Moretto v. Elk Point Country Club Homeowners Ass'n, Inc.
| Decision Date | 07 April 2022 |
| Docket Number | 82565 |
| Citation | 507 P.3d 199 |
| Parties | Jerome MORETTO, TRUSTEE OF THE JEROME F. MORETTO 2006 TRUST, Appellant, v. ELK POINT COUNTRY CLUB HOMEOWNERS ASSOCIATION, INC., Respondent. |
| Court | Nevada Supreme Court |
Lemons, Grundy & Eisenberg and Robert L. Eisenberg and Todd R. Alexander, Reno, for Appellant.
Resnick & Louis, P.C., and Prescott T. Jones and Carissa Yuhas, Las Vegas, for Respondent.
BEFORE THE SUPREME COURT, SILVER, CADISH, and PICKERING, JJ.
In this appeal, we are asked to consider the extent of a common-interest-community homeowners association's power to adopt rules restricting the use and design of individually owned properties. Specifically, we are asked to adopt sections 6.7 (use restrictions) and 6.9 (design restrictions) of the Restatement (Third) of Property: Servitudes. Both sections provide that a homeowners association does not have the implied power to impose use or design restrictions on individually owned properties and that the association's governing documents must expressly authorize the imposition of such restrictions to do so. In addition, these sections suggest that any such restrictions should be subject to a "reasonableness" requirement.
We conclude public policy favors the adoption of sections 6.7 and 6.9 of the Restatement (Third) of Property: Servitudes. These two sections, when read in conjunction, provide well-reasoned limits on construing an association's implied power to act with respect to individually owned property. Therefore, we now adopt the approach from these two sections. As applied to the underlying matter, we conclude that article 16, section 3 of the respondent homeowners association's bylaws includes an express provision allowing it to adopt design restrictions for individually owned property. However, during the proceedings before the district court, neither party addressed whether the respondent's exercise of its design-control power was reasonable, which is a central tenet of section 6.9. As a result, we reverse the district court's grant of summary judgment with respect to appellant's claim for declaratory relief, which sought to invalidate respondent's newly adopted architectural and design rules. Additionally, we reverse the district court's grant of summary judgment with respect to appellant's accompanying violation of property rights claim. We remand the case back to the district court to consider whether respondent's rules are reasonable under sections 6.7 and 6.9 of the Restatement (Third) of Property: Servitudes.
Respondent Elk Point Country Club Homeowners Association, Inc. (hereinafter EPCC), is the governing body of the Elk Point subdivision, a common-interest community located at Lake Tahoe's Zephyr Cove, in Douglas County, Nevada. EPCC was initially established in 1925 to manage land owned by the Northern Nevada chapter of the Elks Club. At that time, the land was held as a vacation area for local Elks Club members. Beginning in 1929, EPCC began selling individual lots within the subdivision. Since then, the subdivision has consisted of both individual lots held in private ownership and common property held by EPCC for the benefit of all individual property owners within the community. EPCC has retained control of the operation of common areas and facilities within the community.
EPCC, as part of its management structure, has both articles of incorporation and bylaws. Like most bylaws, EPCC's bylaws set forth the governing rules by which EPCC operates, including establishing a five-person executive board tasked with managing the affairs of the community. Also included in its bylaws is a provision giving EPCC's executive board the power to adopt rules and regulations necessary to carry out its powers. Specifically, EPCC's bylaws authorize the executive board to "make rules and regulations not inconsistent with the laws of the State of Nevada, the Articles of Incorporation and the Bylaws of the Corporation."
EPCC's governing documents are somewhat different from most modern common-interest communities in that the covenants restricting individual property owners are included in its bylaws, as opposed to having a separate declaration of covenants, conditions, and restrictions (CC&Rs). Pertinent to this appeal, however, the bylaws include article 16, section 3, which imposes a restriction requiring individual landowners to seek approval of EPCC's executive board prior to constructing any structures on their individually owned property.
Appellant Jerome Moretto took title to property in the Elk Point subdivision in 1990. Included in Moretto's chain of title was a provision stating that his property was subject to any and all bylaws, rules, and regulations that EPCC establishes. At all relevant times, EPCC's bylaws included article 16(3)’s restriction requiring EPCC to pre-approve construction of any structure on individually owned lots prior to its commencement.
In 2018, EPCC's executive board, exercising its rulemaking authority, adopted a regulation establishing an architectural review committee. At the same time, the executive board adopted a set of guidelines titled, "Architectural and Design Control Standards and Guidelines" (Architectural Guidelines). These guidelines created detailed restrictions on individually owned lots, including restrictions regarding building height and setbacks as well as design-control restrictions regarding exterior lighting, building materials, and landscaping. The new regulations required any landowner wanting to develop their lot to comply with these new guidelines and to submit any proposed plans to the architectural review committee, which, in turn, would recommend to the executive board whether to approve the proposed development.
In response to these new guidelines, Moretto filed a complaint seeking, among other things, a declaration that the new guidelines exceed the scope of EPCC's rulemaking authority. EPCC filed its answer, and both parties subsequently filed competing motions for summary judgment. EPCC pointed to article 16(3) of the bylaws regarding its authority to approve construction on individually owned lots and its general rulemaking authority as the basis for its ability to adopt the Architectural Guidelines. Moretto argued EPCC did not have any express power to adopt the Architectural Guidelines and advocated that the district court interpret an association's implied power to adopt rules under NRS Chapter 116 as being limited consistent with sections 6.7 and 6.9 of the Restatement (Third) of Property: Servitudes. The district court, without addressing Moretto's argument regarding sections 6.7 and 6.9 of the Restatement (Third) of Property: Servitudes, held that EPCC did have the authority to adopt rules to control the design of individually owned property and therefore did not exceed the scope of its authority when adopting the Architectural Guidelines. This appeal followed.
We review de novo a district court's grant of summary judgment. Wood v. Safeway , Inc., 121 Nev. 724, 729, 121 P.3d 1026, 1029 (2005). Summary judgment is proper when no genuine issue of material fact exists, such that the moving party is entitled to judgment as a matter of law. Id.
On appeal, the parties’ arguments are similar to the ones presented to the district court. Moretto advocates that this court should adopt sections 6.7 and 6.9 of the Restatement (Third) of Property: Servitudes. He contends that section 6.9 requires that an association must have express power to adopt design control restrictions, which EPCC does not have. Instead, he suggests that under the principles outlined in section 6.7, EPCC only possesses a general rulemaking power and therefore is limited in its power to adopt restrictions concerning individually owned property. EPCC does not address whether we should adopt sections 6.7 and 6.9 of the Restatement (Third) of Property: Servitudes but instead argues that its adoption of the Architectural Guidelines was within the scope of its authority under its bylaws.
Restatement (Third) of Property: Servitudes sections 6.7 and 6.9
Moretto urges this court to adopt sections 6.7 and 6.9 of the Restatement (Third) of Property: Servitudes.1 Where parties raise issues of a purely legal nature, we will conduct a plenary review. St. James Vill., Inc. v. Cunningham , 125 Nev. 211, 216, 210 P.3d 190, 193 (2009).
Sections 6.7 and 6.9 concern an association's authority to adopt rules regarding the use and design of individually owned properties in a common-interest community. Section 6.7 of the Restatement (Third) of Property: Servitudes provides that an association authorized to adopt rules under a general grant of such power may adopt rules concerning the use of individually owned property only to the extent they relate to the protection of common property or to the prevention of nuisance-like activities. Restatement (Third) of Prop.: Servitudes § 6.7(3) (Am. Law Inst. 2000). General rulemaking powers are construed narrowly because a contrary interpretation runs counter to the traditional expectation that landowners are free to use their property in any manner not expressly prohibited, with the limited exception being that an association is permitted to protect against neighborhood nuisances by adopting preventative rules. Id. at cmt. b.
While section 6.7 concerns an association's power to adopt rules governing the use of property, section 6.9 concerns an association's power to adopt rules to control the design of individually owned properties. See generally Restatement (Third) of Prop.: Servitudes § 6.9 (Am. Law Inst. 2000). Section 6.9 states this:
Except to the extent provided by statute or authorized by the declaration, a common-interest community may not impose restrictions on the structures or landscaping that may be placed on individually owned property, or on the design, materials, colors, or plants that may be used.
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ELK Point Country Club Homeowners' Ass'n, Inc. v. K.J. Brown, LLC
...EPCC's Bylaws are the equivalent to CC&Rs found in most other homeowners’ associations. See Moretto v. Elk Point Country Club Homeowners Ass'n, Inc., 138 Nev. ––––, ––––, 507 P.3d 199, 201 (2022) (explaining that EPCC's Bylaws are equivalent to CC&Rs found in most modern common-interest com......