Donald Dunn v. Jason Aamodt

United States Court of Appeals
For the Eighth Circuit
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No. 12-1402
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Donald Dunn, Husband; Kay Dunn, Wife; Mike Womak; Vicki Raub; Greg
O'Neal, Husband; Jo Alice O'Neal, Wife; Bill Pickens, Husband; Carolyn Pickens,
Wife; Charlie Duvall, Husband; Rima Duvall; Theresa Ferrugia; John Inglehart;
Dave Millr, Husband; Billie Kay Miller, Wife; Harold White, Husband; Hensley
White, Wife; Mike Marshall, Husband; Sammy Marshall, Wife; Bill Ackerman,
Husband; Bootsi Ackerman, Wife; Richard Cross, Husband; Jennifer Cross, Wife;
T. L. Lauerman; Gary Beck; Manfred Hensler; Ethan Wright, Husband; Jinger
Wright; Mike Schuster, Husband; Jan Schuster, Wife; Ed Czaja, Husband; Susan
Czaja, Wife; Rod Engle, Husband; Rita Engle, Wife; Borum Cooper; Jim Bailey;
Tom Hearne; Wayne Bodenhamer, Husband; Loretta Bodenhamer, Wife
lllllllllllllllllllll Plaintiffs - Appellants
v.
Jason Aamodt, Husband; Maria Aamodt, Wife
lllllllllllllllllllll Defendants - Appellees
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Appeal from United States District Court
for the Western District of Arkansas – Harrison
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Submitted: September 17, 2012
Filed: October 10, 2012
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Before MELLOY, BEAM, and BENTON, Circuit Judges.
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MELLOY, Circuit Judge.
Appellants, property owners in Phase "A" of the River Ridge Park Subdivision
("the Subdivision") in the City of Norfork, Arkansas, filed a declaratory judgment
action against Jason Aamodt and Maria Aamodt (together, "the Aamodts").
Appellants allege that the Aamodts, who also own property in Phase "A" of the
Subdivision, violated (and continue to violate) certain restrictive covenants by renting
their property to friends and others to use as a vacation home. The parties filed cross-
motions for summary judgment, and the district court1 granted the Aamodts' motion
and denied Appellants' motion. We affirm.
I.
In September 2009, the Aamodts purchased as a second home2 a house located
on Lots #23 and #24 in Phase "A" of the of the Subdivision ("the Property"). When
the Aamodts are not using the Property, they rent it to their friends and other guests
as a vacation home. The Property, as part of Phase "A" of the Subdivision, is subject
to Instrument No. 2674-87 ("the Restrictive Covenants"). The parties' dispute centers
around a single provision of the Restrictive Covenants—Section 6—which states as
follows:
6. BUILDING SITE: A lot (or tract), or a lot and a portion of an
adjacent lot, having a minimum size of 1.5 acres shall constitute a
1
The Honorable Paul K. Holmes, III, Chief United States District Judge for the
Western District of Arkansas.
2
The Aamodts' primary residence is in Tulsa County, Oklahoma.
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building site. Sites must be used for residential purposes only except
Lots #1, #2, and #4, which are designated as commercial or residential.3
Appellants contend that the Aamodts violate Section 6 because renting the
Property constitutes a nonresidential use. Accordingly, Appellants filed suit in the
Circuit Court of Baxter County4 seeking (1) a declaration that the Aamodts' short-
term rental of the Property violates the Restrictive Covenants and (2) a temporary and
permanent injunction prohibiting the Aamodts from continuing to use the Property
for what Appellants allege is a "commercial operation." The Aamodts argue that the
Restrictive Covenants do not contain any language that prohibits them from renting
the Property, and that just because they receive money for renting the Property does
not mean that the Property is being used for a nonresidential purpose.
II.
We review the district court's decision on cross-motions for summary judgment
de novo. Humphries v. Pulaski Cnty. Special Sch. Dist., 580 F.3d 688, 692 (8th Cir.
2009). Summary judgment is appropriate when "there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ.
P. 56(a); see Sturge v. Nw. Airlines, Inc., 658 F.3d 832, 839 (8th Cir. 2011). Here,
the parties stipulated that "there are no disputed facts in this case and that the
resolution of the issue before the Court is solely one of law." Because this case was
removed to federal court based on diversity jurisdiction, we apply Arkansas law as
3
Certain lots in the Subdivision were previously replatted and subsequently
designated as "Commercial or Residential." The Property is not located on any of
those lots, however, and the parties agree that it is to be used for "residential purposes
only" as set forth in Section 6 of the Restrictive Covenants.
4
The Aamodts, as citizens of Oklahoma, removed the case to the district court
based on diversity jurisdiction pursuant to 28 U.S.C. § 1332.
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the law that the forum state would apply. See S & A Farms, Inc. v. Farms.com, Inc.,
678 F.3d 949, 954 (8th Cir. 2012).
A.
Under Arkansas law, "[a] restrictive covenant is defined as 'a private
agreement, usually in a deed or lease, that restricts the use or occupancy of real
property, especially by specifying lot sizes, building lines, architectural styles, and
the uses to which the property may be put.'" Hutchens v. Bella Vista Vill. Prop.
Owners' Ass'n, Inc., 110 S.W.3d 325, 329 (Ark. Ct. App. 2003) (quoting Black's Law
Dictionary 371 (7th ed. 1999)). Restrictive covenants are not favored, "and if there
is a restriction on the land, it must be clearly apparent." Forrest Constr., Inc. v.
Milam, 43 S.W.3d 140, 145 (Ark. 2001). "The general rule governing [the]
interpretation, application, and enforcement of restrictive covenants is that the
intention of the parties as shown by the covenant governs," and "[a]ll doubts are to
be resolved in favor of the unfettered use of land." Id. But "when the language of the
restrictive covenant is clear and unambiguous, the parties will be confined to the
meaning of the language employed." Casebeer v. Beacon Realty, Inc., 449 S.W.2d
701, 703 (Ark. 1970).
B.
Before turning to the question of whether the Aamodts' short-term rental of the
Property is for a "residential purpose," we first address whether Section 6 of the
Restrictive Covenants is ambiguous. "The determination of whether ambiguity exists
is ordinarily a question of law for courts to resolve." Magic Touch Corp. v. Hicks,
260 S.W.3d 322, 326 (Ark. Ct. App. 2007). "Language is ambiguous if there is doubt
or uncertainty as to its meaning and it is fairly susceptible to more than one equally
reasonable interpretation." Rausch Coleman Homes, LLC v. Brech, 303 S.W.3d 456,
459 (Ark. Ct. App. 2009).
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Appellants maintain that the "residential purposes" language in Section 6 is not
ambiguous, and that the Restrictive Covenants were plainly intended to prohibit
short-term rental of the subject properties. Appellants base this assertion on the fact
that Section 6 distinguishes between "residential" purposes and "commercial"
purposes. But this distinction alone does not impart meaning to the phrase
"residential purposes."
The Arkansas cases cited by Appellants that interpret "residential purpose" also
provide little guidance here insofar as those cases pertain to activities that are plainly
not residential (e.g., paving a roadway that connects to land outside the covenanted
subdivision, Briarwood Apartments v. Lieblong, 671 S.W.2d 207, 208 (Ark. Ct. App.
1984); locating a community septic system on a lot bound by a residential-use
covenant, Royal Oaks Vista, L.L.C. v. Maddox, 271 S.W.3d 479, 484–85 (Ark.
2008)). Short-term rental of a house as a vacation home is a closer call.5
5
Appellants also cite McGhee v. Witcher, 101 S.W.3d 262 (Ark. Ct. App.
2003), and McGuire v. Bell, 761 S.W.2d 904 (Ark. 1988). But the appeal in McGhee
pertained to a procedural issue regarding waiver, and the court remanded the case
without reaching the merits of whether operating a day-care from a home was a
commercial (or business) use of the land. 100 S.W.3d at 264. On remand, the trial
court found that operating the day-care violated the bill of assurance and enjoined the
homeowner from further operation. See Witcher v. McGhee, 184 S.W.3d 474, 475
(Ark. Ct. App. 2004). Appellants argue that McGhee applies here because "surely the
children housed [at the day-care] were eating, sleeping, living, playing, etc." We find
McGhee inapplicable, however, because the hourly care of children is incongruous
to the overnight, multi-day rental of a house. Moreover, the McGhee court indicated
that the bill of assurance pertained to a prohibition on a commercial or business use
of a property, not a mandate that a property be used for a certain limited purpose, as
here. See 101 S.W.3d at 262.
McGuire is also not informative. In McGuire, property owners sought a
declaration that "a residential care facility or group home for the . . . developmentally
disabled can be considered a residence, or more narrowly, a single-family residence."
761 F.2d at 910. The McGuire court declined to make any such determination,
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The Aamodts assert that "residential purposes" in Section 6 is ambiguous—at
best—as to short-term rental of a property. The Aamodts argue that this alleged
ambiguity entitles them to judgment as a matter of law because Arkansas law requires
that "all doubts [be] resolved in favor of the unfettered use of land." Forrest Constr.,
Inc. v. Milam, 43 S.W.3d 140, 145 (Ark. 2001).
We agree with the Aamodts that the phrase "residential purposes" is ambiguous
as to the short-term rental of property. Section 6—and the Restrictive Covenants as
a whole—do not address whether a lot in Phase "A" of the Subdivision can be rented
on a short-term basis as a vacation home, and Arkansas courts have not had the
occasion to rule on whether the short-term rental of a property is within the purview
of "residential purposes." The restriction that Appellants would impose on the
Property is thus not "clearly apparent" from the plain language of the Restrictive
Covenants. See id. at 145–46.
Accordingly, the Arkansas rule of strict construction favoring the "unfettered
use of land" requires that we affirm the judgment of the district court.
C.
Both Appellants and the Aamodts assert that whether the phrase "residential
purposes" is ambiguous is dispositive of this case. Nevertheless, the parties briefed
the merits regarding what stance Arkansas should take on whether the short-term
rental of property is a "residential purpose." Under Arkansas law, "[t]he best
construction is that which is made by viewing the subject of the contract, as the mass
of mankind would view it, as it may safely be assumed that such was the aspect in
which the parties themselves viewed it." Rausch Coleman Homes, LLC v. Brech, 303
however, because it lacked "detailed information concerning . . . the specific use for
which [the property] [would] be purchased." Id.-6-
S.W.3d 456, 458–59 (Ark. Ct. App. 2009); see Skinner v. Seliga, No. CA 08-1395,
2009 WL 1362860, at *2 (Ark. Ct. App. May 13, 2009) ("A restrictive covenant is
considered a private agreement that rests on the contractual basis of mutual
obligation."). Thus, while not binding, other states' decisions on whether the short-
term rental of a property qualifies as a "residential purpose" are instructive.
In Scott v. Walker, 645 S.E.2d 278 (Va. 2007), cited by the Aamodts, the
Supreme Court of Virginia considered whether a restrictive covenant prohibited the
short-term rental of a single-family dwelling on a nightly and weekly basis. Id. at
279–80. The covenant at issue stated that "No lot shall be used except for residential
purposes." Id. at 280. The Scott court construed the covenant under a similar
framework as the one employed by Arkansas courts and determined that the language
"residential purposes" was ambiguous as to short-term rentals. Id. at 283 ("If the
restrictive covenant at issue was intended to prevent the short-term rental of lots . . .
it would have been easy to say so, and it would not likely have been left to the
uncertainty of inference." (citation and internal quotation marks omitted)). The Scott
court, relying on its own case law as well as decisions from other jurisdictions, held
that "[t]he restrictive covenant does not by express terms prohibit the short-term
rental of the [subject] lot," and that "[i]n the absence of language expressly or by
necessary implication prohibiting nightly or weekly rentals, we find that the
[defendants'] short-term rental of their property did not run afoul of the restrictive
covenant at issue." Id. at 217, 218. The same result follows here.
Similarly, in Yogman v. Parrott, 937 P.2d 1019 (Or. 1997), also cited by the
Aamodts and relied upon in the Scott decision, the Oregon Supreme Court held that
the covenant, "All lots . . . shall be used exclusively for residential purposes and no
commercial enterprise shall be constructed or permitted on any of said property[,]”
did not preclude the defendants from renting to others their beach-front house as a
vacation home. Id. at 1023. The Yogman court first determined that the phrases
"residential purposes" and "commercial enterprise" were both ambiguous. Id. at
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1021–22. The court then resorted to a construction scheme similar to that of
Arkansas courts for interpreting restrictive covenants. The Yogman court held that
"defendants' rental of the property is permissible[] because that use is not plainly
[restricted by] the provisions of the covenant." Id. at 1023 (citation and internal
quotation marks omitted). As with Scott, we reach the same result here.6
Appellants also cite to several cases that they believe require this Court to
reach a different conclusion. First, Appellants rely on the Tennessee case Carr v.
Trivett, 143 S.W.2d 900 (Tenn. Ct. App. 1940) (cited in Parks v. Richardson, 567
S.W.2d 465 (Tenn. Ct. App. 1977)). In Carr, the court held that the operator of a
6
The Aamodts and the district court also cite Pinehaven Planning Board v.
Brooks, 70 P.3d 664 (Idaho 2003). In Brooks, the Idaho Supreme Court held that
"renting [a] dwelling to people who use it for the purposes of eating, sleeping, and
other residential purposes does not violate the prohibition on commercial and
business activity as such terms are commonly understood." Id. at 668. But while the
outcome in Brooks supports the Aamodts' position, the covenant in Brooks is
distinguishable. Unlike Section 6, the covenant in Brooks does not limit the use of
property for a single purpose, but instead precludes certain uses from among many
possible uses. See id. ("Renting the property for residential purposes, whether short
or long-term, does not fit within these prohibitions. . . . Pinehaven Covenants do not
limit the use of residential property to residential purposes." (emphases added)); see
also supra note 5 (distinguishing McGhee on the same basis).
Additionally, the covenants in Brooks expressly provided two references—the
Uniform Building Code and Webster's Dictionary—to define terms not defined by the
covenants themselves. Id. at 665–66. The Brooks court relied, at least in part, on
these extrinsic sources of evidence when construing the covenants and finding that
they were not ambiguous. See, e.g., id. at 668 ("[T]he Covenants by their own terms
incorporate the definitions provided in the Uniform Building Code and . . . the
Uniform Building Code adopts a rather broad definition of residential, including
apartment houses and hotels."). Here, however, the Restrictive Covenants do not
reference any extrinsic evidence for construing the terms contained therein, and thus
we reach a different result as to ambiguity.
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tourist home violated a covenant restricting use of the property to "residential
purposes" by renting four of eight rooms in the home. 143 S.W.2d at 904. The court
based its decision in large part on the fact that twelve to fifteen tourists per week
passed through the home during the busy season. Id. at 902, 904. The court
indicated, however, that if the circumstances were different, it may have reached a
contrary result. See id. at 904 (stating that "the renting of a room or two or the
keeping of a small number of boarders . . . would not be violative of the spirit and
purpose of the restrictions"). Because Appellants have not presented evidence that
the number of weekly renters rises to the same level as that in Carr, or that their home
values have depreciated as a result of the Aamodts renting the Property, see id., Carr
is not persuasive.
Appellants also rely on the Texas case Benard v. Humble, 990 S.W.2d 929(Tex. App. 1999). In Benard, the appellants were renting homes on a weekly or
weekend basis, and the court determined that such use violated a covenant that "No
lot shall be used except for single-family residence purposes." Id. at 931. The court,
acknowledging that "[t]he term 'residence' is an elastic one and is extremely difficult
to define," id. at 931, employed a liberal construction to the covenant's language. See
id. at 930–31 ("We believe that the legislature . . . intended that restrictive covenants
be construed in a manner which may occasionally run hard afoul of strict common
law requirements, i.e., strict construction favoring grantee, and strict construction
against the drafter."). But because Arkansas follows the doctrine of strict
construction, see Forrest Constr., Inc. v. Milam, 43 S.W.3d 140, 145 (Ark. 2001),
Benard does not apply here.
In sum, we find the Virginia and Oregon decisions in Scott and Yogman to be
persuasive and would adopt their reasoning if the Arkansas rules of construction were
inadequate to resolve this case. Nevertheless, we note that the Arkansas Supreme
Court is best suited to decide this question of state law, and we base our judgment on
the dispositive nature of the ambiguity of the Restrictive Covenants.
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III.
For the reasons set forth above, we hold that the Aamodts' rental of the
Property does not violate the Restrictive Covenants. We thus affirm the district
court's grant of summary judgment to the Aamodts and its denial of summary
judgment to the Appellants.
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