# Galardi v. Naples Polaris, L.L.C.

> Nevada Supreme Court · May 16, 2013 · 129 Nev. 306

URL: https://www.frixlaw.com/law-library/cases/1033217

## Case

- **Full name:** JACK GALARDI, an Individual; And BIRDIE, LLC, a Nevada Limited Liability Company, Appellants, v. NAPLES POLARIS, LLC, a Nevada Limited Liability Company, Respondent
- **Court:** Nevada Supreme Court
- **Decided:** May 16, 2013
- **Citations:** 129 Nev. 306; 129 Nev. Adv. Rep. 33; 301 P.3d 364; 2013 Nev. LEXIS 39; 2013 WL 2112131
- **Precedential status:** Published
- **Opinion:** Opinion by Pickering
- **Judges:** Pickering, Hardesty, Saitta
- **Cited by:** 96 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/1033217

## How later opinions describe it (automated extraction)

- holding that this court will uphold the district court's findings of fact if they are supported by substantial evidence
- observing that a finding of ambiguity in a term is not necessary before consulting a dictionary definition of that term
- holding that a contract is “ambiguous if its terms may 17 reasonably be interpreted in more than one way”

## Opinion text

129 Nev., Advance Opinion 33
IN THE SUPREME COURT OF THE STATE OF NEVADA

JACK GALARDI, AN INDIVIDUAL; No. 58261
AND BIRDIE, LLC, A NEVADA
LIMITED LIABILITY COMPANY,
Appellants,
vs.
NAPLES POLARIS, LLC, A NEVADA
LIMITED LIABILITY COMPANY,
Respondent.

Appeal from a district court order granting summary
judgment in a contract action. Second Judicial District Court, Washoe
County; Brent T. Adams, Judge.
Affirmed.

Armstrong Teasdale LLP and Bruce A. Leslie and Bret F. Meich, Las
Vegas,
for Appellants.

Holland & Hart, LLP, and J. Stephen Peek, Timothy A. Lukas, and
Tamara Reid, Reno,
for Respondent.

BEFORE PICKERING, C.J., HARDESTY and SAITTA, JJ.

OPINION

By the Court, PICKERING, C.J.:
This dispute arises out of a written option contract. Under the
contract, respondent Naples Polaris had the right to purchase Las Vegas
real property from appellants Jack Galardi and Birdie, LLC (together,

- /14164,
Galardi), for $8 million "cash." The property was subject to a deed of trust
securing approximately $1.3 million in debt. The question is whether
Naples or Galardi must pay off the $1.3 million debt. Specifically, does the
option contract require Galardi to deliver clear title, meaning Galardi
must remove the $1.3 million encumbrance for a net $6.7 million option
price? Or does it contemplate that Naples take title subject to preexisting
encumbrances, so that Galardi receives the full $8 million option price?
The district court granted summary judgment to Naples.
Galardi appeals and we affirm.
I.
Naples acquired its option rights by assignment from
Galardi's lessee, French Quarter, a nonparty. The deed of trust securing
the $1.3 million debt predated the option. French Quarter was operating
a topless club on the property but losing money and filed for bankruptcy
protection. We simplify the facts slightly, but what happened next is the
bankruptcy trustee lined up a fourth party to acquire the property and
Naples' option. The price was handsome—enough to pay off the $1.3
million encumbrance, to give Galardi the full $8 million option price he
demanded, and to generate surplus funds for Naples and French Quarter's
creditors.
Naples and Galardi welcomed the Bankruptcy court sale. But
they could not agree on whether the $1.3 million needed to retire the
preexisting encumbrance against the property should come out of Naples'
or Galardi's share of the sale proceeds. They stipulated to let the sale
close, with Galardi receiving $8 million and Naples reserving the right to
sue Galardi in state court for the $1.3 million. This suit over the proper
interpretation of the option contract followed, which the district court
decided on cross-motions for summary judgment.
SUPREME COURT
OF
NEVADA
2
(0) 1947A
The option contract is in writing and includes an integration
clause. The contract is silent as to preexisting encumbrances in general
and the $1.3 million debt in particular. It says simply:
Buyer [Naples] shall have an option to purchase
the above described real estate for the sum of
$8,000,000 (Eight Million Dollars) cash.. . . Buyer
[Naples] shall pay all costs of transfer and closing
whereby Seller [Galardi] shall receive full
purchase price.
In their motions for summary judgment, both sides argued
that the option contract, as written, unambiguously favored its position.
Each focused on the phrase, "Buyer shall pay all costs of transfer and
closing whereby Seller shall receive full purchase price." Galardi argued
that "costs of transfer and closing" encompasses preexisting indebtedness,
so that he receives the $8 million "full purchase price" with no deductions.
Naples countered that "costs of transfer and closing" refers to transaction
costs such as recording fees and transfer taxes, not encumbrances. In
Naples' view, if Galardi meant for Naples to take title subject to
preexisting encumbrances, he needed to write the option contract to say so
specifically.
Both Naples and Galardi supported their readings of the
contract with testimonial evidence. Galardi offered excerpts from his
deposition, in which he testified that he understood that the deal would
net him $8 million; that French Quarter (later Naples, as French
Quarter's assignee) would "pick up the bank note, clean it up, send me $8
million and I'm gone." Naples offered an expert affidavit from Diane
Erickson, past president and current certification chair for the Nevada
Escrow Association with considerable Nevada real estate industry
experience. Addressing the contract provision that "Buyer shall pay all
SUPREME COURT
OF
NEVADA
3
(0) 1947A
costs of transfer and closing," Ms. Erickson opined that in the real estate
industry, "[c]losing costs are separate and apart from the purchase price
and normally consist of the title policy fee, escrow fee, real property
transfer tax, recording fees, etc." She further opined, based on her
"experience in the industry, that whenever real property is transferred, it
is always given to the purchaser free and clear of any encumbrances or
liens, unless the agreement specifically states that it is to be acquired
'subject to' the existing encumbrance, and the buyer specifically agrees to
take over the payments of the existing loan."
Galardi did not dispute the real-estate-industry usages and
customs detailed in the Erickson affidavit. He argued instead that the
district court could only consider the Erickson affidavit if it deemed the
contract ambiguous and that, if the contract were ambiguous, it would
take a trial to resolve the ambiguity. The district court disagreed. It
deemed the contract unambiguous when considered in light of the trade
usages described in the Erickson affidavit; it rejected the deposition
testimony offered by Galardi as insufficient to create a genuine issue of
material fact. The district court thus granted summary judgment to
Naples and denied Galardi's cross-motion for summary judgment.

"[Tin the absence of ambiguity or other factual complexities,"
contract interpretation presents a question of law that the district court
may decide on summary judgment, Ellison v. Cal. State Auto. Ass'n, 106
Nev. 601, 603, 797 P.2d 975, 977 (1990), with de novo review to follow in
this court. May v. Anderson, 121 Nev. 668, 672, 119 P.3d 1254, 1257
(2005). Whether a contract is ambiguous likewise presents a question of
law. Margrave v. Dermody Props., 110 Nev. 824, 827, 878 P.2d 291, 293
(1994). A contract is ambiguous if its terms may reasonably be
SUPREME COURT
OF
NEVADA

4
(0) 1947A
interpreted in more than one way, Anvui, LLC v. G.L. Dragon, LLC, 123
Nev. 212, 215, 163 P.3d 405, 407 (2007), but ambiguity does not arise
simply because the parties disagree on how to interpret their contract.
Parman v. Petricciani, 70 Nev. 427, 430-32, 272 P.2d 492, 493-94 (1954)
(concluding that summary judgment was appropriate because the
interpretation offered by one party was unreasonable and, therefore, the
contract contained no ambiguity), abrogated on other grounds by Wood v.
Safeway, Inc., 121 Nev. 724, 121 P.3d 1026 (2005). Rather, "an ambiguous
contract is 'an agreement obscure in meaning, through indefiniteness of
expression, or having a double meaning." Hampton v. Ford Motor Co.,
561 F.3d 709, 714 (7th Cir. 2009) (quoting Whiting Stoker Co. v. Chicago
Stoker Corp., 171 F.2d 248, 251 (7th Cir. 1948)).
Citing Dickenson v. State, Dep't of Wildlife, Galardi argues
that the district court erred in considering Naples' expert evidence of trade
usage and industry custom because it did not first declare the option
contract ambiguous. 110 Nev. 934, 937, 877 P.2d 1059, 1061 (1994) ("If
there is an ambiguity requiring extrinsic evidence to discern the parties'
intent, summary judgment is improper. However, if no ambiguity exists,
the words of the contract must be taken in their usual and ordinary
signification." (internal citation omitted)). Galardi argues that the district
court compounded its error, adding insult to injury, when it deemed the
deposition excerpts he submitted about how he understood the deal terms
insufficient to generate a genuine issue of material fact. But see Kaldi v.
Farmers Ins. Exch., 117 Nev. 273, 281, 21 P.3d 16, 21 (2001) (when an
integrated written contract is unambiguous, "parol evidence may not be
used to contradict [its] terms").

SUPREME COURT
OF
NEVADA

5
(0) 1947A
Galardi's arguments track the former common-law rule that
trade usage and industry "custom can only supply incidents to a contract
when the contract is ambiguous on the point to which the party seeks to
apply the custom." 12 Richard A. Lord, Williston on Contracts § 34:7 (4th
ed. 2012). But this rule has lost adherents over time. Id. Modernly,
courts consult trade usage and custom not only to determine the meaning
of an ambiguous provision, but also to determine whether a contract
provision is ambiguous in the first place. 1 See, e.g., Restatement (Second)
of Contracts § 220 cmt. d (1981) ("[U]sage relevant to interpretation is
treated as part of the context of an agreement in determining whether
there is ambiguity or contradiction. . . . There is no requirement that an
ambiguity be shown before usage can be shown . . ."), 5 Margaret N.
Kniffin, Corbin on Contracts § 24.13, at 121 (rev. ed. 1998) ("Seldom
should the court hold that the written words of a contract exclude evidence
of the custom, since even what are often called 'plain' meanings are shown
to be incorrect when all the circumstances of the transaction are known;
and usages and customs are a part of those circumstances by which the
meaning of words is to be judged.").
Contract interpretation strives to discern and give effect to the
parties' intended meaning. Id. at 118-19. Words derive meaning from
usage and context. "It would be passing odd to forbid people to look up
words in dictionaries, or to consult explanatory commentaries that, like

lAlthough the Uniform Commercial Code (U.C.C.) does not control
this real-property-based dispute, we note that the U.C.C. expressly allows
evidence of 'usage of trade" to explain an agreement's terms. United
Servs. Auto Ass'n v. Schlang, 111 Nev. 486, 493, 894 P.2d 967, 971 (1995)
(quoting NRS 104.2202(1)); see Las Vegas Sands, LLC v. Nehme, 632 F.3d
526, 536-38 (9th Cir. 2011) (applying Nevada U.C.C. and citing Schlang).

SUPREME COURT
OF
NEVADA

6
(0) 1947A
trade usage, are in the nature of specialized dictionaries" in interpreting a
written contract. Matter of Envirodyne Indus., 29 F.3d 301, 305 (7th Cir.
1994). We thus conclude, as other modern courts have, that "[a]mbiguity
is not required before evidence of trade usage . . . can be used to ascertain"
or illuminate contract terms. Puget Sound Fin., LLC v. Uni search, Inc., 47
P.3d 940, 943 (Wash. 2002); accord Metric Constructors, Inc. v. Nat'l
Aeronautics & Space Admin., 169 F.3d 747, 752 (Fed. Cir. 1999) ("Trade
practice and custom illuminate the context for the parties'
contract. . . . Before an interpreting court can conclusively declare a
contract ambiguous or unambiguous, it must consult the context in which
the parties exchanged promises."); Hickman v. Groves, 71 P.3d 256, 260
(Wyo. 2003) ("[E]vidence of usage may be admissible to give meaning to
apparently unambiguous terms of a contract" even "where other parol
evidence," such as "the parties' statements of what they intended the
contract to mean[,] are not admissible." (internal quotations omitted));
In,tersport, Inc. v. NCAA, 885 N.E.2d 532, 539 (Ill. App. 2008) ("contract
terms need not be found to be ambiguous before evidence of the custom
and usage of the terms in the parties' trade or practice can be considered");
cf. Warrington v. Empey, 95 Nev. 136, 139, 590 P.2d 1162, 1164 (1979)
("custom and usage may be used to establish the terms of a contract"
(dictum)).
We recognize that, ordinarily, "Mlle existence and scope of a
usage of trade are to be determined as questions of fact." Restatement
(Second) of Contracts § 222(2) (1981). To illustrate: If Galardi had
presented admissible evidence to contradict Ms. Erickson's statements
about the Nevada real estate industry's conventions and usages, a genuine
issue of material fact may have arisen that would defeat summary

7
judgment. Compare Den Norske Bank AS v. First Nat'l Bank of Boston, 75
F.3d 49, 58-59 (1st Cir. 1996) (describing usage evidence held sufficient to
create a genuine issue of material fact and defeat summary judgment in a
contract interpretation case), with Simon Wrecking Co. v. MU Ins. Co.,
530 F. Supp. 2d 706, 716 (E.D. Pa. 2008) (holding that party adequately
defeated opposing party's trade usage argument with proof the usage
claimed either did not exist or differed from that argued). But NRCP 56(e)
provides that, when a properly supported "motion for summary judgment
is made," the adverse party "must set forth specific facts showing that
there is a genuine issue for trial" or "summary judgment, if appropriate,
shall be entered." Thus, summary judgment may be granted in a case
requiring interpretation of an integrated written contract, if supported by
admissible evidence of trade usage that is both "persuasive" and
"unrebutted." Puget Sound Fin., LLC, 47 P.3d at 943; see Restatement
(Second) of Contracts § 212(2) (1981) ("A question of interpretation of an
integrated agreement is to be determined by the trier of fact if it depends
on the credibility of extrinsic evidence or on a choice among reasonable
inferences to be drawn from extrinsic evidence. Otherwise a question of
interpretation of an integrated agreement is to be determined as a
question of law."); see Intersport, 885 N.E.2d at 538-40 (consulting
industry usages in interpreting an integrated written contract and
affirming judgment on the pleadings); 5 Corbin on Contracts, supra, §
24.30, at 327.
The district court properly deemed the Erickson opinion
admissible and the option contract unambiguous in light of the trade
usage Ms. Erickson's affidavit established. "A usage of trade is a usage
having such regularity of observance in a place, vocation, or trade as to

8
justify an expectation that it will be observed with respect to a particular
agreement." Restatement (Second) of Contracts § 222(1) (1981). 2 In this
case, Galardi did not challenge Ms. Erickson's qualifications or the
legitimacy and relevance of her opinions. Ms. Erickson opined that unless
otherwise expressly stated, real property is "always given to the purchaser
free and clear of any encumbrances or liens." See NRS 111.170(1)(b)
(Nevada grant, bargain and sale deeds, "unless restrained by [contrary]
express terms," include a covenant that the property conveyed is "free
from encumbrances"). She further opined that, in the escrow setting, the
phrase "costs of transfer and closing" signifies costs "separate and apart
from the purchase price and normally consist[ing] of the title policy fee,
escrow fee, real property transfer tax, recording fees, etc."
Ms. Erickson's expert opinions comport with the language of
the option contract and make sense in light of both common law and
Nevada statutes. To credit Galardi's contrary reading that "costs of
transfer and closing" encompasses preexisting encumbrances would mean
that Galardi could have increased the option price at will just by
borrowing against the property and passing the debt along to the optionee,
which is unreasonable. The phrase "costs of transfer and closing" thus
does not carry a double meaning that renders the option contract

2Galardi, French Quarter, and Naples had counsel or commercial
real estate experience or both. Thus, Galardi makes no argument that he
did not know or have reason to know of the Nevada real estate industry
usages that the Erickson affidavit addressed. See Restatement (Second) of
Contracts § 222(3) (1981) ("[A] usage of trade in the vocation or trade in
which the parties are engaged or a usage of trade of which they know or
have reason to know gives meaning to or supplements or qualifies their
agreement.").

SUPREME COURT
OF
NEVADA
9
(0) 1947A
ambiguous. See Parman, 70 Nev. at 430-31, 272 P.2d at 493-94. Nor does
the reference to "full purchase price" render the contract ambiguous,
particularly when read in light of the industry usages detailed in the
Erickson affidavit.
The deposition testimony Galardi offered that he (and perhaps
French Quarter) understood the deal terms to require the optionee to take
subject to existing encumbrances would, if admitted, contradict the option
contract's express terms. It thus was inadmissible under the parol
evidence rule. Daly v. Del E. Webb Corp., 96 Nev. 359, 361, 609 P.2d 319,
320 (1980) ("The parol evidence rule forbids the reception of evidence
which would vary or contradict the contract, since all prior negotiations
and agreements are deemed to have been merged therein."). Allowing
extrinsic evidence of objective facts such as industry usage and custom
does not open the door to a party's subjective understanding of a contract's
terms, when that understanding contradicts the contract's express terms.
Cf. AM Inel, Inc. v. Graphic Mgmt. Assocs., Inc., 44 F.3d 572, 575 (7th Cir.
1995) (discussing the admissibility of objective evidence as distinguished
from the subjective testimony by the parties as to what they believe the
contract means in the related context of construing ambiguous contracts);
Campanelli v. Conservas Altamira, S.A., 86 Nev. 838, 841, 477 P.2d 870,
872 (1970) (parties to a written contract are bound by its terms regardless
of their subjective beliefs at the time the agreement was signed). The
extrinsic evidence with which Galardi opposed Naples' properly supported
summary judgment motion was either inadmissible or irrelevant or both,
and thus insufficient to generate a genuine issue of material fact or to
establish his entitlement to judgment as a matter of law.

SUPREME COURT
OF
NEVADA

10
(0) 1947A
The district court properly considered trade usage and
industry custom in interpreting the option contract, even though it also
found that the contract was unambiguous. For the option contract to
require the optionee to take the property subject to existing indebtedness,
it needed to so state. We therefore agree with the district court that the
contract placed responsibility for the $1.3 million debt on Galardi's side of
the ledger and affirm.

, C.J.
Pickering

We concur:

Harde

Saitta

SUPREME COURT
OF
NEVADA
11
(0) 1947A

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/1033217. Public record. Not legal advice.