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June 2020

Las Vegas Trial Team Obtains Defense Judgment for Commercial Unit Owners’ Association and Property Manager Defeating Multi-Million Dollar Claim

Las Vegas Managing Partner Robert E. Schumacher, Senior Counsel Brian K. Walters, and Paralegal Cristina Pagaduan, successfully represented a commercial owners’ association (the “association”) and its property manager in hotly contested litigation brought by an owner of a medical suite within the multi-building commercial complex managed and operated by Gordon & Rees' clients (“defendants”).  The corporate unit owner (“plaintiff”) asserted many different legal theories (contractual, statutory and common law) against the defendants during the 3+ years of litigation.

The plaintiff contended the defendants failed to ensure the building’s heating, ventilation and air conditioning (“HVAC”) system adequately conditioned its space thereby causing over $2 million in business interruption losses and depreciation of the property value.  With recorded temperatures within the suite ranging from 54 to 80 degrees depending on the time of year, the plaintiff was supremely confident of its case and unyielding in its settlement position throughout the litigation.  (Prior to trial, the carrier offered $200,000 to settle the case. The plaintiff rejected the offer.)  The plaintiff’s case centered on the Covenants, Conditions and Restrictions (“CC&R’s”) for the commercial complex. 

The plaintiff alleged the lack of cooling/heating interfered with its ability to lease areas within the medical suite to its healthcare provider tenants.  After three different law firms and multiple iterations of the operative complaint, the plaintiff went to trial on three causes of action:  (1) breach of the CC&R’s; (2) breach of the covenant of good faith and fair dealing (which could have lead to imposition of punitive damages against the firm's clients); and (3) declaratory relief under NRS 30.050.  The defense trial strategy invoked the Business Judgment Rule which insulated the association from liability so long as the board members acted reasonably and with the best interests of the association in mind.  

Before trial, Gordon & Rees prevailed on a motion for summary judgment, thereby extricating the property manager from the lawsuit, by convincing the Court to apply Nevada’s Economic Loss Doctrine.  All of the plaintiff’s alleged damages were economic.  Judgment in favor of the property manager was entered in the amount of $7,997, representing its costs of suit.

On February 3, 2020, the case proceeded to a seven day bench trial on the plaintiff’s claims against the association.  In its case-in-chief, the plaintiff presented numerous percipient witnesses (physicians, healthcare providers and staff members of the various entities that operated within the medical suite) who attested to the discomfort and disruption the inadequate HVAC system caused.  The plaintiff called past and present facilities personnel that were retained by the association in an effort to prove the association did not adequately investigate and respond to the plaintiff’s complaints concerning the HVAC system.  The plaintiff’s efforts were thwarted by the skilled cross-examination of Schumacher who elicited testimony from the plaintiff’s witnesses establishing that the plaintiff was responsible for the HVAC system’s underperformance.    

The plaintiff presented mechanical engineering and contractor experts who offered opinions that the association-controlled elements of the building’s HVAC system were defective and incapable of providing sufficient cooling and heating to the plaintiff’s suite.  They opined that the entire HVAC system for the building needed to be removed and replaced with upgraded equipment which would have cost the association several million dollars.  However, the Vegas’ trial team established that the opinions of the plaintiff’s experts were based on several erroneous assumptions.  The plaintiff’s experts relied on the mechanical plans for a different building (albeit one that had the same footprint and design) in the commercial complex and extrapolated those loads, demands and equipment capacities to establish purported values applicable to the plaintiff’s building.

Schumacher objected to the admissibility of the plans for the other building (and any related testimony) as irrelevant since the plaintiff’s experts had not undertaken sufficient efforts to establish that the two buildings were substantially similar such that the pertinent information from the plans for the other building could be utilized reliably to determine values for the plaintiff’s building.  After voicing evidentiary objections, the Court ultimately excluded the mechanical plans and disallowed testimony from the experts based on those plans.  In rendering her ruling on the evidentiary issue, the judge stated, “I recognize this seriously undermines your case.” 

Realizing the situation was dire, the plaintiff showed up the following day of trial with the correct set of plans. The plaintiff’s counsel moved to introduce the plans as a trial exhibit, continue trial for the purpose of allowing the plaintiff’s experts to re-do their reports and adjust their opinions, continue the trial for two-three weeks to facilitate that process and then for leave to recall those experts to testify again in its case-in-chief. 

Schumacher made the appropriate record and requested a formal Rule 37 hearing.  The Court agreed and conducted a several hour hearing to determine the admissibility of the correct set of plans.  The Court ordered the custodian of records of the building department to testify at the hearing.  Ultimately, the Court determined the plaintiff failed to exercise due diligence in obtaining the correct documents as trial exhibits and deemed the plans inadmissible. 

The plaintiff next presented an appraisal expert who opined that the HVAC issues caused the plaintiff to incur more than $2 million in damages based on diminution of value and loss of rental income.  On cross-examination, Schumacher discredited the expert’s opinions because they were based on certain assumptions that were proven inaccurate and misleading.  The Court found the opinions of the plaintiff’s damages expert unsupported and lacking credibility.  This effective cross-examination led to the Court determining that as a matter of law, the plaintiff suffered no damages.

On May 26, 2020, the court issued a detailed thirty-three page order enumerating its findings of fact and conclusions of law. The Court ruled that the association did not breach the CC&R’s or the covenant of good faith and fair dealing as alleged by the plaintiff.  Accordingly, the Court entered judgment in favor of the association.

On June 1, 2020, the Gordon & Rees team submitted a Verified Application for Costs requesting $42,144 in costs incurred by the association.  The plaintiff did not file a Motion to Re-Tax Costs.  On June 12, 2020, the firm filed a Motion for Attorneys’ Fees seeking $321,472 in fees incurred by both of Gordon & Rees' clients.  Included in the association’s Motion for Fees are defense costs that were disallowed by the Court as to the property manager (because there was no contractual fee provision or statute allowing an award of fees).  The basis for including the defense costs incurred by the property manager is the property management agreement entered into between the association and the property manager that obligated the association to defend and indemnify the property manager for lawsuits such as this one. 

The association and its insurance carrier are obviously elated with the result.  This is Schumacher’s third consecutive trial victory.  In over ten years with Gordon & Rees, Schumacher has logged well over one hundred 100 days in trial. 

Robert E. Schumacher
Brian K. Walters