What is consumer fraud in Nevada?

One of the Nevada statutes I turn to frequently is NRS 41.600, entitled “Actions by Victims of Fraud.” This statute allows any person who is a victim of “consumer fraud” to recover his or damages, equitable relief (which can include “rescinding” or unwinding the bad deal), and attorney’s fees. The statute gives a specialized definition of “consumer fraud.” The most important part of this definition is that “consumer fraud” includes any “deceptive trade practice” described in NRS 598.0915 to 598.0925.

Turning to the statutory definition of “deceptive trade practice” reveals multiple lists of conduct that counts as a deceptive trade practice and, therefore, consumer fraud. Some of the items are fairly specific and some are general. There are more than 57 separate items.

Whenever I encounter any kind of fraud or consumer dispute, I will review theses lists to see if one or more of the items match the situation with which I am dealing. Some particularly potent items on the statutory list of deceptive trade practices include:

  • Knowingly making any false representation in a transaction, NRS 598.0915(15);
  • failing to make delivery of goods or services for sale or lease within a reasonable time, NRS 598.092(4);
  • knowingly misrepresenting the legal rights, obligations or remedies of a party to a transaction, NRS 598.092(8);
  • conducting a business or occupation without all required state, county or city licenses, NRS 598.0923(1);
  • failing to disclose a material fact in connection with the sale or lease of goods or services, NRS 598.0923(2); and
  • violating a state or federal statute or regulation relating to the sale or lease of goods or services, NRS 598.0923(3).

Investors and those who market investments should pay particular attention to NRS 598.092(5), which says that a deceptive trade practice includes advertising or offering an opportunity for investment and:

  • representing that the investment is guaranteed, secured or protected in a manner which he or she knows or has reason to know is false or misleading;
  • representing that the investment will earn a rate of return which he or she knows or has reason to know is false or misleading;
  • making any untrue statement of a material fact or omits to state a material fact which is necessary to make another statement, considering the circumstances under which it is made, not misleading;
  • failing to maintain adequate records so that an investor may determine how his or her money is invested;
  • failing to provide information to an investor after a reasonable request for information concerning his or her investment;
  • failing to comply with any law or regulation for the marketing of securities or other investments; or
  • representing that he or she is licensed by an agency of the State to sell or offer for sale investments or services for investments if he or she is not so licensed.

So when you are a consumer or investor with a question about your rights, check the statutory list of deceptive trade practices. If you are a business, please be aware that some of your customers may check this list as well. As always, I am more than happy to discuss with you any questions you might have about Nevada consumer fraud.

What are the purposes of Nevada Business Court?

The Business Court in Nevada is developed on the Delaware model to minimizes the time, cost and risk of commercial litigation through:

  • Early, comprehensive case management;
  • Active judicial participation in settlement;
  • Priority for hearing settings to avoid business disruption; and
  • Predictability of legal decisions in commercial matters.

What cases qualify for Business Court?

In Reno and Sparks, Nevada (Washoe County), a civil case is assigned to the business court docket if its primary subject matter is:

  1. A dispute concerning the validity, control, operation or governance of entities created under NRS Chapters 78-88 (corporations, limited liability companies, partnerships, limited parterships, and business trusts), including shareholder derivative actions;
  2. A dispute concerning a trade-mark or trade name;
  3. A claim asserted pursuant to the Nevada Trade Secrets Act;
  4. A claim asserted pursuant to the Nevada Securities Act;
  5. A claim asserted pursuant to the Nevada Deceptive Trade Practices Act;
  6. A claim involving investment securities; or,
  7. Any dispute among business entities if the presiding judge of the business court docket determines that the case would benefit from enhanced case management.

What are the top five reasons to settle a business dispute?

Most business people seek to resolve their business disputes before litigating. If litigation becomes necessary or cannot be avoided, they will continue to seek a business solution. Here are the top five reasons to settle your business dispute:

  1. Control your destiny and contain your risks. When you litigate or arbitrate your case, you put the ultimate resolution of your dispute into the hands of a judge, jury, or arbitrator, all of whom are capable of doing things that surprise you and hurt you.  On the other hand, settling your dispute means that you and your opposing party decide by agreement what the outcome will be.
  2. Settle on a basis that cannot be obtained in court. Courts are limited in the types of disputes they can adjudicate and the types of relief they can award to a prevailing party. In contrast, business owners who settle their disputes are free to use any kind of consideration or inducement in settlement negotiations. For example, settlement agreements can include business terms regarding non-disparagement, confidentiality, dividing items of property that are not involved in the dispute, joint business undertakings, and a host of other items that a judge, jury, or arbitrator may not have the ability to award.
  3. Devote your time, resources, attention, and emotional energy to your business rather than to your dispute. The litigation process consumes substantial amounts of your time, money, attention, and emotional energy. The judge or arbitrator imposes deadlines, discovery requirements, and other obligations. Moreover, many business owners prefer running their business to the stress of re-living past disputes and preparing to testify and be cross-examined in court. Settlements often come about because the parties realize that the litigation process is preventing them from doing what they do best and what brings them the most satisfaction.
  4. Protect your privacy. When you go to court, you are often required by discovery rules to reveal sensitive details about your business to your adversary. Moreover, unless court records are sealed by the judge, anybody can look at them. The sooner in the process that you are able to settle your business dispute, the better able you are to protect your sensitive business information.
  5. Bring finality to your business dispute. Our court system emphasizes due process. But it takes time to give notice to all participants, allow them obtain discovery, consider multiple motions, and conduct a trial. Many judges have thousands of cases on their docket. Even when a winner is declared, the winner must follow post-judgment enforcement procedures. Moreover, appeals may be taken. A well-crafted settlement resolves the business dispute once and for all.

How can an experienced business court attorney help me obtain a favorable settlement of my business dispute?

Business disputes are an unfortunate fact of life. They can result from incorrect assumptions, business set-backs, miscommunication, pride, bullying or greed. Here are some things an experienced business court attorney can do to help you successfully settle your business dispute. As a business dispute begins to develop, you will likely see it coming from a distance. Generally, the sooner you reach out to your business court attorney, the more your attorney can do to assist you.

  1. Analyze the merits of your claim or defense. If you expect to reach a favorable settlement, you need to thoroughly understand the ins and outs of your case as soon in the process as possible. An experienced business court attorney can explain your business rights and the strong points of your case. The business court attorney can also deliver unpleasant news and point out your vulnerabilities.
  2. Analyze your strategic options. Along with advising you about the merits of your position, the experienced business court attorney can familiarize you with the process for litigating, mediating, or arbitrating your claim or defense. Together with your business court attorney, you can also evaluate self-help steps and other options for protecting your rights outside of the court system.
  3. Help you perfect your claim or defense. Some claims are not ready to be settled or litigated even though the business relationship has already deteriorated. As examples, some claims require a formal written demand. Some contracts require notice of breach and an opportunity to cure. To exercise certain shareholder rights, such as compelling a meeting of shareholders or inspecting a corporation’s books and records, you have to line up shareholders holding specific percentages of the company’s shares. Your business court attorney can make sure your ducks are in a row when you assert your rights.
  4. Show you are serious. Showing up with an experienced business court attorney demonstrates that you are committed to fight for your business. Showing your strength puts you in a better position to resolve your dispute.
  5. Document a clear and enforceable settlement agreement. When you and the other party come to an agreement to resolve your business dispute, you need to document that agreement in writing before the other party gets buyer’s remorse. You also need the written agreement to say what recourse you will have if the other party fails or refuses to perform its side of the settlement agreement.

How did the 2017 legislative session change Nevada law regarding non-competition agreements?

Governor Sandoval recently signed Assembly Bill 276 (“AB 276”) into law. It has always been the law in Nevada that employee non-competition agreements cannot be enforced unless they are reasonable in scope. AB 276 refines this principle in several important ways.

First, AB 276 states that a non-competition agreement is void and unenforceable unless it: (a) is supported by valuable consideration; (b) does not impose any restraint that is greater than is required for the protection of the employer for whose benefit the restraint is imposed; (c) does not impose any undue hardship on the employee; and (d) imposes restrictions that are appropriate in relation to the valuable consideration supporting the noncompetition covenant.

Second, a non-competition agreement may not restrict a former employee of an employer from providing service to a former customer or client if: (a) the former employee did not solicit the former customer or client; (b) the customer or client voluntarily chose to leave and seek services from the former employee; and (c) the former employee is otherwise complying with the limitations in the covenant as to time, geographical area and scope of activity to be restrained, other than any limitation on providing services to a former customer or client who seeks the services of the former employee without any contact instigated by the former employee.

Third, if the termination of the employment of an employee is the result of a reduction of force, reorganization or similar restructuring of the employer, a non-competition agreement is only enforceable during the period in which the employer is paying the employee’s salary, benefits or equivalent compensation, including, without limitation, severance pay.

And fourth, AB 276 overturns a recent Nevada Supreme Court opinion by instructing courts to “blue-pencil,” i.e., trim back, over-broad non-competition agreements. Thus, if the non-competition agreement contains limitations as to time, geographical area or scope of activity that are unreasonable, over-broad, or unduly burdensome, the court must revise the non-competition to the extent necessary and enforce the non-competition agreement as revised.

I believe the main effect of AB 276 will be to prevent courts from quickly rejecting a non-competition covenant on the basis that it is too broad. Rather, in a lawsuit to enforce such an agreement, the court is more likely to need an evidentiary hearing to sort through the factors listed in AB 276 and then to decide whether and how far to trim back the non-competition agreement.

Employers and employees alike will want to review their existing non-competition agreements in light of these changes to Nevada law.

How is an employee non-competition agreement enforced in Nevada?

I receive a lot of questions from employers and employees about the process for enforcing a non-compete agreement in Nevada.

In Nevada, an employer seeking to enforce a non-compete engages counsel and files a lawsuit against the ex-employee alleging the circumstances that constitute a breach of the non-compete agreement. If the employer reasonably believes that the ex-employee is also breaching an agreement prohibiting the ex-employee from misusing the employer’s confidential information or soliciting the employer’s customers or employees, then the employer will add those breaches to the lawsuit. If the employer believes that the ex-employee’s new employer has wrongfully caused the ex-employee to breach the non-competition agreement, a confidentiality agreement, or a non-solicitation agreement, then the former employer may name the new employer as an additional defendant in the lawsuit.

Simultaneously with filing the lawsuit, the employer’s attorney will file a motion for temporary restraining order and for preliminary injunction. The motion should be supported by a sworn statement of a company representative and any other witnesses for the employer who have knowledge of the claimed breaches. The attorney bringing the motion also includes a certificate of the attorney’s efforts to notify the opposing party of the motion.  In addition, a proposed order will be prepared and submitted with the motion.

At this point, things get interesting from a procedural prospective. In Nevada, a temporary restraining order may be obtained in an emergency situation with little or no notice to the other side. This is known as an “ex parte” proceeding. The attorney will hand-walk or otherwise deliver the papers to the Judge’s chambers and ask for a meeting with the judge to discuss the application for temporary restraining order. The judge determines whether and when she will meet with the employer’s attorney. Sometimes, the judge considers the proposed temporary restraining order without any input from the ex-employee. Sometimes the ex-employee is able to engage an attorney on short notice to request from the judge an opportunity to be heard. Such a request is usually honored if it is received quickly enough.

If the judge grants the temporary restraining order, then he also schedules a preliminary injunction hearing to occur within 15 days. The temporary restraining order automatically expires in 15 days, but can be extended once by the judge for another 15 days. The judge is supposed to make the employer post a bond or other security before the temporary restraining order goes into effect. Sometime that security turns out to be fairly minimal. If the temporary restraining order is granted, then the employer will post the security and then put the ex-employee and new employer on notice of the order’s requirements. If the judge does not grant the temporary restraining order, she will still schedule the preliminary injunction hearing. Before the date of the preliminary injunction hearing, the ex-employee’s attorney should file a written opposition to the employer’s motion that includes a sworn statement from the ex-employee and any other witnesses on whom the ex-employee is relying.

One of the primary focuses of the preliminary injunction hearing will be for the judge to determine if the non-competition agreement is reasonable in its length, geographic scope, and definition of the prohibited competitive conduct. In contrast to the less-formal application process for a temporary restraining order, a preliminary injunction hearing is an evidentiary proceeding that will take place in the courtroom after notice is given to all parties. Exhibits will be marked and witnesses will testify.

By the time of the preliminary injunction hearing, the former employer and the ex-employee will be receiving feedback as to how the judge sees the case. Each will probably have a good idea of whether the other has the staying power and determination to keep litigating. So this is often a good juncture for settling the dispute. The judge might conduct settlement discussions at some point during the preliminary injunction hearing or at least invite the parties to do so. The employer and ex-employee can also take the initiative to resolve their dispute without waiting for the judge’s invitation. If the parties do not settle and the judge enters a preliminary injunction, the preliminary injunction will stay in place for the duration of the lawsuit. This will give the former employer a strong upper hand. Alternatively, if the judge declines to enter a preliminary injunction, then the former employer will need take a hard look at whether it should continue the lawsuit.