Weddell v. Sharp

131 Nev., Advance Opinion ib
IN THE SUPREME COURT OF THE STATE OF NEVADA
ROLLAND P. WEDDELL, AN No. 60944
INDIVIDUAL,
Appellant,
vs. FILED
F. DEARMOND SHARP, ESQ., AN
INDIVIDUAL; ROBISON MAY 2 8 2015
BELAUSTEGUI SHARP & LOW, A K. LINDEMAN
cleEMGFIsVPRIENV CQT
NEVADA PROFESSIONAL BY
CHIEF DEPArCLERK
CORPORATION; CHRIS D. NICHOLS,
ESQ., AN INDIVIDUAL; BELDING,
HARRIS & PETRONI; JEFFREY L.
HARTMAN, AN INDIVIDUAL; AND
HARTMAN & HARTMAN, P.C.,
Respondents.
ROLLAND P. \WEDDELL, No. 61329
Appellant,
vs.
F. DEARMOND SHARP, ESQ., AN
INDIVIDUAL; ROBISON
BELAUSTEGUI SHARP & LOW, A
NEVADA PROFESSIONAL
CORPORATION; CHRIS D. NICHOLS,
ESQ., AN INDIVIDUAL; BELDING,
HARRIS & PETRONI; JEFFREY L.
HARTMAN, AN INDIVIDUAL; AND
HART1VIAN & HARTMAN, P.C.,
Respondents.
Consolidated appeals from a district court order dismissing a
contract and tort action and a post-judgment order awarding attorney
fees. Second Judicial District Court, Washoe County; Steven R. Kosach,
Judge.
Affirmed in part and reversed in part.
Day R. Williams, Carson City; Kenneth Dale Sisco, Norco, California,
for Appellant.
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Robison Belaustegui Sharp & Low and Keegan G. Low, Reno,
for Respondents.
BEFORE THE COURT EN BANC.
OPINION
By the Court, SAITTA, J.:
In this appeal, we consider whether a defendant may validly
use claim preclusion as a defense against a plaintiffs complaint even when
that defendant was not a party or in privity with a defendant in an earlier
action brought by the plaintiff based on the same type of claims. Despite
lacking a common defendant or privity with a defendant, some courts have
applied the doctrine of nonmutual claim preclusion in cases where the
defendants in the second action can demonstrate that they should have
been included as parties in the first action and the plaintiff cannot show a
good reason for not having included them. As this concept of nonmutual
claim preclusion is designed to obtain finality of litigation and promote
judicial economy in situations where the rules of civil procedure governing
noncompulsory joinder, permissive counterclaims, and permissive cross-
claims fall short, we adopt the doctrine of nonmutual claim preclusion.
We do so because, as this appeal exemplifies, the privity requirement can
be unnecessarily restrictive in terms of governing when the defense of
claim preclusion may be validly asserted. Accordingly, as set forth in this
opinion, we modify the privity requirement established in Five Star
Capital Corp. v. Ruby, 124 Nev. 1048, 194 P.3d 709 (2008), to incorporate
the principles of nonmutual claim preclusion, meaning that for claim
preclusion to apply, a defendant must demonstrate that (1) there has been
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a valid, final judgment in a previous action; (2) the subsequent action is
based on the same claims or any part of them that were or could have been
brought in the first action; and (3) the parties or their privies are the same
in the instant lawsuit as they were in the previous lawsuit, or the
defendant can demonstrate that he or she should have been included as a
defendant in the earlier suit and the plaintiff fails to provide a "good
reason" for not having done so. Here, because respondents established
that they should have been named as defendants in an earlier lawsuit and
appellant failed to provide a good reason for not doing so, we affirm the
district court's dismissal of appellant's complaint on the basis of claim
preclusion.
FACTS AND PROCEDURAL HISTORY
Appellant Rolland Weddell and nonparty Michael Stewart are
former business partners who were engaged in multiple business
ventures. Through time, several disputes arose between the partners
regarding their business dealings. The partners agreed to informally
settle their disputes by presenting them to a panel of three attorneys, the
respondents herein. Because respondents had previous dealings with
appellant and Stewart, both appellant and Stewart signed a Memorandum
of Understanding in which they acknowledged the potential for conflicts of
interest, waived those potential conflicts, recognized that respondents
would be neutral in the dispute-resolution process, and agreed that the
decision rendered by respondents would be "binding, non-appealable and
crould] be judicially enforced."
The Memorandum of Understanding did not specify the
process by which respondents would go about rendering their decision, and
the record on appeal does not clearly reflect the process that was actually
taken. In any event, respondents issued a decision resolving the partners'
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disputes that, for the most part, was favorable to Stewart. Stewart then
filed a lawsuit against appellant, seeking a declaratory judgment that
respondents' decision was valid and enforceable. Appellant filed an
answer and counterclaim to Stewart's complaint in which he asked the
district court to enforce only the portion of respondents' decision that was
favorable to him. In support of his requested relief, appellant questioned
respondents' neutrality in rendering their decision, specifically alleging
that respondents had failed to answer certain questions that appellant
had wanted answered, that respondents had concealed pertinent facts
from each other, and that respondents had concealed from appellant their
knowledge that Stewart had defrauded appellant. Appellant, however, did
not assert cross-claims against any of the respondents.
During the first day of a bench trial, appellant informed the
district court that he would enter a confession of judgment acknowledging
that respondents' decision was, indeed, valid and enforceable against him
in its entirety. Appellant proceeded to confess judgment and stipulated to
dismiss his counterclaim. Over two years later, however, appellant
instituted the underlying action against respondents in which he asserted
causes of action stemming from respondents' conduct in the dispute-
resolution process. Respondents filed a motion to dismiss the complaint
and requested attorney fees as sanctions, contending that, among other
reasons, dismissal was warranted on claim preclusion principles and that
appellant had filed the complaint without reasonable grounds, warranting
sanctions under NRS 18.010(2)(b). The district court granted respondents'
motion to dismiss, finding that the three factors for claim preclusion
articulated by this court in Five Star Capital Corp. v. Ruby, 124 Nev.
1048, 194 P.3d 709 (2008), had been satisfied. The district court also
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entered a subsequent order granting the request for attorney fees.
Appellant appealed both orders.
DISCUSSION
In Five Star, we clarified the conceptual differences between
the defenses of claim preclusion and issue preclusion, and we identified
the important policy purposes served by recognizing those defenses. In
particular, we recognized that the purpose of claim preclusion "is to obtain
finality by preventing a party from filing another suit that is based on the
same set of facts that were present in the initial suit." Id. at 1054, 194
P.3d at 712. In light of this purpose, we considered this court's previous
four-factor test for claim preclusion, and we concluded that the test was
"overly rigid," as one of the factors required that the "same relief' be
sought in both• complaints, thereby making the test susceptible to
manipulation by litigious plaintiffs. Id. at 1053-54, 194 P.3d at 712-13
(abrogating Edwards v. Ghandour, 123 Nev. 105, 159 P.3d 1086 (2007)).
Five Star's test for applying claim preclusion
Consequently, Five Star modified the previous four-factor test
for when claim preclusion could be asserted as a valid defense in favor of
the following three-factor test, which is the test that the district court in
the underlying matter employed: "(1) the parties or their privies are the
same, (2) the final judgment is valid, and (3) the subsequent action is
based on the same claims or any part of them that were or could have been
brought in the first case." Five Star, 124 Nev. at 1054, 194 P.3d at 713. In
so doing, we expressed our belief that this three-factor test would
sufficiently "maintain[ ] the well-established principle that claim
preclusion applies to all grounds of recovery that were or could have been
brought in the first case." Id. at 1054-55, 194 P.3d at 713.
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Here, appellant's primary argument on appeal is that the
district court erroneously found the first factor to have been satisfied—i.e.,
that respondents were in privity with Stewart, the defendant against
whom appellant asserted his counterclaim in Stewart's declaratory relief
action. In so finding, the district court ruled that respondents were
sufficiently in privity with Stewart because Stewart played a role in
selecting respondents as the panel members and because both Stewart
and respondents had an interest in upholding respondents' dispute-
resolution decision. We agree with appellant that this relationship
between respondents and Stewart does not fall within this court's
previously used definition of privity, which recognizes that one person is in
privity with another if the person had "acquired an interest in the subject
matter affected by the judgment through. . . one of the parties, as by
inheritance, succession, or purchase." Bower v. Harrah's Laughlin, Inc.,
125 Nev. 470, 481, 215 P.3d 709, 718 (2009) (quoting Paradise Palms
Cmty. Ass'n v. Paradise Homes, 89 Nev. 27, 31, 505 P.2d 596, 599 (1973)).
Similarly, even under this court's recent adoption of the Restatement
(Second) of Judgments section 41, see Alcantara v. Wal-Mart Stores, Inc.,
130 Nev., Adv. Op. 28, 321 P.3d 912, 917-18 (2014), we conclude that
privity does not exist between respondents and Stewart under an
"adequate representation" analysis, as Stewart did not purport to
represent respondents' interests during the declaratory relief action
between him and appellant.
Thus, contrary to the district court's determination, we
conclude that privity does not exist between respondents and Stewart and
that Five Star's test for claim preclusion was not satisfied in this instance.
This conclusion, however, reveals that Five Star's test for claim preclusion
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does not fully cover the important principles of finality and judicial
economy that it intended to capture. Cf. Five Star, 124 Nev. at 1054-55,
194 P.3d at 713 (adopting the three-factor test based on the belief that
those factors would sufficiently "maintain[ ] the well-established principle
that claim preclusion applies to all grounds of recovery that were or could
have been brought in the first case"). Specifically, appellant's causes of
action against respondents in the underlying action and his counterclaim
against Stewart in the previous declaratory relief action were premised on
the same alleged facts: that respondents and Stewart loosely colluded with
one another to render a dispute-resolution decision unfavorable to
appellant. Given these circumstances, Five Star's third requirement that
"the subsequent action [be] based on the same claims or any part of them
that were or could have been brought in the first case" would be satisfied.'
Id. at 1054, 194 P.3d at 713 (emphasis added); see G.C. Wallace, Inc. v.
Eighth Judicial Dist. Court, 127 Nev., Adv. Op. 64, 262 P.3d 1135, 1139
(2011) (recognizing that Five Star's third factor can be satisfied when the
two actions are "based on the same facts and alleged wrongful conduct"
(internal quotation omitted)). Thus, but for Five Star's privity
'Appellant also argues on appeal that his confession of judgment in
Stewart's declaratory relief action does not satisfy Five Star's valid-final-
judgment requirement because the enforceability of the dispute-resolution
decision was not actually litigated. This argument, however, has no
bearing on the applicability of claim preclusion. See Five Star, 124 Nev. at
1054 n.27, 194 P.3d at 713 n.27 (recognizing that the valid-final-judgment
requirement for claim preclusion does not necessarily require a
determination on the merits). Moreover, this court has recognized that a
consent judgment can form a basis for claim preclusion, see Willerton v.
Bassharn, 111 Nev. 10, 16-17, 889 P.2d 823, 826-27 (1995), and we see no
reason to differentiate between consent judgments and the judgment by
confession at issue in this case.
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requirement, appellant's causes of action against respondents would be
barred by claim preclusion.
The doctrine of nonmutual claim preclusion
Implicit in Five Star's privity requirement was this court's
recognition that, generally, a party need not assert every conceivable
claim against every conceivable defendant in a single action. See, e.g.,
Humphries v. Eighth Judicial Dist. Court, 129 Nev., Adv. Op. 85, 312 P.3d
484, 490 (2013) (recognizing that neither NRCP 19(a) nor public policy
warrant adopting "a per se rule requiring a plaintiff to join cotortfeasors to
an action as necessary parties"); Exec. Mgmt., Ltd. v. Ticor Title Ins. Co.,
114 Nev. 823, 837, 963 P.2d 465, 474 (1998) ("[A]pplying claim preclusion
to subsequent litigation between former codefendants would have the
effect of negating permissive cross-claim rules . ."). Yet despite this
generally accepted premise, federal courts capably apply claim preclusion
even in situations where the defendant in the second suit was not a party
or in privity with a party in the first suit.
For example, in Airframe Systems, Inc. v. Raytheon Co.,
Airframe Systems filed a lawsuit against a parent company and one of its
subsidiaries alleging that the subsidiary had engaged in copyright
infringement over a span of several years, the latter portion of which was
during the time that the parent owned the subsidiary. 601 F.3d 9, 11-14
(1st Cir. 2010). That lawsuit was dismissed, and Airframe Systems then
filed a second suit against the subsidiary and the former parent company
that owned the subsidiary during the earlier portion of the subsidiary's
alleged infringement. Id. On appeal, the First Circuit was presented with
the question of whether the former parent company could assert claim
preclusion even though it was not in privity with the then-current parent
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company. Id. at 16-17. The First Circuit recognized that "privity is a
sufficient but not a necessary condition for a new defendant to invoke a
claim preclusion defense." Id. at 17. The court then concluded that the
former parent company could assert claim preclusion because it had a
"close and significant relationship" with the current parent company, in
that both companies had simply been serving "as interchangeable proxies"
in Airframe Systems' successive attempts to hold the subsidiary company
liable. Id. at 17-18.
Similarly, in Gambocz v. Yelencsics, Gambocz filed a lawsuit
against a group of individuals alleging that the group had conspired to
thwart Gambocz's candidacy for mayor. 468 F.2d 837, 839 & n.1 (3d Cir.
1972). The lawsuit was dismissed, and Gambocz then filed a second suit
against the same group of individuals as well as against three additional
defendants, once again alleging that all the defendants had conspired to
thwart his candidacy for mayor. Id. at 839. On appeal, the Third Circuit
was presented with the question of whether Gambocz's suit against the
newly named defendants was barred by claim preclusion. Id. at 840-41.
The Third Circuit concluded that claim preclusion can be validly invoked
by newly named defendants when those defendants have "a close or
significant relationship" with previously named defendants. Id. at 841.
The Third Circuit then concluded that such a relationship existed in the
case at hand in light of the fact that the newly named defendants had
allegedly participated in a conspiracy with the previously named
defendants and were even mentioned in Gambocz's complaint in his first
lawsuit. Id. at 842; see also Randles v. Gregart, 965 F.2d 90, 93 (6th Cir.
1992) (applying claim preclusion in the absence of privity); Lubrizol Corp.
v. Exxon Corp., 871 F.2d 1279, 1288-89 (5th Cir. 1989) (same); In re El San
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Juan Hotel Corp., 841 F.2d 6, 10-11 (1st Cir. 1988) (same); Silva v. City of
New Bedford, Mass., 677 F. Supp. 2d 367, 371-72 (D. Mass. 2009) (same);
McLaughlin v. Bradlee, 599 F. Supp. 839, 847-48 (D.D.C. 1984) (same)
This concept of "nonmutual" claim preclusion embraces the
idea that a plaintiffs second suit against a new party should be precluded
"if the new party can show good reasons why he should have been joined
in the first action and the [plaintiffi cannot show any good reasons to
justify a second chance." 18A Charles Alan Wright, et al., Federal Practice
and Procedure § 4464.1 (2d ed. 2002); see Airframe Sys., 601 F.3d at 18
(recognizing this standard as the primary focus in determining whether
nonmutual claim preclusion is appropriate); Mars Inc. v. Nippon Conlux
Kabushiki-Kaisha, 58 F.3d 616, 620 (3d Cir. 1995) (same). 2 Thus, in this
sense, the doctrine of nonmutual claim preclusion is designed to obtain
finality and promote judicial economy in situations where the civil
procedure rules governing noncompulsory joinder, permissive
2 To be sure, when considering whether a plaintiff had "good reasons"
to justify a second suit against a new defendant, many, if not most, federal
courts focus on whether the new defendant had a "close and significant
relationship" with the defendant in the first suit. See, e.g., Airframe Sys.,
601 F.3d at 17-18; Gambocz, 468 F.2d at 841; see also Russell v.
SunAmerica Secs., Inc., 962 F.2d 1169, 1175-76 (5th Cir. 1992) (concluding
that the relationship between two defendants was "close enough" to apply
nonmutual claim preclusion); Fowler v. Wolff, 479 F.2d 338, 340 (8th Cir.
1973) (recognizing that defendants' relationship with each other was "so
close" that nonmutual claim preclusion should be applied). This focus,
however, simply reverts back to a consideration of whether privity exists
between the new defendant and the previous defendant. Thus, while a
"close and significant" relationship between defendants may be sufficient
in some cases to show that a plaintiff lacked "good reasons" to justify a
second lawsuit, we are not persuaded that a close and significant
relationship is always necessary to demonstrate that a plaintiff lacked
good reasons to justify the second lawsuit.
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counterclaims, and permissive cross-claims fall short. See Wright, supra,
§ 4464.1 ("Nonmutual claim preclusion is most attractive in cases that
seem to reflect no more than a last desperate effort by a plaintiff who is
pursuing a thin claim against defendants who were omitted from the first
action because they were less directly involved than the original
defendants.").
The purpose of nonmutual claim preclusion, then, is the same
as that of claim preclusion in general: "to obtain finality by preventing a
party from filing another suit that is based on the same set of facts that
were present in the initial suit." Five Star, 124 Nev. at 1054, 194 P.3d at
712. Thus, whereas in Five Star we adopted a three-factor test for claim
preclusion based on our conclusion that our previous four-factor test was
"overly rigid," id., we now adopt the doctrine of nonmutual claim
preclusion for the same reason. In so doing, we modify Five Star's test for
claim preclusion to the following three-factor test: "[(1)] the final judgment
is valid, . . . K2)] the subsequent action is based on the same claims or any
part of them that were or could have been brought in the first case," id. at
1054, 194 P.3d at 713, and (3) the parties or their privies are the same in
the instant lawsuit as they were in the previous lawsuit, or the defendant
can demonstrate that he or she should have been included as a defendant
in the earlier suit and the plaintiff fails to provide a "good reason" for not
having done so. Wright, supra, § 4464.1.
Here, and as explained previously, there was a valid final
judgment in the declaratory relief action between appellant and Stewart.
As for the second factor, appellant's claims against respondents in this
lawsuit are premised on respondents' alleged collusion with Stewart in the
dispute-resolution process. Because Stewart's declaratory relief action
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sought a judicial determination that the dispute-resolution decision was
valid and enforceable, and because appellant's counterclaim against
Stewart sought the opposite, appellant's current claims against
respondents clearly could have been brought in that case. Thus, our
inquiry focuses on whether appellant has shown a good reason to justify
this second lawsuit.
As his reason, appellant asserts that he lacked the necessary
facts to bring suit against respondents until after he had made his
confession of judgment. This assertion, if accurate, would constitute a
good reason to justify appellant's second lawsuit. Appellant's assertion,
however, is belied by the record. In particular, appellant's answer and
counterclaim in the declaratory relief action alleged that respondents had
concealed their knowledge of Stewart's attempt to defraud appellant,
concealed pertinent facts from each other, refused to allow appellant to
present evidence, and failed to answer certain questions that appellant
wanted answered. Under NRCP 11(b)(3), those allegations were deemed
to have evidentiary support at the time they were made in the answer and
counterclaim. Those same allegations, however, formed the basis for
appellant's causes of action against respondents in the underlying action,
which was filed over two years later. In particular, appellant's complaint
asserted a claim for fraud in which he alleged that "at the time [appellant]
executed the Memorandum [of Understanding], [respondents] intended
to decide in favor of Stewart and to conceal [respondents]
misrepresentations to courts." Appellant's complaint also asserted a claim
for breach of fiduciary duty in which he alleged that respondents "put[
the interests of [respondents] and Stewart over the interests of [appellant]
in the legal matters assigned to them." Appellant's complaint further
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asserted a claim for breach of contract in which he alleged that
respondents had "failed to take all actions reasonably necessary to
consider the questions presented to them."
Consequently, we conclude that appellant lacked a good
reason for not asserting his claims against respondents in Stewart's
declaratory relief action. We therefore affirm the district court's dismissal
of appellant's complaint on the ground that it was barred by claim
preclusion. See Pack v. LaTourette, 128 Nev., Adv. Op. 25, 277 P.3d 1246,
1248 (2012) (recognizing that this court will affirm the district court's
judgment if the district court reached the right result, albeit for different
reasons). 3
CONCLUSION
In the interest of further promoting finality of litigation and
judicial economy, we adopt the doctrine of nonmutual claim preclusion,
meaning that a defendant may validly use claim preclusion as a defense
by demonstrating that (1) there has been a valid, final judgment in a
previous action; (2) the subsequent action is based on the same claims or
any part of them that were or could have been brought in the first action;
and (3) privity exists between the new defendant and the previous
defendant or the defendant can demonstrate that he or she should have
been included as a defendant in the earlier suit and the plaintiff cannot
provide a "good reason" for failing to include the new defendant in the
3 Because appellant's complaint would not have been barred under
this court's articulation of the claim preclusion factors in Five Star,
appellant had arguably reasonable grounds for filing the complaint. See
NRS 18.010(2)(b). We therefore reverse the post-judgment award of
attorney fees.
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previous action. Because appellant failed to provide such a reason in this
case, the district court properly dismissed appellant's complaint on the
basis of claim preclusion.
J.
We concur:
A_ L , C.J.
Hardesty
cQ
Parraguirre
J.
J.
Gibbons
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PICKERING, J., with whom DOUGLAS, J., agrees, dissenting:
It is a mistake to resolve this case based on nonmutual claim
preclusion, a doctrine the parties neither briefed nor argued until directed
to do so by this court. The declaratory judgment the majority deems
preclusive—to the entry of which Weddell stipulated—established only
that the mediation panel's decision was valid and enforceable as between
Stewart and Weddell. This is not the same claim, and it does not involve
the same parties, as Weddell's later claims against the mediators, seeking
damages for the mediators' alleged breaches of contract, fiduciary duty,
and obligations of good faith and fair dealing.
In Five Star Capital Corp. v. Ruby, 124 Nev. 1048, 1054, 194
P.3d 709, 712-13 (2008), this court lamented the "lack of clarity in our
caselaw regarding the factors relevant to determining whether claim or
issue preclusion apply" and undertook to provide "clear tests for making
such determinations." For claim preclusion, we adopted a three-part test:
"(1) the parties or their privies are the same, (2) the final judgment is
valid, and (3) the subsequent action is based on the same claims or any
part of them that were or could have been brought in the first case." Id. at
1054, 194 P.3d at 713 (footnotes omitted). Today's decision substantially
dilutes both the first and third factors and in so doing disturbs the balance
between need for repose, fairness, and efficiency that informs our claim
preclusion law, reintroducing the uncertainty Five Star sought to dispel.
Claim preclusion requires the assertion of claims against a
litigation opponent on penalty of forfeiture. The doctrine promotes
consistent outcomes and repose but its requirements recognize that, if the
second suit involves different parties or different claims, fairness and
efficiency may require allowing a second, factually related suit to proceed
except as to those matters that were actually litigated, to which issue
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preclusion may attach. See 18 Charles Alan Wright, Arthur R. Miller &
Edwin H. Cooper, Federal Practice and Procedure § 4407 (2d ed. 2002)
(noting that "maximum expansion" of claim preclusion is undesirable since
"Mules requiring assertion of all claims at once on pain of forfeiture would
often increase litigation of matters that otherwise would be forgotten or
forgiven"). Because nonmutual claim preclusion expands the persons who
can assert claim preclusion beyond the parties and their privies, courts
approach the doctrine "cautiously," 18A Wright, Miner & Cooper, supra, §
4463. As a rule, nonmutual claim preclusion is "generally disfavored,'
N.Y. Pizzeria, Inc. v. Syal, 53 F. Supp. 3d 962, 969 (S.D. Tex. 2014)
(quoting Novell, Inc. v. Microsoft Corp., 429 Fed. App'x 254, 261 (4th Cir.
2011)), and, when recognized, has been applied mainly to circumstances
involving indemnification or derivative liability relationships, or to
prevent indirect defeat of a prior judgment, usually one involving complex
natural resource or patent law issues. For a general discussion see 18A
Wright, Miller & Cooper, supra, § 4464.1 (noting that "[ale arguments for
nonmutual claim preclusion beyond these situations are substantially
weaker than the arguments for nonmutual issue preclusion").
The hallmark characteristic of—and "only cogent argument"
for—"nonmutual claim preclusion is that the party to be precluded should
have joined his new adversary in the original litigation." Id. This case
does not fit that mold. In the first place, the judgment the majority treats
as preclusive was the declaratory judgment Stewart sued Weddell to
obtain in Stewart v. Weddell, to the entry of which Weddell confessed. It
is questionable whether a declaratory judgment carries claim, as distinct
from issue, preclusive effect, see Restatement (Second) of Judgments § 33
(1982); 18A Wright, Miller & Cooper, supra, § 4446 (describing the claim-
preclusion effects of a declaratory judgment as "shrouded in miserable
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obscurity")—even ignoring the problems with using a confessed judgment
to effect preclusion on nonlitigated issues involving one or more
nonparties, see 18A Wright, Miller & Cooper, supra, § 4463. Second, and
more precisely germane to nonmutual claim preclusion, Weddell was the
defendant to Stewart's declaratory judgment complaint and, as such, did
not control the persons Stewart sued or joined.
The majority suggests, ante at 4, that Weddell could have
"assert [ed] cross-claims against the respondent[ l" mediators in
Stewart v. Weddell. I acknowledge that Weddell counterclaimed against
Stewart when he answered Stewart's declaratory judgment complaint'
and take the majority to be saying that Weddell should have joined the
mediators as additional third-party or counterclaim defendants in Stewart
v. Weddell. But parties seeking to confirm or vacate arbitration (here
mediation) awards do not join the arbitrators or mediators; they join the
others who were party to the alternative dispute resolution process. As
the majority's finding of "no privity" between Stewart and the mediators
suggests, whether the award (decision) is confirmed or not does not matter
to the mediator, since he or she is not personally liable on the claims in
dispute. It is thus far from clear that the mediators, as neutrals, were
persons whose joinder was appropriate under NRCP 19 and 20, see NRCP
'Weddell sued Stewart before Stewart sued him While the two
suits apparently were consolidated, with Weddell initially incorporating
his complaint against Stewart into his answer and counterclaims, the
Stewart v. Weddell suit proceeded to trial first and resulted in a stipulated
judgment that was limited to the declaration of validity Stewart sought as
to the mediation panel decision. Weddell's complaint against Stewart
proceeded to separate judgment and the majority does not treat it as
relevant to its preclusion analysis.
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13(h), much less persons "who [are] or may be liable to [Weddell] for all or
part of [Stewart's] claim against [Weddell]," whose joinder NRCP 14 would
authorize. See N.Y. Pizzeria, 53 F. Supp. 3d at 971 (similarly questioning
third-party practice under the Texas cognate to NRCP 14). And,
procedure aside, Weddell's claims against the mediators depended on
Stewart winning declaratory judgment validating the panel's decision
against Weddell. Given this, it is not reasonable to require the mediators'
joinder, on penalty of forfeiture, as parties to the dispute between Stewart
and Weddell. Indeed, imposing such a penalty incentivizes the
unnecessary expansion of litigation that claim preclusion's three-factor
test seeks to avoid.
Gambocz v. Yelencsics, 468 F.2d 837 (3d Cir. 1972), on which
the majority relies, does not support application of nonmutual claim
preclusion here. The plaintiff in Gambocz alleged conspiracy to thwart his
candidacy for mayor. Id. at 839 n.1. After his first suit was dismissed, the
plaintiff filed a second suit, repeating the same claims but adding three
new defendants. Id. at 839. Given the "close or significant relationship"
between the defendants to the first and second suits, who were alleged to
have conspired with one another, and the identity of factual and legal
theories, claim preclusion applied. Id. at 842.
In this case, by contrast, Stewart's and Weddell's dispute with
one another differs from Weddell's dispute with the mediators. Weddell
and Stewart did not deal with one another as lawyer to client, or neutral
to party; they were failed former business associates, in combat with one
another. Weddell's claims against the neutrals, by contrast, are for breach
of contract, breach of fiduciary duty, and breach of the implied covenant of
good faith and fair dealing, among others. This suit by Weddell against
the mediators seems doomed as a matter of common law arbitral
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immunity. See Rebekah Ryan Clark, The Writing on the Wall: The
Potential Liability of Mediators as Fiduciaries, 2006 B.Y.U. L. Rev. 1033
(2006); William M. Howard, Liability of Organization Sponsoring or
Administering Arbitration to Parties Involved in Proceeding, 69 A.L.R. 6th
513 (2011) (collecting cases). But this does not change the fact that his
claims against the neutrals arise from his allegations that they owed him
fiduciary duties by reason of their status• as attorneys and the role they
undertook contractually to act as neutrals in mediating the dispute
between Stewart and Weddell. These claims are legally and analytically
distinct from Weddell's claims against Stewart and Stewart's claims
against him, even as those claims relate to the agreement to submit their
disagreements to binding mediation.
For these reasons, I respectfully dissent. I would reverse and
remand for the district court to decide whether this suit is subject to
dismissalS on the basis of immunity or one of the alternative bases asserted
by respondents but not decided by the district court in their motion to
dismiss. I cannot agree that Weddell, on penalty of claim preclusion, was
required to join the mediators as third-party or counterclaim defendants to
the Stewart v. Weddell declaratory judgment suit.
J.
I concur:
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