Pompei v. Clarkson ( 2016 )

IN THE SUPREME COURT OF THE STATE OF NEVADA
LORI A. SERIGHT POMPEI, AN No. 66459
INDIVIDUAL,
Appellant,
vs.
BARRY E. CLARKSON, AN
INDIVIDUAL; CLARKSON DRAPER & FILED
BECKSTROM, LLC, A UTAH LIMITED
LIABILITY COMPANY; AND RICHARD JUN 2 3 2016
HAWES, INDIVIDUALLY AND AS A CLER
TRACE K. LINDEMAN
F UPREME COURT
TRUSTEE OF PREMIER PROPERTIES EIY
DEPUTY CLERK
OF MESQUITE, INC.,
Respondents.
ORDER OF AFFIRMANCE
This is an appeal from a district court order granting and
denying summary judgment in a corporations and tort action. Eighth
Judicial District Court, Clark County; Kathy A. Hardcastle, Judge.
Appellant Lori Seright Pompei is a real estate agent who
worked for Premier Properties of Mesquite, Inc. (hereinafter, PPM).
Respondent Richard Hawes was a director, officer, and part-owner of
PPM. Respondent Barry Clarkson is an attorney and partner in
respondent Clarkson Draper & Beckstrom, LLC (hereinafter, CDB).
In 2007, Pompei filed a complaint against PPM for breach of
contract and related claims. CDB represented PPM in the matter.
Pompei was awarded more than $225,000, including attorney fees and
costs. However, Pompei was unable to collect on this judgment because
PPM subsequently entered into an asset transfer agreement with CDB, in
which PPM transferred all of its assets to a new business entity in order to
SUPREME COURT
OF
NEVADA
(0) I947A
Ifo -1 9 (v3?
ce4
pay off its legal fees. Clarkson created, manages, and has an indirect
ownership interest in, the new entity.
Pompei then initiated this action against Hawes, Clarkson,
and CDB, alleging: (1) breach of fiduciary duties; (2) constructive fraud; (3)
civil conspiracy to breach fiduciary duties and commit constructive fraud;
(4) aiding and abetting breaches of fiduciary duties and constructive fraud;
and (5) negligence, among others. Pompei also asserted a derivative legal
malpractice claim against Clarkson and CDB on PPM's behalf.
Respondents moved for summary judgment on all of Pompei's
claims. The district court granted the motion with respect to the
aforementioned claims, concluding that respondents did not owe Pompei
any duty, so her claims for breach of fiduciary duties, constructive fraud,
civil conspiracy, aiding and abetting, and negligence failed as a matter of
law. The district court further concluded that Pompei lacked standing to
bring a derivative claim on PPM's behalf because she was a creditor, not a
shareholder. Pompei now appeals, arguing that (1) a creditor has
standing to assert a derivative claim on behalf of an insolvent corporation,
(2) a corporation's directors and attorneys owe the corporation's creditors
fiduciary duties, and (3) several of the district court's findings of fact were
erroneous.
We hold that the district court correctly concluded that
Pompei does not have standing to assert a derivative claim on behalf of
PPM, and that the respondents did not owe any fiduciary duties to
Pompei. Therefore, we affirm the district court's order.
SUPREME COURT
OF
NEVADA
2
(0) I947A 44e.
Whether a creditor has standing to assert a derivative claim on behalf of an
insolvent corporation
Pompei argues that a creditor of an insolvent corporation has
standing to assert a derivative claim on behalf of the corporation. This
court has never held that creditors may assert such actions in equity, and
the Legislature has not empowered creditors to bring such actions by law.'
The parties dispute whether NRCP 23.1 prohibits a creditor from
asserting a derivative claim. 2 We note that, although we have never
addressed the issue, federal courts interpreting FRCP 23.1 have largely
held that creditors do not have standing to assert a derivative claim. 3
Exec. Mgmt., Ltd. v. Ticor Title Ins. Co., 118 Nev. 46, 53, 38 P.3d 872, 876
'Cf. NRS 41.520 (recognizing a shareholder's right to assert a
derivative claim on behalf of a corporation); NRS 86.483, 86.485
(recognizing a member's right to assert a derivative claim on behalf of a
limited-liability company); NRS 87A.665, 87A.670, NRS 88.610, 88.615
(recognizing a partner's right to assert a derivative claim on behalf of a
limited partnership).
2 NRCP 23.1 provides, in relevant part:
In a derivative action brought by one or more
shareholders or members to enforce a right of a
corporation. . . , the complaint shall be verified
and shall allege that the plaintiff was a
shareholder or member at the time of the
transaction of which the plaintiff complains . . . .
3 FRCP 23.1(a) provides, in relevant part:
This rule applies when one or more shareholders
or members of a corporation or an unincorporated
association bring a derivative action to enforce a
right that the corporation or association may
properly assert but has failed to enforce.
SUPREME COURT
OF
NEVADA
3
(0) 1947A e>
(2002) (stating that federal cases interpreting the Federal Rules of Civil
Procedure are strong persuasive authority in interpreting the Nevada
Rules of Civil Procedure); see Darrow v. Southdown, Inc., 574 F.2d 1333,
1337 (5th Cir. 1978) (stating a contract creditor has "no ownership interest
and therefore no derivative standing"); Kusner v. First Pa, Corp., 395 F.
Supp. 276, 281-82, 287 (E.D. Pa. 1975), rev'd in part on other grounds, 531
F.2d 1234, 1236-37 (3d Cir. 1976) (holding a creditor lacked standing
because its interest, although financially substantial, was "clearly non-
proprietary"); Dodge v. First Wis. Trust Co., 394 F. Supp. 1124, 1127 (E.D.
Wis. 1975) (holding a creditor lacked standing to bring a derivative suit);
Brooks v. Weiser, 57 F.R.D. 491, 493-95 (S.D.N.Y. 1972) (same); but see
Bank of Am., N.A. v. Knight, 725 F.3d 815, 818 (7th Cir. 2013) (stating in
dicta that "a creditor can't recover on behalf of a corporate borrower
without using the form of a derivative suit").
However, we need not decide whether NRCP 23.1 prohibits a
creditor from asserting a derivative claim, for even if it does not, we
decline to grant creditors an unqualified right to assert derivative claims
on behalf of insolvent corporations. Procedural safeguards typically
accompany derivative actions to further ensure the party bringing the
claim will adequately represent the corporation's interests. 4 The parties
4 For example, the "contemporaneous ownership" requirement
generally requires the plaintiff to be a shareholder at the time of the
transaction alleged in the complaint. See NRS 41.520(2); NRCP 23.1;
Deborah A. Demott & David F. Cavers, Shareholder Derivative Actions:
Law and Practice § 4:3 (2015). The "continuing ownership" requirement
generally requires the plaintiff to maintain his or her proprietary interest
throughout the pendency of the suit. See Keever v. Jewelry Mountain
Mines, Inc., 100 Nev. 576, 577-78, 688 P.2d 317, 317 (1984); Demott &
Cavers, supra, § 4:3. And the "demand" requirement generally requires
continued on next page...
SUPREME COURT
OF
NEVADA
4
(0) 1947A
have not discussed (1) to what extent these requirements (or modifications
thereof) would apply in the context of creditor derivative suits; (2) if
additional requirements may be necessary to ensure a corporation's
interests are adequately represented by a party with a non-proprietary
interest; and (3) whether granting creditors such a right in the corporate
context would have implications as to other business entities, and if so,
whether that would be desirable. 5
Therefore, we believe this is an issue that the Legislature
should address in the first instance. See Renown Health, Inc. v.
Vanderford, 126 Nev. 221, 225, 235 P.3d 614, 616 (2010) ("This court may
refuse to decide an issue if it involves policy questions better left to the
Legislature."). As such, we decline to recognize a creditor's right to assert
a derivative claim at this time.
Whether an insolvent corporation's directors and attorneys owe fiduciary
duties to the corporation's creditors
Pompei argues that the directors of an insolvent corporation
owe fiduciary duties to the corporation's creditors. However, this court
has never held as much. Indeed, we have held that "the [fiduciary] duty of
loyalty requires . . . directors to maintain, in good faith, the corporation's
...continued
the plaintiff to attempt to seek redress through the corporation's directors
or shareholders before bringing a derivative action unless such an attempt
would be futile. Shoen v. SAC Holding Corp., 122 Nev. 621, 633, 137 P.3d
1171, 1179 (2006); Demott & Cavers, supra, § 4:2.
5To the extent it is suggested that NRCP 23.1 permits a creditor to
bring a derivative suit without having to abide by any procedural
protections, we reject such an interpretation. See State v. Quinn, 117 Nev.
709, 713, 30 P.3d 1117, 1120 (2001) (stating statutes should be interpreted
so as to avoid absurd results).
SUPREME COURT
OF
NEVADA
5
(0) 1947A AD.
and its shareholders' best interests over anyone else's interests." Shoen, 122
Nev. at 632, 137 P.3d at 1178 (emphasis added). In addition, imposing
such a duty on directors would create an impermissible conflict of interest,
because the interests of shareholders and creditors often diverge. See
Laura Lin, Shift of Fiduciary Duty Upon Corporate Insolvency: Proper
Scope of Directors' Duty to Creditors, 46 Vand. L. Rev. 1485, 1488 (1993).
For example, when a corporation is insolvent, shareholders may be more
inclined to pursue riskier business ventures than creditors, who may want
to avoid such risks to ensure the corporation's assets are not further
depleted. Id. at 1489. Furthermore, this conflict of interest would
compromise a director's ability to fulfill his fiduciary duties to the
corporation itself by limiting his "freedom to engage in vigorous, good faith
negotiations with individual creditors for the benefit of the corporation."
N. Am. Catholic Educ. Programming Found., Inc: v. Gheewalla, 930 A.2d
92, 103 (Del. 2007). 6
Nor did PPM's attorneys owe Pompei direct fiduciary duties.
Pompei argues that Clarkson and CDB directly owed her fiduciary duties
because: (1) as a director of PPM, Hawes held PPM's assets in trust for its
creditors upon insolvency and dissolution; (2) as a creditor, Pompei was a
beneficiary of the trust; and (3) Clarkson and CDB represented Hawes in
6To the extent Pompei argues that Nevada's dissolution statutes
imposed on Hawes a direct fiduciary duty to her, we reject this argument.
Even assuming Hawes was a director at the time of the asset transfer,
Hawes was not a "trustee" under NRS 78.590 at the time of the asset
transfer, because a director only becomes "trustee" "upon the dissolution"
of the corporation, which occurs "at the time of the filing of the certificate
of dissolution." NRS 78.580(5); NRS 78.590(1) (emphasis added); Quinn,
117 Nev. at 713, 30 P.3d at 1120 (stating an unambiguous statute must be
given its plain meaning).
SUPREME COURT
OF
NEVADA
6
10) 1947A en
his capacity as trustee. Although Pompei contends that "an attorney
[who] represents a trustee in his or her capacity as trustee ... assumes a
duty of care and fiduciary duties toward the beneficiaries as a matter of
law," Charleson v. Hardesty, 108 Nev. 878, 882-83, 839 P.2d 1303, 1306-
07 (1992), in 2011, the Legislature enacted NRS 162.310, which states
that "[a]n attorney who represents a fiduciary does not, solely as a result
of such attorney-client relationship, assume a corresponding duty of care
or other fiduciary duty to a principal," and we have also held that directors
"are not trustees of a trust in terms of the law of trusts," Canarelli v.
Eighth Judicial Din. Court, 127 Nev. 808, 815, 265 P.3d 673, 678 (2011).
Furthermore, even if Hawes were a trustee in the sense Pompei argues,
Pompei has presented no evidence that Clarkson or CDB represented
Hawes as trustee. See Waid v. Eighth Judicial Dist. Court, 121 Nev. 605,
611, 119 P.3d 1219, 1223 (2005) (stating "a lawyer representing a
corporate entity represents only the entity, not its officers, directors, or
shareholders"). Therefore, the mere fact that Clarkson• and CDB
represented PPM did not impose on Clarkson or CDB direct fiduciary
duties to PPM's creditors.
Based on the foregoing, we conclude that Pompei did not have
standing to assert a derivative claim, and the respondents did not owe
Pompei any fiduciary duties. Having so held, Pompei's argument that
several of the district court's findings of fact were erroneous is rendered
moot, as Pompei's claims fail as a matter of law. See Wood v. Safeway,
Inc., 121 Nev. 724, 729, 121 P.3d 1026, 1029 (2005) ("Summary judgment
is appropriate and shall be rendered forthwith when the pleadings and
other evidence on file demonstrate that no genuine issue as to any
material fact [remains] and that the moving party is entitled to a
SUPREME COURT
OF
NEVADA
7
(0) 1947A (Afi
judgment as a matter of law.") (alteration in original) (internal quotation
marks omitted). Accordingly, we
ORDER the judgment of the district court AFFIRMED.
I ct.A A
- , C.J.
Parraguirre
J.
cc: Chief Judge, The Eighth Judicial District Court
Hon. Kathy A. Hardcastle, Senior Judge
Bingham Snow & Caldwell
Laxalt & Nomura, Ltd./Reno
Richard Hawes
Eighth District Court Clerk
SUPREME COURT
OF
NEVADA
8
(0) 1947A (fleco