Opinion
No. 2 CA-CV 2018-0086
12-28-2018
RODNEY R. OLSON AND GLORIA A. OLSON, HUSBAND AND WIFE, Plaintiffs/Appellees, v. CHULA VISTA HOMEOWNERS ASSOCIATION, AN ARIZONA NON-PROFIT CORPORATION, Defendant/Appellant.
COUNSEL Stachel & Associates P.C., Sierra Vista By Robert D. Stachel Jr. Counsel for Plaintiffs/Appellees Carpenter, Hazlewood, Delgado & Bolen LLP, Tucson By Jason E. Smith and Kaycee S. Wamsley Counsel for Defendant/Appellant
THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES.
NOT FOR PUBLICATION
See Ariz. R. Sup. Ct. 111(c)(1); Ariz. R. Civ. App. P. 28(a)(1), (f). Appeal from the Superior Court in Cochise County
No. CV201600084
The Honorable Charles A. Irwin, Judge
AFFIRMED IN PART; REVERSED IN PART
COUNSEL Stachel & Associates P.C., Sierra Vista
By Robert D. Stachel Jr.
Counsel for Plaintiffs/Appellees Carpenter, Hazlewood, Delgado & Bolen LLP, Tucson
By Jason E. Smith and Kaycee S. Wamsley
Counsel for Defendant/Appellant
MEMORANDUM DECISION
Chief Judge Eckerstrom authored the decision of the Court, in which Presiding Judge Staring and Judge Brearcliffe concurred. ECKERSTROM, Chief Judge:
¶1 The Chula Vista Homeowners Association appeals from the trial court's judgment in favor of Rodney and Gloria Olson, alleging numerous errors. We affirm in part and reverse in part.
Factual and Procedural History
¶2 The following facts are not in dispute. In December 1999, restrictive covenants were recorded affecting certain real property within a subdivision in Cochise County that came to be known as Chula Vista. At that time, the covenants specified that "[n]o improvement or structure whatsoever, other than a first class private dwelling . . . may be erected, placed or maintained on any Property subject to these restrictions." In 2004, the covenants were amended to specify that improvements or structures must be "site built" and further prohibited "manufactured homes, modular homes, mobile homes, trailers, 'A' frame homes, Geodesic dome homes or any other 'nontraditional' home(s) or facades."
¶3 In 2005, the Olsons acquired a lot within Chula Vista and, in 2009, submitted an architectural review request to the Association seeking approval to build a 1,370-square-foot, frame-and-stucco house as well as a 6,000 square-foot, rectangular metal workshop. After the Association approved the request, the Olsons first built the workshop, intending to construct the house thereafter. In February 2011, the Olsons obtained a permit from the county to convert the workshop from an outbuilding to a single-family residence and, in March, they requested and obtained from the Association a three-year variance allowing them to temporarily reside in the workshop during construction of the frame-and-stucco house.
¶4 By January 2015, the Olsons had not begun constructing the house, so the Association informed them of its intent to enforce the restrictive covenants and directed them to provide plans to build a house and request an additional variance or vacate the converted workshop. In a letter to the Association, the Olsons asserted that the relevant portion of the covenants were "hopelessly vague and ambiguous" and that the converted workshop was a "first class site built private dwelling" that neither offended the covenants nor required a variance to serve as their primary residence.
¶5 In July, the Association recorded a notice of violation for the purpose of adversely affecting the Olsons' ability to convey marketable title, which it then removed the next month. That August, the Association notified the Olsons that if they did not vacate the converted workshop or begin construction of a house, it would impose a fine of one hundred dollars per month. In September, the Association again recorded a notice of violation and, in November, demanded the Olsons either submit plans for and begin constructing a house, submit plans to "beautify" the converted workshop, or vacate the premises and apply to the county to redesignate the converted workshop as an outbuilding.
¶6 In February 2016, the Olsons brought an action in the superior court seeking two declaratory judgments: first, that the converted workshop did not violate the covenants, and second, that the Association had violated our state's open-meeting laws, thus rendering null and void the notice of violation and monthly fine. Additionally, the Olsons alleged slander of title.
The Olsons also sought a declaratory judgment that a separate amendment, added in 2007, was invalid; however, the trial court dismissed this count by joint stipulation of the parties.
¶7 Following a bench trial, the trial court found the converted workshop was "first class" and complied with the covenants, the Association had violated the open-meeting laws, and it had slandered the Olsons' title. Accordingly, the court ordered the Association to immediately record a notice of removal to clear the Olsons' title, vacated the monthly fine, and awarded the Olsons both $5,000 in statutory damages, see A.R.S. § 33-420(A), as well as attorney fees and costs. The Association appealed; we have jurisdiction. A.R.S. §§ 12-120.21(A)(1), 12-2101(A)(1).
Interpretation of Covenants
¶8 The Association first argues it had reasonably determined that the converted workshop was not a traditional "first class" residence and the trial court should have deferred to its interpretation. Accordingly, it asserts that the court's function was "to determine whether, as a matter of law, . . . the Association breached its duty to act reasonably in the exercise of its discretionary design-control powers." The court, however, did not address these questions, but rather agreed with the Olsons that the relevant question was whether the converted workshop complied with the restrictive covenants. We first discuss the issue as decided by the court before addressing the Association's specific contention that the court should only have considered whether its interpretation of the covenants was reasonable.
¶9 The interpretation of a restrictive covenant is a matter of law that we review de novo. Powell v. Washburn, 211 Ariz. 553, ¶ 8 (2006). "In Arizona, the traditional rule has been that when a restrictive covenant is unambiguous, it is enforced so as to give effect to the intent of the parties." Id. ¶ 9. Our supreme court, in interpreting restrictive covenants, has adopted § 4.1 of the Restatement (Third) of Property: Servitudes (hereafter, "Restatement"). Powell, 211 Ariz. 553, ¶ 13.
¶10 Section 4.1 of the Restatement provides that a restrictive covenant "should be interpreted to give effect to the intention of the parties ascertained from the language used in the instrument, or the circumstances surrounding creation of the [restrictive covenant], and to carry out the purpose for which it was created." As the court in Powell reasoned, "[b]ecause a restrictive covenant is a contract, . . . 'the function of the law is to ascertain and give effect to the likely intentions and legitimate expectations of the parties.'" Id. ¶ 13 (quoting Restatement, Introductory Note to ch. 4). Subsequent conduct of the parties may serve as evidence of the parties' original intent. See McCutchin v. SCA Servs. of Ariz., Inc., 147 Ariz. 234, 236 (App. 1985) (quoting Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 140 Ariz. 383, 387 (1984)).
¶11 Here, the dispute is whether the Olsons' converted workshop is a "first class" dwelling within the meaning of the restrictive covenants. Insofar as the covenants do not define the term and it is inherently subjective, its meaning is ambiguous. Generally, "first class" means, "[o]f the foremost excellence or highest quality." The American Heritage Dictionary, 663 (5th ed. 2011). At trial, the Association's secretary offered her opinion as to the term's meaning, but also stated she "ha[d] no idea" what the developer meant by it.
The Association frequently asserts the converted workshop was not a "traditional 'first class . . . private dwelling,'" apparently in violation of the prohibition against "'nontraditional' home(s)." (Emphasis added.) But the Association does squarely raise or develop the discrete argument that the converted workshop specifically violated the covenant's prohibition on non-traditional homes, and we therefore do not address that question. See Ritchie v. Krasner, 221 Ariz. 288, ¶ 62 (App. 2009).
¶12 In the face of this ambiguity, the trial court looked to the conduct of the parties and, in particular, the Association's 2003 approval of a 4,000 square-foot, metal building with 1,100 square feet of living space that was "similar in size and identical in style and building material" with the Olsons' converted workshop. After approving that structure, in 2004, the Association amended the covenants by inserting the requirement that structures be "site built," removing the allowance for late-model manufactured homes and specifically prohibiting manufactured and modular homes.
¶13 The Association insists it amended the covenants in 2004 to prevent other Chula Vista landowners from constructing rectangular metal buildings. However, nothing in the 2004 amendments appears directed at prohibiting such buildings. Rather, by adding the term "site built" and specifically excluding "manufactured or modular homes," the amendments clearly aimed at prohibiting manufactured homes. Furthermore, the secretary testified that the Association "felt [it] didn't have anything in the [covenants in 2003] to prevent approval" of either the metal building or four manufactured homes that were also approved in 2003. The most reasonable inferences from these facts are that, at the relevant time, the Association understood the 2003 metal building to be "first class" and nothing in the 2004 amendments altered the covenants in a manner that would compel a different result. As the trial court noted, the Association could have amended the covenants to prohibit a steel or metal home, but failed or otherwise chose not to do so. Thus, we cannot say the meaning of "first class" has been materially affected with respect to using a metal building as a primary residence. Further, because the Olsons' converted workshop is "similar in size and identical in style and building material" with the 2003 building, we cannot say the court erred by determining this particular metal building complies with the covenants on the basis it is "first class."
The parties stipulated below that the converted workshop was site built.
¶14 Citing to a provision in the covenants that failure to enforce them "will not constitute a waiver of [the c]ovenants or the right to enforce the[m]," the Association argues its earlier approval of the 2003 metal building does not waive its ability to now enforce them against the Olsons. But the secretary's testimony was not that the earlier metal building had not complied with the covenants when constructed, but rather, that it had. Thus, the no-waiver provision is inapposite.
¶15 The Association also argues that § 6.13(1)(b) and (c) of the Restatement, endows homeowners associations with the authority to enforce restrictive covenants such that courts must show deference to their determinations, if reasonable. But the Association misreads the Restatement. Rather than insulating associations from judicial review, § 6.13(1) imposes duties on associations enforceable by their members. See Restatement § 6.13(1) ("association has the following duties to the members of the . . . community"). Similarly, the Association's reliance on Tierra Ranchos Homeowners Ass'n v. Kitchukov, 216 Ariz. 195 (App. 2007), is misplaced. There, the covenants, conditions, and restrictions both created an architectural committee and gave it the "sole and absolute discretion" to approve or disapprove projects, even those in substantial compliance with the governing declarations. Id. ¶ 5. Here, the Association has not identified any language in the covenants granting it such authority to which the trial court was required to defer.
¶16 Finally, the Association insists the trial court's order was internally inconsistent because it directed the Olsons to "upgrade" the converted workshop by adding a deck and exterior window treatments. Accordingly, the Association argues the structure must not have been "first class." But nothing in the judgment indicates the court's determination was contingent on these upgrades and, even if it were, the Association cannot show prejudice. See In re Marriage of Molloy, 181 Ariz. 146, 150 (App. 1994) ("Not all errors in the superior court warrant reversal . . . . We will reverse only if the complaining party suffers prejudice as a result of the error."). To the contrary, the judgment explicitly concluded the Olsons' home was in compliance with the covenants. Further, the propriety of the court's order requiring such modifications is not before this court because the Olsons have not cross-appealed seeking to vacate that portion of the order. The trial court did not err.
Because the trial court properly determined the converted workshop complies with the covenants, it follows that the Association improperly recorded notices of violation and imposed fines. Thus, we need not address the Association's claims that it had not violated the open-meeting statute when it decided to take those measures or, if it had violated them, undoing its decision was an improper remedy.
Slander of Title
¶17 The Association next complains the trial court improperly determined it had slandered the Olsons' title because it had filed the notice of violation in good faith. We defer to the trial court's findings of fact unless clearly erroneous, but review its legal conclusions de novo. See Calisi v. Unified Fin. Servs., LLC, 232 Ariz. 103, ¶ 13 (App. 2013). Normally, we will infer factual findings that the evidence reasonably supports in order to affirm the judgment of the superior court. Gnatkiv v. Machkur, 239 Ariz. 486, ¶ 9 (App. 2016).
The Association also argues it did not slander the Olsons' title because the converted workshop was in violation of the covenants. However, because the workshop complied with the covenants, this argument necessarily fails.
The Association argues that a reviewing court will not assume the trial court found every contested fact when a party asks that court to make particular findings and it fails to do so. See Ariz. R. Civ. P. 52(a); Elliot v. Elliot, 165 Ariz. 128, 135 (App. 1990). But the Association made no such request. Instead, it submitted proposed findings of fact and conclusions of law, which the trial court implicitly rejected. In other words, the Association did not ask the court to detail its findings with specificity, but asked the court to make two specific findings.
¶18 A person slanders another's title by "caus[ing] a document asserting [a] claim to be recorded in the office of the county recorder, knowing or having reason to know that the document is forged, groundless, contains a material misstatement or false claim or is otherwise invalid." A.R.S. § 33-420(A). Such person "is liable to the owner . . . for the sum of not less than five thousand dollars . . . and reasonable attorney fees and costs of the action." Id. A person has reason to know an instrument would offend the statute if he or she knows facts from which a reasonable person would either infer that the instrument is defective or consider that possibility "so highly probable that his [or her] conduct would be predicated upon the assumption that [the instrument was defective]." Delmastro & Eells v. Taco Bell Corp., 228 Ariz. 134, ¶ 29 (App. 2011) (quoting Coventry Homes, Inc. v. Scottscom P'ship, 155 Ariz. 215, 219 (App. 1987).
¶19 Here, the trial court found the Association knew or should have known that the September 2015 notice of violation was either groundless, contained a material misstatement or false claim, or was otherwise invalid. However, inasmuch as the covenants contain ambiguous terms that, prior to judicial determination, were at least susceptible to the Association's interpretation, we cannot agree that reasonable evidence supported the trial court's conclusion. See Gnatkiv, 239 Ariz. 486, ¶ 9. Although it was possible that the converted workshop would be found in compliance with the covenants as the trial court ultimately found, such determination was not "so highly probable that [the Association's] conduct would be predicated upon the assumption [thereof]." Delmastro & Eells, 228 Ariz. 134, ¶ 29 (quoting Coventry Homes, 155 Ariz. at 219). Indeed, that the Olsons had previously sought a three-year variance from the Association to live in the converted workshop indicates they, at one time, arguably did not believe it complied with the covenants and further suggests the Association should not have regarded the outcome at trial as "so highly probable" that it could be assumed. Id.
The Association also argues it is shielded from liability for slander of title because it relied on counsel when deciding to file the notice of violation. Because we independently resolve this issue on other grounds, we need not address this argument. --------
¶20 Because reasonable evidence does not support the trial court's determination that the Association knew or had reason to know that the notice of violation contained a false claim or was otherwise invalid, we reverse the court's judgment pertaining to slander of title and vacate the awards of statutory damages and any attorney fees ordered pursuant to § 33-420.
Attorney Fees
¶21 Both parties request attorney fees and costs on appeal. See A.R.S. §§ 12-341; 12-341.01. However, because each party prevailed in part, we determine that each shall bear their own costs and pay their own attorney fees on appeal.
Disposition
¶22 The trial court correctly determined the Olsons' converted workshop complies with Chula Vista's restrictive covenants. However, it erred by determining that the Association slandered the Olsons' title. Thus, we affirm in part and reverse in part.