Nevada Supreme Court has modified the privity requirement established in Five Star Capital Corp. v. Rudy, to incorporate the principles of nonmutual claim preclusion.

Weddell vs. Sharp, et al., 131 Nev. Adv. Op. 28 (May 28, 2015)
By Joseph P. Garin, Lipson Neilson Cole Seltzer & Garin, P.C., Las Vegas, NV Joseph Garin high res

Business partners, Appellant Rolland Weddell and nonparty Michael Stewart, submitted their commercial dispute to a panel of three attorney mediators, including Defendant attorney Sharp. Following a decision in his favor, Stewart filed lawsuit against Weddell for declaratory judgment. Weddell later confessed a judgment, acknowledged that mediators’ decision was valid and enforceable against him in its entirety, and stipulated to dismiss his counterclaim.

More than two years later, Appellant filed suit against the attorney mediators, alleging collusion with Stewart in the dispute resolution process. The district court granted respondents’ motion to dismiss on ground of claim preclusion, finding the three factors under Five Star Capital Corp. v. Ruby,1 had been satisfied: “(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 claim or any part of them that were or could have been brought in the first case.”

On appeal, the Nevada Supreme Court found there was erroneous finding of privity between respondents and Stewart, as their relationship did not fall within Five Star’s definition of privity and the “adequate representation” analysis. The Court concluded that Five Star‘s test was not satisfied. However, the Court that Five Star‘s test for claim preclusion does not fully cover the important principles of finality and judicial economy that it intended to capture.

The Court considered the concept of “nonmutual” claim preclusion whereby a plaintiff’s 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 [plaintiff] cannot show any good reasons to justify a second chance”.2 Here, Appellant failed to provide a “good reason” for not having joined the attorney mediators earlier and the Court affirmed the district court’s dismissal on the basis of claim preclusion.

The Court’s decision promotes finality of litigation and judicial economy. Under Weddell, 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 fails to provide a “good reason” for failing to include the new defendant in the previous action.

Practice Note: Defendants may now use non-mutual claim preclusion as a defense to a complaint even if he was not a party or in privity with a defendant in an earlier action brought by plaintiff based on the same type of claims.

1 24 Nev. 1048, 194 P.3d 709 (2008)

2 8A Charles Alan Wright, et al., Federal Practice and Procedure §4464.1 (2nd ed.2002); Airframe Systems, Inc. v. Raytheon Co., 601 F.3d 9 (1st Cir. 2010)