Nevada Federal Court Retroactively Applies NRS 116.3102(1)(d) as Amended by AB 125 in Order Dismissing Construction Defect Complaint

On February 24, 2015, Governor Brian Sandoval signed Assembly Bill 125 (“AB 125”) into law. Dubbed the “Homeowner Protections Act of 2015,” AB 125 makes substantial changes to NRS Chapter 40.600 et seq., Nevada’s construction defect statutes. A general overview of those changes was presented in a post dated April 6, 2015.

On March 16, 2015, the Unites District Court for the District of Nevada provided what may have been the first judicial interpretation of the changes brought about by AB 125 in Platinum Unit-Owners’ Association v. Residential Constructors, LLC (2:14-cv-01076).

In Platinum, the plaintiff Platinum Unit-Owners’ Association (“Plaintiff”) was a common interest community owners association formed under NRS Chapter 116, Nevada’s Common Interest Ownership Act. Plaintiff association was composed of the owners of residences, improvements, appurtenances and structures at the Platinum Hotel/Condominium.

Plaintiff filed a suit against the developer, Residential Constructors, LLC (“Developer”) in which it alleged construction defects under NRS 40.600 et seq. Plaintiff brought the case as a representative action on behalf of the individual unit owners under NRS 116.3102(1)(d), which was one of the statutes amended by AB 125. In the complaint, Plaintiff sought “…recovery for damages to the property which consists of but is not limited to damages to the common areas, and/or damages to the separate interests within the Association’s common interest, power and standing pursuant to Nevada.” The lawsuit was filed in the Eighth Judicial District, Clark County, Nevada (state court).

Upon service of the complaint, the Developer removed the case to the United States District Court for the District of Nevada. Upon removal, the Developer filed a motion to dismiss in which it argued that Plaintiff lacked standing to prosecute its claims on behalf of the association under NRS 116.3102(1)(d).

On March 16, 2015, the court issued an Order granting the Developer’s motion to dismiss. The Court found that Plaintiff sufficiently pled claims of the individual unit owners in its representative capacity at the time the complaint was filed under NRS 116.3102(1)(d). At that time, the statute provided, in pertinent part: “the association: . . . (d) May institute, defend or intervene in litigation . . . in its own name on behalf of itself or two or more units’ owners on matters affecting the common-interest community.”

However, the Court found that after the complaint was filed, NRS 116.3102(2) was amended by AB 125 as follows: “The association may not institute, defend or intervene . . . in its own name on behalf of itself or units’ owners with respect to an action for a constructional defect pursuant to . . . this act unless the action pertains exclusively to common elements.” (Emphasis added). Since Plaintiff’s complaint was “…not limited to damages to the common areas” and sought recovery for “…damages to the separate interests,” the Court found that “…if applicable, this amendment removes Plaintiff’s standing for bringing this action on behalf of the individual unit owners.”

The significance of the Court’s opinion is not so much in the dismissal itself, but the rationale the Court utilized to apply AB 125. Pursuant to AB 125, the changes to NRS 116.3102(2)(d) do not apply “…if a unit owners’ association has given notice of defect…on or before the effective date of this act [February 24, 2015].” Despite the fact that Plaintiff had given its notice of defect well before the effective date of AB 125, the Court nevertheless applied the new version of NRS 116.3102(1)(d).

Relying on authority from the California Supreme Court, the Platinum Court acknowledged that retroactive application of statutes is disfavored. The Court explained, however, that “…an amendment withdrawing statutorily granted standing to pursue claims on behalf of another applies to currently pending cases because the measure does not change the legal consequences of past conduct by imposing new or different liabilities based on such conduct.” The Court further explained:

[B]ecause the revocation of statutory standing is a procedural change regarding who may bring a claim and does not change the substantive rules regarding what conduct is mandated or prohibited nor limit the right of the injured party to recover, it is not retroactive.

Plaintiff filed a motion to reconsider the Court’s order, and the matter is currently stayed.

The Court’s application of AB 125 in the Platinum matter has generated a significant amount of discussion within the Nevada construction litigation bar. We are aware of at least one motion to dismiss that is currently pending in state court that specifically cites Platinum (although it is not binding authority). As the changes to Nevada’s construction defect statutes brought about by AB 125 take hold, we anticipate that court orders applying the new provisions will be challenged in the Nevada Supreme Court. It is important for Nevada construction industry professionals to become familiar with AB 125 and how it can potentially affect their construction practice. If you have questions about how AB 125 can potentially impact your construction practice, please contact Brian K. Walters at bwalters@gordonrees.com.