Del Webb Communities, Inc. v. Charles Partington, et al

Filing

FILED OPINION (BETTY BINNS FLETCHER, SIDNEY R. THOMAS and LEE H. ROSENTHAL)The district court s injunction is VACATED in part and AFFIRMED in part. Each party will bear its own costs on appeal. Judge: LHR Authoring. FILED AND ENTERED JUDGMENT. [7826035]

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
DEL WEBB COMMUNITIES, INC.,
Plaintiff-Appellee,
v.
CHARLES LESLIE PARTINGTON, DBA
M.C. Mojave Construction; John
Wilson,
Defendants-Appellants.





No. 10-15975
D.C. No.
2:08-cv-00571-RCJGWF
OPINION

Appeal from the United States District Court
for the District of Nevada
Robert C. Jones, District Judge, Presiding
Argued and Submitted
May 13, 2011—San Francisco, California
Filed July 20, 2011
Before: Betty B. Fletcher and Sidney R. Thomas,
Circuit Judges, and Lee H. Rosenthal, District Judge.*
Opinion by Judge Rosenthal

*The Honorable Lee H. Rosenthal, District Judge for the U.S. District
Court for Southern Texas, Houston, sitting by designation.

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COUNSEL
Michael J. Nunez and Edmund G. Farrell, Murchison & Cumming, LLP, Las Vegas, Nevada, for the defendants-appellants.
David N. Frederick, Todd M. Touton, and Jennifer L. Braster,
Lionel Sawyer & Collins, Las Vegas, Nevada, for the
plaintiff-appellee.

OPINION
ROSENTHAL, District Judge:
This is an appeal from an injunction against the owner and
operators of a Nevada company that inspected homes for construction defects and encouraged homeowners to file claims
against their builder under a Nevada statute. Del Webb Communities, Inc., the developer of a retirement community
where the company inspected many homes, sued, alleging that
the defendants’ business practices violated federal and state
law. The district court permanently enjoined the defendants
from “soliciting and/or performing residential inspections
and/or providing inspection reports in . . . Del Webb Nevada
developments, by means of illegal, unlicensed and false practices, such as the representations, express or implied, that

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they, or any of them are (1) properly licensed under Nevada
law to perform structural inspections; (2) properly licensed
under Nevada law . . . to perform, provide or communicate
inspection reports; and/or (3) are acting as representatives or
agents under the authority of Del Webb . . . .” We conclude
that the general prohibition against operating “by means of
illegal, unlicensed and false practices” is too vague to stand.
We affirm the remaining provisions of the injunction but
reject the district court’s reliance on Nevada’s common law
of champerty to create a tort cause of action for which Del
Webb could obtain relief. We therefore vacate the injunction
in part and affirm in part.
I.

Background

M.C. Mojave Construction1 is a sole proprietorship operated by Charles Leslie Partington. Partington had a limited
Nevada B-2 contractor’s license but no structural inspection
license under Chapter 645D of the Nevada Revised Statutes.
John Wilson operated Mojave’s “Chapter 40 Claims Division” under a management and profit-sharing agreement with
Partington. Wilson held neither a contractor’s nor an inspector’s license. The claims division’s name refers to Chapter 40
of the Nevada Revised Statutes, which “governs actions
involving constructional defects.” Shuette v. Beazer Homes
Holdings Corp., 124 P.3d 530, 541 (Nev. 2005). The statute
allows a homeowner who has notified his builder of “constructional defects” to sue the builder for damages if the
builder does not repair the defects within a reasonable time.
See NRS 40.647; D.R. Horton Inc. v. District Court, 168 P.3d
731, 737 (Nev. 2007). Damages under Chapter 40 include the
cost of hiring an expert to “[a]scertain the nature and extent
of the constructional defects.” NRS 40.655(f). Instead of
charging homeowners directly for its inspections, Mojave
relied on this provision to obtain payment. Mojave’s contracts
required homeowners to submit invoices for the inspections to
1

The appellants are collectively referred to as “Mojave.”

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the homebuilder and request payment and stated that Mojave
would collect its inspection fee “if or when” the builder reimbursed the homeowner. The contracts assigned Mojave the
“the right to recover any and all inspection fees from the
builder if the builder fails to pay all the inspection fees.”
Mojave inspected many homes in Sun City Anthem, a Del
Webb retirement community in Henderson, Nevada.2 Mojave
distributed fliers door-to-door, posted placards, and advertised
through a website. Mojave’s fliers and placards included
statements that the home inspections were “FREE”; referred
to the inspections as “Builder inspections”; referred to the
inspectors as “representatives & experts from both MC
Mojave Construction & your Builder, his subcontractors and
agents”; and stated that it had a “Construction-Lic.” Mojave’s
various advertisements and solicitations also included statements that the inspections were done by both Mojave and the
“Builder’s inspection team” and that construction items
“found to be deficient” would be repaired “at no cost to the
homeowners.” Mojave’s advertisements and solicitations
encouraged homeowners to file Chapter 40 claims seeking
compensation for home repairs against Del Webb.
Mojave provided homeowners with engagement letters for
several law firms to begin Chapter 40 actions based on defects
listed in the inspection reports that Mojave generated. The
engagement letters required the homeowners to pay all litigation costs if the homeowners terminated the attorney-client
relationship but obtained home repairs. One of the law firms,
Angius & Terry, paid Mojave $500 when a homeowner
signed an engagement letter and $1,300 more if the Chapter
40 action succeeded. This law firm sent Del Webb letters
instructing it to communicate only with the law firm, not the
homeowners, about the homeowners’ claimed construction
2

The district court described the extent of the defendants’ activities by
noting their assertion that they were “owed receivables” of over $900,000
for 486 inspections performed, mostly in Del Webb properties.

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defects, even though Del Webb provided ten-year warranties
for its homes beginning in 2001.
Del Webb sued Partington d/b/a Mojave and Wilson in
Nevada federal court, seeking damages and injunctive relief.
The district court preliminarily enjoined Mojave from conducting further inspections. In ruling on summary judgment
motions, the district court held that Mojave’s agreements violated Nevada’s common-law prohibition against champerty
and maintenance, based on Mojave’s use of its own funds and
resources to instigate and prosecute Chapter 40 actions in
which it had no interest and based on the requirement in
Mojave’s contracts with homeowners that they pay Mojave’s
fees from the amounts obtained from Del Webb. The district
court also held that Mojave was required to have a Chapter
645D license to perform its inspections and that Mojave had
falsely represented in its advertising and solicitations that it
had such a license.
The district court issued a permanent injunction. The
court’s findings of fact and conclusions of law included that
Mojave committed a tort by violating Nevada’s common-law
prohibition against champerty; violated the Nevada Deceptive
Trade Practices Act by performing inspections without the
license required under Chapter 645D; violated both the
Nevada Deceptive Trade Practices Act and the Lanham Act
by representing that the home evaluations were free and that
Mojave was affiliated with Del Webb; and tortiously interfered with Del Webb’s warranty contracts with homeowners
by instructing Del Webb to communicate only with the lawyers filing the Chapter 40 action. The permanent injunction
provided:
IT IS HEREBY ORDERED that Mojave, Partington,
Wilson, and their affiliates and others acting in concert with Defendants, are enjoined from soliciting
and/or performing residential inspections and/or providing inspection reports in Sun City Anthem, or any

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other Del Webb Nevada developments, by means of
illegal, unlicensed and false practices, such as the
representations, express or implied, that they, or any
of them are (1) properly licensed under Nevada law
to perform structural inspections; (2) properly
licensed under Nevada law to . . . perform, provide
or communicate inspection reports; and/or (3) are
acting as representatives or agents under the authority of Del Webb . . . .
The parties resolved the damages claim and stipulated that
the permanent injunction was the final judgment. Mojave
timely appealed.
II.

Jurisdiction and Standard of Review

We have jurisdiction under 28 U.S.C. § 1292(a)(1). Lonberg v. City of Riverside, 571 F.3d 846, 847-48 (9th Cir.
2009). We will reverse an order of injunction only if the district court abused its discretion. Perfumebay.com Inc. v. eBay,
Inc., 506 F.3d 1165, 1173 (9th Cir. 2007). We review factual
findings for clear error and legal conclusions de novo. Id.
III.
A.

Analysis
The General Prohibition Against “Illegal,
Unlicensed and False Practices”

[1] Rule 65(d) requires an injunction to “state its terms
specifically” and “describe in reasonable detail . . . the act or
acts restrained.” Fed. R. Civ. P. 65(d)(1) (B)-(C). “The benchmark for clarity and fair notice is not lawyers and judges, who
are schooled in the nuances of [the] law,” but instead the “lay
person, who is the target of the injunction.” Reno Air Racing
Ass’n, Inc. v. McCord, 452 F.3d 1126, 1134 (9th Cir. 2006);
see also Schmidt v. Lessard, 414 U.S. 473, 476 (1974) (“[T]he
specificity provisions of Rule 65(d) are no mere technical
requirements. The Rule was designed to prevent uncertainty

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and confusion on the part of those faced with injunctive
orders, and to avoid the possible founding of a contempt citation on a decree too vague to be understood.”).
[2] The permanent injunction prohibits the defendants
from “soliciting and/or performing residential inspections
and/or providing inspection reports . . . by means of illegal,
unlicensed and false practices.” The order identifies three prohibited practices as examples — “such as” — of “illegal, unlicensed and false practices”: (1) falsely representing that the
defendants are “properly licensed under Nevada law to perform structural inspections; (2) properly licensed under
Nevada law to . . . perform, provide or communicate inspection reports; and/or (3) are acting as representatives or agents
or under the authority of Del Webb.” Even with these examples, the general prohibition against using “illegal, unlicensed
and false practices” is too vague to be enforceable. The examples of prohibited past conduct do not sufficiently define what
additional future conduct will be covered.3
3

See Union Pac. R.R. Co. v. Mower, 219 F.3d 1069, 1072-73, 1077 (9th
Cir. 2000) (invalidating an injunction preventing the defendant “from disclosing or revealing to any person any information or communication of
a confidential nature, including the information and communications
described in the accompanying findings of fact and conclusions of law,
that he acquired, learned, or helped to generate during his employment by
. . . or while he was a consultant for plaintiff” because it did “not even
come close to satisfying Rule 65’s specificity requirements”); Thomas v.
Cnty. of Los Angeles, 978 F.2d 504, 506, 509 (9th Cir. 1992) (holding that
an injunction requiring the sheriff’s department to “[f]ollow the Department’s own stated policies and guidelines regarding the use of force and
procedures for conducting searches” was too vague); Fed. Election
Comm’n v. Furgatch, 869 F.2d 1256, 1263-64 (9th Cir. 1989) (holding
that an injunction’s vague prohibition could not be upheld even if construed to apply only to “similar violations” of the law, because “we would
have no way of specifying which factual similarities the district court
regarded as relevant”); 11A CHARLES ALAN WRIGHT, ARTHUR R. MILLER, &
MARY KAY KANE, FEDERAL PRACTICE AND PROCEDURE § 2955, at 308-09 &
n.25 (2d ed. 1995) (collecting cases).

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The broad prohibition against “soliciting and/or performing
residential inspections and/or providing inspection reports . . .
by means of illegal, unlicensed and false practices” is vacated.
We next consider the injunction’s specific prohibitions.
B.
1.

The Specific Prohibitions Against Misrepresentations
Misrepresenting Mojave’s Affiliation With Del
Webb

During argument, Mojave clarified that it does not challenge the injunction’s prohibition on representing that it is
affiliated with Del Webb or its parent, Pulte. That portion of
the injunction is affirmed.
2.

Misrepresenting Mojave’s License

[3] Mojave does challenge the injunction against representing that it was properly licensed under Nevada law to conduct
its inspections. The district court held that Chapter 645D of
the Nevada Revised Statutes requires a license for the inspections Mojave conducted, and that NRS 41.600 gave Del Webb
standing to challenge Mojave’s practices.
Nevada statutes are interpreted according to their plain
meaning “unless it clearly appears that the Legislature did not
intend such a meaning.” City of Reno v. Bldg. & Constr.
Trades Council of N. Nev., 251 P.3d 718, 722 (Nev. 2011).
We must not interpret a statute to “render words or phrases
superfluous or make a provision nugatory.” S. Nev. Homebuilders Ass’n v. Clark Cnty., 117 P.3d 171, 173 (Nev. 2005)
(internal quotations omitted).
[4] The text of Chapter 645D makes its application to
Mojave’s inspections clear. Chapter 645D requires “[a]ny person who . . . engages in the business of, acts in the capacity
of, or advertises or assumes to act as an inspector” to obtain

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a certificate from the State of Nevada. NRS 645D.160(1). An
“inspector” is “a person who examines any component of a
structure and prepares or communicates an inspection report.”
NRS 645D.080. An “inspection report” is “an analysis, opinion or conclusion, regarding the condition of a structure, that
is . . . [p]rovided after an inspection, in a written report, for
or with the expectation of receiving compensation for the
report; and . . . [d]esigned to describe and identify the
inspected systems or structural components of the structure,
their physical condition, any material defect and any recommendation for evaluation by another person.” NRS 645D.070.
Mojave’s argument that it did not provide inspection
reports “with the expectation of receiving compensation for
the report,” see NRS 645D.070(1), is unpersuasive. Mojave
acknowledged that its business plan was to be paid for its
inspection work through the proceeds that homeowners
received from the Chapter 40 claims. Mojave’s contracts
required the homeowner to pay its fees and expenses out of
the Chapter 40 payments received from the homebuilder. The
contracts assigned the homeowners’ right to those payments
to Mojave if the homeowners were unable to collect the full
cost of inspection. Mojave did, therefore, expect ultimately to
receive compensation for its inspection reports.
NRS 645D.100 contains eight express exceptions. Mojave
relies on the exception for any “person who provides an estimate of cost, repair or replacement of any improvements upon
real estate.” NRS 645D.100(6). Mojave argues that the “[c]ost
of repair or replacement estimates in construction defect
claims were all Mojave’s reports ultimately were used for, if
they were used at all.” Mojave’s argument is not supported by
the language of the exception, which focuses on the person
who provided the inspection report and not on how the report
was ultimately used. Nor is Mojave’s argument supported by
the record, which shows that the inspection reports identified
structural deficiencies but did not provide cost estimates to

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repair or replace them. The exception under section
645D.100(6) does not apply.
[5] Mojave’s remaining arguments have no basis in Chapter 645’s text. Mojave first contends that Chapter 645D
applies only to inspections conducted for real-estate sales.
The statute explicitly excepts certain inspections unrelated to
real estate sales, which would be unnecessary if the statute
covered only sales-related inspections.4 Mojave next argues
that licensed general contractors’ building-code inspections
do not require a Chapter 645D license. Chapter 645D explicitly excepts from its licensing requirement individuals holding
licenses under Chapters 645, 645C, and 684A. NRS
645D.100(4). There is no exception for general contractors
licensed under Chapter 624. Cramer v. Nev. Dep’t of Motor
Vehicles, 240 P.3d 8, 11-12 (Nev. 2010) (refusing to recognize an unenumerated exception when the statute contained
enumerated exceptions).5 Mojave’s final argument is that
Chapter 645D does not apply to inspections used in Chapter
4

For example, NRS 645.100(4) excepts any “person licensed, certified
or registered pursuant to . . . 684A of NRS while performing an act within
the scope of his or her license, certification or registration.” Chapter 684A
addresses licensing requirements for insurance adjusters. Insurance adjustment is not typically performed in conjunction with the sale of property.
5
Mojave argues that Chapter 645D must be read in pari materia with
Chapter 624, which regulates general contractors, and with the assumption
that general contractors and not home inspectors usually do building-code
inspections. Section 624.215(5) provides: “This section does not prevent
the Board from establishing, broadening, limiting or otherwise effectuating classifications in a manner consistent with established custom, usage
and procedure found in the building trades.” The section establishes three
classifications of contractors: “general building,” “general engineering,”
and “specialty.” NRS 624.215 (2)-(4). The subsection (5) reference to
“classifications” is to these three classifications and the “Board” is the
State Contractors’ Board. See NRS 624.040. Mojave has not identified any
relevant regulation of general contractors. Mojave’s argument that we
should read Chapter 645D in pari materia with NRS 624.215 provides no
support for excepting general contractors from the licensing requirements
of Chapter 645D.

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40 actions because the Nevada legislature did not intend
homeowners to pay fees out-of-pocket for inspections to use
in Chapter 40 actions. But Chapter 645D does not regulate the
fees that inspectors charge homeowners or how those fees are
paid. NRS 645D.070, the only provision that mentions compensation, simply states that Chapter 645D’s requirements
apply only to those inspections for which compensation is
expected. The district court correctly Nevada law required
Mojave to obtain licenses under Chapter 645D to perform its
inspections and that Mojave misrepresented that it had the
required license.
3.

Standing

[6] Mojave’s argument that Del Webb lacked standing to
challenge its practices is also unpersuasive. NRS 41.600(1)
provides that “[a]n action may be brought by any person who
is a victim of consumer fraud.” Nev. Power Co. v. District
Court, 102 P.3d 578, 583 n.7 (Nev. 2004) (per curiam). NRS
41.600(2)(e) includes in the definition of “consumer fraud” a
“deceptive trade practice as defined in NRS 598.0915 to
598.0925, inclusive.” NRS 598.0923(1) makes it a deceptive
practice knowingly to conduct one’s “business or occupation
without all required state, county or city licenses.”
[7] Mojave argues that Del Webb was not “a victim of
consumer fraud” because Del Webb is neither a consumer of
Mojave’s services nor a business competitor. The statute does
not support this argument. The statute allows “any person”
who is a “victim of consumer fraud” to sue. NRS 41.600(1).
The word “consumer” modifies “fraud,” but does not limit
“any person” or “victim.” See W. Surety Co. v. ADCO Credit,
Inc., 251 P.3d 714, 716-18 (Nev. 2011) (declining to limit
“any person” in another Nevada statutory private right of
action for similar reasons). NRS 41.600(2) defines the kinds
of actions that constitute “consumer fraud” not by referring to
a certain type of victim, but by cross-referencing other NRS

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sections defining deceptive trade practices and other offenses.
See NRS 41.600(2).
Mojave acknowledges that a “victim of consumer fraud”
need not be a “consumer” of the defendant’s goods or services. See S. Serv. Corp. v. Excel Bldg. Servs., 617 F. Supp.
2d 1097, 1100 (D. Nev. 2007) (allowing a business competitor to sue under NRS 41.600). Mojave argues that Southern
Service limits NRS 41.600 standing to consumers and business competitors. Southern Service holds that a business competitor has standing to sue under NRS 41.600 but does not
state that only consumers of a good or service or competitors
providing such a good or service have standing. There is no
basis in the text of NRS 41.600 or in Southern Service to limit
standing to a group broader than consumers but no broader
than business competitors.
[8] The standing issue turns on whether Mojave’s business
practices “directly harmed” Del Webb. S. Serv. Corp., 617 F.
Supp. 2d at 1099-1100. The district court found that Mojave’s
“illegal structural inspections and provision of reports based
thereon and misrepresentations of authority to perform such
services and of a relationship with Del Webb in dealing with
the public has damaged Del Webb’s relationship with consumers and threatens to continue to harm Del Webb’s business, reputation and good will and to exposure to Chapter 40
litigation based on illegal inspections and inspection reports.”
Neither in its briefing nor at oral argument did Mojave challenge this finding or explain why it was insufficient to establish the direct injury needed to give Del Webb standing to sue.6
6
Mojave contends that even if it violated Nevada law, the injunction is
an unconstitutional prior restraint because the inspection reports were
truthful. The challenged portion of the injunction does not prohibit Mojave
from performing inspections or issuing reports. It prohibits Mojave from
representing that it had a license under Chapter 645D when it did not. The
First Amendment does not prohibit such an injunction. See United States
v. Estate Pres. Servs., 202 F.3d 1093, 1106 (9th Cir. 2000); see also Va.

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Because Nevada law provides a basis for the specific prohibitions Mojave challenges, it is unnecessary to address
whether the Lanham Act provides an additional and similar
statutory basis for granting the same relief.7 But the district
court’s reliance on Nevada’s common law of champerty as a
separate basis for the injunction does merit discussion.
C.

Champerty and Maintenance

[9] “Champerty” generally refers to an agreement in which
“ ‘a person without interest in another’s litigation undertakes
to carry on the litigation at his own expense, in whole or in
part, in consideration of receiving, in the event of success, a
part of the proceeds of the litigation.’ ” Schwartz v. Eliades,
939 P.2d 1034, 1036 (Nev. 1997) (per curiam) (quoting Martin v. Morgan Drive Away, Inc., 665 F.2d 598, 603 (5th Cir.
1982)). “Maintenance” refers to a person assisting in litigation
in which he has no interest. Vosburg Equip. v. Zupancic, 737
P.2d 522, 523 (Nev. 1987); see also In re Primus, 436 U.S.
412, 424 n.15 (1978) (“Put simply, maintenance is helping
another prosecute a suit [and] champerty is maintaining a suit
in return for a financial interest in the outcome . . . .” ). The
law on champerty and maintenance begins in antiquity with
the Greek view that even a party’s advocate should have a
personal interest in the litigation, such as family ties. Max
Radin, Maintenance by Champerty, 24 CAL. L. REV. 48, 48-49
(1935).8 In feudal England, clerical opposition to litigation,
State Bd. of Pharmacy v. Va. Citizens Consumer Council, Inc., 425 U.S.
748, 771-72 (1976) (“Untruthful speech, commercial or otherwise, has
never been protected for its own sake . . . . The First Amendment . . . does
not prohibit the State from insuring that the stream of commercial information flow cleanly as well as freely.”).
7
The Nevada legislature recently amended NRS 41.600(2), explicitly
allowing a court to grant “[a]ny equitable relief that the court deems
appropriate.” Act of May 19, 2011, § 10, 2011 Nev. Laws Ch. 60. The
amendment took effect July 1, 2011. Del Webb has not argued that NRS
41.600 did not already provide for injunctive relief.
8
See generally 4 WILLIAM BLACKSTONE, COMMENTARIES, *149-51 (discussing the doctrines in his chapter on “offences against public justice”);

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especially in secular courts; fear that lords would purchase
land with clouded title to aggrandize their estates; and concerns that the wealthy would purchase meritorious claims for
insignificant amounts from plaintiffs too poor to prosecute
them drove royal regulation of champerty and maintenance.
Id. at 64-66. In this country, champerty and maintenance exist
under the law of many states, but the doctrines are “most visible” as a contract defense. See Paul Bond, Comment, Making
Champerty Work: An Invitation to State Action, 150 U. PA. L.
REV. 1297, 1304 (2002) (conducting a fifty-state survey).
[10] Del Webb did not assert champerty as a contract
defense. Nor is Del Webb a party to the allegedly champertous agreements between Mojave and its homeowners. The
district court nonetheless held that under Nevada common
law, Del Webb had a valid tort claim for champerty and maintenance for which damages and equitable relief could be
awarded.
[11] “The task of a federal court in a diversity action is to
approximate state law as closely as possible in order to make
sure that the vindication of the state right is without discrimination because of the federal forum.” Gee v. Tenneco, Inc.,
615 F.2d 857, 861 (9th Cir. 1980). Federal courts should “hesitate prematurely to extend the law . . . in the absence of an
indication from the [state] courts or the [state] legislature that
such an extension would be desirable.” Torres v. Goodyear
Tire & Rubber Co., 867 F.2d 1234, 1238 (9th Cir. 1989) (certifying a products liability question to the Arizona Supreme
Court while recognizing the modern trend favoring expansion
of products liability); see also Ryan v. Royal Ins. Co. of Am.,
916 F.2d 731, 744 (1st Cir. 1990) (“[L]itigants who reject a
state forum in order to bring suit in federal court under diverPercy H. Winfield, The History of Maintenance and Champerty, 35 L.Q.
REV. 50 (1919) (providing a historical overview of the doctrines).

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sity jurisdiction cannot expect that new trails will be
blazed.”).
[12] We conclude that there was no secure basis for the
district court to predict that the Nevada Supreme Court would
recognize a common-law tort cause of action for damages or
equitable relief asserted by a stranger to an allegedly champertous agreement.9 The Nevada Supreme Court stated a century ago that “[t]he great weight of authority is to the effect
. . . that the rule rendering contracts void for champerty, cannot be invoked except between the parties to the champertous
agreement in cases where such contract is sought to be
enforced.” Prosky v. Clark, 109 P. 793, 794 (Nev. 1910).
None of the Nevada Supreme Court’s cases recognize champerty and maintenance as a tort. William Lyon Homes, Inc. v.
Partington, No. 2:09-CV-0473-KJD-GSF, 2010 WL
1292296, at *1 (D. Nev. Mar. 30, 2010) (“[T]here are no
reported cases supporting [champerty’s] application to tort
claims or other affirmative relief . . . .” ).10
9

Del Webb filed a notice of supplemental authority to bring to our attention Incline Energy, LLC v. Penna Grp., LLC, ___ F. Supp. 2d ___, 2011
WL 1304710 (D. Nev. Apr. 1, 2011). The Incline Energy court explained,
in dicta, that “[i]n addition to providing a cause of action to the target of
a lawsuit that is moved by a champertous agreement, champerty may be
raised as a defense to a contract.” Id. at *1 n.2 (emphasis added). This
decision was issued by the same court whose decision we now review and
rests on the same grounds. For the same reasons set out below, we find
the analysis unpersuasive.
10
Two Nevada Supreme Court cases suggest that champerty may have
a somewhat wider application than Prosky indicates. In Gruber v. Baker,
23 P. 858 (Nev. 1890), the Nevada Supreme Court suggested that champerty provides a defense by a party sued for fraud when the plaintiff’s
interest in the suit arises from a champertous agreement. Id. at 862. But
twenty years later, in Prosky, the Nevada Supreme Court cautioned against
reading Gruber as a champerty case, noting that the rule against transferring fraud claims “is applied even in jurisdictions which do not recognize
the common-law doctrine of champerty and maintenance,” and that “the
great weight of authority” recognizes champerty only as a defense to a suit
to enforce a champertous agreement. Prosky, 109 P. at 794; see also

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The district court concluded that NRS 1.030, which provides that “[t]he common law of England, so far as it is not
repugnant to or in conflict with the Constitution and the laws
of the United States, or the constitution and laws of this state,
shall be the rule of decision in all courts of this state,”
requires the application of the common law of champerty as
it existed before July 3, 1776 unless the Nevada Supreme
Court had expressly rejected it. NRS 1.030 does not call for
the rigid application of common law as it existed before July
3, 1776. Rather, courts must interpret the common law in light
of relevant conditions, which “are not the conditions which
Castleman v. Redford, 124 P.2d 293, 295 (Nev. 1942) (relying on Prosky’s
characterization of Gruber as holding that “a right of action based on fraud
was not assignable” and allowing a plaintiff to sue to collect assigned
accounts). Cases citing Gruber’s discussion of champerty have only considered it as a contract defense. Schwartz, 939 P.3d at 1036; Vosburg
Equip., 737 P.2d at 523; Lum v. Stinnett, 488 P.2d 347, 350 (Nev. 1971).
The second case is Lum v. Stinnett, in which the Nevada Supreme Court
ordered a new trial for a defendant based on a champertous settlement
agreement between the insurers of two codefendants and the plaintiff. 488
P.2d at 350. The settling codefendants remained in the case and the trial,
which focused on the nonsettling defendant’s liability, resulted in a verdict
against that defendant in an amount that relieved the settling defendants
of any obligation to pay the plaintiff. Id. at 348-49. The Nevada Supreme
Court has since clarified that the Lum court was “primarily concerned
about the secret and collusive nature of the agreement.” Norton Co. v. Fergestrom, No. 35719, 2001 WL 1628302, at *2 (Nev. Nov. 9, 2001) (per
curiam) (unpublished); accord In re MGM Grand Hotel Fire Litig., 570
F. Supp. 913, 932 (D. Nev. 1983) (“[T]he court in Lum was concerned
with the collusion at trial . . . .” ). Nevada law no longer prevents insurers
from funding litigation to avoid liability. Norton, 2001 WL 1628302, at *2
(citing NAD, Inc. v. District Court, 976 P.2d 994, 997 (Nev. 1999)).
Neither Lum nor Gruber recognized a tort claim for champerty and
maintenance. Subsequent case law developments make them poor support
for expanding the doctrines. Other Nevada Supreme Court cases on champerty have not addressed whether it gives rise to a tort cause of action. See
Schwartz, 939 P.2d at 1036-37 (holding that the challenged agreement was
not champertous because the plaintiff had an interest in the suit); Vosburg
Equip., 737 P.2d at 523-24 (same); Aeroville Corp. v. Lincoln Cnty. Power
Dist. No. 1, 290 P.2d 970, 972 (Nev. 1955) (same).

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existed when the United States Constitution was adopted, or
when Nevada gained statehood, or even when NRS 1.030 was
first enacted, but conditions which exist today.” Rupert v.
Stienne, 528 P.2d 1013, 1017 (Nev. 1974).
Nevada courts have long recognized that many of the conditions recognized as the basis for champerty and maintenance regulation no longer exist. The first Nevada Supreme
Court case considering champerty acknowledged that the
“English doctrine of maintenance arose from causes peculiar
to the state of society in which it was established,” and that
although once “rigorously enforced, . . . this rigor has . . .
been relaxed [because] . . . [t]he apprehension that justice
would be trodden down if property in action should be transferred is no longer entertained.” Gruber, 23 P. at 862. The
Prosky court similarly recognized that “[t]he reason for the
enactment of the English statutes of champerty and maintenance ha[d] very largely ceased to exist.” Prosky, 109 P. at
794. The Prosky court explained, as noted above, that “the
great weight of authority” recognizes champerty and maintenance only as a defense to enforcing a champertous agreement. Id.
The Gruber court noted that legal reforms such as the statute of frauds and statute of limitations “have all taken place
since the law of maintenance was enacted; and all these have
contributed to prevent groundless and vexatious litigation.”
Gruber, 23 P. at 862. Nevada has enacted statutes, rules, and
codes of conduct that serve purposes previously addressed by
the doctrines of champerty and maintenance. See NEV. R. CIV.
P. 11; NEV. R. PROF’L CONDUCT 3.1 (requiring attorneys not to
“defend a proceeding, or assert or controvert an issue therein,
unless there is a basis in law and fact for doing so that is not
frivolous”); D.R. Horton, Inc. v. Green, 96 P.3d 1159, 1162
(Nev. 2004) (recognizing unconscionability as a bar to a contract’s enforcement). Other state courts have relied on similar
developments to abolish champerty and maintenance altogeth-

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er.11 These developments make it even more difficult to predict that the Nevada Supreme Court would recognize
champerty as an affirmative tort.
[13] The consistent trend across the country is toward limiting, not expanding, champerty’s reach.12 See, e.g., Toste
Farm Corp. v. Hadbury, Inc., 798 A.2d 901, 905 (R.I. 2002)
(collecting cases).13 Some states have squarely rejected tort
claims based on champerty.14 Other states have refused to recognize champerty as anything more than a defense by a party
to enforcement of the allegedly champertous agreement,
implicitly rejecting a broader tort remedy.15 “Only a handful
11

See, e.g., Osprey, Inc. v. Cabana L.P., 532 S.E.2d 269, 277 (S.C.
2000) (“We are convinced that other well-developed principles of law can
more effectively accomplish the goals of preventing speculation in
groundless lawsuits and the filing of frivolous suits than dated notions of
champerty.”); Saladini v. Righellis, 687 N.E.2d 1224, 1226-27 (Mass.
1997) (“We also no longer are persuaded that the champerty doctrine is
needed to protect against the evils once feared: speculation in lawsuits, the
bringing of frivolous lawsuits, or financial overreaching by a party of
superior bargaining position. There are now other devices that more effectively accomplish these ends.”); McCullar v. Credit Bureau Sys., 832
S.W.2d 886, 887 (Ky. 1992) (“Modern remedies for damages are to be
pursued through such tort actions as malicious prosecution, abuse of process, or wrongful initiation of litigation. The champerty doctrine remains
viable only as a defense in contract actions.”).
12
See Prosky, 109 P. at 794 (looking to other jurisdictions to determine
the scope of champerty); cf. State v. Weddell, 43 P.3d 987, 992 (Nev.
2002) (construing a statute in light of the court’s “concern that the rationale for the rule at common law no longer exists” and “the abandonment
of this common law rule in other states”).
13
In Toste Farm, the Rhode Island Supreme Court left it to the legislature to overrule previous decisions defining the scope of champerty. Toste
Farm, 798 A.2d at 905-06. We are aware of no recent case that has
enlarged champerty’s role beyond that already accepted in the jurisdiction.
14
E.g., Alexander v. Unification Church of Am., 634 F.2d 673, 678 (2d
Cir. 1980), abrogation on other grounds recognized by PSI Metals, Inc.
v. Firemen’s Ins. Co., 839 F.2d 42, 43 (2d Cir. 1988) (per curiam); Sec.
Underground Storage, Inc. v. Anderson, 347 F.2d 964, 969 (10th Cir.
1965); Tosi v. Jones, 685 N.E.2d 580, 583 (Ohio Ct. App. 1996).
15
Sneed v. Ford Motor Co., 735 So. 2d 306, 315 (Miss. 1999) (“It is the
champertous contract and not the right of action itself which the contract

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of cases have applied maintenance and champerty as torts in
the United States in the last one hundred years.” VICKI WAYE,
TRADING IN LEGAL CLAIMS 14 (2008). Even those cases have
sharply limited the scope of the tort they recognized. Under
North Carolina law, for example, an assignment of a claim is
not champertous unless the assigned claim is a tort claim; the
assignment gives a stranger to the claim control of that claim,
not merely the right to any proceeds; and the purpose, not
merely the effect, of the stranger’s involvement is to stir up
litigation. See Charlotte–Mecklenburg Hosp. Auth. v. First of
Ga. Ins. Co., 455 S.E.2d 655, 657 (N.C. 1995); Odell v. Legal
Bucks, LLC, 665 S.E.2d 767, 775 (N.C. Ct. App. 2008). “[A]n
outsider’s involvement in a lawsuit does not constitute champerty or maintenance merely because the outsider provides
financial assistance to a litigant and shares in the recovery.”
Odell, 665 S.E.2d at 775. Illinois law requires the allegedly
improper agreement to have caused meritless litigation.
Medallion Prods., Inc. v. H.C.T.V., Inc., No. 06 C 2597, 2007
WL 1022010, at *4 (N.D. Ill. Mar. 29, 2007) (citing Weigel
Broad. Co. v. Topel, No. 83 C 7921, 1985 WL 2360, at *6
(N.D. Ill. Aug. 21, 1985)). As noted, no Nevada state court
has recognized even such a limited tort. The district court’s
approach nonetheless predicts that the Nevada Supreme Court
would recognize a tort action for champerty that would be
among the country’s most expansive.
[14] There was no adequate basis, in short, for the federal
district court, applying Nevada law, to recognize a tort claim
avoids, and, therefore, defendant cannot avail himself of the champertous
agreement as a defense to the action.” (quoting Calhoun Cnty. v. Cooner,
118 So. 706, 707 (Miss. 1928))); Robertson v. Town of Stonington, 750
A.2d 460, 463 (Conn. 2000) (citing Perry v. M.M. Puklin Co., 123 A. 28,
30 (Conn. 1923)); Rolleston v. Cherry, 487 S.E.2d 354, 359 (Ga. Ct. App.
1997) (citing Ellis v. Smith & Bussey, 37 S.E. 739, 742 (Ga. 1900)); Agar
Sch. Dist. No. 58-1 Bd. of Educ. v. McGee, 527 N.W.2d 282, 288 (S.D.
1995); Mitchell v. Amerada Hess Corp., 638 P.2d 441, 445 (Okla. 1981)
(citing Aaronson v. Smiley, 285 P. 59, 61 (Okla. 1929)).

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for champerty as a basis for issuing the injunction in this case.
Although the injunction is affirmed in part, that affirmance is
not based on the district court’s conclusion that the common
law of champerty supported this relief.
The district court’s injunction is VACATED in part and
AFFIRMED in part.
Each party will bear its own costs on appeal.