Foreign Architectural Firms Doing Business in Nevada

Posted by: on Mon, Oct 20, 2014

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Trying to circumvent Nevada law by utilizing an employee as the strawman lien claimant, to pursue a lien for work performed by an architectural firm through its employee, as the real lienor and real plaintiff in interest, has previously been rejected by the Nevada Supreme Court. In Nevada National Bank v. Snyder, 108 Nev. 151, 157, 826 P.2d 560, 563-64 (1992) (partially abrogated by Executive Mgmt. Ltd. v. Ticor Title Ins. Co., 118 Nev. 46, 38 P.3d 872 (2002)), the holder of an option agreement to purchase certain ranch land, entered into a design agreement with an engineering firm to design a planned project thereon, which engineering firm, in turn, retained “Depner Architects & Planners, Inc.,” a foreign corporation not qualified or registered to do business in Nevada, to provide architectural services. When Depner Architects (the foreign corporation) sought to pursue a lien claim against the property, and its capacity to do so was challenged, it received district court permission to amend its complaint to name one of the firm members (named Depner) as the Plaintiff, to pursue the claim in his individual name, as though he had performed the work as a sole proprietorship.

The Nevada Supreme Court reversed the district court, criticized it for having countenanced this ploy, and refused to recognize this sham, including because “(1) after [the foreign corporation] incorporated in Washington, all invoices were submitted . . . on behalf of the corporation; (2) the construction drawings for the proposed project were prepared by the corporation; (3) the individuals who worked on the drawings were employees of the corporation” etc. Snyder, 826 P.2d at 562. Thus, “the district court abused its discretion in allowing Depner [the individual] to substitute himself as an individual for the corporate entity . . . .” Id.

The initial issue which prevented the foreign architectural firm from having capacity to sue in the Snyder case was that it had failed to qualify to do business in Nevada by registering with Nevada’s Secretary of State. The Snyder Court did not reach the question of whether Depner’s foreign firm was registered with the Nevada Architectural Board, or the issues which would be raised if it were not. The Court’s handling of the Secretary of State qualification issue was later abrogated in Executive Mgmt. Ltd. v. Ticor Title Ins. Co., 118 Nev. 46, 38 P.3d 872 (2002), which held that the proper method for dealing with that issue is to stay cases until the corporation complies with the requirement. Nevertheless, the Nevada Supreme Court’s answer to the more fundamental question, whether a lien may be pursued by an individual for his employer’s work has never been abrogated. Nevada’s licensing and registration requirements, which disqualify a foreign architectural firm from providing services and pursuing compensation for the same in Nevada if it is not registered with the State Architectural Board, are far more difficult to meet than merely qualifying a foreign corporation to do business with Nevada’s Secretary of State.

Consequently it would be extremely difficult to allow a lien claim to be pursued in the name of an individual employee of an architectural firm when the evidence demonstrates that the foreign architectural firm was the entity which had actually performed the work and billed for the work and was the real lienor in interest. For example, on February 13, 2014, the Nevada Supreme Court issued its opinion in DTJ Design, Inc. v. First Republic Bank, a Nevada Corp., 318 P.3d 709, 130 Nev. Adv. Op. 5, in which the Court addressed other disqualifying factors, beyond those referenced in Snyder, which prevent foreign architectural firms from liening for services in Nevada if they have not registered with the Nevada Architectural Board, which opinion therefore clarifies the limited extent of the abrogation of Snyder.

DTJ Design examined, among other provisions, NRS 623.349, which provides the methods which foreign firms should comply with if they want to be eligible to perform architectural and design work in Nevada, with the right to bill and lien for the same.

The statute indicates in pertinent part as follows:

NRS 623.349 Formation of business organizations or associations with . . . unregistered or unlicensed persons: Conditions; limitations. 1. Architects . . . may join or form a partnership, corporation, limited-liability company or other business organization or association . . . with persons who are not registered or licensed, if control and two-thirds ownership of the business organization or association is held by persons registered or licensed in this State pursuant to the applicable provisions of this chapter, chapter 623A or 625 of NRS.

2. If a partnership, corporation, limited-liability company or other form of business organization or association wishes to practice pursuant to the provisions of this section, it must: (a) Demonstrate to the Board that it is in compliance with all provisions of this section. (b) Pay the fee for a certificate of registration pursuant to NRS 623.310. (c) Qualify to do business in this State. (d) If it is a corporation, register with the Board and furnish to the Board a complete list of all stockholders when it first files with the Board and annually thereafter within 30 days after the annual meeting of the stockholders of the corporation, showing the number of shares held by each stockholder [i.e., to ensure the 2/3 ownership requirement is met.] . . . . [Emphasis and bracketed explanatory language added.]

The DTJ Design decision concluded that regardless of whether a foreign architectural firm employs a licensed Nevada architect, NRS 623.349(2) and NRS 623.357 still require that the foreign architectural firm itself be registered in Nevada in order for a mechanic’s lien action to be pursued on the firm’s behalf. DTJ was a Colorado architectural firm. Thomas Thorpe was a professional architect and one of DTJ’s three founding principals (but owned less than 2/3 of the entity, just as Steppan owned 0% of FFA). In 1998, Thorpe sought reciprocity to practice in Nevada and submitted two applications to the state board of architecture, one on his own individual behalf, and another on behalf of the corporate entity, DTJ. Only Thorpe’s individual application was received and approved. DTJ later recorded a notice of mechanic’s lien against Nevada real property for unpaid architectural services, and sought to establish that this lien had priority over an existing deed of trust recorded by First Republic Bank.

First Republic successfully moved for summary judgment, since NRS 623.357 prohibited DTJ from maintaining its lien foreclosure action as DTJ had not registered with Nevada’s architectural board including under NRS 623.349. On appeal, the Supreme Court upheld this ruling, noting that, under NRS 623.357 no person may bring or maintain an action for compensation for architectural services without first “alleging and proving that such plaintiff was duly registered under this chapter at all times during the performance of such act or contract.” Thus, DTJ was required to plead and prove these required elements of a lien claim as its prima facie case, to obtain compensation for its Nevada architectural services, regardless of the nature of the affirmative defenses.

In reaching this decision, the DTJ Design Court expressly ruled on and rejected many arguments raised to circumvent the statute.  For example, the DTJ Court ruled that NRS 623.349(2) precluded DTJ (as an unlicensed and unregistered firm) from foreclosing on a mechanic’s lien for work that was allegedly performed by one of DTJ’s individual architects, Thorpe, even though Thorpe was licensed in Nevada. In rejecting DTJ’s claim, the DTJ Court pointed out that Thorpe was not a 2/3 owner of the foreign corporation, as required by Nevada law for that entity to be allowed to register here, in order to provide services here.

NRS 623.349(1) allows registered architects to partner with unregistered architects and form a business organization to practice in Nevada, so long as the registered architects satisfy a two-thirds ownership requirement. In order for a foreign business to operate as a separate entity in Nevada, it must satisfy the requirements found in NRS 623.349 by demonstrating to the board that registered architects within the firm satisfy the two-thirds ownership provision under NRS 623.349(1) and that the business is qualified to do business in this state and has paid the requisite registration fee under NRS 623.349(2)(a)-(c). DTJ at 6. (Emphasis added.)

Thus, even if the Nevada Board had received DTJ’s application, it would have denied it “because Thorpe did not satisfy the two-thirds ownership requirement” of NRS 623.349(1). Id. The DTJ Court also expressly rejected any claim that Thorpe should individually be able to foreclose on the lien as a Nevada registered architect: “to the extent that DTJ argues that Thorpe should individually be able to foreclose on the lien as a registered architect, we disagree” including because Thorpe was not truly involved as a co-principal on the project for much of the time the project was undertaken. Id. at 6-7.

Nevada’s architectural licensing statutes are aimed at protecting the Nevada public from the risks inherent from allowing foreign architectural firms, who are unwilling or unable to demonstrate their competence in working with local building codes and local site conditions (through the proscribed professional in-State registration process) from designing Nevada buildings, and to thereby “safeguard life, health and property.” NRS 623.010. See, e.g., Harrie v. Kirkham, Michael & Associates, 179 N.W.2d 413, 415 (N.D. 1970) (“We can find no valid reason for holding that the profession of architecture should be treated any differently from the professions of medicine, dentistry, or law”). This is particularly true in high rise projects. The Nevada Legislature has stated its intent to only allow firms which are registered in Nevada and are owned by at least 2/3 licensed Nevada architects, to perform architectural services for Nevada projects. Even if a firm claims it is only providing “design” services, and even if that claim were credible, it mut still be registered to do such work. NRS 623.180(1).

 

About the Authors: The law firm of Albright, Stoddard, Warnick & Albright is an A-V Rated Nevada-based full-service law firm having attorneys licensed in Nevada, California and Utah. Our firm’s practice includes a strong emphasis on litigation, including commercial and tort (injury) matters.  

Note: This article, and any other information you obtain at this website, is not offered as legal advice, nor should it be relied upon as such, nor is it a solicitation for legal services. Only a licensed attorney can advise you with respect to your specific legal needs. We welcome your contacting our firm to discuss such representation. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.

 

 

About the Authors: The law firm of Albright, Stoddard, Warnick & Albright is an A-V Rated Nevada-based full-service law firm having attorneys licensed in Nevada, California and Utah. Our firm’s practice includes a strong emphasis on personal injury accidents. Call us at 702-384-7111.

Note: This article, and any other information you obtain at this website, is not offered as legal advice, nor should it be relied upon as such, nor is it a solicitation for legal services. Only a licensed attorney can advise you with respect to your specific legal needs. We welcome your contacting our firm to discuss such representation. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.

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