Out-of-State Design Professional Firms Must Register in Nevada to Enforce Contracts for Compensation in Nevada

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Nevada, being a small state with a huge tourist attraction (Las Vegas), has often seen out-of-state design and construction professionals retained to provide their unique talents to create landmark quality design or construction projects. Famous designers have contributed their talents to such world-renown projects such as City Center, the Lou Ruvo Center for Brain Health, Project NEON and others. Often left out of the decisions to seek this work, however, are the compliance obligations with Nevada legal requirements to lawfully provide those design professional or construction services. The failure to focus on them before even submitting bids for this work or services can have serious legal consequences for out-of-state design and construction firms.

Use of a non-Nevada design or construction professional raises two basic issues: 1) lawful performance of the work, and 2) ability to collect compensation, if the project goes wrong. These issues are also inter related, because the ability to collect is intended to serve as a “stick” to ensure compliance with performance laws. While contractors have no equivalent option, the lawful performance issue for design professionals can often be resolved by having the non-Nevada professional provide consultant services to a Nevada registered professional who takes responsibility for the design. But that does not resolve the non-Nevada professional’s ability to collect payment for its services, according to the recent Nevada Supreme Court (NSC) decision in DTJ Design, Inc. v. First Republic Bank, 130 Nev.Adv.Op. 5 (Feb. 2014).

In DTJ Design, the NSC determined that regardless of whether a non-Nevada design firm has a Nevada registered architect on its staff, the firm itself must be registered in Nevada in order to collect for its professional services under any legal theory. The facts of the case are not significantly unusual: a non-Nevada architectural firm employed a Nevada registered architect. The firm submitted a registration application with the Nevada State Board of Architecture, but that application was not received. Even if it had been received, it would not have been approved because the firm did not comply with NRS 623.349, requiring control and two-thirds of the firm ownership to be Nevada registered. The design firm nevertheless proceeded with work on a condominium subdivision, which obtained financing from a bank. The project went under, with the firm recording a mechanics lien to secure its compensation. The bank later foreclosed on its deed of trust, but the firm challenged the bank’s priority over its mechanics lien. After the district court determined the mechanics lien had priority over the bank, the bank moved for summary judgment on the grounds that, as a non-Nevada registered firm, NRS 623.357 prohibited the firm from maintaining any court action to foreclose the lien. The district court agreed, and entered summary judgment against the firm, who appealed to the Nevada Supreme Court.

Upholding the district court, the Nevada Supreme Court noted NRS 623.357 provides:

“[no] person [or] firm … may bring or maintain any action … for the collection of 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.”

Accordingly, the Nevada Supreme Court found the firm bore the burden of pleading and proving it was properly registered under NRS 623.349 as part of its prima facie case seeking compensation for its services. Since NRS 623.357 applies not just to individuals but also to corporate entities, its provisions apply as restraints to both businesses and individuals interchangeably. The fact that an individual design professional is registered in Nevada is not important, because the contract at issue was entered into between the firm and the project owner, not the individual. The firm must register as a separate legal entity. The Court did not reach a question whether the ability to assign a mechanics lien under NRS 108.243 conflicts with NRS 623.349 in some fashion because the issue was not raised at the trial court level. But since the failure to comply with NRS 623.349 eliminated any potential recovery, the Nevada Supreme Court did not need to address claims of unjust enrichment—they were precluded, as well.

Having said this, the Nevada Supreme Court was quick to point out that its previous rulings allowing a substantial compliance exception to such statutory prohibitions were not altered by this decision. The viability of an unlicensed contractor to assert equitable causes of action in a contract claim outlined in cases such as Loomis v. Lange Financial Corp., 109 Nev. 1121, 865 P.2d 1161 (1993) and Nev. Equities v. Willard Pease Drilling, 84 Nev. 300, 440 P.2d 122 (1968) were distinguishable because there was a good faith attempt to comply with the registration law in those cases. In this case, however, the design firm could not make such claims because while it did apply for registration, it made no continuing effort while performing design work in Nevada on four other projects over the last 15 years. Thus, the firm had not made any efforts to substantially comply with the legal registration obligations, and could not use those principles to avoid the NRS 623.357 prohibition.

Protectionist legislation such as NRS 624.357 is found in most jurisdictions and is routinely justified on the grounds that the state legislation is necessary to ensure the public health, safety and welfare. NRS 623.010 and NRS 624.005 are examples. While some may argue that these types of restrictions have more to do with guarding livelihoods of local practitioners than public health, they do have broad implications. Decisions such as DTJ Design may have a chilling effect on attracting the most creative design and construction minds to Nevada. To avoid this, careful and experienced local legal analysis before bidding on work is the best protection for non-Nevada design and construction professionals.

Topics:  Construction Contracts, Construction Disputes, Construction Liens

Published In: Civil Procedure Updates, General Business Updates, Construction Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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