Cadle Co. v. Woods & Erickson, LLP ( 2015 )

131 Nev., Advance Opinion IS
IN THE SUPREME COURT OF THE STATE OF NEVADA
THE CADLE COMPANY, AN OHIO No. 63382
CORPORATION,
Appellant,
vs.
FILED
WOODS & ERICKSON, LLP, A MAR 2 6 2015
NEVADA LIMITED LIABILITY IE K. LINDEMAN
ra EME,C.QURT
PARTNERSHIP, BY
Respondent. H.4#4
THE CADLE COMPANY, AN OHIO No. 63790
CORPORATION,
Appellant,
vs.
WOODS & ERICKSON, LLP, A
NEVADA LIMITED LIABILITY
PARTNERSHIP,
Respondent.
Consolidated appeals from a district court judgment in a
collection and fraudulent transfer action and from a post-judgment order
awarding attorney fees and costs. Eighth Judicial District Court, Clark
County; Elizabeth Goff Gonzalez, Judge.
Affirmed in part as modified and reversed in part.
Adams Law Group and James R. Adams and Assly Sayyar, Las Vegas,
for Appellant.
Royal & Miles, LLP, and Gregory A. Miles, Henderson,
for Respondent.
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BEFORE THE COURT EN BANC.
OPINION
By the Court, CHERRY, J.:
In this case, we consider whether, under Nevada's fraudulent
transfer law, a nontransferee law firm may be held liable for its client's
fraudulent transfers under the accessory liability theories of conspiracy,
aiding and abetting, or concert of action. We hold that Nevada, like most
other jurisdictions, does not recognize accessory liability for fraudulent
transfers. We therefore affirm the district court's judgment in favor of the
law firm. We further hold, however, that the district court abused its
discretion by awarding costs to the law firm without sufficient evidence
showing that each cost was reasonable, necessary, and actually incurred.
Thus, we reverse, in part, the district court's post-judgment order
awarding costs.
FACTS AND PROCEDURAL HISTORY
In 2004, Robert Krause retained respondent law firm Woods &
Erickson, LLP, for estate planning services. The following year, Woods &
Erickson created for Krause various legal entities, including an asset
protection trust, into which Krause eventually transferred his assets.
Meanwhile, appellant The Cadle Company (Cadle) was attempting to
collect on a California judgment against Krause. After learning of the
transferred assets, Cadle sued Krause and Woods & Erickson in the
underlying action, alleging that Krause had fraudulently transferred
assets in order to escape execution of the judgment and that Woods &
Erickson had unlawfully facilitated the fraudulent transfers.
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The district court dismissed Cadle's claims against Woods &
Erickson without prejudice. Cadle later filed a second amended complaint
asserting claims for conspiracy, aiding and abetting, and concert of action
against Woods & Erickson, all arising from the fraudulent transfers. After
the district court denied Woods & Erickson's motion to dismiss the second
amended complaint or for summary judgment, Woods & Erickson offered
Cadle $8,000 to settle the claims, which Cadle refused. The case went to
trial.
During the bench trial, Cadle called Robert Woods of Woods &
Erickson to testify as a witness. Woods testified that, at the time Woods &
Erickson performed Krause's estate planning, the firm was not aware of
Cadle's judgment against Krause. Woods further testified that he
discussed Cadle's judgment with Krause after he learned of it. Krause
told Woods that the judgment was not valid and that Krause was going to
take care of it. Woods testified that he informed Krause that transfers of
assets into Krause's trust could be set aside by a creditor. After hearing
the evidence, the district court found in favor of Cadle against Krause.
Concluding, however, that Cadle had not shown clear and convincing
evidence of Woods & Erickson's intent to defraud or deceive, the district
court entered judgment in favor of Woods & Erickson on all claims.
After trial, Woods & Erickson filed a memorandum of costs.
Cadle moved to retax costs, arguing that Woods & Erickson did not
sufficiently document the purported costs. Woods & Erickson opposed the
motion to retax, attaching additional documentation to support its request
for costs. The documentation consisted of an affidavit stating the
approximate number and cost of photocopies, a process server bill, bills for
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deposition transcripts, filing fee invoices, and parking receipts. After a
hearing, the district court awarded Woods & Erickson the costs it
requested, reducing only the runner service costs.
Woods & Erickson also filed a motion for attorney fees,
arguing that it was entitled to them because Cadle rejected its $8,000 offer
of judgment. After argument, the district court found that Woods &
Erickson's offer of judgment was reasonable in amount and timing, that
Cadle was unreasonable in rejecting the offer, and that the amount of
attorney fees sought by Woods & Erickson was reasonable. The court thus
awarded Woods & Erickson attorney fees.
Cadle separately appealed the judgment and the award of
costs and attorney fees. We consolidated the appeals.
DISCUSSION
Accessory liability for fraudulent transfers
Cadle argues that the district court erred because it required
Cadle to show actual intent to defraud or deceive in order to establish its
accessory liability claims. Woods & Erickson asserts that, regardless of
intent, Nevada does not recognize common-law civil conspiracy, aiding and
abetting, or concert of action in the context of fraudulent transfers. 1 We
1 Cadle contends that this court does not have jurisdiction to address
Woods & Erickson's argument because Cadle did not raise it on appeal
and Woods & Erickson did not cross-appeal. "A respondent may, however,
without cross-appealing, advance any argument in support of the
judgment even if the district court rejected or did not consider the
argument." Ford v. Showboat Operating Co., 110 Nev. 752, 755, 877 P.2d
546, 548 (1994). And this court will affirm a correct decision even if it was
decided for the wrong reasons. Id. at 756, 877 P.2d at 549. Thus, we may
consider whether such claims exist in Nevada.
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agree with Woods & Erickson that nontransferees, i.e., those who have not
received or benefited from the fraudulently transferred property, are not
subject to accessory liability for fraudulent transfer claims.
A majority of jurisdictions appear to agree that there is no
accessory liability for fraudulent transfers, albeit for different reasons.
See GATX Corp. v. Addington, 879 F. Supp. 2d 633, 648-50 (E.D. Ky. 2012)
(discussing the majority of courts' interpretation of accessory liability in
the context of fraudulent transfers). Some courts reason that fraudulent
transfers are not independent torts to which accessory liability can attach.
See FDIC v. S. Prawer & Co., 829 F. Supp. 453, 455-57 (D. Me. 1993). 2 In
Nevada, however, civil conspiracy liability may attach where two or more
persons undertake some concerted action with the intent to commit an
unlawful objective, not necessarily a tort. See Consol. Generator-Nevada,
Inc. v. Cummins Engine Co., 114 Nev. 1304, 1311, 971 P.2d 1251, 1256
(1998). Hence, this reasoning is not applicable to Nevada law.
Other courts have rejected accessory liability because their
respective state's fraudulent transfer statutes do not recognize claims
against a nontransferee. See FDIC v. Porco, 552 N.E.2d 158, 160 (N.Y.
1990) (holding that the New York debtor and creditor statute did not
2 See also Wortley v. Camplin, No. 01-122-P-H, 2001 WL 1568368, at
*9 (D. Me. Dec. 10, 2001) (stating that "violation of Maine's Uniform
Fraudulent Transfers Act. . . does not constitute a tort for purposes of
liability for civil conspiracy" or aiding and abetting); cf. Arena Dev. Grp.,
LLC v. Naegele Commc'ns, Inc., No. 06-2806 ADM/AJB, 2007 WL 2506431,
at *5 (D. Minn. Aug. 30, 2007) ("[W]hether a fraudulent transfer under the
UFTA is a tort is uncertain. Accordingly, [the defendant] can not be held
personally liable for aiding and abetting or conspiring to commit a
violation of the UFTA.").
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create a remedy against nontransferees who have no control over the asset
or have not benefited from the conveyance). 3 And a subset of these courts
have reasoned that fraudulent transfer claims are traditionally claims for
equitable relief, noting that it makes little sense to impose an equitable
remedy against someone who never had possession of the property. See,
e.g., Forum Ins. Co. v. Devere Ltd., 151 F. Supp. 2d 1145, 1148-49 (C.D.
Cal. 2001); GATX, 879 F. Supp. 2d at 648. Likewise, federal courts
making bankruptcy decisions have refused to create liability for
nontransferees when statutes do not. See Robinson v. Watts Detective
Agency, Inc., 685 F.2d 729, 737 (1st Cir. 1982); Mack v. Newton, 737 F.2d
1343, 1357-58, 1361 (5th Cir. 1984); Jackson v. Star Sprinkler Corp., 575
F.2d 1223, 1234 (8th Cir. 1978).
3 See also GAM 879 F. Supp. 2d at 648; In re Total Containment,
Inc., 335 RR. 589, 615-16 (Bankr E.D. Pa. 2005) (predicting that
Pennsylvania law does not hold nontransferees liable); Ernst & Young
LLP v. Baker O'Neal Holdings, Inc., No. 1:03-CV-0132-DFH, 2004 WL
771230, at *14 (S.D. Ind. Mar. 24, 2004) (holding that the Indiana
Uniform Fraudulent Transfer Act's savings clause (or "catch-all
provision") permits courts to creatively construct equitable remedies but
does not create a substantive right of action); Forum Ins. Co. v. Devere
Ltd., 151 F. Supp. 2d 1145, 1148 (C.D. Cal. 2001) (holding that a
nontransferee was not liable because California's Fraudulent Transfer Act
only creates equitable remedies, not liability for damages); FDIC v. White,
No. 3:96-CV-0560-P, 1998 WL 120298, at *2 (N.D. Tex. Mar. 5, 1998)
(holding that the Texas fraudulent conveyance statute does not create
liability for nontransferee coconspirator and it does not permit a court to
create new substantive rights of action); Warne Invs., Ltd. v. Higgins, 195
P.3d 645, 656 (Ariz. Ct. App. 2008) (holding that the Arizona catchall
provision does not create liability for aiding and abetting); Freeman v.
First Union Nat'l Bank, 865 So. 2d 1272, 1276 (Fla. 2004) (reasoning that
Florida's savings clause permitted the court to award other equitable relief
but did not create new causes of action).
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We find this second line of reasoning persuasive. Creditors do
not possess legal claims for damages when they are the victims of
fraudulent transfers. Instead, creditors have recourse in equitable
proceedings in order to recover the property, or payment for its value, by
which they are returned to their pre-transfer position. See NRS 112.210;
NRS 112.220(2). Nevada law does not create a legal cause of action for
damages in excess of the value of the property to be recovered.
As federal courts have recognized, the long-standing
distinction between law and equity, though abolished in procedure,
continues in substance. Coca-Cola Co. v. Dixi -ColaLabs., 155 F.2d 59, 63
(4th Cir. 1946); 30A C.J.S. Equity § 8 (2007). A judgment for damages is a
legal remedy, whereas other remedies, such as avoidance or attachment,
are equitable remedies. See 30A C.J.S. Equity § 1 (2007). Nevada's
fraudulent transfer statute creates equitable remedies including
avoidance, attachment, and, subject to principles of equity and the rules of
civil procedure, injunction, receivership, or other relief. See NRS 112.210.
This is in accord with the general rule that "the relief to which a
defrauded creditor is entitled in an action to set aside a fraudulent
conveyance is limited to setting aside the conveyance of the property." 37
C.J.S. Fraudulent Conveyances § 203 (2008). 4 There is generally no
4 History also shows that avoidance was the proper remedy for
fraudulent transfers. A 1377 enactment declared that, if a debtor colluded
with friends to avoid collection by transferring assets to them and then
fleeing to debtor sanctuary, the creditor may petition the king for a writ
directing execution on the asset as if the transfers had never occurred.
Melville Madison Bigelow, The Law of Fraudulent Conveyances 11-12 (rev.
ed. 1911) (1890).
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personal action against transferees unless specially authorized by statute.
Id. § 202.
As an exception to the general rule, NRS 112.220(2) permits
actions resulting in judgments against certain transferees. But such
judgments are only in the amount of either the creditor's claim or the
value of the transferred property, whichever is less. Id. The statutory
scheme does not allow a creditor to recover an amount in excess of the
transferred property's value, or to recover against a nontransferee. And
no similar exceptional authorization creates claims against
nontransferees.
Furthermore, it does not make sense to apply an equitable
remedy, voiding a transfer of property, against a party who never had
possession of the transferred property. First, the third party has no
control over the property and, therefore, cannot return it to the creditor.
Second, once a creditor is made whole by a successful action against the
transferor or transferee, he is no longer in need of an equitable remedy
against a third party. True, NRS 112.210(1) permits creditors to obtain
"any other relief the circumstances may require." But we agree with other
jurisdictions that this language, taken from the Uniform Fraudulent
Transfer Act, "was intended to codify an existing but imprecise system,"
not to create a new cause of action. Freeman v. First Union Nat'l Bank,
865 So. 2d 1272, 1276 (Fla. 2004); see NRS 112.250 ("This chapter must be
applied and construed to effectuate its general purpose to make uniform
the law with respect to the subject of this chapter among states enacting
it."). Compare Unif. Fraudulent Transfer Act § 7, 7A U.L.A. 155-56 (2006),
with NRS 112.210.
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Thus, NRS 112.210(1) gives the creditor an equitable right to
the property, not a claim for damages. The Legislature did not create a
claim against nontransferees. And although NRS 112.240 incorporates
the traditional rules of law and equity into the statutory fraudulent
transfer law, we agree with other states that such savings clauses do not
create entirely new causes of action, such as civil conspiracy. See Forum
Ins. Co., 151 F. Supp. 2d at 1148; Freeman, 865 So. 2d at 1276. We
therefore conclude that Nevada law does not recognize claims against
nontransferees under theories of accessory liability. Because we so
conclude, we do not need to decide whether the district court properly
analyzed the accessory liability issues or whether the district court's
factual findings on these issues were supported by substantial evidence.
We affirm the district court's judgment.
Proper documentation of costs
The second contested order in these consolidated appeals
concerns the district court's award of costs to Woods & Erickson. Cadle
argues that the district court erred because the documentation was
insufficient to justify some of the costs awarded. We agree.
NRS 18.020 and NRS 18.050 give district courts wide, but not
unlimited, discretion to award costs to prevailing parties. Costs awarded
must be reasonable, NRS 18.005; Bobby Berosini, Ltd. v. PETA, 114 Nev.
1348, 1352, 971 P.2d 383, 385 (1998), but parties may not simply estimate
a reasonable amount of costs. See Gibellini v. Klindt, 110 Nev. 1201,
1205-06, 885 P.2d 540, 543 (1994) (holding that a party may not estimate
costs based on hours billed). Rather, NRS 18.110(1) requires a party to
file and serve "a memorandum [of costs] . . . verified by the oath of the
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party . . . stating that to the best of his or her knowledge and belief the
items are correct, and that the costs have been necessarily incurred in the
action or proceeding." Thus, costs must be reasonable, necessary, and
actually incurred. We will reverse a district court decision awarding costs
if the district court has abused its discretion in so determining. Viii.
Builders 96, L.P. v. U.S. Labs., Inc., 121 Nev. 261, 276, 112 P.3d 1082,
1092 (2005).
In Bobby Berosini, Ltd., we explained that a party must
"demonstrate how such [claimed costs] were necessary to and incurred in
the present action." 114 Nev. at 1352-53, 971 P.2d at 386. Although cost
memoranda were filed in that case, we were unsatisfied with the itemized
memorandum and demanded further justifying documentation. Id. It is
clear, then, that "justifying documentation" must mean something more
than a memorandum of costs. In order to retax and settle costs upon
motion of the parties pursuant to NRS 18.110, a district court must have
before it evidence that the costs were reasonable, necessary, and actually
incurred. See Gibellini, 110 Nev. at 1206, 885 P.2d at 543 (reversing
award of costs and remanding for determination of actual reasonable costs
incurred).
Without evidence to determine whether a cost was reasonable
and necessary, a district court may not award costs. PETA, 114 Nev. at
1353, 971 P.2d at 386. Here, the district court lacked sufficient justifying
documentation to support the award of costs for photocopies, runner
service, and deposition transcripts.° Woods & Erickson did not present
°The other costs awarded, however, service costs, parking fees, and
filing fees, were supported by sufficient justifying documentation,
continued on next page . .
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the district court with evidence enabling the court to determine that those
costs were reasonable and necessary.
Photocopies
Woods & Erickson did not submit documentation about
photocopies other than an affidavit of counsel stating that each and every
copy made was reasonable and necessary. In PETA, we rejected a claim
for photocopy costs because only the date and cost of each copy were
provided. See PETA, 114 Nev. at 1353, 971 P.2d at 386. We have also
held that documentation substantiating the reason for each copy "is
precisely what is required under Nevada law." Viii. Builders 96, 121 Nev.
at 277-78, 112 P.3d at 1093.
Here, Woods & Erickson failed to show why the copying costs
were reasonable or necessary. The affidavit of counsel told the court that
the costs were reasonable and necessary, but it did not "demonstrate how
such fees were necessary to and incurred in the present action." PETA,
114 Nev. at 1352-53, 971 P.2d at 386 (emphasis added). Because the
district court had no evidence on which to judge the reasonableness or
necessity of each photocopy charge, we conclude that the court lacked
justifying documentation to award photocopy costs.
Runner service
The district court concluded that it lacked documentation for
runner service costs. It awarded costs for runner service anyway, albeit
. . . continued
including receipts or court records, and we affirm the remainder of the
order awarding costs.
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for the lower amount of $350, because $581.65 was "an odd number."
Because the district court lacked documentation, there is no way that it
could have determined whether the cost was reasonable or necessary. In
addition, the $350 figure appears to be the kind of guesstimate of which
we disapproved in Gibellini v. Klindt, 110 Nev. at 1206, 885 P.2d at 543
(holding that a party may not estimate costs based on hours billed). The
district court therefore erred by awarding runner service costs after
concluding that it lacked sufficient justifying documentation.
Deposition transcripts
The district court awarded costs for deposition transcription in
the amount of $1,921.25. Yet the record shows that Woods & Erickson
only submitted transcription invoices totaling $1,116.75. In an affidavit,
Woods & Erickson's counsel stated that counsel was "only able to track
down invoices for certain of the transcript expenses." The affidavit does
not provide any itemization of, or justification for, the transcripts without
invoices. Cf. Vill, Builders, 121 Nev. at 277-78, 112 P.3d at 1093 (holding
Nevada law requires justifying documentation to substantiate the reason
for each photocopy). Because there was no documentation of costs
exceeding $1,116.75, the district court lacked sufficient evidence to award
$1,921.25, and the award for this item must be reduced to $1,116.75.
CONCLUSION
We hold that Nevada law does not recognize accessory liability
for fraudulent transfers. Therefore, we affirm the district court's
judgment on the merits. We further hold that the district court erred by
awarding photocopy costs, runner service costs, and deposition
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transcription costs above $1,116.75 because no evidence was presented
showing that those costs were reasonable, necessary, and actually
incurred. We thus reverse the portion of the district court's order
awarding costs for the photocopy and runner service expenses, and we
affirm as modified the award of costs for deposition transcripts. We have
considered Cadle's other arguments, including those concerning the
attorney fees award, and conclude that they lack merit. Accordingly, we
affirm in part and reverse in part, as specified above.
C
Cherry
We concur:
Parraguirre
Hr
J.
Douglas
, J.
Gibbons
P rik0A u.t
Pickering
J.
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