Smith v. Owens, 3:07-cv-00396

Background

This case involves a three-project venture in Reno (Kings Inn/deNovo, West Second Street, and 250 Bell St.) and disputes among Smith, Owens, Clark, Molder, Cathexes, and related entities over ownership, financing, and leasing arrangements.
There was no executed written agreement for 250 Bell St.; the court had to determine what agreement actually existed and its essential terms.
Smith contends a four-person venture would form 250 Bell St. LLC with 25% interests for each, funded by cash from Smith/Owens and design services from Clark/Molder.
Cathexes and Summit Capital & Development LLC contributed design services and capital (ultimately providing most financing) respectively, and intended to lease the building.
Closing on 250 Bell St. occurred with Cathexes financing the transaction after Summit failed to fund; Smith did not attend closing.
Following investor disputes and bankruptcies, the remaining live claims were Smith’s against Clark/Cathexes and cross-claims involving Summit and others, culminating in a bench trial in 2014.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether a valid 250 Bell St. joint venture existed and its essential terms	Smith contends a four-person venture with 25% interests for each was formed	Clark/Cathexes contend the JV was between Summit (cash) and Cathexes (services) with occupancy/leasing by both sides	There was a joint venture as to structure, but Summit breached; Smith’s version not upheld; terms balanced equity over time
Whether Smith’s $100,000 payment yielded a 25% interest	Smith asserts receipt/convertibility into 25% stake in 250 Bell St. LLC	No enforceable conversion; Summit’s failure to fund breached the agreement	No breach by Clark/Cathexes; Smith’s payment did not create enforceable 25% equity when Summit repudiated
Fraud in inducement against Clark	Clark knowingly misrepresented that 25% equity would be granted	Parties intended to proceed with JV; no misrepresentation proved	No fraud; evidence showed intent to convey equity subject to Summit’s performance
Breach of the implied covenant of good faith and fair dealing	Smith/Summit withheld information to frustrate the contract	Clark/Cathexes acted in good faith; Summit/Smith breached	Smith/Summit breached; damages duplicative of contract claim; claim failed against Clark/Cathexes
Constructive trust and unjust enrichment relief	Equity requires 25% of profits/benefits to Smith	No equity in property; unjust enrichment unconstitutional given breach by Summit	Constructive trust denied; no equitable basis given title held by Proteros, not party to suit

Key Cases Cited

Cladianos v. Friedhoff, 69 Nev. 41 (1952) (repudiation can terminate contract when clearly nonperforming)
Morris v. Bank of America Nevada, 110 Nev. 1274, 886 P.2d 454 (1994) (implied covenant requires breach of good faith and fair dealing)
A.C. Shaw Constr., Inc. v. Washoe County, 105 Nev. 913, 784 P.2d 9 (Nev. 1989) (duty of good faith and fair dealing applied to contract performance)
Danning v. Lum's Inc., 86 Nev. 868, 478 P.2d 166 (Nev. 1970) (constructive trust relies on equitable entitlement to property)
Leasepartners Corp. v. Robert L. Brooks Trust Dated Nov. 12, 1975, 113 Nev. 747, 942 P.2d 182 (Nev. 1997) (unjust enrichment framework and when it applies)
Saini v. Int'l Game Tech., 434 F.Supp.2d 913 (D. Nev. 2006) (contractual obligations and damages analysis in Nevada context (federal reporter))
In re Exxon Valdez, 484 F.3d 1098 (9th Cir. 2007) (prejudgment interest rate framework under diversity)
Kerala Properties, Inc. v. Familian, 137 P.3d 1146, 122 Nev. 601 (Nev. 2006) (prejudgment interest rate and accrual timing under NRS 99.040)
Ramada Inns, Inc. v. Sharp, 711 P.2d 1 (Nev. 1985) (prejudgment interest accrual in contract actions)
State, Univ. & College Sys. v. Sutton, 120 Nev. 972 (2004) (implied covenant and contract interpretation guidance)