Sheehan & Sheehan v. Nelson Malley & Co., 121 Nev. 481

Summary

The Supreme Court of Nevada reviewed consolidated appeals involving the sale of an accounting practice, contractual collection calculations, a covenant not to compete, liquidated damages, indemnification, and costs. The court affirmed the judgment concerning the purchase-price reduction, indemnification, attorney fees, and costs, but reversed the liquidated-damages award because the alleged covenant violations did not support recovery under the agreement. The case was remanded for recalculation of damages.

Holdings

1. The district court correctly determined that the agreement's definition of collections included the relevant billings and accounts receivable and that Nelson Thorne collected less than $325,000 during the look-back period, entitling it to a $55,000 reduction in the purchase price.
2. The agreement required monthly totals but did not require a separate report to be delivered each month; therefore, a single report conveying the monthly billing totals for the look-back period satisfied the agreement. Even if the reporting obligation was breached, the breach was immaterial.
3. The sellers did not violate the covenant not to compete as a matter of law, and the liquidated-damages clause was not triggered. The district court therefore erred in awarding liquidated damages.
4. The indemnification clause covered the $35,000 in damages Nelson Thorne incurred correcting erroneous tax returns prepared by Sheehan & Sheehan.
5. The duty to make reasonable mitigation efforts did not require Nelson Thorne to ask the sellers to correct their own errors, and the sellers failed to prove that the damages could have been mitigated through a third-party accountant.
6. The district court did not commit palpable abuse of discretion by admitting testimony concerning the extent of Nelson Thorne's damages.
7. The sellers waived appellate review of the cost award by failing to move in the district court to retax and settle the costs.

Questions Presented

1. Whether the district court correctly interpreted the sales agreement's collections provision and properly reduced the purchase price by $55,000.
2. Whether a single report containing monthly billing and collection totals satisfied the agreement's reporting requirement.
3. Whether the sellers violated the covenant not to compete so as to trigger the liquidated-damages clause.
4. Whether the indemnification clause covered damages incurred to correct erroneous tax returns prepared by the sellers.
5. Whether Nelson Thorne had a duty to mitigate its damages by asking the sellers to correct their own errors or by using a third-party accountant.
6. Whether the district court improperly admitted testimony concerning damages.
7. Whether the sellers preserved their challenge to the award of costs.

Disposition

reversed_and_remanded