Aldrich v. Sugar Springs Prop. Owners Ass'n

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SUSAN ALDRICH and JOSEPH MACHINIAK, Plaintiffs-Appellees, v. SUGAR SPRINGS PROPERTY OWNERS ASSOCIATION, INC., Defendant-Appellant.

No. 359664

Court of Appeals of Michigan

January 12, 2023

Gladwin Circuit Court LC No. 20-010521-CH

Before: GLEICHER, C.J., and K. F. KELLY and LETICA, JJ.

PER CURIAM

Defendant appeals by right the trial court's order granting plaintiffs' motion for summary disposition under MCR 2.116(C)(10) and denying defendant's countermotion for summary disposition under MCR 2.116(I)(2). We reverse and remand for entry of an order granting summary disposition in favor of defendant.

I. BASIC FACTS AND PROCEDURAL HISTORY

Defendant is composed of thousands of properties located within the Sugar Springs Development (Sugar Springs) complex in Gladwin County. Both plaintiffs are members of, and own property in Sugar Springs.^[1] Sugar Springs is governed by a "Declaration of Covenants and Restrictions" (the Covenant) executed in 1971. The Covenant's preamble delineated the developer's intent to create "a general plan, integrating clusters of residential lots, residential condominium property, commercial property, recreational improvements to include areas designated for camping, and permanent green areas or other open spaces." Relevant to this appeal, the Covenant provides that "all Lots in the development shall be used for residential purposes only." Any construction on the lots was limited to single-family residences^[2] unless expressly designated for multi-family or commercial use on the plat. The construction of a home or outbuilding were subject to rules regarding size, setbacks, and foundation. Property owners could not cut more than 25% of the dominant trees in the area. An architectural and environmental control (AEC) committee was created to review plans and ensure continuity of improvements. The only sign permitted on a property was for identification purposes, and fences were prohibited. A "for sale" sign could be placed on the property with the consent of the developer or the AEC committee. The developer had the right to designate areas for condominium development, and these areas also were limited "for residential purposes only."

Defendant's board of directors held a meeting on May 22, 2020. During this meeting, the board discussed complaints from members regarding properties being used as short-term rentals. The board discussed the issue with their general manager, board president, and attorney and examined the pertinent language of the bylaws and current legal authorities. The board received an opinion by letter indicating that short-term rentals were not permitted under their existing covenants and bylaws. Nonetheless, after additional discussion of the positive and negative consequences of allowing short-term rentals, a motion and resolution were read to the board. This resolution prohibited rental of properties located within Sugar Springs unless the lease was for a period of six months or longer. In light of the impact on members, the resolution passed but would not take effect until January 1, 2021.

Apparently, plaintiffs had rented out their respective properties as short-term vacation homes for periods less than six months. Plaintiffs filed suit, seeking declaratory relief that they were not prohibited from using the property as short-term residential rentals and that defendant could not prohibit or punish them for engaging in such activity. After the litigation was filed, the trial court issued a stay of the resolution barring short-term rentals pending resolution of the case.^[3]

Plaintiffs moved for summary disposition under MCR 2.116(C)(10), alleging that no material facts were in dispute and short-term rentals were permitted under the Covenant. In opposition, defendant asserted that summary disposition was premature prior to the completion of discovery, factual issues existed, and the Covenant did not permit plaintiffs' use. At the conclusion of oral argument, the trial court granted the dispositive motion, adopting the argument presented by plaintiffs. Defendant sought reconsideration and requested that summary disposition be granted in its favor. Plaintiffs moved to strike the reconsideration motion, asserting that it merely presented the same grounds addressed in the previous ruling rendered by the trial court. The trial court denied plaintiffs' motion to strike and issued a lengthy written opinion explaining why it granted summary disposition in plaintiffs' favor. Defendant now appeals.

II. STANDARDS OF REVIEW

A trial court's ruling on a motion for summary disposition is reviewed de novo. Houston v Mint Group, LLC, 335 Mich.App. 545, 557; 968 N.W.2d 9 (2021). Summary disposition is appropriate pursuant to MCR 2.116(C)(10) where there is "no genuine issue as to any material fact, and the moving party is entitled to judgment or partial judgment as a matter of law." MCR 2.116(C)(10). When reviewing a motion for summary disposition challenged under MCR 2.116(C)(10), the court considers the affidavits, pleadings, depositions, admissions, and other admissible documentary evidence then filed in the action or submitted by the parties in the light most favorable to the nonmoving party. MCR 2.116(G)(4), (G)(5); Buhl v City of Oak Park, 507 Mich. 236, 242; 968 N.W.2d 348 (2021). If it appears that summary disposition is proper in favor of the opposing party, instead of the moving party, summary disposition may be granted under MCR 2.116(I)(2). Empire Iron Mining Partnership v Tilden Twp, 337 Mich.App. 579, 586; 977 N.W.2d 128 (2021).

III. ANALYSIS

Defendant contends that the trial court erred in its application of caselaw to the Covenant because summary disposition was proper in its favor under MCR 2.116(I)(2). We agree.

The trial court's interpretation of restrictive covenants presents a question of law that this Court reviews de novo. Conlin v Upton, 313 Mich.App. 243, 254; 881 N.W.2d 511 (2015). The interpretation of a contractual agreement also presents a question of law subject to de novo review. Id. Restrictive covenant cases are examined on a case-by-case basis. O'Connor v Resort Custom Builders, 459 Mich. 335, 343; 591 N.W.2d 216 (1999); Eager v Peasley, 322 Mich.App. 174, 180; 911 N.W.2d 470 (2017). Contracts must be read as a whole. Courts must give effect to every word, clause, and phrase, and avoid a construction that would render any part of the contract surplusage or nugatory. Magley v M &W Inc, 325 Mich.App. 307, 317-318; 926 N.W.2d 1 (2018).

Operating agreements, such as a corporation's bylaws, are intended to govern the future conduct of the entity and its members. Generally, an entity's bylaws or membership agreement may provide for the regulation and management of its affairs as long as the provision is not inconsistent with law or the articles authorizing the entity. When validly promulgated, an entity's bylaws or similar governing instrument will constitute a binding contractual agreement between the entity and its members. In this case, the parties do not dispute that the Association had the authority to adopt bylaws and that the bylaws were adopted by a majority of the Association's members. Thus, to the extent that they do not conflict with the Association's articles of incorporation or this state's law, the bylaws would constitute a binding contractual agreement between the Association and its various members. [ Conlin, 313 Mich.App. at 254-255 (citations omitted).]

Our Supreme Court recognized that restrictive covenants or deed restrictions are valuable because they preserve characteristics desired by those seeking a familial environment:

Because of this Court's regard for parties' freedom to contract, we have consistently supported the right of property owners to create and enforce covenants affecting their own property. Such deed restrictions generally constitute a property right of distinct worth. Deed restrictions preserve not only monetary value, but aesthetic characteristics considered to be essential constituents of a family environment. If a deed restriction is unambiguous, we will enforce that deed restriction as written unless the restriction contravenes law or public policy, or has been waived by acquiescence to prior violations, because enforcement of such restrictions grants the people of Michigan the freedom freely to arrange their affairs by the formation of contracts to determine the use of land. Such contracts allow the parties to preserve desired aesthetic or other characteristics in a neighborhood, which the parties may consider valuable for raising a family, conserving monetary value, or other reasons particular to the parties. [Bloomfield Estates Improvement Ass'n, Inc v City of Birmingham, 479 Mich. 206, 214; 737 N.W.2d 670 (2007) (citations, quotation marks, and brackets omitted).]

In Eager, this Court set forth the following principles to interpret restrictive covenants:

In construing restrictive covenants, the overriding goal is to ascertain the intent of the parties. Where the restrictions are unambiguous, they must be enforced as written. The language employed in stating the restriction is to be taken in its ordinary and generally understood or popular sense, and is not to be subjected to technical refinement, nor the words torn from their association and their separate meanings sought in a lexicon. [Eager, 322 Mich.App. at 180-181 (citations, quotation marks, and brackets omitted).]

In O'Connor, 459 Mich. at 337-338, the defendant developer constructed a home located in the Valley View subdivision of Shanty Creek. After it was unable to sell the home, it marketed shares of "interval ownership;" this meant a purchaser bought occupancy rights in one or two week-long intervals. An interval owner could submit their...