Nevada Supreme Court Clarifies the Litigation Waiver of the One-Action Rule

Nevada has a one-action rule which, with limited exceptions, requires a creditor seeking to recover a debt secured by real property to proceed against the security first prior to seeking recovery from the debtor personally. In the event that a law suit is filed in violation of the one-action rule, final judgment may be entered in favor of the creditor but that judgment “releases and discharges the mortgage or other lien.”  NRS 40.455(3).  Nevada law further provides that, with the exception of certain guaranties, any provision in an agreement relating to the sale of real property which contains a waiver of Nevada’s anti-deficiency laws may not be enforced by a court because doing so violates Nevada’s public policy.  NRS 40.453.

Nevada law also addresses when the one-action rule may be waived in litigation. In the author’s view, the governing statute, NRS 40.435 is ambiguous.  Section 2 of that statute states that if the one-action rule is timely interposed as an affirmative defense, the action must either be dismissed without prejudice or continued to allow the creditor to file amended pleadings to convert the action into one which does not violate the one-action rule.  This suggests that the one-action rule must be asserted as an affirmative defense in the debtor’s answer to the complaint or it is waived by the debtor.  The first sentence of section 3 of the statute, however, seems to suggest that the debtor has up until the entry of a final judgment to waive the one-action rule by stating: “[t]he failure to interpose, before the entry of a final judgment, the provisions of NRS 40.430 [the one-action rule] as an affirmative defense in such a proceeding waives the defense in that proceeding.”

In Hefetz v. Beavor, 133 Nev. Adv. Op. 46 (July 6, 2017), the Nevada Supreme Court addressed the tension between subsections 2 and 3 of NRS 40.435.  In that case, the creditor sued the debtor who was a guarantor, lost at trial and secured an order requiring a new trial.  After the new trial was ordered, the debtor first interposed the one-action rule as a defense and moved to dismiss on that basis.  The lower court granted the debtor’s motion to dismiss and the creditor appealed to the Nevada Supreme Court.

On appeal the creditor argued that the debtor’s motion to dismiss was improperly granted “because NRS 40.435(2) and NRCP 8(c) and 12(b) together provide that the one-action rule must be timely asserted in litigation as an affirmative defense and, here, [debtor] did not timely assert the defense because he did not assert it until after the first trial.” The debtor responded by arguing that the affirmative defense and motion to dismiss were timely because NRS 40.435(3) prohibits a waiver of the one-action rule before entry of the final judgment.

The Nevada Supreme Court reversed the lower court, reasoning that “in litigation the one-action rule may be waived if not timely asserted” and NRCP 8(b) and 12(c) “govern the timely assertion of affirmative defenses, including the one action-rule.” The Nevada Supreme Court then held that the assertion of the one-action rule after the first trial (and long after the deadline to amend pleadings expired), but before the entry of a final judgment, was not timely.  The Nevada Supreme Court also held that the first sentence of NRS 40.435(3) does not prohibit a waiver of the one-action rule earlier in litigation, such as the failure to interpose it as an affirmative defense.  Finally, the court held that any interpretation of NRS 40.345(3) allowing the asserting of the one-action rule at any time before entry of the judgment would render NRS 40.435(2) superfluous.

The Hefetz decision is favorable to lenders.  It, however, makes it clear that all litigators need to timely assert their affirmative defenses including statutory defenses not listed in NRCP 8 or those defenses may be waived.