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Sierra Development Co. v. Chartwell Advisory Group Ltd.

United States District Court, D. Nevada

July 6, 2018

SIERRA DEVELOPMENT CO., Plaintiff,
v.
CHARTWELL ADVISORY GROUP, LTD., Defendant. CHARTWELL ADVISORY GROUP, LTD., Counterclaimant,
v.
SIERRA DEVELOPMENT CO., et al., Counterdefendants.

          MEMORANDUM DECISION

          ROGER T. BENITEZ UNITED STATES DISTRICT JUDGE

         A bench trial was held on the remaining counterclaim for unjust enrichment or quantum meruit by Chartwell Advisory Group, Ltd. against the remaining casino counterclaim defendants[1] and the counterclaim defendants' counter-counterclaims against Chartwell. Having heard the testimony and the evidence, the Court finds that Chartwell provided services for the counterclaim defendants. However, Chartwell has not proven that the services were clearly of value. The Court adopts in full the Joint Proposed Findings of Fact filed on March 9, 2018.[2]

         Background

         This case concerns the State of Nevada's taxation of complimentary meals provided by the counterclaim defendant casinos. The details have been described in earlier orders. In short, Chartwell saw a way to seek refunds of the Nevada use tax paid on complimentary casino meals. Chartwell offered their services to these counterclaim defendants and many other Nevada casinos. Chartwell offered to obtain use tax refunds and keep a percentage of the refund as a contingency fee. Contingency fee contracts were signed. Chartwell submitted numerous use tax refund requests on behalf of its clients. Numerous other casinos likewise sought use tax refunds. Refunds were denied. Appeals were filed. In 2008, the Nevada Supreme Court ruled that the State of Nevada could not lawfully impose a use tax on complimentary meals. See Sparks Nugget Inc. v. State of Nevada ex rel. Dept. of Taxation, 179 P.3d 570, 576-77 (Nev. 2008). At the same time it also hinted that the State could replace the lost tax revenue by collecting a sales tax on these same complimentary meals. Id. at n.15 (“Still, we do not foreclose the possibility that complimentary meals such as the ones at issue in this case may be subject to sales tax where consideration is properly demonstrated.”).

         Instead of paying use tax refunds, the Nevada Department of Taxation began assessing against the casinos deficiency amounts for unpaid sales taxes on past the complimentary meals. Chartwell's contracts did not anticipate that tax twist. And because the use tax was computed on the wholesale value of a meal while the sales tax is computed on the retail value of the meal, the counterclaimant defendants faced an even larger sales tax liability. In 2013, an industry-wide settlement was reached between the Nevada casino industry and the Governor's Office. In essence, the casinos (including the counterclaim defendants) agreed to withdraw their use tax refund requests and the Nevada Department of Taxation agreed to withdraw its sales tax deficiencies, in expectation that the Nevada Legislature would pass legislation creating a sales tax moratorium on complimentary meals through the year 2019. It was a walk away agreement. As it turned out, legislation was passed in the waning days of the 2013 legislative session.

         Quantum Meruit [3]

         Previously, this Court found that the contracts did not contemplate that the casinos would pay Chartwell for a refund never actually received and encumbered with a greater sales tax liability. Likewise, the contracts never contemplated that the Governor would seek an industry-wide settlement or that the Nevada Legislature would change the tax laws. Consequently, the casinos traded any future refund they might or might not receive in exchange for the elimination of a looming past sales tax liability on complimentary meals and legislation that could provide sales tax relief for their patrons through 2019. They exchanged the uncertainty of tax litigation, on the one hand, for the certainty of relief, on the other hand, from sales tax liability looking backward and looking forward. Whether that relief from a sales tax was a valuable benefit at all, and if so, whether the benefit was due to Chartwell's efforts, is the subject of the quantum meruit claim.

         Where, as here, Chartwell's clients win the right to a use tax refund, but as a result face an equal or larger sales tax liability, it cannot be said that the clients received a valuable benefit. That the Department of Taxation would offset a use tax refund against its concomitant sales tax deficiency was no mere hyperbole. For example, in Harrah's litigation against the State, the Nevada state district court ruled that the State can offset any refund of use tax due to Harrah's with sales tax that was imposed pursuant to a timely deficiency determination. Harrah's Entm't Grp. v. Nevada, et al., slip op. at *7, Case No. 12 C 2641B (1st Judicial District Court of Nevada Apr. 25, 2013). Chartwell deemed it a win because of the favorable statute of limitations ruling. But the State would have likely appealed. Consequently, any potential right to a use tax refund had little concrete value for the counterclaim defendants. These Chartwell clients ended up in roughly the same position they would have been without Chartwell's services. In trying to harvest some honey, Chartwell stirred up a hive of angry tax bees.

         Under the law of Nevada, “[a] plaintiff seeking to recover in quantum meruit must demonstrate, inter alia, that its services ‘conferred a benefit on the defendant.'” Las Vegas Sands Corp. v. Suen, No. 64594, 2016 WL 4076421, at *3 (Nev. July 22, 2016) (quoting Certified Fire Prot. Inc. v. Precision Constr., 283 P.3d 250, 257 (Nev. 2012)). “Likewise, to have ‘value' means to be significant, desirable, or useful.” Id. (citing Value, Black's Law Dictionary (10th ed. 2014)). “In the context of quantum meruit, we conclude the terms ‘value' and ‘benefit' are interchangeable, as useful or desirable services are those that provide some form of advantage.” Id. “[W]e have distinguished between services that provide value and those that either harm the recipient or leave him in the same position he would have been without the services.” Id. (citing Certified Fire, 283 P.3d at 258; Thompson v. Herrmann, 530 P.2d 1183, 1186 (Nev. 1975)). “[T]he market value of ... services is the remedy traditionally known as quantum meruit.” Restatement (Third) of Restitution and Unjust Enrichment § 49(3)(c) & cmt. f (2011).

         Chartwell has not proven by substantial evidence that its services to these counterclaim defendants up to that point (i.e., before the Governor's office began settlement talks) conferred a valuable benefit. Therefore, Chartwell recovers nothing in quantum meruit for these services. Id.; see also Restatement (Third) of Restitution and Unjust Enrichment §34, cmt. 3 (2011) (interruption by supervening circumstances may result in no unjust enrichment).

         Beyond that point (i.e., after the Governor's Office began settlement overtures), Chartwell provided additional services to these counterclaim defendants in the form of taking part in the industry-wide settlement agreement and getting the settlement agreement approved. Again, substantial evidence is lacking that would prove the services were valuable.

         The problem with Chartwell's claim for quantum meruit is that the industry-wide settlement was instigated by the Governor's Office for the benefit of all of the citizenry and required the independent approval of the legislature in the form of tax moratorium legislation. The State of Nevada desired a global settlement of all use tax refund cases. The legality of imposing sales tax deficiencies to offset use tax refunds was uncertain. Test cases had been instituted and decisions had been issued at the trial court level. The Nevada Supreme Court had hinted about its approval of a sales tax but statute of limitations issues existed.

         The Nevada Department of Taxation might have ultimately won approval of its sales tax deficiency program. In that case, it would have happily traded the right to collect use taxes in exchange for the right to impose even higher sales taxes. Or it could have lost. Had the State lost in the Supreme Court, a $233 million dollar use tax refund liability would remain and would have grown even larger due to accumulating interest. The State of Nevada sought to settle its fiscal uncertainty and made the first move. The Governor's office invited the Nevada Resorts Association (“NRA”) to meet. Chartwell met separately. A concession was included in the proposal for some of Chartwell's other clients. Once the NRA's casino members were in agreement, the smaller non-member casinos needed to be brought in. Chartwell volunteered and did help gain the approval of a number of smaller casinos. But the evidence on Chartwell's efforts and successes in this regard was slim and difficult to evaluate. Not all of the casinos in the State signed on. Whether the Governor would have proceeded without the approval of the Chartwell-obtained casinos is unknown. The evidence showed the Governor wanted 100% agreement. The evidence also showed that 100% agreement was not obtained, but the settlement was still achieved. One could reasonably infer that the Governor would have moved forward regardless - having won the approval of the large number of casino members of the NRA.

         Once the agreement was finalized, the legislature had to be persuaded to pass legislation. In short, it was a global settlement at the instigation of the State. It required the agreement of the State (over which Chartwell had no influence). And it required the agreement of the casino members of the NRA (which was obtained without the help of Chartwell). It required legislation to be considered and passed by the legislature. Individual legislators presumably considered the merits and demerits of the Governor's proposed tax legislation and voted their individual opinions. There is no evidence that it was a settlement at the instigation of Chartwell. There is no evidence that it was something that Chartwell ...


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