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Defendants Entitled to Attorney Fees as Prevailing Party in Voluntary Dismissal Cases Under Certain Circumstances

Author: Christopher Lund

Guest Editor: Christopher Schon

May 6, 2020 7:42pm

145 East Harmon II Trust v. The Residences at MGM Grand-Tower A Owners’ Association, No. 75920, 136 Nev. Adv. Op. 14 (April 2, 2020).

Recently, the Nevada Supreme Court tackled a question of first impression for the state: whether a defendant may be considered the prevailing party when a plaintiff voluntarily dismisses his claims against the defendant with prejudice. The question was raised in the context of whether such a Defendant is entitled to an award of attorney fees and costs. The Court answered the prevailing party question in the affirmative, but held whether the defendant is entitled to attorney fees and costs must be analyzed on a case-by-case basis.

The case before the Court was 145 East Harmon II Trust v. Residences at MGM Grand-Tower A Owners’ Association. The plaintiff, 145 East Harmon II Trust (the “Trust”) sued defendant Residences at MGM Grand-Tower A Owners’ Association (the “Association”) and three other MGM entities for damage to a condominium unit, allegedly caused by one of MGM’s employees. Soon after being served with the Trust’s lawsuit, the Association contacted the Trust’s attorney and demanded it be dismissed from the case because the Association was not a proper party. The Association emphasized it would incur attorney fees if it was forced to file a motion to dismiss.

A few weeks later, the Trust’s attorney stated he would dismiss the Association by the end of the following week. However, five months passed with no voluntary dismissal and the Trust’s attorney providing various excuses for the delay. Even after the Trust switched attorneys, three months went by with the Trust never dismissing the Association, despite multiple requests from the defendant’s attorney.

After eight months of waiting, the Association filed a motion to dismiss. In response, the Trust quickly entered into a stipulation with the Association in which it agreed to dismiss its claims against the Association with prejudice, but the Association explicitly retained the right to pursue attorney fees and costs. Subsequently, the Association moved for attorney fees as the prevailing party under Nevada statute NRS 18.010, which the Trust opposed.

Nevada adheres to the “American Rule” which states a party is not entitled to attorney fees unless authorized by contract or a specific statute. However, NRS 18.010 allows a court to award attorney fees to a prevailing party even in the absence of a contractual provision or statute authorizing the award: (a) “When the prevailing party has not recovered more than $20,000;” or (b) regardless of the amount recovered, “when the court finds that the claim, counterclaim, cross-claim or third-party complaint or defense of the opposing party was brought or maintained without reasonable ground or to harass the prevailing party.”[1]

After reviewing the case filings and history of correspondence between the parties’ attorneys, the district court determined the Association was the prevailing party and awarded it attorney fees and costs pursuant to NRS 18.010 and NRS  18.020 (the statute allows an award of court costs to the prevailing party). The Trust’s appeal followed.

The Appeal

The Trust’s main contention on appeal is a defendant cannot be considered the prevailing party for purposes of NRS 18.010 when a plaintiff voluntarily dismisses the case since “the action has not proceeded to a judgment on the merits.” However, the Nevada Supreme Court disagreed. The Court reviewed opinions from several federal cases and concluded, “[T]he weight of federal authority is that a voluntary dismissal with prejudice confers prevailing party status on the defendant or nonmoving party” and is the equivalent of a judgment on the merits.

The Court then held “a voluntary dismissal with prejudice generally equates to a judgment on the merits sufficient to confer prevailing party status upon the defendant.” Nonetheless, the Court emphasized that whether the defendant is entitled to attorney fees and costs as a prevailing party must be determined on a case by case basis. The Court highlighted there are instances where a party may agree to dismiss its lawsuit despite having a strong case or defense, so the non-moving party should not be considered the prevailing party.

The example the court gave is the situation where a plaintiff has a strong case but no longer has the funds to continue litigating and voluntarily dismisses its lawsuit with prejudice. Under this scenario, the defendant should not be considered the prevailing party and entitled to attorney fees and costs. In contrast to the case at hand, The Trust agreed to dismiss the case with prejudice because it was about to lose against the Association’s Motion to Dismiss. When the district court awarded the Association attorney fees and costs, it noted it likely would have granted the Association’s dispositive motion.

Dismissal Without Prejudice

Lastly, although the Nevada Supreme Court did not explicitly state in its holding that a voluntary dismissal without prejudice does not grant the non-moving party prevailing party status, this is most likely the case. The Court cited and agreed with opinions from the Seventh and Ninth Circuit of appeals, in which the courts found a “dismissal without prejudice does not alter the legal relationship of the parties because the defendant remains subject to the risk of re-filing” of the complaint by the plaintiff. See Cadkin v. Loose, 569 F.3d 1142, 1148 (9th Cir. 2009); and Szabo Food Serv., Inc. v. Canteen Corp., 823 F.2d 1073, 1076-77 (7th Cir. 1987)

Yet, the issue of whether there can be a prevailing party in a dismissal without prejudice is more nuanced than foregoing federal cases suggest. Consider, for example, the situation in which a plaintiff dismisses its case without prejudice, but the statute of limitations has now run on its causes of action. Therefore, the dismissal without prejudice is, in practice, a dismissal with prejudice. The Trust v. Association opinion does not address such a situation and will likely need to be tackled in the future by the Nevada Supreme Court.

Practice Pointer

Like in Trust v. Association, it is common for a plaintiff to voluntarily dismiss a defendant after the defendant files a dispositive motion that it knows it is likely to lose, especially when there are multiple defendants. However, after the Nevada Supreme Court’s latest opinion, plaintiffs may also think twice about asserting weak causes of action against defendants or refusing to dismiss such claims early in the case. Often plaintiffs use a throw the spaghetti against the fridge approach to see what claims stick against which defendants, no matter how weak a cause of action or how tenuous a defendant’s liability may be. It is common in Nevada for a plaintiff to string a defendant along, against whom it really has no viable claim, until the eve of trial in hopes of extracting a settlement. When no settlement is reached, the plaintiff then dismisses the defendant right before trial, or dismisses certain causes of action with which it had little chance of succeeding.

Now, defendants have a potential method in their tool kit under NRS 18.010 for obtaining an award of attorney fees and costs against plaintiffs who drag defendants through litigation with questionable claims. This is regardless of whether the plaintiffs’ claims were based on a contract or statute that explicitly calls for attorney fees to the prevailing party.

Now, when the parties reach a stipulation for voluntary dismissal with prejudice, unless the stipulation states each party shall bear their own attorney fees and costs, a party may be able to seek such an award from the court as the prevailing party. Therefore, both plaintiffs and defendants need to be mindful of how the stipulation is worded to protect the interests of their clients. Going forward, plaintiffs may not be willing to enter into stipulations to dismiss with prejudice unless the defendants agree to forego seeking attorney fees and costs.

 

[1] Furthermore, the law states, “The court shall liberally construe the provisions of this paragraph in favor of awarding attorney’s fees in all appropriate situations.” See NRS 18.010(2)(b).

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