SILVERWING DEVELOPMENT NEVADA CORPORATION v. JACKSON SONS LLC (2025)

ORDER OF REVERSAL AND REMAND

Silverwing Development appeals from a district court order denying a motion to compel arbitration. Second Judicial District Court, Washoe County; Kathleen A. Sigurdson, Judge.

In December 2023, Silverwing filed a complaint against respondent Jackson & Sons, LLC (Jackson), alleging breach of contract in a construction defect matter and seeking damages in excess of $50,000. The contract between the parties included a mediation clause, in which they agreed to mediate any disputes before resorting to arbitration or court action. The contract also included a separate arbitration clause, which stated that all disputes arising between the parties out of the contract shall be submitted to and settled by arbitration if the parties could not settle the dispute between themselves or through mediation.

Jackson filed an answer and, shortly thereafter, Silverwing filed a request for exemption from the court annexed arbitration program pursuant to the Nevada Arbitration Rules because the case involved an amount in excess of $50,000. Silverwing's exemption request was granted. The parties also exchanged initial disclosures pursuant to NRCP 16.1 and attended an early case conference, but the record does not reflect that they filed joint or separate case conference reports in order to engage in formal discovery under the NRCP.

The parties thereafter attended a mediation in May 2024, but it was unsuccessful. The following month, Silverwing filed a motion to compel arbitration, explaining the difficulties it had experienced in enforcing its contract requiring mediation. Silverwing explained that it had made a demand for mediation pursuant to the parties’ contract prior to filing suit but Jackson did not respond. Silverwing further explained that, in February 2024, it renewed its demand for mediation. Finally, when the parties were able to mediate in May, the mediation was unsuccessful. Given the unsuccessful mediation, and in accordance with their contract, Silverwing next sought to submit the dispute to arbitration by issuing a demand for arbitration to Jackson. However, Jackson did not respond to the demand for arbitration, which required Silverwing to file its motion to compel arbitration.

Jackson opposed the motion, arguing that Silverwing waived its right to arbitration because its actions throughout the litigation were inconsistent with that right. Jackson further argued it was prejudiced because it retained counsel, had to defend itself, and intended to file a third-party lawsuit against other subcontractors it believed were responsible for the construction issues, which would lead to increased difficulties in litigating the matter. Silverwing filed a reply disputing Jackson's arguments and pointing out that the deadline for filing a third-party complaint had long passed.

Following a hearing, the district court denied Silverwing's motion to compel arbitration. The court found that Silverwing proved the existence of an arbitration clause but waived its right to arbitration because it knew of its right to arbitrate and acted inconsistently with that right. The district court found Silverwing failed to advise Jackson of its intention to seek arbitration until nearly six months after initiating the lawsuit, litigated the matter, requested an exemption from the court annexed arbitration program, “sought discovery,” and attended mediation.

Further, the district court found that Jackson was prejudiced by Silverwing's inconsistent acts. The court found that Jackson had retained counsel to respond to the litigation, filed an answer, and intended to file a third-party complaint. Further, the court found that discovery had already commenced. The court also determined that Jackson could still attempt to file a third-party complaint with leave of court and if filed, the matter would be complicated further with motions by the third-party defendants and Silverwing's oppositions. Additionally, the district court found those third parties “may” not be subject to the arbitration provision in Silverwing and Jackson's contract.

Silverwing subsequently filed a motion to alter or amend and to reconsider, which the court ultimately denied. This appeal followed.

On appeal, Silverwing challenges the district court's denial of its motion to compel, arguing it did not waive its right to arbitrate because it did not act inconsistently with its right to arbitrate and Jackson suffered no prejudice.

A district court's order resolving a motion to compel arbitration may involve mixed questions of law and fact. El Jen Med. Hosp., Inc. v. Tyler, 139 Nev. 322, 324, 535 P.3d 660, 664 (2023). Waiver is generally a question of fact, but when the facts are not contested and the question of waiver rests on the legal implications of those uncontested facts, waiver may be determined as a matter of law. Nev. Gold & Casinos, Inc. v. Am. Heritage, Inc., 121 Nev. 84, 89, 110 P.3d 481, 484 (2005) (citing Merrill v. DeMott, 113 Nev. 1390, 1399, 951 P.2d 1040, 1045-46 (1997)).

Nevada public policy favors arbitration, and arbitration clauses are generally enforceable. Gonski v. Second Jud. Dist. Ct., 126 Nev. 551, 557, 245 P.3d 1164, 1168 (2010), overruled on other grounds by U.S. Home Corp. v. Michael Ballestros Tr., 134 Nev. 180, 192, 415 P.3d 32, 42 (2018). However, like any other contractual right, a party can waive its right to arbitration. U.S. v. Park Place Assocs., Ltd., 563 F.3d 907, 921 (9th Cir. 2009). The party opposing enforcement of a valid arbitration clause has the burden of establishing its defense to enforcement. Gonski, 126 Nev. at 557, 245 P.3d at 1169. Waiver of the right to arbitrate is not a favored finding and should not be lightly inferred. Principal Invs. v. Harrison, 132 Nev. 9, 20, 366 P.3d 688, 696-97 (2016). A party seeking to prove the waiver of a right to arbitrate must demonstrate three elements: (1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration resulting from such inconsistent acts. Nev. Gold, 121 Nev. at 90-91, 110 P.3d at 485. Silverwing acknowledges it knew of its right to arbitrate and, thus, we confine our analysis to the second and third elements.

Turning to the inconsistent acts element, the district court found that Silverwing acted inconsistently with its right to arbitrate because it “did everything to litigate this matter,” including filing a complaint and request for exemption from the court annexed arbitration program, seeking discovery, and participating in mediation. Further, the court found Silverwing did not advise Jackson of its intention to arbitrate until June 2024. We disagree and conclude the district court erred in finding Silverwing's actions were inconsistent with its right to arbitrate.

The record shows that, after Jackson refused to participate in the repair process, consistent with the parties’ contract, Silverwing attempted to engage in mediation by sending a demand for mediation to Jackson prior to initiating the lawsuit, but Jackson did not respond to that demand. Silverwing subsequently filed the lawsuit in December 2023 to enforce the terms of the parties’ contract. Silverwing then renewed its mediation demand—a condition precedent to arbitration under the parties’ contract—in February 2024. Ultimately, the parties participated in an unsuccessful mediation in May. Following the unsuccessful mediation, and again consistent with the contract, Silverwing requested arbitration and Jackson refused, requiring it to file the motion to compel arbitration with the district court.

Further, while the district court initially found that discovery had commenced, the court later acknowledged in its order denying Silverwing's motion for reconsideration that “the only discovery that has taken place are the exchanges of initial disclosures” and the only matter that had been litigated was Silverwing's motion to compel arbitration. Of note, the exchanging of initial disclosures pursuant to NRCP 16.1 is a mandatory requirement, and not an act inconsistent with the right to arbitrate. See NRCP 16.1(a) (identifying required disclosures to be exchanged by the parties and explaining that initial disclosures, setting forth certain information, must be exchanged by the parties “without awaiting a discovery request”). Moreover, the parties do not assert, and the record does not reflect, that the parties filed joint or separate case conference reports, which are generally required to initiate discovery beyond the mandatory pretrial disclosure requirements. See NRCP 26(a) (“At any time after the filing of a joint case conference report, or not sooner than 14 days after a party has filed a separate case conference report, or upon order by the court or discovery commissioner, any party who has complied with Rule 16.1(a)(1), 16.2, or 16.205 may obtain discovery by any means permitted by these rules.”). Because it does not appear from the record or the parties’ representations that discovery beyond the mandatory initial disclosures had commenced, and the record contains no order from the court or discovery commissioner allowing early discovery, we conclude Silverwing's compliance with mandatory pretrial requirements did not constitute inconsistent acts.

Additionally, the fact that Silverwing waited six months to file the motion to compel, after first seeking to mediate the dispute in accordance with the parties’ contract and without litigating substantive motions, is insufficient to show Silverwing acted inconsistently with its right to arbitrate. See Nev. Gold, 121 Nev. at 91, 110 P.3d at 485 (Ending a party waived its right to compel arbitration by acting inconsistently with that right after it “vigorously” litigated substantial issues for eighteen months without moving to compel arbitration and instead waited until the eve of trial to belatedly seek an order compelling arbitration); Mirage Casino-Hotel v. Beale Street Blues Co. Las Vegas, LLC, Docket No. 64535, 2016 WL 1335462 (Nev. Apr. 1, 2016) (Order of Affirmance and Remand) (concluding a party waived its right to arbitrate by, among other things, actively litigating the same claims it sought to arbitrate for two years, and collecting federal cases finding waiver where parties litigated matters for lengthy periods of time prior to asserting the right to arbitrate).¹

We are similarly unpersuaded that Silverwing's request for an exemption from the court annexed arbitration program constituted an inconsistent act, given the circumstances. Specifically, Silverwing requested an exemption because its claimed damages would exceed $50,000 should the jury find in Silverwing's favor. See NAR 5(b)(1)(C) (stating “any action where, assuming a jury finds in favor of plaintiff, the probable jury verdict would exceed $50,000” may be exempted from the court annexed arbitration program). Moreover, the rules of the program provide that participating parties are not required to be bound by the program arbitrator's decision. See NAR 1 (noting the court annexed arbitration program is a nonbinding program). This is contrary to the contract in the instant case, which provided that the arbitrator's decision would be final and conclusive. Additionally, the parties’ contract requires the arbitration to proceed in accordance with the Construction Industry Rules and procedures of the American Arbitration Association rather than the rules of the court annexed arbitration program.

Under these circumstances, and given that waiver of the contractual right to arbitrate is disfavored, see Harrison, 132 Nev. at 20, 366 P.3d at 696-97, we conclude the district court erred by finding Silverwing's actions were inconsistent with its right to compel arbitration.

Moreover, even if we concluded the district court properly found Silverwing's conduct was inconsistent with its right to compel arbitration, reversal would nevertheless be warranted because the court erred by finding Jackson was prejudiced. See Nev. Gold, 121 Nev. at 90-91, 110 P.3d at 485 (explaining a party must show all three elements to prove waiver). The district court found that Jackson suffered prejudice because it was forced to retain counsel and respond to the litigation, discovery had commenced, and the litigation would be more difficult because Jackson intended to file a third-party complaint. However, these findings do not constitute prejudice under our supreme court's guidelines. Our supreme court has explained that prejudice may be shown (1) when the parties use discovery not available in arbitration, (2) when they litigate substantial issues on the merits, or (3) when compelling arbitration would require a duplication of efforts. Id.

Here, the district court made no findings concerning discovery that was inapplicable to arbitration. Further, the exchange of mandatory initial disclosures without any further discovery is insufficient to demonstrate prejudice. See Lennar Reno, LLC v. Macedo, Docket No. 65510, 2015 WL 7432106, *2 (Nev. Nov. 18, 2015) (Order of Reversal and Remand) (reversing a district court order denying a motion to compel arbitration and concluding there was no prejudice in part because “the parties only engaged in limited discovery, much of which may be used during the arbitration proceedings”). Additionally, the record reflects that the parties did not litigate substantial issues on the merits, as they had only litigated the motion to compel arbitration. And the fact that the litigation would be more complex with added third parties does not demonstrate prejudice under Nevada Gold.

To the extent Jackson asserts that adding third parties would result in duplicative efforts because such parties may not be subject to the arbitration provision, we are unpersuaded by that conclusory argument which fails to demonstrate that compelling arbitration would require a duplication of efforts. See Gonski, 126 Nev. at 557, 245 P.3d at 1169 (providing that the party opposing enforcement of a valid arbitration clause must establish its defense to enforcement); see also Mirage, Docket No. 64535, 2016 WL 1335462, *4, (concluding there was prejudice based on the parties litigating substantial issues on the merits but rejecting that there was prejudice based on duplicative efforts because neither the record nor the parties’ arguments clearly explain what litigation would be duplicated through arbitration).²

Accordingly, for the foregoing reasons, we conclude the district court erred by denying Silverwing's motion to compel. We therefore

ORDER the judgment of the district court REVERSED AND REMAND this matter to the district court for proceedings consistent with this order.

Bulla, C.J.

Gibbons, J.

Westbrook, J.

FOOTNOTES

1.   Moreover, the district court's finding that initiating a lawsuit constitutes an inconsistent act is unsupported by authority. Indeed, certain federal cases suggest that merely initiating a lawsuit, without additional inconsistent acts, is insufficient to constitute waiver. See, e.g., Pirtek USA, LLC v. Twillman, Case No. 6:16-cv-01302-Orl-37TBS, 2016 WL 7116205, at *6 (M.D. Fla. Dec. 7, 2016) (finding the defendant failed to meet its “heavy burden” to establish waiver in part due to the relatively brief delay between plaintiff's complaint and its arbitration demand); see also Katsoris v. WME IMG, LLC, 237 F. Supp. 3d 92, 101-02 (S.D.N.Y. Feb. 27, 2017) (explaining plaintiffs did not waive their right to arbitrate, despite not filing a motion to compel for five months, in part because the complaint sought an injunction in aid of arbitration and concluding a five-month period is not sufficient, standing alone, to infer waiver of arbitration).

2.   We also note that Jackson filed its answer on January 12, 2024, so the deadline for filing the third-party complaint had passed, and Jackson would not be able to file such a complaint without leave of court, which it had not yet sought. See NRCP 14(a)(1) (providing that a defending party may file a third-party complaint against a nonparty but must obtain leave of court if it files the third-party complaint more than 14 days after serving its original answer). Therefore, based on the current lack of third party involvement, denying Silverwing's motion to compel arbitration on this ground is not persuasive.