WDIS, LLC v. Hi-Country Estates Homeowners Ass'n

• Decision Date: 02 August 2022
• Docket Number: 20200849
• Parties: WDIS, LLC AS TRUSTEE OF the MDMG TRUST, DATED APRIL 25, 2016, and Dreamworks Property Management, Inc. as Trustee of the Step Mountain Road Land Trust, Dated November 6, 2007, Appellants, v. HI-COUNTRY ESTATES HOMEOWNERS ASSOCIATION, Phase II, Appellee.
• Court: Utah Supreme Court

515 P.3d 432

WDIS, LLC AS TRUSTEE OF the MDMG TRUST, DATED APRIL 25, 2016, and Dreamworks Property Management, Inc. as Trustee of the Step Mountain Road Land Trust, Dated November 6, 2007, Appellants,

v.HI-COUNTRY ESTATES HOMEOWNERS ASSOCIATION, Phase II, Appellee.

No. 20200849

Supreme Court of Utah.

Heard February 9, 2022

Filed August 2, 2022

Troy L. Booher, Beth E. Kennedy, Taylor P. Webb, Bruce R. Baird, Salt Lake City, Landon A. Allred, South Jordan, for appellants

Stephen T. Hester, Bradley M. Strassberg, Salt Lake City, for appellee

Chief Justice Durrant authored the opinion of the Court, in which Justice Pearce, Justice Petersen, Judge Mortensen, and Judge Tenney joined.

AMENDED OPINION^*

Chief Justice Durrant, opinion of the Court:

Introduction

¶1 In 1973, Charles Lewton signed and recorded documents purporting to create a homeowners association covering 2,000 acres of land near rural Herriman, Utah. He sought to make that land subject to various restrictive covenants. Years later, a group of landowners (the Landowners) purchased properties within the HOA's boundaries. But in 2015, during a protracted dispute over the Landowners’ attempts to develop their property, they discovered that Mr. Lewton had owned just a single eight-acre parcel of the 2,000 acres he purported to include within the HOA, and no other landowners had signed the recorded documents.

¶2 Based upon this information, the Landowners sued to quiet title to their property. They filed a motion for summary judgment, arguing that the HOA and its subsequently amended restrictive covenants were void ab initio (from the beginning) based on a public policy invalidating covenants not signed by the affected landowner. The district court denied the motion, and the Landowners appealed. On appeal, the Landowners argue the covenants must be declared absolutely void under the test established in Ockey v. Lehmer¹ because they violate public policy as articulated in the Wrongful Lien Act (WLA), the statute of frauds, and Utah caselaw. But because these authorities do not evince the public policy the Landowners suggest, we affirm the district court's decision.

Background

¶3 The Hi-Country Estates Homeowners Association, Phase II (the HOA), encompasses approximately 2,000 acres of land near Herriman, Utah. The HOA was established in 1973, and, sometime thereafter, the Landowners began purchasing property within its boundaries.²

¶4 Eventually, the Landowners attempted to develop their properties. But they claim they have been prevented from doing so because the HOA refuses to provide the necessary infrastructure. This has led to years of litigation between the Landowners and the HOA, beginning with a derivative suit brought by the Landowners in 2009, alleging that the HOA did not treat all lot owners equally. We reversed the district court's dismissal of that case in Hi-Country Property Rights Group v. Emmer .³

¶5 Later, in 2015, the Landowners obtained documents that they argue prove "serious problems with the validity of the HOA's governing documents." They discovered that the HOA's governing documents, including various restrictive covenants, were signed and recorded by Charles Lewton, who owned a mere eight of the two thousand acres (0.4%) he sought to include within the boundaries of the HOA. The covenants lacked the signature of any other landowner, and there are apparently no other documents in which the other landowners authorized the HOA covenants to be recorded on their properties.

¶6 The covenants were amended in 1980, changing the boundaries of the HOA. These amendments were signed by three members of the HOA's board, professedly "in response to the wishes of the majority of the Association Members during the Annual Membership Meeting." But, as with the original covenants, there is apparently no written document signed by the owners of the affected properties authorizing the 1980 amendments.

¶7 After learning this information, the Landowners sued the HOA to quiet title to their properties. (One Landowner, WDIS, also purchased nine more parcels.) Once again, we reversed the district court's dismissal of the case, remanding for the district court "to determine whether the HOA's encumbrances are void or voidable."⁴

¶8 Upon remand, the district court consolidated the case with several others in which the HOA sought to enforce certain assessments it had levied against the Landowners. The Landowners filed an amended complaint to quiet title and then filed the motion for summary judgment that we review in this case.

¶9 As exhibits to their summary judgment motion, the Landowners attached evidence that the individuals who signed the covenants in 1973 and 1980 did not own most of the land they sought to restrict, including the properties now owned by the Landowners. They argued that the restrictive covenants were void ab initio and therefore incapable of ratification. They based their argument on public policy reflected in such authority as the WLA, the statute of frauds, and Utah caselaw.

¶10 The district court denied the Landowners’ motion, applying the two-factor test we set forth in Ockey v. Lehmer , which directs courts to examine (1) whether the law has already declared the type of contract at issue to be "absolutely void as against public policy" and (2) whether such contract harms the general public.⁵ As to the first factor, the district court disagreed with the Landowners that the WLA and the statute of frauds evinced a clear public policy against the covenants. And as to the second factor, the court found that the covenants potentially harmed only the landowners within the HOA's purported jurisdiction and not the public as a whole.⁶

¶11 The Landowners’ summary judgment motion having been denied, the case is set to proceed to trial. We agreed to consider the Landowners’ interlocutory appeal. We have jurisdiction pursuant to Utah Code § 78A-3-102(3)(j).

Standard of Review

¶12 "On interlocutory appeal, we review grants and denials of summary judgment for correctness."⁷ Summary judgment is appropriate "if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law."⁸ "We view the facts and indulge reasonable inferences in the light most favorable to [the HOA], the nonmoving party."⁹

Analysis

¶13 The Landowners argue that because the restrictive covenants in this case were not signed by the affected property owners, they are void ab initio. We disagree and affirm the district court's decision.

I. The Restrictive Covenants Are Voidable, Not Void Ab Initio

¶14 In Ockey v. Lehmer , we were asked to determine whether a conveyance of an interest in property was void ab initio or merely voidable where the transferors lacked authority to convey the property.¹⁰ We explained that the "distinction between void and voidable is important" because a "contract or a deed that is void cannot be ratified or accepted, and anyone can attack its validity in court. In contrast, a contract or deed that is voidable may be ratified at the election of the injured party. Once ratified, the voidable contract or deed is deemed valid."¹¹

¶15 In making this determination, we "start with the presumption that contracts are voidable unless they clearly violate public policy."¹² And due to this presumption, the Landowners’ showing that the covenants¹³ violate public policy must be "free from doubt."¹⁴

¶16 The Landowners argue, although they do not brief the issue extensively, that the presumption does not apply here because it arises from parties’ freedom to contract and that in this case, "the protective covenants at issue were not contractual" because "they did not involve two parties agreeing to perform acts in relation to each other." We conclude that applying the presumption is appropriate.

¶17 We acknowledge that the covenants at issue here differ from a traditional contract in that, initially, they were unilaterally imposed. But even under these circumstances, the freedom to contract is implicated because the question we are resolving is whether parties "of full age and competent understanding"¹⁵ are free either to accept or reject those covenants later on. And there are other reasons, beyond the freedom of contract, to apply the presumption.

¶18 For one, voiding the covenants ab initio is a severe remedy. As long as the party affected by a defective covenant is free either to ratify or reject such a covenant, it is usually unnecessary for the court to make that decision for her by voiding it altogether. And because simply declaring the covenant voidable will normally be an adequate remedy, the covenant should clearly violate public policy before we declare it absolutely void. That is why we have applied the presumption even where the contract at issue was entered for a fraudulent purpose.¹⁶

¶19 Another reason for applying the presumption is that voiding even defective covenants will upset certain reliance interests. And in some cases, like this one, where the covenants have existed for decades, those interests may be especially substantial.

¶20 Having explained why the presumption of voidability applies, we turn to whether the Landowners have overcome it. In Ockey , we held that the unauthorized conveyance of a property interest was merely voidable.¹⁷ In making that determination, we noted first that no statute had declared the type of transaction absolutely void as against public policy, and second, the unauthorized transfer affected only the rightful owner—not the general public.¹⁸

¶21 Later, in Wittingham, LLC v. TNE Limited Partnership , we characterized our observations in Ockey as a two-factor test for "determining whether a contract clearly violates public policy."¹⁹ The test asks "(1) whether the law or legal precedent has declared that the type of contract at issue is ‘unlawful’ and ‘absolutely void,’ and (2) whether ‘the contract harmed the public as a whole—not just an individual.’ "²⁰

¶22 We discuss each factor in turn and hold...