APCO Construction, Inc. v. Zitting Brothers Construction, Inc., 136 Nev. Adv. Op. 64 (Oct. 8, 2020)

In a recent opinion, the Nevada Supreme Court upheld the trial court’s decision to preclude defendant APCO Construction, Inc. (“APCO”) from raising an affirmative defense at trial, despite APCO raising this defense in its Answer. In 2007, APCO was a general contractor on a Las Vegas construction project, and plaintiff Zitting Brothers Construction, Inc. (“Zitting”) was a subcontractor.  The construction project was owned and commissioned by Gemstone Development West, Inc. (“Gemstone”). However, Gemstone shut the project down in December 2008.

After the shutdown, Gemstone failed to pay APCO for the work it had done on the project. In turn, APCO failed to pay its subcontractors, including Zitting. In 2009, Zitting filed a lawsuit against APCO for breach of contract and other related claims. In response, APCO filed its Answer, which included multiple affirmative defenses to Zitting’s breach of contract claim. One of these affirmative defenses was a failure of conditions-precedent.

Conditions-precedent are actions or events that must happen, pursuant to the contract terms, before APCO is required to pay Zitting. One of these conditions was a pay-if-paid provision, which essentially stated APCO was not required to pay Zitting unless Gemstone first pays APCO. The other conditions-precedent were: “(1) completion of each building, (2) Gemstone’s approval of Zitting’s work, (3) APCO’s receipt of final payment from Gemstone, (4) Zitting’s delivery to APCO of all as-built drawings for its work and other close-out documents, and (5) Zitting’s delivery to APCO of a release and waiver of claims.”

During the course of litigation, Zitting served two sets of interrogatories on APCO, once in 2010 and again in 2017. Both times, Zitting asked APCO to provide the facts supporting its affirmative defenses to Zitting’s breach of contract claim. In response both times, APCO only mentioned the pay-if-paid provisions of the contract. However, during the deposition of APCO’s representative in 2017, the representative mentioned a failure of the other conditions-precedent as a reason for APCO’s refusal to pay Zitting.

Near the start of trial, Zitting sought partial summary judgment on its breach of contract claim. Zitting argued the contract’s pay-if-paid provisions were unenforceable under Nevada law, and APCO waived its right to assert a failure of the other conditions-precedent because APCO did not mention them in its responses to interrogatories.  APCO then supplemented its interrogatory responses to include the other conditions-precedent as defenses to the breach of contract claim.

The district court agreed with Zitting and granted the subcontractor partial summary judgment. The district court found APCO’s late supplemental interrogatory responses were “too little, too late.” The court also found the late disclosure prejudiced Zitting so close to trial because Zitting had based its trial strategy on just the pay-if-paid defense raised in APCO’s previous interrogatory responses.

The Appeal

APCO subsequently appealed the district court’s decision.  APCO argued the district court should have allowed it to raise the additional conditions-precedent at trial for multiple reasons. First, APCO raised this affirmative defense in its Answer. Second, APCO’s representative cited the other conditions-precedent in his deposition. Third, throughout the discovery process, APCO’s focus was on evidence showing Zitting did not satisfy the other conditions-precedent; therefore, Zitting was on notice of these additional defenses, and they should “be tried by consent under NRCP 15(b).” Rule 15(b) “permits the parties to try issues not raised by the pleadings by express or implied consent.”

The Nevada Supreme Court disagreed with APCO and upheld the district court’s grant of partial summary judgment. The Court determined APCO failed to timely supplement its 2010 and 2017 interrogatory responses in violation of NRCP 26(e)(1), and the failure was not substantially justified or harmless. Since APCO’s representative mentioned the additional conditions-precedent in its deposition, APCO should have amended its interrogatory responses at that time, not three weeks before trial. The Court also agreed with the district court that discovery sanctions were warranted against APCO for the late supplemental responses under NRCP 37(b)(1)(B) (the rule states a court may prevent a party from raising a defense or claim as a discovery sanction).

Lessons Learned

The Nevada Supreme Court’s opinion is a harsh reminder that courts are granted great latitude in how they steer a case through rulings on evidentiary issues. For example, in footnote five of the APCO v. Zitting opinion, the Court stated it chose not to address APCO’s additional argument that APCO had no duty to timely supplement its interrogatory responses. APCO argued in its brief it had no duty to supplement since it had already provided Zitting with the evidence and arguments about unsatisfied conditions-precedent during the years of discovery. Yet, in its opinion, the Court reasoned it would not address this argument since APCO did not raise it with the district court.

While it is well established an appellate court does not need to address arguments raised for the first time on appeal, there are many instances where an appellate court chooses to address the argument anyway. Realistically, the decision to address such an issue depends on how the reviewing court wishes to steer the case. Similarly, in the APCO v. Zitting case, there was, arguably, sufficient evidence and justification for the district court to have ruled APCO should be allowed to raise the additional conditions-precedent defenses because Zitting was already on notice about APCO’s intended defenses. Arguably, there was sufficient evidence for the district court to have found APCO’s failure to timely supplement the interrogatories was harmless or substantially justified. See Pizarro-Ortega v. Cervantes-Lopez, 133 Nev. 261, 265, 396 P.3d 783, 787 (2017). Instead, the district court ruled in Zitting’s favor on the issue.

The lesson for litigants is to carefully and accurately respond to interrogatories, and timely supplement as needed. See NRCP 26(e)(1). In light of the APCO v. Zitting opinion, competent plaintiff’s attorneys may start reviewing a defendant’s affirmative defenses raised in an answer and determine whether said defendant failed to reaffirm these defenses in response to interrogatories about the same. Furthermore, defenses raised during a defendant’s deposition or contained in disclosed documents, but not asserted in relevant discovery responses, may be insufficient to overcome a plaintiff’s motion to prohibit raising these defenses at trial. As they say in boxing, it is better not to leave the decision up to the judges.

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