams. Sometime during the Ferguson divorce proceedings, in 1993 or 1994, Judge Charles McGee had ordered the Verdi property sold pursuant to the divorce settlement. In September 1996, Judge McGee approved the sale of Pro-Max's eighty percent interest and Mary Ann's ten percent interest in the Verdi property to Wesley Adams.
Prior to approving the sale to Adams, Judge McGee held several hearings in the family court to consider various alternatives and offers concerning the sale of the Verdi property. During these hearings, attorneys for Mary Ann appeared and told Judge McGee that counsel, in addition to representing Mary Ann, also represented Ginella in his capacity as president of Pro-Max, and were also advising Pro-Max regarding its fiduciary obligations in the sale. These same attorneys also assured Judge McGee that the sale of the Verdi property to Adams would generate enough money to pay the promissory notes, that the notes would be paid from the proceeds of the sale and that Jack would receive his fair share. Judge McGee later testified that had he known the notes were unenforceable, he would have structured the division of the community assets between Jack and Mary Ann Ferguson differently.
In April 1996, Jack had transferred his Pro-Max notes and his ten percent interest in the Verdi property to Peter B., Inc., of which Peter Feenstra was apparently president. Seven days after Judge McGee approved the sale of the Verdi property to Adams, Feenstra and Peter B., Inc. recorded a notice of default on the deeds of trust held by them and commenced foreclosure proceedings.
The foreclosure was withdrawn on February 14, 1997.
In December 1996, the Pro-Max board of directors, having become aware of NRS 106.240 and its effect of extinguishing the notes, approved an offer to "amend and reinstate the Notes and to continue the lien of the Deeds of Trust and waive the application of NRS 106.240 in consideration for and on the condition that the note holders agree to the terms of the amendment." A letter delineating the offer was sent to all of the noteholders. The relevant amendments were as follows: (1) the payment terms were changed to coincide with Adams' payment terms; (2) the Verdi property was to be released free and clear of any encumbrances, including the deeds of trust; (3) any costs related to the sale of the property to Adams and approved by the board of directors were to be paid from Adams' payments before any distributions were made to the noteholders; and (4) the noteholders were to release all claims against each other in connection to the sale of the Verdi property to Adams.
All of the noteholders, except the Feenstras and Peter B., Inc., accepted Pro-Max's offer. Thereafter, Pro-Max, Mary Ann Ferguson and Wesley Adams (hereinafter referred to as "Pro-Max") commenced this action for declaratory relief concerning the validity of the remaining notes, asserting that the notes were unenforceable by operation of NRS 106.240.
As noted, Jack had previously transferred his interests in the promissory notes to Peter B., Inc. When the lawsuit seeking to have the notes declared void was filed, Jack agreed to take the notes back, and they were reassigned to him. The district court ordered the caption of the case amended to substitute Jack as a defendant in place of Peter B., Inc.
DISCUSSION
NRS 106.240 provides that:
The lien heretofore or hereafter created of any mortgage or deed of trust upon any real property, appearing of record, and not otherwise satisfied and discharged of record, shall at the expiration of 10 years after the debt secured by the mortgage or deed of trust according to the terms thereof or any recorded written extension thereof become wholly due, terminate, and it shall be conclusively presumed that the debt has been regularly satisfied and the lien discharged.
It is undisputed that no written agreements to extend the notes and deeds of trust were ever executed or recorded. Therefore, under the plain language of the statute, the deeds of trust were conclusively presumed to have been satisfied in 1994, which is ten years after the notes became due and two years prior to Judge McGee's approval of the sale of the Verdi property to Adams.
The district court determined that the legislature intended for the statute to protect bone fide purchasers, not to "let a corporation or a group of people get together and tell one of the people that held a note, 'You do this, this and this within six days or you're out.'" The district court declared that, therefore, the notes were not extinguished by the statute. We conclude that the district court erred.
Initially, we note that our review of the district court's interpretation of a statute is de novo. State, Dep't of Mtr. Vehicles v. Frangul, 110 Nev. 46, 48, 867 P.2d 397, 398 (1994). "'"Where the language of a statute is plain and unambiguous, and its meaning clear and unmistakable, there is no room for construction, and the courts are not permitted to search for its meaning beyond the statute itself."'" Erwin v. State of Nevada, 111 Nev. 1535, 1538-39, 908 P.2d 1367, 1369 (1995) (quoting Charlie Brown Constr. Co. v. Boulder City, 106 Nev. 497, 503, 797 P.2d 946, 949 (1990) (quoting State v. Jepsen, 46 Nev. 193, 196, 209 P. 501, 502 (1922))). We conclude that the statute is clear and unambiguous. That being the case, no further interpretation is required or permissible. Under the plain language of the statute, the deeds of trust are conclusively presumed to have been satisfied and the notes discharged. This conclusive presumption is plain, clear and unambiguous. No limitation of the statute to bona fide purchasers can be read into the statute.
We further note that the brief legislative history of NRS 106.240 offers nothing to support the argument that the statute was only intended to apply to bona fide purchasers. The statute was first enacted in 1917. As recently as 1965, the legislature has made amendments to the statute, adding a procedure for extending deeds of trust though written agreement and recordation. At that time the legislature could have added language limiting the application of the statute to bone fide purchasers, but it did not. From this, we conclude that the legislature did not intend for the statute to be so limited.
Estoppel
Jack and the Feenstras contend that Pro-Max is judicially and equitably estopped from asserting that the notes are extinguished pursuant to NRS 106.240 because they represented to the district court in the Ferguson's divorce proceedings that the notes would be paid.
The district court did not invoke the doctrine of judicial estoppel in reaching its decision. However, that does not prevent this court from applying the doctrine if we determine that it is necessary to protect the integrity of our judicial system. See Allen v. Zurich Insurance Co., 667 F.2d 1162, 1166-68 (4th Cir. 1982) (the court considered sua sponte the issue of whether one of the parties should be judicially estopped); Allen v. Allen, 550 P.2d 1137, 1142 (Wyo. 1976) (the Wyoming Supreme Court noted that because of its supervisory control over the Wyoming judicial system, it could consider the doctrine even though the issue was not raised in the trial court).
"The primary purpose of the doctrine is not to protect the litigants, but to protect the integrity of the judiciary." Drain v. Betz Laboratories, Inc., 81 Cal.Rptr.2d 864, 867 (Ct.App. 1999). Moreover, because the purpose of the doctrine is to protect the integrity of the judicial process, it is "'invoked by a court at its discretion.'" Morris v. State of California, 966 F.2d 448, 453 (9th Cir. 1992) (quoting Russell v. Rolfs, 893 F.2d 1033, 1037 (9th Cir. 1990)). However, "[j]udicial estoppel is an extraordinary remedy that should be applied with caution." Kelsey v. Waste Management of Alameda County, 90 Cal.Rptr.2d 510, 515 (Ct.App. 2000). We conclude that the facts of this case do not warrant the application of the equitable doctrine of judicial estoppel.
First, "it is well established that, for the doctrine to apply, the seemingly conflicting positions 'must be clearly inconsistent so that one necessarily excludes the other.'" Jackson v. County of Los Angeles, 70 Cal.Rptr.2d 96, 103 (Ct.App. 1998) (quoting Coleman v. Southern Pacific Co., 296 P.2d 386 (Cal. 1956)); see also Cleveland v. Policy Management Systems Corp., 526 U.S. 795, 802 (1999) (the claims must "inherently conflict"). We conclude that Pro-Max's assertions during the divorce proceedings and during the proceedings in the instant case do not inherently conflict so that one necessarily excludes the other.
During the divorce proceedings, Pro-Max represented to the family court that the sale of the Verdi property to Adams would generate enough money to pay all of the noteholders. During the proceedings in the instant case, Pro-Max argued to the district court that the notes were extinguished pursuant to NRS 106.240. The Adams sale did generate enough money to pay the noteholders. In fact, everyone who accepted the amended notes has received payment. Therefore, the averments made by Pro-Max in the two proceedings can be reconciled and do not inherently conflict.
Second, the purpose of judicial estoppel is to prevent the deliberate manipulation of the judicial system. In originally adopting the doctrine of judicial estoppel, we emphasized the sanctity of the oath. Sterling Builders, Inc. v. Fuhrman, 80 Nev. 543, 550, 396 P.2d 850, 854 (1964). "Judicial estoppel is 'intended to protect against a litigant playing "fast and loose with the courts."'" Russell v. Rolfs, 893 F.2d 1033, 1037 (9th Cir. 1990) (quoting Rockwell Internat'l Corp. v. Hanford Atomic Metal Trades Council, 851 F.2d 1208, 1210 (9th Cir. 1988) (citations omitted)). For this reason, judicial estoppel does not preclude changes in position not intended to sabotage the judicial process. See United States v. Incline Village, 976 F. Supp. 1327, 1339 (D.Nev. 1997); Breliant v. Preferred Equities Corp., 112 Nev . 663, 669, 918 P.2d 314, 318 (1996). We find no evidence in the record that Pro-Max intentionally intended to subvert the judicial process by playing fast and loose with the court. At the time of the divorce proceedings, all of the parties, including the court, were apparently operating without knowledge of NRS 106.240. It was only after Feenstra and Peter B., Inc. instigated foreclosure proceedings and Pro-Max was attempting to find a way to save the Adams sale that the existence of the statute came to light. The fact that Pro-Max offered all of the noteholders, including Jack and the Feenstras, the same terms in renewing their notes, evidences that there was no intent to manipulate the judicial system.
In addition, in his dissent to Russell, Judge Kozinski of the Ninth Circuit stated that where there has "been a material change in circumstances in the interim," the doctrine is not triggered. 893 F.2d at 1043 (Kozinski, J., dissenting). We agree and conclude that there has been a material change in circumstances in the interim between the divorce proceedings and the current litigation.
During the divorce proceedings, the issue in dispute was who was going to be allowed to purchase the Verdi property. The Pro-Max board wanted to sell it to Adams. Jack wanted to purchase the property himself, or in lieu of that, insure that any sale would generate enough money to pay off the notes. When the district court approved the Adams sale, Feenstra and Peter B., Inc. commenced foreclosure proceedings. In the interim, Pro-Max became aware that the notes had been extinguished pursuant to NRS 106.240. The Board decided to offer the noteholders a reinstatement of their notes, which were revised to correspond with the payment terms of the Adams sale which had been approved by the court. We conclude that the Adams sale, the foreclosure proceedings and the subsequent realization of the effect of NRS 106.240 on the validity of the notes constitute a material change in circumstances.
Jack and the Feenstras were given the same opportunity to renew their notes that all of the other noteholders were given. They had it within their power to receive payment, but they declined to do so. It is not this court's obligation to now exercise the equitable doctrine of judicial estoppel in order to prevent NRS 106.240 from extinguishing their notes. For these reasons, we conclude that judicial estoppel is not appropriate and decline to invoke the doctrine in this case.
We also conclude that Jack and the Feenstras' equitable etoppel argument lacks merit because they have not shown that Pro-Max knew of the existence of NRS 106.240 and its effect on the notes, that Pro-Max intended its conduct to be acted upon by the noteholders, or that they relied to their detriment on any conduct on the part of Pro-Max. See NGA #2 Ltd. Liab. Co. v. Rains, 113 Nev. 1151, 1160, 946 P.2d 163, 169 (1997).
Having considered Jack Ferguson's contention that the district court erred in declining to grant his request for attorney's fees, we conclude that it lacks merit. We therefore affirm the district court's order denying such fees.
CONCLUSION
We conclude that the conclusive presumption contained in NRS 106.240 clearly and unambiguously applies without limitation to all debts secured by deeds of trust on real property. We therefore reverse the district court's judgment that the statute only protects bona fide purchasers and therefore does not extinguish the debt owed to Jack and the Feenstras. We decline to invoke the doctrine of judicial estoppel to prevent Pro-Max from asserting NRS 106.240 to extinguish the notes held by Jack Ferguson and the Feenstras. We also conclude that Pro-Max is not equitably estopped from asserting the statute. Based upon these conclusions, we affirm the district court's order denying an award of fees to Jack.