James Cavanaugh | Gordon Rees Scully Mansukhani | August 15, 2017
In construction defect litigation, including matters where the contractors are covered by owner controlled insurance policies (“OCIP”) or design professionals are not sued by plaintiff, a question often arises as to whether or not the co-defendants should file cross-claims for indemnity or contribution regarding plaintiff’s defect and damage claims? Notwithstanding the permissive status of such potential cross-claims, the prudent course in Nevada construction defect cases — without a good reason to justify a second lawsuit — is to file cross-claims or third-party complaints regardless of OCIP potential coverage to avoid claim or non-mutual claim preclusion.
Procedurally, parties with permissive cross-claims in the past could wait before proceeding against co-defendants under statute and case law. In Nevada, the applicable rule on cross-claims against co-parties is NRCP 13(g). A pleading may state as a cross-claim any claim by one party against a co-party arising out of the transaction or occurrence that is the subject matter either of the original action or of a counterclaim therein or relating to any property that is the subject of the original action. Such cross-claim may include a claim that the party against whom it is asserted is or may be liable to the cross-claimant for all or part of a claim asserted in the action against the cross-claimant.
A frequently cited case interpreting the permissive cross-claim rule is Executive Mgmt. v. Ticor Title Ins. Co., 114 Nev. 823, 963 P.2d 465 (1998). Noting that NRCP 13 (g) language is “clearly permissive” regarding the option to pursue, the Nevada Supreme Court held that where a party to an action has a permissive cross-claim, that party has the option to pursue that claim in an independent action, and if such a claim is neither asserted nor litigated, the parties cannot be barred from asserting it in a later action by principles of res judicata, waiver or estoppel. 963 P.2d at 474. Moreover, the Supreme Court stated it would “not allow the doctrine of claim preclusion to convert the permissive character of NRCP 13(g) into a compulsory mandate.” Id. at 475.
However, the Nevada Supreme Court’s relatively recent decision in Weddell v. Sharp 131 Nev. Adv. Op. No. 28, 350 P.3d 80 (May 28, 2015), has limited that procedural option for co-defendants. Even as to parties without contractual privity, the Nevada Supreme Court held that non-mutual claim preclusion applies in Nevada. The purpose of claim preclusion and non-mutual claim preclusion is to obtain finality of litigation by preventing a party from filing another suit based upon the same set of facts present in the initial suit. This includes promoting judicial economy in situations where the rules of civil procedure governing noncompulsory joinder, permissive counterclaims, and permissive crossclaims “fall short.” 350 P.3d at 84.
In the Weddell case, the Supreme Court decision modified the privity requirement established in Five Star Capital Corp. V. Ruby, 124 Nev.1048 (2008), with application of “the doctrine of nonmutual claim preclusion.” In short, the Nevada Supreme Court Weddell decision makes it clear that the main inquiry focuses on whether appellant has shown a good reason to justify this second lawsuit. Weddell 350 P.3d at 85.
Now, notwithstanding the optional direction for permissive cross-claims or counter claims under NRCP (13), the Nevada Supreme Court found that defendants in a second lawsuit may validly use a claim preclusion defense based upon where (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 previous action. Id.at 85-86.