CANARELLI v. EIGHTH JUD. DIST. CT., 127 Nev. Adv. Op. No. 72, 57032 (2011)

No. 57032.Supreme Court of Nevada.
November 10, 2011.

Page 2

Original petition for a writ of certiorari or mandamus challenging district court orders requiring petitioner to serve as trustee for a dissolved corporation in a constructional defect action.

Petition granted.

Page 3

Greenberg Traurig, LLP, and Mark E. Ferrario and Tami D. Cowden, Las Vegas, for Petitioner.

Lee, Hernandez, Brooks, Garofalo Blake, APC, and David S. Lee, Las Vegas, for Real Party in Interest American West Homes, Inc.

Shinnick, Ryan Ransavage, P.C., and Duane E. Shinnick, Eric Ransavage, and Bradley S. Rosenberg, Las Vegas, for Real Parties in Interest.

BEFORE THE COURT EN BANC.

OPINION
By the Court, HARDESTY, J.:

In this petition for extraordinary writ relief, we must determine whether the district court may appoint an unwilling director

Page 4

trustee of a dissolved corporation for the purpose of defending actions against the corporation that arose post-dissolution and after completion of the winding-up process. To resolve this issue, we must construe Nevada’s corporate survival statutes and, in particular, NRS 78.600, which allows the district court to “continue the directors trustees as provided in NRS 78.590 upon dissolution.” We conclude that NRS 78.600 does not confer authority upon the district court to appoint an unwilling director trustee of a dissolved corporation because, once the director trustee has completed winding up the affairs of the corporation as provided for in NRS 78.590, his or her power to act on behalf of the corporation terminates. Thus, writ relief is appropriate here.

FACTS
Real party in interest American West Homes, Inc., was formed as a Nevada corporation in 1990. Prior to 2004, American West constructed homes in two residential developments in Las Vegas. On January 29, 2004, the corporation filed a certificate of dissolution with the Secretary of State pursuant to NRS 78.580 and dissolved. After the dissolution, certain American West directors, including petitioner Lawrence Canarelli, remained as trustees pursuant to NRS 78.585 and participated in winding up corporate affairs. They completed the winding-up process in March 2008, when all assets were distributed, and Canarelli officially resigned as a director trustee on June 24, 2009.

Meanwhile, on November 18, 2008, over four years after dissolution and several months after wind up, a group of homeowners filed a construction defect complaint against American West. On July 1, 2009,

Page 5

shortly after Canarelli resigned, a second group of homeowners filed a separate construction defect complaint against American West.[1] Both complaints were served on Canarelli, and after being served, he filed motions to quash service and dismiss the complaints, arguing that his duties as a trustee concluded when the wind-up process was completed and American West’s debts were extinguished and its property was distributed to the shareholders. The district court denied the motions to quash service and dismiss the complaints in both cases, finding that service upon Canarelli was effective pursuant to NRS 78.750(2)[2] because he had been an officer and director of American West.[3]

The plaintiffs in each case then filed motions to appoint Canarelli to continue as a trustee pursuant to NRS 78.600. They argued that the statutory dissolution process requires director trustees to continue service for the purpose of defending claims against the former corporation, and, pursuant to Beazer Homes Nevada, Inc. v. DistrictCourt, 120 Nev. 575, 97 P.3d 1132 (2004), post-dissolution claims may be filed indefinitely, limited only by the applicable statutes of limitations and repose. Furthermore, they argued that Canarelli should continue as

Page 6

trustee because he profited from his position as a director of American West. In his opposition, Canarelli argued that the corporate dissolution statutes do not permit the district court to force him to act as trustee and that requiring him to serve as trustee would be a form of indentured servitude. The district court reluctantly granted the motions to appoint Canarelli as trustee, finding that it was constrained by Beazer’s holding that allows post-dissolution claims to be filed indefinitely. Canarelli then filed this writ petition seeking this court’s intervention by way of extraordinary relief.

DISCUSSION
Canarelli petitions this court for either a writ of certiorari[4] or a writ of mandamus compelling the district court to vacate its order appointing him as trustee in the underlying matters. “`A writ of mandamus is available to compel the performance of an act that the law requires as a duty resulting from an office, trust, or station or to control an arbitrary or capricious exercise of discretion.'”Williams v. Dist. Ct., 127 Nev. ___, ___, ___ P.3d ___, ___ (Adv. Op. No. 45, July 28, 2011) (quoting International Game Tech. v. Dist. Ct., 124 Nev. 193, 197, 179 P.3d 556, 558 (2008)); see also
NRS 34.160. A writ of mandamus will not issue if the `”petitioner has a plain, speedy, and adequate remedy in the ordinary

Page 7

course of law.'” Williams, 127 Nev. at ___, ___ P.3d at ___, (quoting Mineral County v. State, Dep’t of Conserv., 117 Nev. 235, 243, 20 P.3d 800, 805 (2001)); see NRS 34.170. Because Canarelli is not a party to the construction defect actions below, he cannot appeal the final judgment and he has no other adequate remedy at law. See Walton v. District Court, 94 Nev. 690, 693, 586 P.2d 309, 310 (1978) (the opportunity to appeal a final judgment typically provides an adequate legal remedy). Therefore, we exercise our discretion to consider Canarelli’s petition for a writ of mandamus. See Mineral County, 117 Nev. at 243, 20 P.3d at 805 (holding that a writ may issue “where an important issue of law needs clarification” (internal quotation omitted)).

In his writ petition, Canarelli makes several arguments in support of his position that the district court cannot force him to serve as a director trustee for purposes of defending the underlying construction defect actions on behalf of American West. He primarily argues that: (1) forcing him to act as director trustee constitutes indentured servitude in violation of the Thirteenth Amendment to the United States Constitution; (2) this court erred in Beazer Homes Nevada,Inc. v. District Court, 120 Nev. 575, 97 P.3d 1132 (2004), by concluding that post-dissolution claims are limited only by the statutes of limitation or repose of the underlying claim; and (3) the term “continue” in NRS 78.600 does not allow the district court to appoint a director trustee who previously resigned from that post several years after the corporation dissolved. In considering Canarelli’s arguments, however, we must examine NRS 78, 585, 78.590, and 78.600 in the context of Nevada’s overall corporate survival scheme and the statutory obligations of director trustees upon dissolution. In

Page 8

Nevada, corporate survival and director trustees’ post-dissolution duties are two separate concepts.

The district court cannot require Canarelli to continue asdirector trustee
In granting the motions to appoint Canarelli to continue as director trustee of American West, the district court noted that it had to harmonize the applicable statutes with this court’s holding inBeazer. Canarelli argues that the statutes do not give the district court discretion to force him to “continue” as director trustee after he resigned from that post. We review the “district court’s conclusions of law, including statutory interpretations, de novo.”Borger v. Dist. Ct., 120 Nev. 1021, 1026, 102 P.3d 600, 604 (2004).

To resolve this writ petition, we examine NRS 78.585, 78.590, and 78.600 to determine whether a district court may appoint an unwilling director trustee of a dissolved corporation to continue as a director trustee for the purpose of defending actions against the corporation that arose post-dissolution and after the completion of the winding-up process.[5] NRS 78.585 governs the “[c]ontinuation of corporation[s] after dissolution,” NRS 78.590 delineates the powers of director trustees upon dissolution, and NRS 78.600 provides for the continuation of director trustees or the appointment of a receiver to handle corporate affairs after dissolution. Our analysis requires that we look to the plain meaning of these statutes, J.E. Dunn Nw. v. Corus Constr. Venture, 127 Nev. ___, ___, 249 P.3d 501, 505 (2011),

Page 9

and we construe the statutes to preserve harmony among them. NevadaPower Co. v. Haggerty, 115 Nev. 353, 364, 989 P.2d 870, 877 (1999). However, we first examine Nevada’s statutory scheme for corporate survival and the statutory powers of director trustees to wind up the affairs of a corporation.

At common law, dissolution terminated the legal life of a corporation. 16A William Meade Fletcher et al., Fletcher Cyclopediaof the Law of PrivateCorporations § 8113, at 216 (perm. ed. rev. vol. 2003);Beazer, 120 Nev. at 581, 97 P.3d at 1136. However, every state has adopted statutes that provide for the survival of the corporation for limited purposes. Fletcher et al., supra, § 8113, at 220. In Nevada, NRS 78.585 allows the corporation to exist post-dissolution for “prosecuting and defending suits, actions, proceedings and claims of any kind or character [arising before its dissolution] by or against it and of enabling it gradually to settle and close its business, to collect and discharge its obligations, to dispose of and convey its property, and to distribute its assets.”[6] That

Page 10

statute also provides that any claims against the corporation arising before dissolution must be “commenced within 2 years after the date of the dissolution.” NRS 78.585.

This ongoing corporate existence is distinct from the statutory continuation of directors as trustees for the purpose of winding up corporate affairs. See Willmschen v. Trinity LakesImprovement, 840 N.E.2d 1275, 1280 (Ill. App. Ct. 2005) (“Under the common law, a corporation is a legal entity that exists separate and distinct from its shareholders, officers, and directors.”); Black’sLaw Dictionary 340 (6th ed. 1990) (“The corporation is distinct from the individuals who comprise it.”). Pursuant to NRS 78.590, the former directors automatically become trustees of the corporation upon dissolution “with full power to wind up the business.”[7] KellyBroadcasting v. Sovereign Broadcast, 96 Nev. 188, 190, 606 P.2d 1089, 1091 (1980),

Page 11

superseded by statute on other grounds as stated in Countrywide HomeLoans v. Thitchener, 124 Nev. 725, 741-43, 192 P.3d 243, 253-55 (2008). Although they are not trustees of a trust in terms of the law of trusts, the director trustees of a dissolved

Page 12

corporation serve the interests of shareholders in settling the corporation’s affairs and liquidating its assets. Fletcher et al.,supra, §§ 8175, 8178, at 352-53, 361-62; see also UnitedStates v. Krueger, 121 F.2d 842, 844 (3d Cir. 1941) (“Liquidating directors are not trustees in the sense of the law of trusts.”).

NRS 78.590 also sets forth the statutory powers the director trustees have in settling the affairs of the corporation, which include “collect[ing] the outstanding debts, sell[ing] and convey[ing] the property, real and personal, and divid[ing] the money and other property among the stockholders, after paying or adequately providing for the payment of its liabilities and obligations.” However, Nevada does not specifically define what constitutes winding up, so we look to the common definition of that term. See Wyman v. State, 125 Nev. ___, ___ 217 P.3d 572, 583 (2009) (stating that when the Legislature does not specifically define a term, this court “`presume[s] that the Legislature intended to use words in their usual and natural meaning.'” (alteration in original) (quoting McGrath v. State, Dep’tof Pub. Safety, 123 Nev. 120, 123, 159 P.3d 239, 241 (2007))).Black’s Law Dictionary defines “winding up” as “[t]he process of settling accounts and liquidating assets in anticipation of a partnership’s or a corporation’s dissolution.” 1738 (9th ed. 2009). Therefore, we determine that winding up is complete upon the final disposition of assets to the shareholders and the payment of debt to creditors. Notably, this definition, as well as the powers bestowed by statute upon director trustees in NRS 78.590, does not include defending actions against the corporation that arise post-dissolution and after the director trustee has completed the winding-up process for the corporation. Thus, while the corporation continues as a legal entity for the purpose of post-dissolution

Page 13

claims, we determine that a director trustee’s statutory power to act on behalf of the dissolved corporation terminates once the wind-up process is complete.[8] In light of this distinction, we examine the district court’s authority to appoint a director trustee to handle post winding-up activities.

Pursuant to NRS 78.600, the district court may continue the service of a director trustee of a dissolved corporation in certain situations.

When any corporation organized under this chapter shall be dissolved or cease to exist in any manner whatever, the district court, on application of any creditor or stockholder of the corporation, at any time, may either continue the directors trustees as provided in NRS 78.590, or appoint one or more persons to be receivers of and for the corporation, to take charge of the estate and effects thereof, and to collect the debts and property due and belonging to the corporation, with power to prosecute and defend, in the name of the corporation, or otherwise, all such suits as may be necessary or proper for the purposes aforesaid. . . .

Thus, this statute allows the district court to continue a director trustee for the purpose of exercising his or her winding-up powers pursuant to NRS 78.590. However, we conclude that NRS 78.600 does not confer authority upon the district court to appoint an unwilling director trustee

Page 14

of a dissolved corporation whose winding-up process has been completed to serve as director trustee of the dissolved corporation in order to defend against a post-dissolution claim that was unknown to the corporation prior to the corporation winding up its affairs. NRS 78.600 clearly provides that the district court “may . . . continue the directors trustees as provided in NRS 78.590,” and nothing in NRS 78.590 gives a director trustee the power to defend against post-dissolution claims unknown until after the corporation has completed winding up its affairs.

Here, the district court, upon application of the plaintiffs, appointed Canarelli to continue as director trustee of American West to defend against actions brought by the plaintiffs several years after the corporation had dissolved and after the winding-up process had been completed. Canarelli opposed having to continue as director trustee, arguing that his obligation to American West ended once its debts were extinguished and its property was distributed among the shareholders. Because we conclude that NRS 78.600 does not confer authority to require an unwilling director trustee to continue as director trustee after a dissolved corporation has completed the winding-up process, we conclude that the district court abused its discretion when it appointed Canarelli to continue as director trustee.[9]

Finally, real parties in interest ask us to overturn our holding inBeazer Homes Nevada, Inc. v. Dist. Ct., 120 Nev. 575, 584, 97 P.3d 1132, 1138 (2004).

Page 15

We decline to do so at this time because the analysis inBeazer does not apply to the appointment of a former director trustee to represent the corporation after completion of the wind-up process. Rather, Beazer dealt with an entirely different issue — the applicability of an appropriate statute of limitations period for post-dissolution claims.[10] Id. at 580, 586-87, 97 P.3d at 1135, 1139. As such, overturningBeazer would not resolve the district court’s authority to appoint an unwilling director trustee after a corporation’s affairs have been successfully wound up because the statutes setting forth a director trustee’s powers and obligations, NRS 78.600 and NRS 78.590, do not require director trustees to defend post-dissolution (post-windup) claims.[11]

Page 16

Accordingly, we conclude that Canarelli cannot be compelled to act as director trustee for American West, and we grant Canarelli’s petition for extraordinary relief and direct the clerk of this court to issue a writ of mandamus instructing the district court to set aside its order appointing Canarelli to continue as a director trustee for the purpose of defending against the underlying claims.[12]

We Concur:

SAITTA, C.J.

CHERRY, J.

PICKERING, J.

DOUGLAS, J.

GIBBONS, J.

PARRAGUIRRE, J.

Page 1