Pardee Homes of Nevada Corporation v. AG/RW-Canyons, LLC

Filing 30

ORDER denying 9 Motion to Dismiss; granting 13 Motion for Summary Judgment; denying 23 Motion for Summary Judgment; Case terminated. Signed by Judge Jennifer A. Dorsey on 7/6/2017. (Copies have been distributed pursuant to the NEF - JM)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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Pardee Homes of Nevada,

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Plaintiff

2:16-cv-01952-JAD-PAL

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v.

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AG/RW - Canyons, LLC,

Order Denying Defendant’s Motion to
Dismiss, Granting Plaintiff’s CounterMotion for Summary Judgment, Denying
Defendant’s Cross-Motion for Summary
Judgment, and Closing Case

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Defendant

[ECF Nos. 9, 13, 23]

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Pardee Homes of Nevada agreed to purchase unimproved Nevada land from AG/RW -

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Canyons, LLC.1 As part of the deal, Pardee agreed to construct a water facility to benefit and be

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paid by both Pardee and AGRW.2 A dispute arose about the parties’ agreement to jointly pay for

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the water facility.3 Pardee sues AGRW for declaratory relief to resolve that dispute.4

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AGRW now moves to dismiss, arguing that declaratory relief is a remedy, not a claim,

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and, regardless, it is improperly pled because Pardee seeks to redress past wrongs and does not

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allege any ambiguity in the parties’ agreement.5 Each side also moves for summary judgment,

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arguing that the written agreement unambiguously favors its interpretation.6

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I deny AGRW’s dismissal motion because its arguments lack merit. The parties’

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agreement is not ambiguous and its plain language is capable of just one reading: Pardee’s. So I

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grant Pardee’s counter-motion for summary judgment, deny AGRW’s cross-motion for summary

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judgment, and direct the Clerk of Court to enter judgment and close this case.

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ECF No. 1 at ¶ 10.

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Id. at ¶¶ 12–23.

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Id. at ¶¶ 28–34.

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Id. at ¶¶ 36–42.

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ECF No. 9.

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ECF Nos. 13 (Pardee’s counter-motion), 23 (AGRW’s cross-motion).

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Background

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AGRW sold Pardee approximately 42 acres of unimproved land (parcels C/D and R of

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The Canyons at MacDonald Ranch development) in Henderson, Nevada.7 The purchase

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agreement calls for Pardee to construct—and both parties to pay for—water facilities benefitting

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Pardee’s purchased land and adjacent land owned by AGRW.8 The parties memorialized their

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agreement in a written purchase agreement and amended it twice.9 The second amendment

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replaces nearly all of the provisions regarding the water facilities with “intentionally omitted”

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and calls for the parties to sign a separate water-facilities agreement.10 The parties signed the

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separate water-facilities agreement and amended it once.11

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That agreement obligates AGRW to pay 56.4 % of the actual cost to construct the

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facilities and Pardee to pay the remaining 46.3 %.12 It requires the parties to establish an escrow

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account for the estimated costs and to deposit set amounts into that account by certain dates.13 It

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provides that AGRW “shall receive a” $1,276,148 “credit against its required payments[,] . . .

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which shall be applied first to the July 15, 2016 deposit and then to the April 15, 2016 deposit.”14

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The parties made the first two deposits into the estimated-cost account and then amended

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the agreement to make the third deposit due on the same day as the last deposit—July 15, 2016.15

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Nine days before the last two deposits were due, AGRW told Pardee that AGRW had sold its

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ECF No. 1 at ¶ 10.

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Id. at ¶¶ 12–13.

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Id. at ¶¶ 10–12, 17.

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10

Id. at ¶ 18; ECF No. 14-4 at 3.

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ECF No. 1 at ¶¶ 18, 27.

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ECF No. 14-5 at 3, ¶ 1.

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Id. at 5, ¶ 5.

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Id.

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ECF No. 1 at ¶¶ 25–27.

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property that would benefit from the water facilities to Pulte Homes of St. Louis, LLC and that

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Pulte expected the estimated-cost account to be fully funded.16 AGRW then demanded that

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Pardee pay the $1,276,148 that AGRW is credited as having deposited into the account under the

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agreement.17 Pardee refused to pay the amount of AGRW’s credit but deposited its remaining

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$1,947,307 into the account by July 15, 2016, and AGRW deposited its remaining $1,830,002

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into the account by the same date.18

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One month later, Pardee told AGRW that it expected AGRW to continue to fund its

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portion of the actual construction costs.19 Pardee explained that it would invoice AGRW for

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actual costs incurred that exceed the amount in the estimated-cost account up to the amount of

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AGRW’s credit ($1,276,148) and, thereafter, invoice AGRW for 56.4 % of the actual costs

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incurred.20 AGRW responded that its credit offsets not only its obligation to fund the estimated-

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cost account but also its obligation to fund 54.6 % of the actual costs to construct the facilities.21

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It further claimed that Pardee was in default because Pardee did not deposit the amount of

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AGRW’s credit into the estimated-cost account to render it fully funded.22

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Discussion
A.

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Initial considerations in a Declaratory Judgments Act case
Pardee’s only claim seeks a declaration that: (1) AGRW is required to pay 56.4 % of the

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actual cost to construct the water facility; (2) Pardee is not required to deposit the amount of

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AGRW’s credit into the estimated-cost account; and (3) AGRW received a credit against its

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Id. at ¶¶ 28–29.

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Id.

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Id. at ¶¶ 31–32.

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Id. at ¶ 33.

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Id.

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Id. at ¶ 34.

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Id.

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obligation to fund the estimated-cost account, but not against its obligation to fund 56.4 % of the

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actual construction cost.23 The Declaratory Judgments Act (“Act”) states that “[i]n a case of

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actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an

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appropriate pleading, may declare the rights and other legal relations of any interested party

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seeking such declaration, whether or not further relief is or could be sought.”24 The district

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court’s first step in a case under the Act is to determine “whether there is an actual case or

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controversy within its jurisdiction.”25 If one exists, then the court must analyze the factors set out

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in Brillhart v. Excess Ins. Co.26 and its progeny to determine whether to exercise its jurisdiction.27

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1.

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Ripeness

“[T]he appropriate standard for determining ripeness of private party contract disputes . . .

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[is] whether ‘there is a substantial controversy, between parties having adverse legal interests, of

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sufficient immediacy and reality to warrant the issuance of a declaratory judgment.’”28 The

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parties disagree about the meaning of their agreement to jointly pay for the water facilities. The

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dispute centers on what effect AGRW’s $1,276,148 credit has on the payment scheme. The

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agreements exist and the dispute arose shortly after the parties began performing their obligations

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under them. The dispute needs to be resolved so the parties can perform their obligations, but

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they are unable to resolve it on their own.

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The water-facilities agreement states that Pardee is to be paid from the estimated-cost

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account periodically during the course of construction. Once the account is depleted, Pardee is to

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invoice AGRW for AGRW’s share of the costs that Pardee incurs. Without knowing what effect

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ECF No. 1 at 8–9.

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28 U.S.C. § 2201(a).

25

Principal Life Ins. Co. v. Robinson, 394 F.3d 665, 669 (9th Cir. 2005).

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Brillhart v. Excess Ins. Co., 316 U.S. 491 (1942).

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Principal Life Ins. Co., 394 F.3d at 669.

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Id. at 671 (quoting Maryland Cas. Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273 (1941)).

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AGRW’s credit has, once the account is depleted, Pardee will be unable to determine what

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amount, if any, it should invoice AGRW for. The account is likely to be depleted during

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construction because the parties did not fully fund it. AGRW believes that Pardee is in breach

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because Pardee refused to deposit the amount of AGRW’s credit into the account. I find that

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Pardee alleges a controversy of sufficient immediacy and reality between itself and AGRW.

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2.

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“The district court’s discretion to hear declaratory actions over which it has jurisdiction is

Brillhart factors

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guided by the Supreme Court’s announcements in Brillhart.”29 These non-exclusive factors

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require the district court to: (1) “avoid needless determination of state law issues”; (2)

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“discourage litigants from filing declaratory actions as a means of forum shopping”; and (3)

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“avoid duplicative litigation.”30 Also relevant is whether the declaratory action “will settle all

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aspects of the controversy;” “serve a useful purpose in clarifying the legal relations at issue;” is

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being sought merely for the purposes of procedural fencing or to obtain a ‘res judicata’

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advantage;” or “will result in entanglement between the federal and state court systems.”31

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There is no proceeding pending in another forum that concerns the issues in this case.

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Nor is there any evidence of forum shopping. This action will settle all aspects of the parties’

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controversy and will clarify their legal relations under their agreements. It does not appear that

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this case was brought merely for a procedural advantage or would result in entanglement between

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federal and state court systems. Having weighed all of the factors, I find that it would be

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appropriate to exercise my discretion in this case. Satisfied that an actual controversy exists and

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that the Brillhart factors favor exercising jurisdiction, I now address AGRW’s three dismissal

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arguments.

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29

Id. at 672.

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30

Id. (quotation marks and quoted reference omitted).

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31

Id. (quoted reference omitted).

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B.

Dismissal motion

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Rule 8 of the Federal Rules of Civil Procedure requires every complaint to contain “[a]

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short and plain statement of the claim showing that the pleader is entitled to relief.”32 While Rule

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8 does not require detailed factual allegations, the United States Supreme Court clarified in

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Ashcroft v. Iqbal33 that it demands “more than labels and conclusions” or a “formulaic recitation

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of the elements of a cause of action.” “Factual allegations must be enough to rise above the

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speculative level.”34 Thus, to survive a motion to dismiss, a complaint must contain sufficient

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factual matter to “state a claim to relief that is plausible on its face.”35 Mere recitals of the

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elements of a cause of action, supported only by conclusory statements, are insufficient; actual

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facts detailing the defendant’s conduct and allowing the reader to draw the reasonable inference

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that the defendant is liable for the alleged misconduct must be pled.36

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1.

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AGRW argues that a party cannot seek relief under the Act in the absence of an

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underlying cause of action.37 It claims to find support in the Ninth Circuit’s Stock West, Inc. v.

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Confederated Tribes of the Colville Reservation decision, which states that the Act “only creates

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a remedy and is not an independent basis for jurisdiction.”38 But AGRW reads too much into this

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statement and takes it out of its purely jurisdictional context. To determine if a stand-alone claim

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for declaratory judgment can be considered by a federal court sitting in diversity, I look back 67

Validity of a stand-alone claim for declaratory relief

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32

Fed. R. Civ. P. 8(a)(2); Bell Atlantic Corp v. Twombly, 550 U.S. 544, 555 (2007).

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Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (citing Papasan v. Allain, 478 U.S. 265, 286
(1986)).
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Twombly, 550 U.S. at 555.

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35

Iqbal, 129 S. Ct. at 1949 (internal citation omitted).

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36

Id.

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37

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ECF No. 9 at 9–10.

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Stock West, Inc. v. Confederated Tribes of the Colville Reservation, 873 F.2d 1221, 1225 (9th
Cir. 1989).
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years to the Supreme Court’s decision in Skelly Oil Co. v. Phillips Petroleum Co.39 There,

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Phillips Petroleum Co. sued several gas companies under the Act seeking a declaration that the

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contracts between Phillips and each defendant remained in effect.40 The defendants moved to

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dismiss, arguing that the district court lacked subject-matter jurisdiction.41 The district court

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denied the dismissal motions, proceeded on the merits, and decreed that the contracts remained in

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effect.42 The Tenth Circuit affirmed and the Supreme Court took the appeal “because it raise[d]

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in sharp form the question whether a suit like this ‘arises under the Constitution, laws or treaties

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of the United States,’ so as to enable District Courts to give declaratory relief under the . . .

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Act.”43

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The Supreme Court found that the district court lacked jurisdiction over two of the

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defendants because they were not diverse from Phillips, and the Act did not itself confer federal

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subject-matter jurisdiction.44 The Court reversed the judgment as to them and remanded “with

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directions that the cause be dismissed” against them.45 But the Supreme Court found that a

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“different situation [was] presented” by the third defendant because it was diverse from Phillips.

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With jurisdiction established, the Court found that it “must reach the merits” of Phillips’s

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declaratory relief claim against the diverse defendant.46 Finding that the Tenth Circuit’s

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“grammatical argument” interpreting the contract in favor of Phillips was “given more weight

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39

Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667 (1950).

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40

Id. at 670–71.

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41

Id. at 671.

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Id.

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Id.

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Id. at 671–74.

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45

Id. at 678.

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Id. at 674.

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than it [could] bear[,]” the Court vacated the judgment as to the diverse defendant and remanded

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for further proceedings as to it.47
Although the Supreme Court does not expressly state in Skelly Oil that a district court can

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entertain a stand-alone claim under the Act so long as subject-mater jurisdiction independently

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exists, the takeaway from the decision is that it can. The Court explained that the Act is a

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“procedural” tool that allows federal courts sitting in diversity to “entertain a suit on a contract”

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and give relief by “recognizing the plaintiff’s right even though no immediate enforcement of

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[the contract] [is] asked.”48 In these circumstances, the failure to assert an underlying claim is

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not fatal to Pardee’s request for declaratory relief.

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2.

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AGRW argues that dismissal is warranted because Pardee seeks to redress past wrongs,

Complaining about past wrongs

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not to declare future rights.49 The purpose of the Act is to bring “to the present a litigable

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controversy” that “otherwise might only be tried in the future.”50 As one district court explained

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and the Ninth Circuit quoted with approval, the Act “was designed to relieve potential defendants

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from the Damoclean threat of impending litigation [that] a harassing adversary might brandish,

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while initiating suit at his leisure or never.”51 “The Act permits parties so situated to forestall the

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accrual of potential damages by suing for a declaratory judgment, once adverse positions have

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crystallized and the conflict of interests is real and immediate.”52

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47

Id. at 676.

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Id. at 671–72.

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49

ECF No. 9 at 10–12.

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50

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Societe de Conditionnement en Aluminum v. Hunter Engineering Co., Inc., 655 F.2d 938, 943
(9th Cir. 1981).

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51

Id. (quoting Japan Gas Lighter Ass’n v. Ronson Corp., 257 F. Supp. 219, 237 (D. N.J. 1966)).

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Id. (quoting Japan Gas Lighter Ass’n, 257 F. Supp. at 237).
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AGRW singles out Pardee’s request for a declaration that it is not obligated to deposit the

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amount of AGRW’s credit into the estimated-cost account. As pled, Pardee’s claim does not

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seek to redress past wrongs (e.g., to adjudicate AGRW’s past conduct) but to affect AGRW’s

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future behavior toward Pardee like suing it for breach of contract. Pardee’s claim is consistent

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with the Act’s purpose.

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3.

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AGRW also argues that the complaint does not sufficiently state a claim for declaratory

Not complaining about ambiguity

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relief because Pardee does not allege that the agreement is ambiguous, only that the parties

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dispute how it should be interpreted.53 Pardee characterizes AGRW’s argument as confusing.54 I

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agree. Pardee is not required to allege that the agreement is ambiguous to sufficiently plead that

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a real and immediate controversy exists between it and AGRW about how to interpret it. Pardee

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sufficiently pleads a claim for declaratory relief under the Act. I therefore deny AGRW’s motion

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to dismiss.

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C.

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Summary-judgment motions
Each side argues that Pardee’s declaratory-relief claim can be summarily adjudicated

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because the written agreement favors its interpretation. “In the absence of ambiguity or other

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factual complexities, contract interpretation presents a question of law that the district court may

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decide on summary judgment . . . .”55 “Whether a contract is ambiguous likewise presents a

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question of law.”56 “A contract is ambiguous if its terms may reasonably be interpreted in more

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than one way.”57 “[A]mbiguity does not arise simply because the parties disagree on how to

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53

ECF No. 9 at 12–16.

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54

ECF No. 12 at 18–20.

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55

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26

Galardi v. Naples Polaris, LLC, 301 P.3d 364, 366 (Nev. 2013) (quotation marks and quoted
reference omitted).

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56

Id.

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Id.
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interpret their contract.”58 “Rather, an ambiguous contract is an agreement obscure in meaning,

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through indefiniteness of expression, or having a double meaning.”59 “Contract interpretation

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strives to discern and give effect to the parties’ intended meaning.”60

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The water-facilities agreement obligates AGRW to pay 56.4 % of the actual costs to

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construct the water facilities and obligates Pardee to pay the remaining 43.6 %.61 The parties

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estimated in the agreement that it will cost $9,053,457 to construct the facilities.62 The

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agreement requires the parties to establish an escrow account into which Pardee is required to

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deposit $3,947,307 (43.6%) of the estimated construction cost and AGRW to deposit the

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remaining $5,106,150 (56.4%).63 And it states that AGRW “shall receive a credit against its

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required payments equal to . . . $1,276,148[ ], which shall be applied first to the July 15, 2016

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deposit and then to the April 15, 2016 deposit.”64

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The parties agree about these basic points. Where they diverge is what effect AGRW’s

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$1,276,148 “credit” has on the overall payment scheme. Pardee interprets the agreement to mean

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that AGRW gets to defer part of its payment obligations (i.e., AGRW gets a credit against its

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obligation to fund 56.4 % of the estimated-cost account but not against its obligation to fund 56.4

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% of the actual construction costs). AGRW interprets the agreement to mean that it gets a credit

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against all of its payment obligations (i.e., AGRW gets a credit against its obligation to fund

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$5,106,150 of the estimated-cost account, which carries forward to its obligation to fund 56.4 %

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58

Id.

59

Id. (quotation marks and quoted reference omitted).

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Id. at 367.

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61

ECF No. 14-5 at 3, ¶ 1.

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Id. The full estimate is $10,529,437, but that includes Pardee’s management fee and the
“Parcel F Costs” that the parties agree are not at issue here.

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63

Id. at 5, ¶ 5.

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64

Id. at 5, ¶ 5.
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of the actual construction costs). The effect that the parties intended AGRW’s credit to have

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turns on what they meant by “required payments” in the clause dictating that AGRW “shall

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receive a credit against its required payments equal to . . . $1,276,148[ ] . . . .”65
“Words derive meaning from usage and context.”66 The term “required payments” is

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used only once in the agreement. Two sentences later but still in the same paragraph, the

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agreement provides that “[t]he parties acknowledge and agree that they will each pay their pro

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rata share of the actual Water Facilities Costs, whether or not such costs differ from the amounts

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shown in the Cost Estimate and deposited in the Water Facilities Escrow Account.”67 The

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agreement then sets forth how the actual construction costs will be paid. It obligates Pardee to

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provide periodic invoices to AGRW and the escrow holder.68 Within 10 “days following receipt

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of such invoices, supporting detail and lien releases,” the escrow holder is required to pay Pardee

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“the amount shown on the invoice out of the Water Facilities Escrow Account, and if the amount

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in the Water Facilities Escrow Account is insufficient, [AGRW] shall pay its share of the

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remaining amount owed directly to [Pardee].”69 The paragraph next discusses how any funds

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remaining in the estimated-cost account after the water facilities are completed should be

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distributed.70 It concludes by providing that, at Pardee’s request, Pardee and AGRW shall make

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additional deposits into the estimated-cost account from time to time if necessary to cover the

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actual construction costs.71

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65

ECF No. 14-5 at 5, ¶ 5.

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66

Galardi, 301 P.3d at 367.

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ECF No. 14-5 at 5–6, ¶ 5.

68

Id. at 6, ¶ 5.

69

Id.

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70

Id.

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71

Id.

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The manner and context in which “required payments” is used favors Pardee’s

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interpretation that it refers only to AGRW’s obligation to fund the estimated-cost account. I find

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that the agreement plainly sets forth two separate payment obligations: (1) pay into the estimated-

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cost account and (2) pay the actual construction costs. AGRW’s $1,276,148 credit is not

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mentioned in the context of the parties’ obligations to pay the actual costs. The only time it is

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discussed is in the context of the parties’ obligations to fund the estimated-cost account. There is

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no language applying AGRW’s credit to its separate obligation to fund 56.4 % of the actual costs.

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Instead, after setting forth (1) the parties’ obligations to fund the estimated-cost account, (2) the

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amount of AGRW’s credit, and (3) what happens if the parties are delinquent in their obligations

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to fund the estimated-cost account, the agreement expressly states that “[t]he parties

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acknowledge and agree that they will each pay their pro rata share of the actual Water Facilities

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Costs, whether or not such costs differ from the amounts shown in the Cost Estimated and

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deposited in the Water Facilities Escrow Account.”72 This provision appears to be an

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acknowledgment that the parties’ obligations with respect to the estimated-cost account and the

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actual construction costs are separate and distinct. And it belies AGRW’s argument that the

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intention of the deal was to give AGRW a credit that reduces both its obligation to fund the

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estimated-cost account and its obligation to fund 56.4 % of the actual construction costs.

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The agreement also cannot reasonably be interpreted to obligate Pardee to tender payment

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in an amount equal AGRW’s credit into the estimated-cost account. The agreement is devoid of

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language obligating Pardee to tender any such payment. Instead, the plain language obligates

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Pardee to pay a total of $3,947,307 into the account and AGRW to pay a total of $5,106,150 of

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which $1,276,148 AGRW is credited as having timely deposited. The agreement clearly

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contemplates that the estimated-cost account will be underfunded by the amount of AGRW’s

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credit, not that Pardee will make-up the deficit.

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72

Id. at 5–6, ¶ 5 (emphasis added).
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The upshot is that I agree with the parties that their agreement is unambiguous, and it is

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Pardee’s interpretation that I find accurate.73 The plain language gives AGRW a credit that

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reduces its obligation to fund the estimated-cost account but not its obligation to ultimately pay

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56.4 % of the actual construction costs. The plain language also does not obligate Pardee to

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shoulder the cost of AGRW’s credit by depositing it into the estimated-cost account. I therefore

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grant Pardee’s counter-motion for summary judgment and deny AGRW’s cross-motion seeking

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the same relief.

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Conclusion

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IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that AGRW’s motion to

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dismiss [ECF No. 9] is DENIED, Pardee’s counter-motion for summary judgment [ECF No.

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13] is GRANTED, and AGRW’s cross-motion for summary judgment [ECF No. 23] is

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DENIED.

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The court DECLARES that AGRW’s $1,276,148 credit reduces AGRW’s obligation to

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fund the estimated-cost account, but does not reduce AGRW’s obligation to fund 56.4 % of the

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actual costs to construct the water facilities.

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The court further DECLARES that Pardee satisfied its obligation to deposit a total of

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$3,947,307 into the estimated-cost account and it is not obligated to also deposit the amount of

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AGRW’s credit into that account.

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The Clerk of Court is directed to ENTER JUDGMENT in favor of Pardee and against
AGRW consistent with this order and to CLOSE this case.

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DATED: July 6, 2017.

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_______________________________
U.S. District Judge Jennifer A. Dorsey

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73

Because I find that the parties’ agreement is not reasonably susceptible to more than one
interpretation, I do not consider the extrinsic evidence they offered to show intent.
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