In re Cay Clubs
2014 NV 92 (2014)
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Rule of Law:
Under Nevada's partnership-by-estoppel statute (NRS 87.160(1)), a party may be held liable as a partner if they consent to being represented as one and a third party gives credence to that representation by detrimentally and reasonably relying on it to engage in a transaction with the purported partnership. This "given credit" element is not limited to the extension of financial credit and the doctrine can apply to tort claims involving reliance.
Facts:
- Jeffrey Aeder created and managed JDI Loans, LLC and JDI Realty, LLC (the JDI entities), which extended financial support for property developments by a business named Cay Clubs.
- Cay Clubs marketed and sold condominiums at a resort called Las Vegas Cay Club, advertising that it would be developed into a luxury property.
- Cay Clubs' marketing materials, including its website, represented a 'strategic partnership' and 'partnership in excellence' between Cay Clubs and the JDI entities, and used JDI Realty's logo.
- A group of individuals (the purchasers) reviewed these marketing materials and, believing the purported partnership provided the financial strength and expertise to complete the project, purchased condominiums.
- The purchasers' formal purchase agreements were with Flamingo Palms Villas, LLC, an entity allegedly created and controlled by Cay Clubs.
- Aeder, as manager of the JDI entities, reviewed Cay Clubs' marketing materials that made reference to the JDI entities.
- Cay Clubs allegedly abandoned the plan to improve the Las Vegas Cay Club resort, causing the value of the purchasers' properties to plummet.
Procedural Posture:
- The purchasers sued Cay Clubs, the JDI entities, and Jeffrey Aeder in the Eighth Judicial District Court of Nevada, Clark County (trial court).
- The complaint included claims for fraudulent misrepresentation, securities violations, and liability under the partnership-by-estoppel statute, NRS 87.160(1).
- Aeder and the JDI entities filed a motion for summary judgment, arguing there was no evidence to support the claims against them.
- The district court granted summary judgment in favor of Aeder and the JDI entities on all claims and certified the order as final.
- The district court subsequently awarded costs to Aeder and the JDI entities.
- The purchasers (as appellants) appealed the summary judgment and the costs award to the Supreme Court of Nevada.
- A panel of the Supreme Court of Nevada issued an opinion, after which the JDI entities (as respondents) petitioned for an en banc reconsideration.
- The Supreme Court of Nevada granted the petition for en banc reconsideration to address the partnership-by-estoppel doctrine.
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Issue:
Under NRS 87.160(1), may a party be held liable as a partner by estoppel for the alleged wrongdoings of another when it consents to being publicly represented as a 'strategic partner,' and a third party detrimentally relies on that representation by purchasing property, even if the transaction does not involve extending financial credit?
Opinions:
Majority - Justice Saitta
Yes. A party may be held liable as a partner by estoppel under such circumstances because genuine issues of material fact exist as to whether the elements of the doctrine are met. The court's interpretation of NRS 87.160(1) establishes that 'partnership' can include a joint venture, 'consent' can be implied from conduct, and 'given credit' means detrimental reliance, not just the extension of financial credit. The purchasers provided sufficient evidence to create triable issues of fact regarding whether the JDI entities consented to being represented as partners, whether the purchasers reasonably relied on these representations when buying their condominiums, and whether this reliance constituted 'giving credit.' The doctrine applies to claims involving reliance, including torts like fraud, and is not limited to contract actions. Therefore, summary judgment for the JDI entities was improper. However, summary judgment was appropriate for Aeder personally, as the purchasers failed to present evidence that he, in his individual capacity, was represented as a partner.
Analysis:
This case significantly clarifies and broadens the scope of Nevada's partnership-by-estoppel doctrine, aligning it with a modern interpretation of the Uniform Partnership Act. By defining 'given credit' as detrimental reliance rather than strictly financial credit, the court expands the doctrine's protection to a wider range of parties, including consumers and investors. The decision also confirms that the doctrine can apply to torts like fraud, not just contract disputes, as long as reliance is a key element of the claim. This precedent makes it more difficult for companies to benefit from associations in marketing materials while disclaiming liability, thus increasing the legal risk for entities that consent, even implicitly, to being held out as partners.
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