Nicdon 10663 LLC v. Desert Mountain Master Ass'n

NICDON 10663 LLC, Plaintiff/Appellant, v. DESERT MOUNTAIN MASTER ASSOCIATION, Defendant/Appellee.

No. 1 CA-CV 20-0129

ARIZONA COURT OF APPEALS DIVISION ONE

April 29, 2021

NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

Appeal from the Superior Court in Maricopa County

No. CV 2018-015165

The Honorable Danielle J. Viola, Judge

AFFIRMED

COUNSEL

Dessaules Law Group, Phoenix

By Jonathan A. Dessaules, Jacob A. Kubert

Counsel for Plaintiff/Appellant

Carpenter, Hazelwood, Delgado & Bolen LLP, Tempe

By Curtis S. Ekmark, Gregory A. Stein

Counsel for Defendant/Appellee

MEMORANDUM DECISION

Judge Michael J. Brown delivered the decision of the Court, in which Presiding Judge Jennifer M. Perkins and Judge David B. Gass joined.

BROWN, Judge:

¶1 Nicdon 10633, LLC, ("Nicdon") appeals several rulings of the superior court made in favor of Desert Mountain Master Association ("Desert Mountain") relating to the validity of changes to restrictive covenants governing short-term rentals. For the following reasons, we affirm.

BACKGROUND

¶2 Desert Mountain is a planned community located in the City of Scottsdale, with 2,397 residential lots. In November 2015, Nicdon's principals purchased a house in Desert Mountain, intending to use it as a rental property until their retirement. In 2017, the principals transferred the property to their limited liability company, Nicdon.

¶3 The community is also home to Desert Mountain Golf Club ("Club"). The Club itself is a "dues-paying member" of Desert Mountain. Though many of the Club's members reside in Desert Mountain, members of the community ("Members") are not required to join the Club, and the Club accepts Members from outside the community. The Club owns one lot in Desert Mountain, but "it does not have a home to rent."

¶4 Desert Mountain is currently governed by the restrictive covenants set forth in its Second Amended and Restated Master Declaration of Covenants, Conditions, Restrictions, Assessments, Charges, Servitudes, Liens, Reservations and Easements for Desert Mountain ("Declaration"). When Nicdon acquired its property in Desert Mountain, the Declaration did not contain any rental time restrictions, though short-term rentals were prohibited by a Scottsdale ordinance at that time.

¶5 In 2017, Desert Mountain's Board of Directors ("Board") began considering proposals to limit short-term rentals based in part on concerns about potential nuisances associated with short-term rental activities. The Board initially sought to ban rentals of 60 days or less, but later proposed the amendment to the Declaration ("Amendment") at issuehere, which prohibited rentals of 30 days or less to "Ineligible Renters," defined as a party who is not a member of Desert Mountain or the Club. The Amendment states in part as follows:

No Lot, including any and all buildings located thereon, shall be leased to an Ineligible Renter(s) for a term of less than thirty (30) days, and no Owner may advertise his or her Lot, including any and all buildings located thereon, as available to an Ineligible Renter(s) for a lease term of less than thirty (30) days in duration. A Lot, including any and all buildings located thereon, may, however, be leased to an Eligible Renter(s) for a term that is less than thirty (30) days in duration. Home exchanges (also referred to as home swapping), through which parties offer each other lodging in each other's homes for a period of time without a monetary exchange, are permitted for a term of not less than seven (7) days.

¶6 The Board began taking steps to adopt the Amendment in February 2018, and later conducted a community vote, in which 1,761 of 2,397 total Members submitted ballots. Of the 1,761 ballots, 1,323 votes were in favor of the proposal (75.13%), 430 opposed it, and eight abstained. The 1,323 votes in favor constituted 55% of the entire community. The Amendment was recorded in July 2018, and became effective the following year.

¶7 In December 2018, Nicdon filed a complaint in the superior court, alleging the Amendment was invalid under both Arizona law and Desert Mountain's own governing documents. Nicdon alleged Desert Mountain was "not permitted to add new and material use restrictions that are substantial and not foreseeable" from the face of the Declaration, and the Amendment impinged on Nicdon's right to use and enjoy its property.

¶8 Desert Mountain moved for summary judgment, asserting the Declaration specifically provided a mechanism to amend, repeal, or add to the property use restrictions within the community, and the Amendment was valid because it received the required percentage of the vote. Nicdon responded, and later filed its own motion for summary judgment. It argued the Declaration did not put purchasers on notice that Desert Mountain could create "an entirely new covenant imposing a 30-day minimum duration on leases," and thus Arizona law required unanimous consent of all Members to adopt the Amendment. Nicdon also asserted theAmendment unreasonably favors the Club's members and the amendment process violated open meeting laws.

¶9 In its detailed ruling, the superior court granted Desert Mountain's motion and denied Nicdon's motion. The court determined in part that Desert Mountain (1) followed the Declaration's requirements to amend the use restrictions; (2) applied the correct voting threshold for approval; and (3) did not violate Arizona law. The court then issued a ruling clarifying that the Amendment did not grant any new right for "prospective [C]lub members who are not otherwise Eligible Renters." After entry of a final judgment, Nicdon unsuccessfully moved for a new trial, and this timely appeal followed.

DISCUSSION

A. Cross-Motions for Summary Judgment

¶10 Summary judgment is proper if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Ariz. R. Civ. P. 56(a). We review a grant of summary judgment de novo, viewing the facts in the light most favorable to the opposing party. Dreamland Villa Cmty. Club, Inc., v. Raimey, 224 Ariz. 42, 46, ¶ 16 (App. 2010). We will affirm a grant of summary judgment if the superior court was correct for any reason. Id. In addition, we review the interpretation of a deed restriction de novo. Wilson v. Playa de Serrano, 211 Ariz. 511, 513, ¶ 6 (App. 2005).

1. Compliance with Governing Documents

¶11 By accepting a deed in the Desert Mountain planned community, Nicdon became bound by the Declaration, including properly adopted amendments. See Duffy v. Sunburst Farms E. Mut. Water & Agric. Co., Inc., 124 Ariz. 413, 416 (1979). Nicdon contends, however, that Desert Mountain failed to comply with its own governing documents when it amended the Declaration.

¶12 The Declaration establishes a specific process to amend the community's restrictions. Section 4.2 states: "The Board shall have the right . . . to amend, repeal, or add to the [use] restrictions . . . subject to the approval of the Members as set forth in Section 5.20 . . . ." Section 5.20, titled Major Decisions, sets forth the amendment process. First, the Board must approve a proposed amendment by written resolution. Second, it must give "notice to all Owners" of their right to object. If "no more than tenpercent (10%) of the Members" object within 45 days, the Board is authorized to implement its decision without a meeting or vote of the members. But if "more than ten percent (10%) of the Members" object, "the Major Decision may only be authorized if approved by eligible Members holding two-thirds (2/3) of the eligible votes in the Master Association who are present in person or by absentee ballot at a meeting of the Master Association called for this purpose."

¶13 The parties dispute the meaning of the two-thirds vote requirement in Section 5.20. Nicdon contends it requires two-thirds of all Members to approve a decision, while Desert Mountain argues it only requires two-thirds of the members "present in person or by absentee ballot" at the meeting.

¶14 Deeds containing restrictive covenants are contracts. Powell v. Washburn, 211 Ariz. 553, 555, ¶ 8 (2006). We interpret restrictive covenants to give effect to the intention of the parties, as determined by the language of the instrument, the circumstances surrounding its adoption, and the purpose for which it was created. Id. at 557, ¶ 13. In addition, in interpreting contracts, "we attempt to reconcile and give effect to all terms . . . to avoid any term being rendered superfluous." Terrell v. Torres, 248 Ariz. 47, 50, ¶ 14 (2020) (citation omitted)).

¶15 Consistent with the superior court's analysis, we conclude that when use restrictions are changed under Section 4.2, the language of Section 5.20 only requires the approval of two-thirds of those voting. Nicdon's reading would render the "in person or by absentee ballot" language superfluous. Nicdon argues that language merely specifies the required method of voting; however, both the community's bylaws and A.R.S. § 33-1812(A) already require votes to be cast in person or by absentee ballot.

¶16 In addition, Section 5.20's "two-thirds of those voting" clause can be distinguished from other provisions in the Declaration that clearly require vote counting based on all the Members without any qualifying language. See Regency Homes Ass'n v. Schrier, 759 N.W.2d 484, 489 (Neb. 2009) (concluding that amendment provision requiring "three-quarters vote of the entire number of memberships of [members] present in person or by proxy at any annual or special meeting or responsive to a vote thereon by mail" meant three-quarters of those voting, "regardless of how many total homeowners choose to participate in the vote"). Significantly, one such example can be found earlier in Section 5.20 itself: "ten percent (10%) of the Members" must object to a proposed resolution to trigger a vote ofthe membership. Other instances include Section...