Opinion
Case No. 3:21-cv-00109-MMD-CLB
2023-12-07
URBAN OUTFITTERS, INC., Plaintiff, v. DERMODY OPERATING COMPANY, LLC, et al., Defendants.
Brian K. Walters, Robert E. Schumacher, Gordon Rees Scully Mansukhani, LLP, Las Vegas, NV, for Plaintiff. Charles L. Burcham, Justin H. Pfrehm, Thorndal Armstrong, PC, Reno, NV, Natasha Landrum, Lee Landrum Carlson, Las Vegas, NV, for Defendant Dermody Operating Company, LLC. Mark G. Simons, Simons Hall Johnston PC, Reno, NV, John C. Boyden, Erickson Thorpe & Swainston, Ltd., Reno, NV, Kendra J. Jepsen, Jepsen Law, PLLC, Reno, NV, Pamela A. McKay, McKay Law Firm, Chtd., Las Vegas, NV, Shannon G. Splaine, Loren S. Young, Lincoln, Gustafson & Cercos, Las Vegas, NV, for Defendant United Construction Co.
Brian K. Walters, Robert E. Schumacher, Gordon Rees Scully Mansukhani, LLP, Las Vegas, NV, for Plaintiff.
Charles L. Burcham, Justin H. Pfrehm, Thorndal Armstrong, PC, Reno, NV, Natasha Landrum, Lee Landrum Carlson, Las Vegas, NV, for Defendant Dermody Operating Company, LLC.
Mark G. Simons, Simons Hall Johnston PC, Reno, NV, John C. Boyden, Erickson Thorpe & Swainston, Ltd., Reno, NV, Kendra J. Jepsen, Jepsen Law, PLLC, Reno, NV, Pamela A. McKay, McKay Law Firm, Chtd., Las Vegas, NV, Shannon G. Splaine, Loren S. Young, Lincoln, Gustafson & Cercos, Las Vegas, NV, for Defendant United Construction Co. ORDER
MIRANDA M. DU, CHIEF UNITED STATES DISTRICT JUDGE.
I. SUMMARY
This is a breach of contract action involving the construction of a fulfillment and distribution center. Plaintiff Urban Outfitters, Inc. ("Urban") brings claims against Defendants Dermody Operating Company, LLC ("Dermody"), the project developer, and United Construction Corporation ("United"), the general contractor. (ECF No. 1.) Dermody filed a third-party complaint bringing claims for indemnification and contribution against Third-Party Defendant Atlas Contractors, Inc. ("Atlas"), a subcontractor on the project. (ECF No. 70.) United also filed a cross-claim naming Atlas as a cross-defendant. (ECF No. 81.) Before the Court is Atlas's Motion for Summary Judgment. (ECF No. 170 ("Motion").) Because there is no genuine dispute as to any material fact, the Court will grant the Motion.
The Court has reviewed United's response (ECF No. 171), Dermody's response (ECF No. 172), and Atlas's reply (ECF No. 175).
II. BACKGROUND
The following facts are undisputed. (ECF Nos. 170, 171, 172.) Urban contracted with Defendants Dermody and United on May 11, 2011, for the construction of a warehouse, distribution, and fulfillment center ("Center") in Reno, Nevada. (ECF. Nos. 1, 81, 171 at 3.) On June 17, 2011, United and Dermody subcontracted with domestic corporation Atlas, which agreed to perform mass grading work at the Center. (ECF Nos. 1, 70 at 7-13, 81 at 24-28, 171 at 3-4.) As part of the "Project Agreement Between Contractor and Subcontractor" ("Contract"), Atlas was required to indemnify and defend United and Dermody for claims, damages, and costs arising from its performance in the scope of its work on the Center. (ECF Nos. 70 at 7-13, 81 at 8-13, 171 at 4.) The Contract also required Atlas to obtain general liability insurance for itself, as well as additional insurance coverage for United. (ECF Nos. 70 at 10, 171 at 4, 172-1.) Atlas obtained a general liability policy from Zurich Insurance Group, providing coverage from July 2011 to July 2012. (ECF Nos. 171, 172-1.) It performed the mass grading work, and the Center was substantially completed on January 31, 2012. (ECF Nos. 171 at 4, 13-2, 13-3.)
Atlas was dissolved as a corporation on May 1, 2014—filing a certificate of dissolution with the Nevada Secretary of State at that time. (ECF Nos. 170-1, 170-2.)
Urban filed its initial complaint in this action on March 3, 2021. (ECF No. 1.) On December 10, 2021, Dermody filed its third-party complaint naming Atlas, among others, as a third-party defendant, and bringing claims for indemnification and contribution. (ECF No. 70.) On January 13, 2022, United filed its answer and brought a cross-claim against Atlas, among others, bringing similar indemnification and contribution claims. (ECF No. 81.) In response, Atlas filed a motion to dismiss Dermody and United's claims against it, contending that NRS § 78.585 bars the third-party claims and cross-claims because they were not brought within three years of Atlas's corporate dissolution. (ECF No. 145.) The Court denied that motion because Atlas relied on matters outside the pleadings, declining to convert the motion to dismiss into a motion for summary judgment without full briefing on the issues regarding corporate dissolution. (ECF No. 168.) III. DISCUSSION
Atlas argues that it is entitled to summary judgment because under undisputed facts, third-party claims and cross-claims against it are barred by NRS § 78.585, the Nevada statute limiting actions by or against dissolved corporations. (EC No. 170 at 2-3.) Atlas contends that there is no genuine dispute as to any material fact because NRS § 78.585 is clear that post-dissolution actions may only be brought for three years after the dissolution of a corporation, and the original complaint in this action was not filed until 2021, more than six years after Atlas dissolved in 2014. (Id. at 3-4, 8-10.) See Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (emphasizing that summary judgment is appropriate when the pleadings, the discovery and disclosure materials on file, and any affidavits "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law"); Kaiser Cement Corp. v. Fischbach & Moore, Inc., 793 F.2d 1100, 1103 (9th Cir. 1986) (noting that in evaluating a summary judgment motion, a court views all facts and draws all inferences in the light most favorable to the nonmoving party).
In response, Dermody and United each make substantially the same two arguments against summary judgment. (ECF Nos. 171, 172.) First, they argue that the statute of limitations period set by NRS § 78.585 does not begin to run until a litigant discovers or reasonably should have discovered facts giving rise to the action—and that Atlas has not provided evidence to support a start-date for the limitations period (ECF Nos. 171 at 7-8, 172 at 5-7.) Second, they argue that litigants may pursue claims against a dissolved corporation when it retains undistributed assets, such as liability insurance, without regard to any statutory limitations period. (ECF Nos. 171 at 6-7, 172 at 7-8.) The Court considers Atlas's Motion as to each argument.
A. NRS § 78.585 Limitations Period
Atlas argues that its Motion is easily resolved by the plain language and legislative history of NRS § 78.585, which "provides that any cause of action against a dissolved corporation must be commenced within three years of its dissolution." (ECF No. 170 at 2-3.) It further suggests that as amended in 2013, Section 78.585 creates a "statute of repose" under which there is "no additional consideration or time added for claims 'discovered' more than three years post dissolution." (ECF No. 175 at 2-3.) Dermody and United respond that the discovery rule generally applied to construction defect cases applies here. (ECF Nos. 171 at 7-8, 172 at 5-7.) They argue that their claims are not barred by NRS § 78.585 because they did not learn of any alleged harm until after they were served with the lawsuit in this case in 2021. (ECF Nos. 171 at 7, 172 at 5-7.) In their view, "[a]ny applicable statute of limitations imposed by NRS 78.585 does not begin to run until Dermody [or United] 'discovered' the facts giving rise to its claims" and the "issue of when a party discovered or should have discovered facts giving rise to their claims is typically an issue of fact for the jury." (ECF No. 172 at 4.) They suggest that "[s]hould Atlas argue that United [or Dermody] learned, or reasonably should have learned, of the damages before Urban filed its complaint, it has then created a genuine issue of material fact regarding whether reasonable diligence was performed." (ECF No. 171 at 8.) The Court agrees with Atlas.
Atlas's Motion and United and Dermody's responses rest on a preliminary question of Nevada law—whether NRS
§ 78.585(1) imposes a statute of limitations to post-dissolution actions which begins upon "discovery" of harm, or instead imposes a statute of repose with a three-year cap not dependent on discovery of damages. Compare Petersen v. Bruen, 106 Nev. 271, 792 P.2d 18, 20 (1990) ("Under the discovery rule, the statutory period of limitations is tolled until the injured party discovers or reasonably should have discovered facts supporting a cause of action."), with Davenport v. Comstock Hills, 118 Nev. 389, 46 P.3d 62, 64 (2002) (quoting Allstate Ins. Co. v. Furgerson, 104 Nev. 772, 766 P.2d 904, 906 n. 2 (1988)) ("In contrast to a statute of limitation, which forecloses suit after a fixed period of time following the occurrence or discovery of an injury, a statute of repose 'bar[s] causes of action after a certain period of time, regardless of whether damage or an injury has been discovered.'"). "Where the state's highest court has not decided [an] issue [of substantive law], a federal court [sitting in diversity] must predict how that court would decide." Sears v. Russell Rd. Food & Beverage, LLC, 460 F. Supp. 3d 1065, 1071 (D. Nev. 2020) (citing Orkin v. Taylor, 487 F.3d 734, 741 (9th Cir. 2007)). When the plain meaning of a statute is clear on its face, then the state high court will not go beyond the language of the statute to interpret its meaning. See Beazer Homes Nevada, Inc. v. Eighth Jud. Dist. Ct. ex rel. Cnty. of Clark, 120 Nev. 575, 97 P.3d 1132, 1135 (2004). But when construing an ambiguous statute, it must give the statute the interpretation that "reason and public policy would indicate the legislature intended." Id. (quoting State v. Vezeris, 102 Nev. 232, 720 P.2d 1208, 1211 (1986)).
First, the plain meaning of the statute supports Atlas's position that Section 78.585 provides an absolute time bar. And to the extent that the statute is arguably ambiguous, legislative intent also supports this interpretation. NRS § 78.585(1), as amended in 2013, provides in relevant part that "[t]he dissolution of a corporation does not impair any remedy or cause of action available to or against it or its directors, officers or stockholders commenced within 2 years after the date of the dissolution with respect to any remedy or cause of action in which the plaintiff learns, or in the exercise of reasonable diligence should have learned of, the underlying facts on or before the date of dissolution, or within 3 years after the date of dissolution with respect to any other remedy or cause of action." (Emphasis added). The statute further provides that "[a]ny such remedy or cause of action not commenced within the applicable period is barred." Id. Here, while the statute explicitly applies the discovery rule to claims about which plaintiff "learns, or ... should have learned" before dissolution, discovery language is notably absent from the second clause regarding post-dissolution actions. See id. In contrast to pre-dissolution actions which depend on the time of claim discovery, the statute plainly suggests that a three-year bar applies to any other remedy, including post-dissolution claims. See id. The Court agrees with Atlas that "[h]ad the legislature intended to extend
United argues in its response that the discovery language in Section 17.585 mirrors the discovery language in construction defect cases. (ECF No. 171 at 7-8.) See Beazer, 97 P.3d at 1138-39 (quoting Tahoe Village Homeowners v. Douglas Co., 106 Nev. 660, 799 P.2d 556, 558 (1990)) (noting the statute of limitations in a construction defect case begins to run at "the time the [litigant] learns, or in the exercise of reasonable diligence should have learned, of the harm to the property"). However, United fails to distinguish between Section 17.585(1)'s clauses, under which discovery language plainly applies only to the first clause governing pre-dissolution claims.
the deadline to bring post-dissolution claims well beyond three years as Dermody and United Advocate, the statute would have utilized similar language to that which was used for pre-dissolution claims...." (ECF No. 175 at 5.) See also Edward J. and Maureen K. Browne Living Trust, et al. v. D.R. Horton, Inc., Case No. A-21-836907-D (Nev. Dist. April 25, 2022) (granting a motion to dismiss under the plain language of NRS § 78.585 because a third-party defendant corporation was dissolved more than three years before the complaint).
This plain language is consistent with the history of Section 78.585 as a mechanism intended to provide finality to shareholders and directors after the dissolution of a corporation, while simultaneously balancing the need to preserve adequate remedies for latent defects undiscovered at the time of dissolution. See Beazer, 97 P.3d at 1140 (interpreting the then-applicable version of Section 78.585 with the goal of "balancing the policies of giving finality to the winding-down of a corporation, and providing extensive periods for filing claims for concealed and latent defects"). Before 2013, Section 17.585 applied explicitly only to pre-dissolution claims. See id. at 1135. In 2013, the legislature amended the statute to remedy this ambiguity, adding the clause applying a three year limitation to "any other remedy or cause of action." The Assembly Judiciary Committee meeting minutes from 2013 provide clear insight into the goals of the amendment: "What we tried to do in [clarifying the statute's time frame for post-dissolution actions] was to look to see what other states have done, what the Model Business Corporation Act has done, and in that context identify that there is a ceiling or stop-date as to when claims may be brought post-dissolution." Assembly Committee Minutes, Nev. Assem. Comm. on Judiciary, May 6, 2013. Here, as Atlas emphasizes, the legislature was clear in its intention to impose a "ceiling," rather than a more nebulous statute of limitations dependent on discovery of defects—which may occur years or decades after a corporate entity has ceased to exist. See id. (noting that a bar on claims after three years, rather than two years, was proposed "to give people ample opportunity, following the dissolution, to fully explore
In 2004, the Nevada Supreme Court decided Beazer, 97 P.3d 1132, holding that the then-current version of NRS § 78.585 imposed a two-year limitation on actions against a dissolved corporation only to pre-dissolution claims, and that post-dissolution claims were controlled by the statutes of limitation or repose applicable to the underlying causes of action brought. See id. at 1135, 1138 (highlighting the old language of Section 78.585, which provided only that "[t]he dissolution of a corporation does not impair any remedy or cause of action available to or against it or its directors, officers or shareholders arising before its dissolution and commenced within 2 years after the date of the dissolution"). In interpreting the statute this way, the Beazer Court turned to legislative history and considered whether the legislature intended to adopt the Model Business Corporation Act of 1969 and the 1984 amendments to the Act. See id. at 1137-38. In 2011, reflecting on Beazer, the Nevada Supreme Court invited the legislature to directly address and clarify the statutory requirements for post-dissolution claims. See Canarelli v. Dist. Ct., 127 Nev. 808, 265 P.3d 673, 679 n. 12 (2011) (noting that "[o]nly the Legislature can reconsider the Model Business Corporation Act of 1984, which extends the statute of limitations against corporations for post-dissolution claims in a manner that addresses not only the right to pursue claims but also the party who must be responsible for defending the corporation in post-windup litigation"). In 2013, responding to Canarelli, the Nevada legislature amended Section 78.585 to address post-dissolution claims more clearly. See NRS § 78.585; Assembly Committee Minutes, Nev. Assem. Comm. on Judiciary, May 6, 2013 (describing the purpose of S.B. 441); Senate Committee Minutes, Nev. Sen. Comm. on Judiciary, April 2, 2013.
whatever claims anyone thinks they might have").
Because the Court thus finds that NRS § 78.585 imposes a time bar on post-dissolution actions after three years regardless of when defects were discovered or the statutes of limitation applicable to underlying causes of action, there is no remaining material factual question as to when Dermody and United discovered or should have discovered the facts underlying its claims. Dermody and United argue that "[b]ecause Atlas has not provided any information, let alone sufficient admissible evidence demonstrating that there is no genuine issue of fact remaining that the 2 or 3-year statute of limitation commenced running on Dermody's contribution and equitable indemnity claims on a date certain, the Court cannot hold as a matter of law that Dermody's claims are time-barred under NRS 78.585." (ECF No. 172 at 6-7.) But here, the Court need only consider the undisputed evidence that Atlas dissolved in 2014, more than six years before the instant action. Atlas provides a certified copy of its Certificate of Dissolution for a Nevada Profit Corporation, filed in the Office of the Secretary of State and signed by President James Mahoney on May 1, 2014 (ECF No. 170-2), and the corporation's filing history reflecting dissolution (ECF No. 170-1). The Court thus finds that Dermody and United's claims are time-barred and summary judgment is appropriate, absent an exception as addressed below.
B. Liability Insurance Proceeds
The Court next considers United and Dermody's alternative argument that even if NRS § 78.585 imposes a three-year time bar, there is an exception for claims against a dissolved corporation's undistributed assets, including liability insurance policy proceeds. (ECF Nos. 171 at 6-7, 172 at 7-8.) It is undisputed that before dissolution, Atlas maintained a liability insurance policy through Zurich Insurance Group that covered the period when damages allegedly occurred. (ECF No. 172-1.) Atlas argues that no exception for undistributed assets is supported by the Nevada statute or state supreme court case law interpreting it. (ECF No. 175 at 6-8.) The Court again agrees with Atlas.
United and Dermody argue that "the Beazer Court created an exemption to the statute of limitations enumerated in NRS § 78.585 that applies here." (ECF No. 171 at 6.) They point to a footnote in the 2004 Beazer decision in which the state high court included the following: "We note that even if the Legislature intended to bar post-dissolution claims, an action may still be brought after the time bar to the extent that the corporation has undistributed assets, including a policy of insurance." Beazer, 97 P.3d at 1138 n. 33. The Beazer footnote cites to a single case—the California Supreme Court's 1991 decision in Penasquitos, Inc. v. Superior Court, 53 Cal.3d 1180, 283 Cal.Rptr. 135, 812 P.2d 154 (1991). There, the California Court found that "the interest in finality and repose cannot justify barring a postdissolution claim so long as the corporation holds undistributed assets" and that "[s]imilarly, if the corporation has liability insurance coverage, its dissolution provides no reason to excuse the insurer from defending the action and indemnifying those injured by the predissolution activities of its insured." Id., 283 Cal.Rptr. 135, 812 P.2d at 161.
The Court finds United and Dermody's interpretation of the Beazer footnote unpersuasive and counter to the express language of NRS § 78.585. First, Beazer was decided in 2004, almost ten years before the Nevada legislature amended NRS § 78.585 significantly in 2013. Because the statute in effect in 2004 included no provision explicitly governing post-dissolution actions, the Beazer Court was required to
interpret the boundaries of post-dissolution claims without clear guidance from the legislature. See 97 P.3d at 1135-38. The cited footnote is part of an integrated effort to gauge this legislative intent. See id. When the legislature took up the statute in 2013, however, it attempted to directly clarify and constrain the statutory language—and in doing so, it notably included no reference to undistributed assets or insurance policies. See NRS § 78.585; Assembly Committee Minutes, Nev. Assem. Comm, on Judiciary, May 6, 2013; Senate Committee Minutes, Nev. Sen. Comm. on Judiciary, April 2, 2013. As Atlas further notes, the minutes of the 2013 Assembly and Senate Judiciary Committees include no reference to insurance proceeds. See id. United argues that "The Nevada Legislature... did not foreclose or address the Beazer Court's insurance policy exemption to NRS § 78.585 in 2013" and thus that the Court must "presume the legislature's refusal to do so was intentional." (ECF No. 171 at 7); see Lane v. Allstate Ins. Co., 114 Nev. 1176, 969 P.2d 938, 940-41 (1998). But the Court is not persuaded that the legislature's failure to address a single footnote in the negative trumps the plain language of the statute expressly meant to clarify the bounds of actions against dissolved corporations.
Second, reliance on the Beazer Court's citation to Penasquitos—a California case—is misplaced because California's statutory scheme regarding corporate dissolution is different from Nevada's in significant ways. Most notably, California does not set time limits on suits brought against a dissolved corporation, instead expressly considering remaining corporate assets. See Cal. Corp. Code §§ 2010-2011. Penasquitos interpreted the California Corporations Code survival statute, which provides that "'[a] corporation which is dissolved nevertheless continues to exist for the purpose of winding up its affairs, prosecuting and defending actions by or against it and enabling it to collect and discharge obligations, dispose of and convey its property and collect and divide its assets ..." with no time limitation. See 283 Cal.Rptr. 135, 812 P.2d at 157 (quoting Cal. Corp. Code § 2010(A)); see also Cal. Corp. Code § 2011 (establishing that "[c]auses of action against a dissolved corporation... may be enforced against ... (A) the dissolved corporation, to the extent of its undistributed assets, including, without limitation, any insurance assets held by the corporation that may be available to satisfy claims").
When the Nevada legislature amended NRS § 78.585 in 2013, it considered public policy and reviewed other state's statutes. It did not adopt California's purposeful approach to undistributed corporate assets and did not otherwise include explicit language regarding insurance. (ECF No. 175 at 6-7.) The Court thus finds that United and Dermody's claims do not fall under an exception to NRS § 78.585's time bar merely because Atlas retained liability insurance before it dissolved. As a result, because there are no remaining material issues appropriate for consideration by the factfinder, the Court finds that Atlas is entitled to summary judgment as a matter of law.
IV. CONCLUSION
The Court notes that the parties made several arguments and cited to several cases not discussed above. The Court has reviewed these arguments and cases and determines that they do not warrant discussion as they do not affect the outcome of the Motion before the Court.
It is therefore ordered that Atlas's motion for summary judgment (ECF No. 170) is granted.