Maarten Kalway v. Calabria Ranch Hoa LLC ( 2022 )

IN THE
SUPREME COURT OF THE STATE OF ARIZONA
MAARTEN KALWAY, A MARRIED MAN DEALING WITH HIS SOLE AND
SEPARATE PROPERTY,
Plaintiff/Appellant,
v.
CALABRIA RANCH HOA, LLC, AN ARIZONA LIMITED LIABILITY COMPANY;
MARK A. REID AND FLORENCE J. CLARK, HUSBAND AND WIFE; EDWARD A.
PHLAUM AND DIANE LYN PHLAUM, HUSBAND AND WIFE AND AS CO-TRUSTEES
OF THE EDWARD A. AND DIANE LYN PHLAUM REVOCABLE TRUST, DATED
APRIL 10, 2017; AND STUART J. SCIBETTA, AN UNMARRIED MAN AND AS
TRUSTEE OF THE STUART J. SCIBETTA LIVING TRUST DATED APRIL 1, 2015,
Defendants/Appellees.
No. CV-20-0152-PR
Filed March 22, 2022
Appeal from the Superior Court in Pima County
The Honorable Janet C. Bostick, Judge
No. C20181284
REVERSED IN PART AND REMANDED
Memorandum Decision of the Court of Appeals, Division Two
No. 2 CA-CV 2019-0106
Filed March 13, 2020
VACATED
COUNSEL:
Gerard R. O’Meara, Charles W. Wirken (argued), Gust Rosenfeld P.L.C.,
Phoenix, Attorneys for Maarten Kalway
Craig L. Cline (argued), Thompson Krone P.L.C., Tucson, Attorneys for
Calabria Ranch HOA LLC, Mark A. Reid, Florence J. Clark, Edward A., and
Diane Lyn Phlaum, The Edward A. and Diane Lyn Phlaum Revocable
Trust, Dated April 10, 2017, Stuart J. Scibetta, and The Stuart J. Scibetta
MAARTEN KALWAY v. CALABRIA RANCH HOA LLC, et al.
Opinion of the Court
Living Trust Dated April 1, 2015
CHIEF JUSTICE BRUTINEL authored the opinion of the Court, in which
VICE CHIEF JUSTICE TIMMER and JUSTICES BOLICK, LOPEZ, BEENE,
and MONTGOMERY joined. ∗
CHIEF JUSTICE BRUTINEL, opinion of the Court:
¶1 In this case, we are asked to decide the extent to which a
homeowners’ association (“HOA”) may rely on a general-amendment-
power provision in its covenants, conditions, and restrictions (“CC&Rs”) to
place restrictions on landowners’ use of their land. Although CC&Rs are
generally enforced as written, we interpret such restrictions to reflect the
reasonable expectations of the affected homeowners. Construing such
provisions narrowly, as with any restrictive covenant on real property, we
hold that a general-amendment-power provision may be used to amend
only those restrictions for which the HOA’s original declaration has
provided sufficient notice.
I. BACKGROUND
¶2 Calabria Ranch Estates is a residential subdivision comprised
of five lots located east of Tucson. Maarten Kalway owns Lot 2, which at
nearly twenty-three acres is the largest of the lots. The remaining lots range
from 3.3 to 6.6 acres. 1 The lots are subject to CC&Rs, first recorded in the
original declaration in 2015, to “protect[] the value, desirability,
attractiveness and natural character of the Property,” as stated in the
CC&Rs’ general-purpose statement.
¶3 According to the original declaration, the CC&Rs could be
amended “at any time by an instrument executed and acknowledged by the
[m]ajority [v]ote of the owners” under the general-amendment-power
∗ Although Justice Andrew W. Gould (Ret.) participated in the oral
argument in this case, he retired before issuance of this opinion and did not
take part in its drafting.
1 Each of the five lots is owned separately except for Lots 4 and 5,
which are jointly owned and together comprise 11.65 acres.
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provision. A “[m]ajority [v]ote” consists of at least four of the six possible
votes. Each lot is entitled to one vote, except Kalway’s lot, which has two.
¶4 In January 2018, the other property owners (“Other Owners”)
amended the CC&Rs by majority vote without Kalway’s consent or
knowledge. The amendments change some definitions and add others,
create new restrictions, and enact new enforcement measures against
owners for violating the covenants. The new restrictions include limiting
owners’ ability to convey or subdivide their lots, restricting the size and
number of buildings permitted on each lot, and reducing the maximum
number of livestock permitted on each lot.
¶5 Kalway brought this action against Calabria Ranch and the
Other Owners, seeking a declaratory judgment to invalidate the
amendments to the CC&Rs. The parties filed cross-motions for summary
judgment, which the superior court granted in part and denied in part. The
court invalidated two sections in their entirety and partially invalidated
two more sections of the amended CC&Rs. The court further found the
invalid provisions severable from the rest of the CC&Rs. 2
¶6 Kalway appealed, arguing that all the amendments are
invalid without unanimous consent. Kalway v. Calabria Ranch HOA, LLC,
No. 2 CA-CV 2019-0106, 2020 WL 1239831, at *2 ¶ 8 (Ariz. App. Mar. 13,
2020) (mem. decision). The court of appeals disagreed, affirming in a 2–1
decision. Id. at *1 ¶ 1. The court relied on its earlier decision in Dreamland
Villa Community Club, Inc. v. Raimey, 224 Ariz. 42, 51 ¶ 38 (App. 2010), which
required notice in the original declaration that amendments on specific
issues could be imposed non-consensually. Kalway, 2020 WL 1239831, at
*3–4 ¶¶ 12–13. Applying Dreamland, the court concluded Kalway acquired
his lot with notice that the CC&Rs could be amended by majority vote and
that the general-purpose statement in the original declaration was sufficient
to provide notice of the amendments. Id. at *4 ¶¶ 14–16. Judge Brearcliffe,
2 The stricken amendments would have restricted owners’ rights to
subdivide larger lots into smaller ones and convey them without majority
consent (§ 3.10); imposed minimum dwelling and lot sizes (§§ 3.10(c), (f));
permitted a manager to collect “quasi-punitive” fees if required to
undertake special maintenance or enforcement duties (§ 4.2 ¶ 2); and
authorized compliance and enforcement provisions to address violations
(§§ 5.2, 5.3). No party challenged the trial court’s ruling striking these
provisions.
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concurring in part and dissenting in part, argued that the majority’s reliance
on each amendment’s harmony with the general-purpose statement of the
original declaration would permit “a gauzy statement of purpose” to justify
any new amendment, thereby rendering Dreamland’s notice requirement “a
nullity.” Id. at *10 ¶ 39 (Brearcliffe, J., concurring in part and dissenting in
part).
¶7 We granted review because the petition raises issues of
statewide importance regarding the scope of an HOA’s authority to amend
CC&Rs. We have jurisdiction under article 6, section 5(3) of the Arizona
Constitution.
II. DISCUSSION
¶8 Initially, we consider whether the original declaration must
provide notice of prospective amendments. If an amendment is invalid, we
“blue pencil” the amended CC&Rs, striking severable provisions. Valley
Med. Specialists v. Farber, 194 Ariz. 363, 372 ¶ 30 (1999) (“Arizona courts will
‘blue pencil’ restrictive covenants, eliminating grammatically severable,
unreasonable provisions.”).
A. Standard of Review
¶9 We review questions of law, including the interpretation of
CC&Rs and the grant of summary judgment, de novo. Powell v. Washburn,
211 Ariz. 553, 555–56 ¶ 8 (2006); Glazer v. State, 237 Ariz. 160, 167 ¶ 29 (2015).
Summary judgment is appropriate when “there is no genuine dispute as to
any material fact and the moving party is entitled to judgment as a matter
of law.” Ariz. R. Civ. P. 56(a).
B. Notice Requirement
¶10 Arizona law permits the amendment of CC&Rs by a majority
vote if such voting scheme is specified in the original declaration. A.R.S.
§ 33-1817(A). But § 33-1817(A) does not displace the common law, which
prohibits some amendments even if passed by a majority vote. The original
declaration must give sufficient notice of the possibility of a future
amendment; that is, amendments must be reasonable and foreseeable. See
Dreamland, 224 Ariz. at 51 ¶ 38; see also Shamrock v. Wagon Wheel Park
Homeowners Ass’n, 206 Ariz. 42, 45–46 ¶ 14 (App. 2003); Wilson v. Playa de
Serrano, 211 Ariz. 511, 513 ¶ 7 (App. 2005).
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¶11 In defining the contours of reasonableness and foreseeability,
we find Dreamland’s reasoning compelling. The homeowners in Dreamland
collectively comprised Dreamland Villa, a residential community with
eighteen sections. Dreamland, 224 Ariz. at 43 ¶ 2. Dreamland Villa
Community Club, Inc. (“DVCC”) was “a nonprofit corporation by
volunteer members to provide recreational facilities to those who joined the
club.” Id. ¶ 3. Membership in the DVCC was voluntary and carried a
membership fee. Id. at 48 ¶ 23.
¶12 Each of the eighteen Dreamland Villa sections had its own
respective set of CC&Rs. Id. at 43 ¶ 4. For all but one of the sections’
original declarations, there was no mention of DVCC. 3 Id. And each of the
original declarations, like the original declaration here, contained an
“amendment by majority vote” provision. Id. at 43–44 ¶ 4. Under this
provision, a majority of the homeowners voted to amend the original
declarations to make DVCC membership mandatory and impose annual
assessments. Id. at 46 ¶ 18. After DVCC brought claims against minority
homeowners who failed to pay annual assessments, the minority
homeowners challenged the validity of the amendments mandating DVCC
membership. Id. at 44 ¶¶ 7–9.
¶13 The court of appeals held that the amendments imposing
mandatory DVCC membership were not enforceable against the
homeowners because the original declarations did not provide “proper
notice that such servitudes could be imposed non-consensually under the
generic amendment power.” Id. at 51 ¶ 38. Thus, under Dreamland, even a
broad grant of authority to amend an original declaration is insufficient to
allow a majority of property owners to adopt and enforce restrictions on the
minority without notice. Id.
¶14 Like Dreamland, we hold that an HOA cannot create new
affirmative obligations where the original declaration did not provide
3 All members paid a membership fee, but section eighteen’s original
declaration also imposed annual assessments on non-members to fund the
club. Id. at 43–44 ¶¶ 4–5. The court nonetheless found that “homeowners
in section 18 were in the same position with reference to DVCC” as the other
homeowners prior to the amendments because, by imposing annual
assessment fees on non-members only, section eighteen’s original
declaration acknowledged that DVCC membership was not mandatory. Id.
at 47–48 ¶¶ 22–23.
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notice to the homeowners that they might be subject to such obligations.
CC&Rs form a contract between individual landowners and all the
landowners bound by the restrictions, as a whole. Powell, 211 Ariz. at 555
¶ 8; Playa de Serrano, 211 Ariz. at 513 ¶ 7. Although contracts are generally
enforced as written, Grubb & Ellis Mgmt. Servs., Inc. v. 407417 B.C., L.L.C.,
213 Ariz. 83, 86 ¶ 12 (App. 2006), in special types of contracts, we do not
enforce “unknown terms which are beyond the range of reasonable
expectation,” Darner Motor Sales, Inc. v. Universal Underwriters Ins., 140 Ariz.
383, 391 (1984) (quoting Restatement (Second) of Contracts § 211 cmt. f
(Am. L. Inst. 1981)). CC&Rs are such contracts.
¶15 The notice requirement relies on a homeowner’s reasonable
expectations based on the declaration in effect at the time of purchase—in
this case, the original declaration. Under general contract law principles, a
majority could impose any new restrictions on the minority because the
original declaration provided for amendments by majority vote. But
allowing substantial, unforeseen, and unlimited amendments would alter
the nature of the covenants to which the homeowners originally agreed. See
Dreamland, 224 Ariz. at 51 ¶ 38. Thus, “[t]he law will not subject a minority
of landowners to unlimited and unexpected restrictions on the use of their
land merely because the covenant agreement permitted a majority to make
changes to existing covenants.” Boyles v. Hausmann, 517 N.W.2d 610, 617
(Neb. 1994).
¶16 To determine whether the original declaration gave sufficient
notice of a future amendment, we must look to the original declaration
itself. “Because covenants originate in contract, the primary purpose of a
court when interpreting a covenant is to give effect to the original intent of
the parties” with any doubts resolved against the validity of a restriction.
Armstrong v. Ledges Homeowners Ass’n, 633 S.E.2d 78, 85 (N.C. 2006)
(emphasis omitted). We apply an objective inquiry to determine whether a
restriction gave notice of the amendments at issue. See 1 Williston on
Contracts § 3:4 (4th ed. 2021) (“Whether there is mutual assent to the terms
of a contract is determined by an objective test, rather than the subjective
intentions of the parties.”).
¶17 The restriction itself does not have to necessarily give notice
of the particular details of a future amendment; that would rarely happen.
Instead, it must give notice that a restrictive or affirmative covenant exists
and that the covenant can be amended to refine it, correct an error, fill in a
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gap, or change it in a particular way. See Armstrong, 633 S.E.2d at 87. But
future amendments cannot be “entirely new and different in character,”
untethered to an original covenant. Lakeland Prop. Owners Ass’n v. Larson,
459 N.E.2d 1164, 1167 (Ill. App. Ct. 1984). Otherwise, such an amendment
would infringe on property owners’ expectations of the scope of the
covenants.
C. Application to Calabria Ranch’s Amendments
¶18 Applying these principles here, very few of the challenged
amendments survive. Neither the general-amendment-power provision
nor the general-purpose statement is sufficient to provide notice of the
challenged amendments. See id.¶19 The original declaration stated: “This Declaration may be
amended at any time by an instrument executed and acknowledged by the
Majority Vote of the Owners which shall not be effective until the recording
of such instrument.” Although the plain language of this general-
amendment-power provision would permit any amendments by majority
vote under traditional contract law, our holding today requires that the
original declaration give fair notice of any enacted amendment.
¶20 Similarly, the general-purpose statement in Calabria Ranch’s
original declaration was simply too broad and subjective to give notice of
future amendments. The “purpose” of the CC&Rs, according to the
original declaration, was to “protect[] the value, desirability, attractiveness
and natural character of the Property.” Although Arizona courts construe
the language in CC&Rs “in light of the circumstances surrounding its
formulation, with the idea of carrying out its object, purpose and intent,”
Cypress on Sunland Homeowners Ass’n v. Orlandini, 227 Ariz. 288, 297 ¶ 31
(App. 2011) (quoting Powell, 211 Ariz. at 557 ¶ 16), relying solely upon a
subjective general statement of purpose would provide limitless
justification for new amendments.
¶21 Because the general-amendment-power provision and
general-purpose statement were not sufficient to provide notice of future
amendments, we next analyze each challenged amendment separately
under Dreamland. Applying the blue pencil rule, we strike unauthorized
terms from several amendments and where we find amendments invalid in
their entirety, we strike them and concur with the deletion of the
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amendments stricken by the trial court. See Valley Med. Specialists, 194 Ariz.
at 372 ¶ 30.
1. Section 1.3: Dwelling
¶22 Amended § 1.3 limits “dwellings” to 60% living space and
40% garage. The original declaration provided no limitations on the size of
garages or living spaces and only required that all residences be “Single
Family Dwellings,” without defining the term. Nothing in the original
declaration restricting residences to single-family dwellings would put a
property owner on notice that the Other Owners could, by majority vote,
now limit the size of his residence.
¶23 We revise amended § 1.3 as follows using strikeouts to reflect
deletions: “‘Dwelling’ shall mean a single-family dwelling that is a
permanent structure affixed to a Lot and used for residential purposes by a
single family. Moreover, a dwelling must have at least 60% living space and
at most 40% Garage, as defined below.”
2. Section 1.5: Garage
¶24 Although “Garage” was not defined in the original
declaration, we find its inclusion permissible because § 3.3 of the original
declaration referenced a “garage.” Thus, a later amendment defining the
term was reasonably foreseeable.
3. Section 1.6: Improvement; Section 3.7: Setbacks
¶25 The amended CC&Rs replace the word “structures” with
“Improvements” in the Setbacks provision, § 3.7. Another amendment,
§ 1.6, defines “Improvement” as “any changes, alterations or additions to a
Lot, including any Dwelling, and including but not limited to buildings,
outbuildings, patios, swimming pools, driveways, grading, excavation,
landscaping, and any structure or other improvement of any kind.” Read
in conjunction with the amended Setbacks provision, this new definition
prevents landowners from digging even one hole within fifty feet of their
property line, whereas under the original declaration landowners were
prevented only from building a structure. Landowners were not provided
notice in the original declaration that restrictions on building structures
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could be expanded to restrictions on any improvement whatsoever by
majority vote.
¶26 We revise § 1.6 as follows: “‘Improvement’ shall mean any
changes, alterations or additions to a Lot, including any Dwelling, and
including but not limited to buildings, outbuildings, patios, swimming
pools, driveways, grading, excavation, landscaping, and any structure or
other improvement of any kind.”
¶27 In view of our revisions to § 1.6, we find amended § 3.7 valid.
4. Section 1.13: Votes
¶28 Additions to the “Votes” section are invalid. The original
declaration allocated votes per lot but was silent on the effect future
subdivision would have on vote allocation. The amended CC&Rs add: “In
the event of any potential future subdivision of the Lots, the allocation of
Votes shall remain the same with any additional lots or parcels having no
Vote under this Declaration.” The original declaration did not provide for
subdivision. Although the amendment provision provided notice that
future amendments could account for subdivision, no notice was provided
that future subdivision may result in a loss of voting power for new lot
owners, thus potentially lessening the value of these lots.
¶29 We revise § 1.13 to read: “‘Votes’ shall be allocated as follows:
one (1) Vote per Lot, as identified in the attached Survey, with the exception
of Lot 2, which shall have two (2) Votes. In the event of any potential future
subdivision of the Lots, the allocation of Votes shall remain the same with
any additional lots or parcels having no Vote under this Declaration.”
5. Section 3.1: Livestock
¶30 As amended, the portion of § 3.1 changing the types and
quantity of permissible “livestock” is invalid. The original declaration
stated: “No Owner or Occupant shall keep more than six (6) livestock on
the Property including, but not limited to, horses/cattle per 3.3 acres.”
Amended § 3.1 limits livestock to “chickens, horses, and cattle only” and,
while retaining the six livestock per 3.3 acres ratio, caps the total number of
permitted livestock units at fifteen regardless of the size of the lot.
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¶31 The intended definition of “livestock” is unclear. Merriam-
Webster defines “livestock” as “animals kept or raised for use or pleasure[;]
especially: farm animals kept for use and profit.” Livestock, Merriam-
Webster, https://www.merriam-webster.com/dictionary/livestock (last
visited Mar. 14, 2022). This broad definition could include any number of
animals of varying sizes, but because of the numerical limitation and the
specific mention of horses and cattle, the original declaration appears to
have contemplated only large animals. The CC&Rs limited the number of
livestock in proportion to the size of the lot, indicating that the size of the
lot, and therefore the size of the animals, was a factor in the limitation. In
conjunction with the noscitur a sociis canon, which instructs us to interpret
an unclear word or phrase according to the words immediately
surrounding it, Noscitur a sociis, Black’s Law Dictionary (11th ed. 2019),
reasonable landowners might interpret “livestock” to mean only large
animals like horses and cattle. Thus, reasonable landowners might believe
the original declaration was silent regarding smaller animals, such as
chickens. They would find support in Arizona law, which does not
consider “poultry” to be “livestock.” A.R.S. § 3-1201(5), (7).
¶32 We need not determine exactly which animals were
considered “livestock” in the original declaration. Whatever the definition,
under the original declaration, livestock was expressly “not limited to”
horses and cattle. And reasonable landowners may have believed chickens
were not livestock under the original declaration, and therefore not subject
to the number limitation. An amendment that redefines “livestock” so
drastically so that other livestock are prohibited by the amendment is not
reasonable or foreseeable. This change unreasonably alters the nature of
the original CC&Rs and was not portended by them.
¶33 Furthermore, the amended CC&Rs impose a new limit on
livestock. In the original declaration, landowners were allowed six
livestock per 3.3 acres. Now, landowners cannot own more than fifteen
livestock animals regardless of the size of the lot. Irrespective of the change
in number of permitted livestock, the livestock amendment is different in
kind from that in the original declaration. The original livestock limitation
is proportional to the size of the owners’ lots. A landowner would not likely
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foresee a numerical cap on lots regardless of acreage, such as that in
amended § 3.1. 4
¶34 Accordingly, we revise § 3.1 as follows: “No Owner or
Occupant shall keep more than six (6) livestock animal units per 3.3 acres
on their Lot and livestock shall be limited to chickens, horses, and cattle
only. In no event shall any Lot contain more than fifteen (15) livestock
units.”
6. Section 3.8: Non-Dwelling Structures
¶35 Newly added § 3.8 is invalid. The original declaration placed
no limitation on the location, placement, or size of “non-dwelling
structures.” But this new section limits non-dwelling structures to 2500
total square feet in area and eighteen feet in height and prohibits them from
obstructing any “views” of neighboring lots. Nothing in the original
declaration put a reasonable homeowner on notice that his or her neighbors
might impose such restrictions. We strike § 3.8 in its entirety.
7. Section 3.9: Improvement Plans
¶36 Newly added § 3.9 is similarly invalid. In addition to defining
“Improvement” in § 1.6, the amended CC&Rs create a requirement that any
“construction plans” for “Improvements” be submitted to and approved by
a majority vote. Given the new definition of “Improvement” in § 1.6, the
consequence of § 3.9 is that, whether it is a house, a patio, or other structure,
a property owner must now submit construction plans to his or her
neighbors for their approval. Nowhere in the original declaration was any
such approval process required. Nothing in the original declaration put a
reasonable property owner on notice that an otherwise permissible use of
his or her property would be subject to approval by a majority vote of his
or her neighbors. Because the original declaration did not provide Kalway
with notice, and this amendment to the CC&Rs was adopted without his
consent, § 3.9 is invalid and stricken in its entirety.
4 Kalway further argues that certain amendments are invalid because
they affect only his lot. In view of our decision to invalidate this
amendment, we do not address this argument.
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8. Sections 3.10(b), (d), (e), (g), (h): Subdivision and Improvements
¶37 Challenged subsections 3.10(b), (d), (e), (g), and (h) are invalid
and stricken in their entirety. Additionally, the first sentence of the general
provision in § 3.10 is invalid and likewise stricken. Section 3.10 prohibits
owners from subdividing their own lots without a majority vote of all of
Calabria Ranch’s property owners, yet no property owner was ever put on
notice that such a requirement might be considered in the future.
¶38 Subsection (b) requires the submission of improvement plans
to the “Owners and Manager, in writing” at least thirty days before making
such improvements. No requirement for submission of improvement plans
was contained in or implied by the original declaration.
¶39 Likewise, the original declaration mentioned no limit to the
number of non-residential structures on a lot, nor did it control the
sequence of their construction—now contemplated in subsections (e) and
(d), respectively. In the amended CC&Rs, however, the Other Owners now
impose limits on both the number and type of structures on a lot and when
such structures may be built. Nothing in the original declaration made any
mention of such limitations or mandatory sequencing, and reasonable
property owners would not have expected that any such future provisions
would be imposed without their consent. It is not uncommon for
homeowners to have a number of buildings on their property, such as a
guesthouse, greenhouse, shed, or detached garage. Under this amendment,
an owner would have to choose only one of the above structures and is
prohibited from building beyond that.
¶40 Moreover, nowhere in the original declaration did it mention
restrictions on the environmental impact in riparian areas—now
contemplated in § 3.10(g)—or the obstruction of views—now regulated in
§ 3.10(h). The original declaration did not contain any language indicating
that such amendments might be adopted in the future.
9. Section 7.2: Fallen Deadwood, Dried Undergrowth, and other Fire
Hazards
¶41 Newly added § 7.2 is invalid. Under this new requirement,
owners must maintain their properties such that dried undergrowth is less
than one-foot high and all fallen deadwood longer than three feet is cut into
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six-inch-or-less pieces. As the court of appeals’ partial concurrence and
dissent noted, while this provision might be advisable to prevent wildfires,
no language in the original declaration put property owners on notice that
fallen branches on their property would later be regulated by the CC&Rs.
Kalway, 2020 WL 1239831, at *10 ¶ 38 (Brearcliffe, J., concurring in part and
dissenting in part). We strike § 7.2 in its entirety.
III. CONCLUSION
¶42 We reverse the trial court in part and remand for entry of
summary judgment in part for Kalway and in part for Calabria Ranch. We
vacate the court of appeals’ decision and award attorney fees to Kalway in
this Court and in the court of appeals.
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