Jsa, LLC v. Golden Gaming, Inc. ( 2013 )

 Trust (who would later incorporate as appellants JSA, LLC, and Wide
Horizon, LLC, respectively) entered into negotiations to purchase the
Quail Park unit that was to house Sparky's from Ribeiro; and (2)
Mammoth Ventures, LLC, purchased all of the Sparky's locations,
business mark, and brand. Mammoth is an affiliate of respondent Golden
Gaming, Inc. (Golden Gaming). Thereafter, appellants, through their
agents, then entered into negotiations with Golden Gaming to execute a
lease on the location. Golden Gaming established a limited liability
corporation, Sparky's South Carson 7, LLC (Sparky's 7), to be the named
tenant of the Quail Park location. In the fall of 2003, Golden Gaming
negotiated a new lease with appellants, naming Sparky's 7 as the tenant,
which superseded the old lease of Sparky's No. 5. The lease was
effectuated in November 2003, shortly after appellants officially closed
escrow on Quail Park.
Golden Gaming specifically executed the lease on behalf of its
subsidiary Golden Tavern Group (Golden Tavern), who would manage
Sparky's 7. Sparky's 7 is listed as the leasee. No iteration of the lease
ever listed Golden Gaming as the named tenant and, when asked, Golden
Gaming refused to guarantee the lease. Appellants were advised to retain
counsel to examine the newly negotiated lease with Sparky's 7, but failed
to do so. Appellants and their agents admitted seeing Sparky's 7, and not
Golden Gaming, listed on the lease, but did not challenge this based on
their assumptions that Sparky's 7 was synonymous with Golden Gaming.
While Golden Gaming provided Sp arky's 7 initial
capitalization and recapitalized Sparky's 7 on a frequent basis, Sparky's 7
operated in accordance with Nevada gaming law, using its own on-site
managers in control of daily business operations. Sparky's 7 managers
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would report to a regional manager at Golden Tavern, who would then
report to Golden Gaming. Upper-level management and operations
occurred at Golden Gaming's offices, including accounting, marketing, and
human resources. Golden Gaming directly managed the accounting for
Sparky's 7 through the use of consolidated bank accounts with separate
accounting through a coding system. Golden Gaming kept separate books
and records for Sparky's 7 and filed independent state sales tax returns
for Sparky's 7, but filed a single consolidated tax return. Sparky's 7 did
not have an operating agreement, as one was not required under Nevada
law.
Over the course of Sparky's 7 operations, Golden Gaming
sustained approximately $1.5 million in Sparky's 7 losses. Ultimately,
Sparky's 7 failed, and payments on the lease stopped. Appellants then
sued Golden Gaming alleging breach of contract, breach of the implied
covenant of good faith and fair dealing, reformation, alter ego, negligent
misrepresentation, and fraudulent misrepresentation. Golden Gaming
served appellants with an offer of judgment pursuant to NRCP 68 and
NRS 17.115 in the amount of $25,000, which appellants did not accept.
After a bench trial, the district court entered judgment in favor of Golden
Gaming on all counts and granted Golden Gaming attorney fees and costs
based on the offer of judgment. This appeal followed. 2
On appeal, appellants argue that the district court erroneously
determined that (1) Golden Gaming was not a party to the commercial
lease agreement and, thus, could not be liable for breach of contract; (2)
2 The
parties are familiar with the facts and we do not recount them
further except as is necessary for our disposition.
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Golden Gaming did not fraudulently or negligently misrepresent its status
as tenant or guarantor; (3) reformation was not appropriate; and (4)
Golden Gaming was not the alter ego of Sparky's 7. 3 As discussed below,
we disagree with appellants' arguments and affirm the district court's
judgment.
Standard of review
"The district court's factual findings . . . are given deference
and will be upheld if not clearly erroneous and if supported by substantial
evidence." Ogawa v. Ogawa, 125 Nev. 660, 668, 221 P.3d 699, 704 (2009).
However, this court reviews a district court's conclusions of law de novo.
Grosjean v. Imperial Palace, Inc., 125 Nev. 349, 359, 212 P.3d 1068,
1075 (2009).
Breach of contract
Appellants argue that the district court erred in (1) failing to
hold Golden Gaming liable due to its failure to disclose its alleged agency
status, (2) holding that the lease-commencement contract did not obligate
Golden Gaming individually under the lease, and (3) failing to hold Golden
3 Appellantsalso contend that the district court erred in awarding
attorney fees to Golden Gaming based on the offer of judgment. We
conclude that the district court did not manifestly abuse its discretion in
awarding attorney fees since it properly considered the factors set forth in
Beattie v. Thomas, 99 Nev. 579, 588-589, 668 P.2d 268, 274 (1983). See
McCarran Int? Airport v. Sisolak, 122 Nev. 645, 673, 137 P.3d 1110, 1129
(2006) (attorney fee awards will be upheld absent an abuse of discretion
where the award is authorized by a rule, contract, or statute).
Accordingly, we affirm the district court's order awarding attorney fees
and costs.
4
Gaming contractually liable as a "dba" of Sparky's 7• 4 Golden Gaming
counters that since the lease clearly indicated that Sparky's 7, and not
Golden Gaming, was the tenant, it was not an agent or a "dba." We agree
with Golden Gaming.
Appellants first argue that the district court ignored their
argument that Golden Gaming was liable under the contract as an
undisclosed or partially disclosed agent. We conclude that Golden Gaming
is not liable on the contract because Sparky's 7 was listed on the lease as
the tenant, and the signature line clearly indicated that the lease was
being signed by Golden Gaming on behalf of Sparky's 7. Golden Gaming
was never an undisclosed or partially disclosed agent. See Peccole v.
Fresno Air Serv., Inc., 86 Nev. 377, 380-81, 469 P.2d 397, 398-99 (1970);
see also Wright Grp. Architects-Planners v. Pierce, 343 S.W.3d 196,
200 (Tex. App. 2011) (stating that "[w]hen an agent seeks to avoid
personal liability on a contract he signs, it is his duty to disclose that he is
acting in a representative capacity and the identity of his principal"); see
also Restatement (Third) of Agency § 6.02 (2006) (discussing agency
liability on a contract entered into for an undisclosed principal).
Accordingly, the district court correctly determined that Golden Gaming is
not liable under the lease pursuant to agency principles.
4Appellants also argue that Golden Gaming is liable under the
multiple-contracts doctrine because Golden Gaming executed contracts in
its individual capacity that obligated it as an additional liable party under
the lease. While appellants argue that multiple contracts were signed by
Golden Gaming, they failed to argue the multiple-contracts doctrine below.
"Generally, an issue which is not raised in the district court is waived on
appeal." Nye Cnty. v. Washoe Med. Ctr., 108 Nev. 490, 493, 835 P.2d 780,
782 (1992). Under these circumstances, we need not consider this
argument.
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Appellants also argue that Golden Gaming is liable under a
contract theory because it executed the lease-commencement contract in
its individual capacity and not on behalf of Sparky's 7, thereby binding
Golden Gaming to the lease provisions. However, appellants
mischaracterize as a contract a legally irrelevant letter that merely
changed the commencement date of the already-signed lease. Because the
letter did not alter the identity of the tenant after the fact, it could not
make Golden Gaming liable under the lease that was previously signed
and in which Golden Gaming had disclosed that it was signing on behalf of
the tenant, Sparky's 7.
Appellants further contend that the district court ignored the
fact that Golden Gaming repeatedly used various LLCs as dba's for its
business operations, making it rational for appellants to assume that it
was doing so here. 5 This argument flounders when put in the context of
the plain language of the lease, which clearly stated that Sparky's 7 was
the tenant and that Golden Gaming was signing for Sparky's 7 and not for
itself. "When a contract is clear on its face, it will be construed from the
written language and enforced as written." Sandy Valley Assocs. v. Sky
Ranch Estates Owners Assoc., 117 Nev. 948, 953-54, 35 P.3d 964, 967
(2001), receded from on different grounds by Horgan v. Felton, 123 Nev.
577, 586, 170 P.3d 982, 988 (2007). Because appellants have failed to
demonstrate that Golden Gaming was a party to the contract, we conclude
5 To the extent that appellants now try to make a promissory-
estoppel-based argument, we conclude that they failed to make a
promissory estoppel argument below and, thus, cannot now raise one for
the first time on appeal. See Kahn v. Morse & Mowbray, 121 Nev. 464,
480 n. 24, 117 P.3d 227, 238 n. 24 (2005).
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that the district court did not err in determining that Golden Gaming was
not a party to the lease and thus could not be liable for a breach of that
lease. 6
Fraudulent misrepresentation
Appellants contend that the district court erred in
disregarding evidence of Golden Gaming's alleged fraud, specifically,
subsequent contracts that Golden Gaming signed as tenant, a letter from
Golden Gaming that included its financial information, a news article
concerning the property, and Golden Gaming's failure to disclose that
Sparky's 7 was inserted into the lease.
We conclude that substantial evidence supported the district
court's determination that Golden Gaming did not make any fraudulent
misrepresentations concerning the identity of the tenant. As explained by
this court in Road & Highway Builders, L.L.C. v. N. Nev. Rebar, 128 Nev.
284 P.3d 377, 381 (2012), the purported fraudulent inducement
cannot be something that conflicts with the contract's express terms.
Here, the contract clearly states that the tenant is Sparky's 7, and the
signature line indicates that Golden Gaming was signing on behalf of
Sparky's 7. Thus, Golden Gaming could not have committed fraud since
the identity of the leasee as Sparky's 7 is clear in the written lease.
6Appellants also argue that only Golden Gaming had authority to
sign the lease as the sole holder of the Sparky's name, brand, trademark,
and logo, but they fail to cite to any authority supporting this proposition.
Accordingly, their argument cannot prevail. NRAP 28(a)(9)(A) (an
appellant's brief must contain "appellant's contentions and the reasons for
them, with citations to the authorities and parts of the record on which the
appellant relies"); State, Dep't of Motor Vehicles v. Rowland, 107 Nev. 475,
479, 814 P.2d 80, 83 (1991) ("Generally, unsupported arguments are
summarily rejected on appeal.").
7
Further, in order to prove intentional misrepresentation, a party must
prove that its damages were caused by relying on the original
representation or omission. Nelson v. Heer, 123 Nev. 217, 225, 163 P.3d
420, 426 (2007). While other, subsequent contracts concerning the
location were entered into by Golden Gaming without notations that it
was done on behalf of Sparky's 7, these subsequent contracts are
irrelevant since they occurred after appellants would have been induced to
enter into the original lease contract.
Moreover, appellants failed to demonstrate that Golden
Gaming made a false representation through its agents that was
justifiably relied upon. Appellants argue that Golden Gaming is liable
under Epperson v. Roloff, 102 Nev. 206, 719 P.2d 799 (1986). In that case,
this court held that a party may be liable for a misrepresentation made by
an agent if that party communicated misinformation to its agent and had
a reasonable belief that the agent would in turn communicate the
misinformation. Id. at 212, 719 P.2d at 803. However, the record does not
support that this is the situation here.
It is undisputed that Golden Gaming never told appellants or
their agents that Golden Gaming was or would be the tenant, and Golden
Gaming was never listed as the tenant on the lease. Additionally, the
letter from Golden Gaming to appellants' management company that
appellants purport was an intentional misrepresentation actually
explicitly concerned a different property in Reno for which Golden Gaming
was providing a guarantee. Golden Gaming never planned on providing a
guarantee for the Quail Park location and declined when asked.
Furthermore, the news story about Golden Gaming's acquisition of
Sparky's was not directed at appellants nor were any promises made,
express or implied, that Golden Gaming would be the tenant for the
Sparky's 7 location. Appellants and their agents' lack of due diligence and
erroneous assumptions, not any action by Golden Gaming, resulted in
their unfortunate predicament. Thus, we conclude that the district court
properly disposed of appellants' unsustainable fraudulent inducement
claims . 7
Reformation of a contract
Appellants also argue that the district court impermissibly
disregarded their claim for reformation. We disagree because reformation
was not an available remedy under these circumstances. See 25 Corp. v.
Eisenman Chem. Co., 101 Nev. 664, 672, 709 P.2d 164, 170 (1985) (stating
that reformation is available to correct mistakes of fact in a written
contract when the instrument "fails to conform to the parties' previous
understanding or agreement," as the result of mutual mistake or fraud);
NOLM, L.L.C. v. Cnty. of Clark, 120 Nev. 736, 740, 100 P.3d 658, 661
(2004) (explaining that reformation has also been allowed "where one
party makes a unilateral mistake and the other party knew about it but
failed to bring it to the mistaken party's attention"). First, there is no
indication of mutual mistake because no evidence was produced that
appellants and Golden Gaming ever mutually intended to name Golden
Gaming as the tenant under the lease. No draft ever included Golden
Gaming as the tenant, and Golden Gaming refused to provide a guarantee.
Second, as previously discussed, appellants failed to demonstrate that
Golden Gaming committed fraud. Finally, no evidence was presented that
7 Asthere was no justifiable reliance, appellants' claim for negligent
misrepresentation also fails as a matter of law. See Barmettler v. Reno
Air, Inc., 114 Nev. 441, 449, 956 P.2d 1382, 1387 (1998).
9
Golden Gaming knew of appellants' mistaken belief. In fact, Golden
Gaming had no communication with appellants until four years after the
lease was signed. Accordingly, the district court did not err in
determining that the equitable remedy of reformation was not available
here.
Alter ego
Finally, appellants argue that this court should enter
judgment in their favor on the alter ego claim as a matter of law.
However, substantial evidence supports the district court's determination
that the imposition of alter ego liability was inappropriate.
We "assume, without deciding, that the [alter ego] statute
applies [to LLCs] and analyze [appellants'] alter ego arguments under th[e
substantial evidence] standard." Webb v. Shull, 128 Nev. , 11.3, 270
P.3d 1266, 1271 n.3 (2012). Because "the alter ego doctrine is an exception
to the general rule recognizing corporate independence," LFC Mktg. Grp.
v. Loomis, 116 Nev. 896, 903-04, 8 P.3d 841, 846 (2000), courts may pierce
corporate veils only when plaintiffs establish by a preponderance of the
evidence that:
(a) [t]he corporation is influenced and
governed by the stockholder, director or officer;
(b) [t]here is such unity of interest and
ownership that the corporation and the
stockholder, director or officer are inseparable
from each other; and
(c) [a]dherence to the corporate fiction of a
separate entity would sanction fraud or promote a
manifest injustice.
NRS 78.747(2); Loomis, 116 Nev. at 904, 8 P.3d at 846-47. The
circumstances of each case dictate whether the doctrine will be applied.
Loomis, 116 Nev. at 904, 8 P.3d at 847. As discussed below, the district
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court correctly determined that the corporate veil should not be pierced in
this case.
Influence and governance
While Sparky's 7 had its own on-site managers, Golden
Gaming influenced and governed Sparky's 7 through its supervision of
management and operations. Thus, the first prong of the alter ego test
was satisfied.
Unity of interest and ownership
Concerning the second prong of the test, appellants argue that
they established unity of interest and ownership between Golden Gaming
and Sparky's 7. This analysis necessitates a consideration of factors such
as (1) commingling of funds, (2) undercapitalization, (3) unauthorized
diversion of funds, (4) treatment of corporate assets as the individual's
own, and (5) failure to observe corporate formalities. Lorenz v. Beltio,
Ltd., 114 Nev. 795, 808, 963 P.2d 488, 497 (1998).
Appellants argue that the funds were commingled because
Sparky's 7 had no independent checking account, had no independent
review or control over its income and expenses, and because Golden
Gaming made all financial decisions, paid the bills, and handled the
money. However, as explained by the Second Circuit Court of Appeals,
Iclourts have generally declined to find alter ego liability based on a
parent corporation's use of a cash management system." Fletcher v. Atex,
Inc., 68 F.3d 1451, 1459 (2d Cir. 1995) (citing In re Acushnet River & New
Bedford Harbor Proceedings, 675 F. Supp. 22, 34 (D. Mass. 1987); United
States v. Bliss, 108 F.R.D. 127, 132 (E.D. Mo. 1985); Japan Petroleum Co.
(Nigeria) v. Ashland Oil, Inc., 456 F. Supp. 831, 846 (D. Del. 1978)).
Accordingly, the use of a single cash management system is insufficient to
establish commingling.
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Concerning the allegations of undercapitalization, trial
testimony established that, at the time of its creation, Sparky's 7 held
assets in excess of $850,000, had no debt, full inventory, and cash on hand
in the consolidated account attributed to it as it began operating. Then,
over the course of operations, Golden Gaming sustained approximately
$1.5 million in Sparky's 7 losses before closing the business. This level of
financial investment does not even approximate undercapitalization. See
Lorenz, 114 Nev. at 809, 963 P.2d at 497; Rowland v. Lepire, 99 Nev. 308,
317-18, 662 P.2d 1332, 1337-38 (1983). Moreover, while Golden Gaming
did not independently authorize diversion of another subsidiary's funds for
use by Sparky's 7, the testimony from Golden Gaming's controller
supports that there was an implied authorization to recapitalize Sparky's
7 as needed.
Appellants further argue that Golden Gaming treated all
assets as its own, pointing out that Sparky's 7 did not own the Sparky's
brand and did not have the contractual right to use Golden Gaming's
assets, money, or brands. However, Golden Gaming allowed Sparky's 7 to
use its brand and recapitalized Sparky's 7 on its own accord and
appellants have failed to demonstrate why a contract was necessary for
Sparky's 7 to do so.
Finally, while appellants contend otherwise, Sparky's 7
observed all corporate formalities required of a Nevada limited liability
corporation. Sparky's 7 filed independent state tax returns, possessed its
own gaming license, managed its own employees, and employed on-site
managers. Moreover, Golden Gaming separately accounted for and
documented all the money that it used to recapitalize Sparky's 7.
Appellants fail to support their argument that, to observe corporate
12
formalities, there must be a separation of funds, independent accounts,
agreements for use of the Sparky's brand or reimbursement, or an
operating agreement. See Weddell v. H20, Inc., 128 Nev. „ 271
P.3d 743, 749 (2012) ("An LLC may, but is not required to, adopt an
operating agreement, NRS 86.286."). Accordingly, the evidence presented
did not establish a breach of corporate formalities. Thus, the second prong
of the alter ego test was not satisfied.
Whether adherence sanctions fraud or promotes a manifest injustice
Appellants assert that fraud and injustice resulted from
allowing Golden Gaming to be treated separately from Sparky's 7. As was
previously discussed, no fraud occurred. Concerning injustice, appellants
first contend that injustice would result because appellants will never
receive payment for the debt they are owed due to the breach. While this
situation may be unfortunate, appellants and their agents, and not Golden
Gaming, are "responsible for not protecting against the eventuality that
occurred" when it failed to insist that Golden Gaming individually
guarantee the Sparky's 7 lease. Paul Steelman, Ltd. v. Omni Realty
Partners, 110 Nev. 1223, 1226, 885 P.2d 549, 551 (1994). Appellants also
argue that injustice will result because Golden Gaming intended for them
to rely on the fact that it would be the tenant. Because Golden Gaming
never made these representations, we conclude that appellants' argument
in this regard is baseless.
Conclusion regarding alter ego theory
We conclude that not all of the elements of alter ego were
established by a preponderance of the evidence. Because "there is nothing
fraudulent or against public policy in limiting one's liability by the
appropriate use of corporate insulation," Miller v. Honda Motor Co., 779
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F.2d 769, 773 (1st Cir. 1985), we conclude that the district court properly
denied the request to pierce the corporate veil.
For the reasons set forth above, we reject appellants'
arguments, and we 8
ORDER the judgment of the district court AFFIRMED.
C.J.
Gibbons
ci24-43:L\ , J
Hardesty
Douglas
I
J.
Saitta
8Allother arguments on appeal lack merit or have been rendered
moot by this disposition.
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cc: Hon. James Todd Russell, District Judge
Robert L. Eisenberg, Settlement Judge
Robison Belaustegui Sharp & Low
Laxalt & Nomura, Ltd./Reno
Carson City Clerk
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