Double Diamond v. Second Jud. Dist. Ct.

131 Nev., Advance Opinion 57
IN THE SUPREME COURT OF THE STATE OF NEVADA
DOUBLE DIAMOND RANCH MASTER No. 65666
ASSOCIATION, A NEVADA
NONPROFIT CORPORATION,
Petitioner, FILED
vs.
JUL 3 0 2015
THE SECOND JUDICIAL DISTRICT
IF K. Lim3Etie,
COURT OF THE STATE OF NEVADA, F RUP;Vaz RT
IN AND FOR THE COUNTY OF
WASHOE; AND THE HONORABLE
SCOTT N. FREEMAN, DISTRICT
JUDGE,
Respondents,
and
THE CITY OF RENO, NEVADA,
Real Party in Interest.
Original petition for a writ of mandamus or prohibition
challenging a district court order denying a motion to dismiss in a contract
action.
Petition denied.
Wolf, Rifkin, Shapiro, Schulman & Rabkin, LLP, and Don Springmeyer,
John M Samberg, and Christopher W. Mixson, Reno,
for Petitioner.
Karl S. Hall, City Attorney, and Susan Ball Rothe, Deputy City Attorney,
Reno,
for Real Party in Interest.
BEFORE THE COURT EN BANC.
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OPINION
By the Court, HARDESTY, C.J.:
NRS 116.3105(2) permits a homeowners' association that
provides at least 90 days' notice to terminate "any contract, . . that is not
in good faith or was unconscionable to the units' owners at the time
entered into." In this writ petition, we address whether the 90 days' notice
operates as a statute of limitations or a notice for the recipient to
commence litigation. We conclude that NRS 116.3105(2) does not act as a
statute of limitations, and a recipient of an association's notice of
termination of a contract is not required to take legal action within the 90-
day time frame. Accordingly, we deny this petition.
FACTS
In 1996, Kreg Rowe, the developer of petitioner Double
Diamond Ranch Master Association (the Association) entered into a
Maintenance and Operation Agreement (Maintenance Agreement) with
the City of Reno. Because the property was in a flood zone, the Federal
Emergency Management Agency required the developer to obtain a Letter
of Map Revision and enter into the Maintenance Agreement prior to
developing the South Meadows and Double Diamond Ranch homes in
Reno, Nevada. The Maintenance Agreement requires, among other
obligations, that the Association maintain certain flood control channels,
provide rock rip-rap protection in the Double Diamond/South Meadows
area, and file an annual report.
In February 2012, the Association gave notice to the City that
it was terminating the contract pursuant to NRS 116.3105(2). This
statute permits homeowners' associations to terminate at any time a
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contract that was entered into by a declarant' if the contract was
(1) unconscionable to the units' owners at the time entered into, and
(2) the association provides 90 days' notice to the recipient. NRS
116.3105(2). In its notice, the Association claimed that it should not have
been a party to the Maintenance Agreement because Mr. Rowe signed the
agreement on the Association's behalf one day before the Association
legally came into being. Further, the Association claimed that Mr. Rowe
entered into the Maintenance Agreement for his own benefit, in order to
"develop the adjacent property as he desired." Finally, the Association
claimed that the City never sought to enforce the Maintenance Agreement
and only learned about its existence recently. Later that month, the City
rejected the Association's notice of termination.
In October 2013, the City brought an action against the
Association seeking specific performance of the Maintenance Agreement.
The Association moved to dismiss the complaint for failure to state a claim
for relief and failure to join indispensable parties. More specifically, the
Association argued that the contract was invalid as the Association had
statutorily terminated the Maintenance Agreement 20 months before.
The Association also contended that it did not own the property at issue,
'A declarant is the real estate developer of a property who has
control of a homeowners' association until a certain percentage of homes
are sold and the homeowners can elect the association's first board of
directors. See NRS 116.035(1) (defining a "declarant" as "any person or
group of persons acting in concert who . . . fals part of a common
promotional plan, offers to dispose of the interest of the person or group of
persons in a unit not previously disposed of'); NRS 116.31032 (detailing
the period of declarant's control of an association); NRS 116.31034
(describing the election process for the executive board of an association).
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and other indispensable parties were necessary, such as the land owner
and Mr. Rowe, the developer.
At the hearing on the motion, the Association argued that the
statute required the recipient of the notice of contract termination to file
suit within 90 days. More specifically, the Association argued that the
burden shifted to the recipient to bring a cause of action within that time
if it questioned an association's claim of unconscionability or lack of good
faith. The district court ultimately denied the Association's motion to
dismiss The court determined that there were several genuine issues of
material fact; for example, whether the Association, including the property
owners, benefited from the Maintenance Agreement and whether the
parties' agreement was unconscionable. Further, the court stated that the
statute provided no guidance as to when a recipient must pursue legal
action, and instead, the City's letter rejecting the Association's notice of
termination provided enough notice to the Association "that a justiciable
controversy may exist as a result." Thereafter, the Association petitioned
this court for a writ of mandamus or prohibition directing the district
court to vacate its order denying the Association's motion to dismiss and to
order dismissal instead.
DISCUSSION
The Association petitions this court for a writ of mandamus
compelling the district court to vacate the court's order denying its motion
to dismiss. 2 "A writ of mandamus is available to compel the performance
2Alternatively,the Association seeks a writ of prohibition. A writ of
prohibition is appropriate when a district court acts without or in excess of
its jurisdiction. NRS 34.320; Club Vista Fin. Servs., LLC v. Eighth
Judicial Dist. Court, 128 Nev., Adv. Op. 21, 276 P.3d 246, 249 (2012); see
also Smith v. Eighth Judicial Dist. Court, 107 Nev. 674, 677, 679, 818 P.2d
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of an act that the law requires. . . or to control an arbitrary or capricious
exercise of discretion." Inel Game Tech., Inc. v. Second Judicial Dist.
Court, 124 Nev. 193, 197, 179 P.3d 556, 558 (2008); see NRS 34.160; see
also Humphries v. Eighth Judicial Dist. Court, 129 Nev., Adv. Op. 85, 312
P.3d 484, 486 (2013). Generally, this court "declinefs] to consider writ
petitions that challenge interlocutory district court orders denying motions
to dismiss" because an appeal from a final judgment is an adequate legal
remedy. Int'l Game Tech., 124 Nev. at 197, 179 P.3d at 558. However,
even when an adequate and speedy remedy exists, this court may exercise
its discretion when an important issue of law needs clarification and
sound judicial economy warrants intervention. Cote H. v. Eighth Judicial
Dist. Court, 124 Nev. 36, 39, 175 P.3d 906, 908 (2008).
While the Association has an adequate legal remedy, whether
the 90-day notice period within NRS 116.3105(2) operates as a statute of
limitations is an important issue of law in need of clarification, and
resolving this issue at this stage of the proceedings would promote judicial
economy. Accordingly, we exercise our discretion to consider the
Association's petition.
The 90-day notice period in NRS 116.3105(2) is not a statute of limitations
The Association argues that the statute requires the recipient
of a notice of contract termination under NRS 116.3105(2) to take legal
action within 90 days, otherwise the 90-day language is superfluous. The
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849, 851, 853 (1991). Because the district court had jurisdiction to conduct
and determine the outcome of the motion hearing, we deny the
Association's alternative request for a writ of prohibition and consider this
petition under the mandamus standard.
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Association further argues that the 90-day notice shifts the burden to the
recipient to commence an action. We disagree.
Pursuant to NRS 116.3105, a homeowners' association may
terminate contracts or leases entered into by declarants after giving 90
days' notice. NRS 116.3105(1) permits associations to terminate contracts
within two years of an executive board's election by its units' owners. In
addition, NRS 116.3105(2) permits associations to terminate contracts at
any time if the declarant did not enter into the contract in good faith or
the contract was unconscionable to the units' owners at the time of
contract formation. The Association argues that the statute requires the
recipient of the notice to file legal action within the 90-day period.
Interpreting whether NRS 116.3105(2)'s 90-day notice period operates as a
statute of limitations is an issue of first impression and a question of law
that we review de novo. 3 See Intl Game Tech., 124 Nev. at 198, 179 P.3d
at 559 ("Statutory interpretation is a question of law that we review de
novo, even in the context of a writ petition.").
This court has concluded that when a statute is facially clear,
it will give effect to the statute's plain meaning. DR. Horton, Inc. v.
Eighth Judicial Din. Court, 123 Nev. 468, 476, 168 P.3d 731, 737 (2007).
Where a statute is ambiguous, because it is susceptible to more than one
reasonable interpretation, this court will consider reason and public policy
to determine legislative intent. Cable v. State ex rel. Emp'rs Ins. Co. of
Nev., 122 Nev. 120, 124-25, 127 P.3d 528, 531 (2006). In addition, this
3 Moreover, while several other states have adopted the Uniform
Common Interest Ownership Act that Nevada adopted in 1991, no other
state court has interpreted whether the statute requires a notice recipient
to pursue legal action within the 90-day notice period.
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court assumes that when enacting a statute, the Legislature is aware of
related statutes. Id. at 125, 127 P.3d at 531.
NRS 116.3105(2) states in full as follows:
The association may terminate without penalty, at
any time after the executive board elected by the
units' owners pursuant to NRS 116.31034 takes
office upon not less than 90 days' notice to the
other party, any contract or lease that is not in
good faith or was unconscionable to the units'
owners at the time entered into.
The statute does not expressly indicate what rights and obligations a
recipient has when it receives an association's notice of termination of a
contract. On the one hand, the 90 days' notice could indicate the time
frame a party has to pursue legal action; on the other hand, the 90 days'
notice could merely indicate the period the association must continue to
perform under the contract before termination. Accordingly, we conclude
that NRS 116.3105(2) is ambiguous, and we therefore look to the intent of
the Legislature and to related statutes.
When interpreting an ambiguous statute to determine the
Legislature's intent, this court will look to the legislative history of the
statute in light of the overall statutory scheme. See We the People Nev. v.
Miller, 124 Nev. 874, 881, 192 P.3d 1166, 1171 (2008). In addition, "tithe
[Llegislature is presumed to have intended a logical result, rather than an
absurd or unreasonable one."' Clark Cnty. Sch. Dist. v. Clark Cnty.
Classroom Teachers Ass'n, 115 Nev. 98, 103, 977 P.2d 1008, 1011 (1999)
(quoting Angoff v. M & M Mgmt. Corp., 897 S.W.2d 649, 654 (Mo. Ct. App.
1995)).
When the Legislature codified NRS Chapter 116, it modeled
the chapter on the Uniform Common Interest Ownership Act (UCIOA).
See, e.g., Hearing on A.B. 221 Before the Assembly Judiciary Comm., 66th
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Leg. (Nev., March 20, 1991); Hearing on A.B. 221 Before the Senate
Judiciary Comm., 66th Leg. (Nev., May 23, 1991). Nevada did not amend
any of the UCIOA language in the section of the bill that became NRS
116.3105(2), and thus, the statute mirrors section 3-105 of the UCIOA.
See Hearing on A.B. 221 Before the Assembly Judiciary Comm., 66th Leg.,
Exhibit C (Nev., April 17, 1991) (indicating no changes to the section of the
bill that became NRS 116.3105(2)), Compare NRS 116.3105(2), with Unif.
Common Interest Ownership Act § 3-105(b) (2008), 7 U.L.A. 349 (2009).
Testimony from one of the committee hearings on Assembly Bill 221
indicated that "association management and consumer protection were the
two most common threads throughout the bill." Hearing on A.B. 221
Before the Assembly Judiciary Comm., 66th Leg. (Nev., February 20,
1991) (testimony of Stephen Hartman). Further, the UCIOA offered
purchaser protections, including the "power of an association to terminate
'sweetheart' contracts entered into by the developer." Id., Exhibit C
(prepared testimony by Michael Buckley).
Similarly, commentary to the UCIOA reflects that the purpose
behind this law was to address the "common problem in the development
of. . . planned community. . . projects: the temptation on the part of the
developer, while in control of the association" to engage in self-dealing
contracts. Unif. Common Interest Ownership Act § 3-105 cmt. 1, 7 U.L.A.
349. Thus, this law allows an association to terminate any contract that is
not bona fide or is unconscionable: "certain contracts . . . [are] so critical to
the operation of the common interest community and to the unit owners'
full enjoyment of their rights of ownership that they. . . should be voidable
by the unit owners." Id. at § 3-105 cmt. 2, 7 U.L.A. 349.
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The Restatement (Third) of Property also permits a similar
termination of a contract entered into by a developer that is not bona fide
or is unconscionable to the members, and also recognizes the conflicting
interests of the declarant and the association. 4 Restatement (Third) of
Prop.: Servitudes § 6.19 (2000). "The developer's primary interest is in
completing and selling the project, while that of the purchasers is in
maintaining their property values and establishing the quality of life they
expected when buying the property." Id. at § 6.19 cmt. a. Recognizing
that an association's "members have little opportunity to protect
themselves" while the association is under the control of the developer,
this rule permits associations to treat certain contracts as voidable. Id. at
§ 6.19 cmt. d. However, neither the UCIOA nor the Restatement speaks to
whether a recipient can challenge the termination notice and when a
recipient of a termination notice must file an action against the
association.
Thus, interpreting the statute as a statute of limitations as
the Association suggests would require us to read additional language into
the statute, which we decline to do. 5 See McKay v. Bd. of Cnty. Comm'rs,
4 I11 the Restatement (Third) of Property: Servitudes
§ 6.19(3)(d) (2000):
After the developer has relinquished control of the
association to the members, the association has
the power to terminate without penalty. . . any
contract or lease that is not bona fide, or was
unconscionable to the members other than the
developer at the time it was entered into, under
the circumstances then prevailing.
5 Wedisagree with the Association's argument that the 90-day
language in the statute would be superfluous if it were not acting as a
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103 Nev. 490, 492, 746 P.2d 124, 125 (1987) (explaining that when a
statute is silent, "it is not the business of this court to fill in alleged
legislative omissions based on conjecture as to what the [L]egislature
would or should have done").
Moreover, this court has identified three purposes for which
statutes of limitations are intended to operate:
First, there is an evidentiary purpose. The desire
is to reduce the likelihood of error or fraud that
may occur when evaluating factual matters
occurring many years before. Memories fade,
witnesses disappear, and evidence may be lost.
Second, there is a desire to assure a potential
defendant that he will not be liable under the law
for an indefinite period of time. Third, there is a
desire to discourage prospective claimants from
"sleeping on their rights."
State Indus. Ins. Sys. v. Jesch, 101 Nev. 690, 694, 709 P.2d 172, 175
(1985).
Considering these purposes here, the evidentiary purpose is
moot since the statute permits an association to terminate contracts "at
any time." NRS 116.3105(2). Because an association can terminate a
contract at any time, time passage, fading memories, disappearing
witnesses, and lost evidence are seemingly less important than preserving
an association's right to terminate.
The second and third purposes would be incongruent with the
customary statute of limitations for contracts (either four or six years
depending on if the contract is in writing). See NRS 11.190(1)(b) and
...continued
statute of limitations. The 90-day period appears to provide time for a
notice recipient to make preparations for termination of the contract.
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(2)(c). 6 While a potential defendant should not have to worry about
liability after a certain period of time, as described above, we determine
that the customary statute of limitations for contracts found in NRS
11.190 should apply, as reducing the four-year or six-year limit to 90 days,
while allowing an association to terminate a contract at any time, appears
unequal. Similarly, the "desire to discourage prospective claimants from
sleeping on their rights" and permitting a 90-day limitations period but
allowing the association to terminate at any time essentially permits an
association to "sleep on fits] rights" while one-sidedly denying a notice
recipient the typical period of limitation. Jesch, 101 Nev. at 694, 709 P.2d
at 175 (internal quotations omitted).
Thus, we conclude that neither the statute's plain language
nor legislative history shows that the Legislature intended for the 90 days'
notice requirement in NRS 116.3105(2) to act as a statute of limitations
for a notice recipient to commence litigation. Rather, upon notice from an
association, the notice recipient would then have the customary period of
limitations for contracts under NRS 11.190 in which to commence an
action. 7
@Under NRS 11.190(1)(b) and (2)(c), "actions . . . may only be
commenced ... [wlithin 6 years .. . [on alii action upon a contract,
obligation or liability founded upon an instrument in writing" or "[wlithin
4 years ... [on am n action upon a contract, obligation or liability not
founded upon an instrument in writing."
"In the same way that NRS 116.3105(2)'s 90-day requirement does
not operate as a statute of limitations for a notice recipient, nothing in the
plain language of the statute imposes a duty on the notice provider to file
an action within the 90-day period in response to a denial of the contract
termination notice.
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Because we conclude that the 90-day notice period in NRS
116.3105(2) does not operate as a statute of limitations or shift the burden
to a notice recipient to file an action, we conclude that the district court
did not err in denying the Association's motion to dismiss, and we deny
this petition.
Litat.\ , C.J.
Hardesty
We concur:
pi, 0 J.
Parraguirr,jar
Douglas
Saitta
J.
Gibbons
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PICKERING, J., with whom CHERRY, J., agrees, concurring:
I agree with the majority's decision to deny the petition for a
writ of mandamus or prohibition but would do so on the basis that this
challenge to the district court's order denying the petitioner's motion to
dismiss does not qualify for extraordinary writ relief At best, the petition
asserts legal error by the district court in not crediting the petitioner's
argument that, under NRS 116.3105, the City of Reno had 90 days to sue,
once the Double Diamond Ranch Master Association (HOA) gave notice it
was terminating the parties' contract as "not bona fide" or
"unconscionable." This termination provision, or one like it, has been part
of the Uniform Common Interest Ownership Act (UCIOA) since 1982.
Compare UCIOA § 3-105(b) (2008), 7 U.L.A., part 1B 349 (2009), with
UCIOA § 3-105 (1982), 7 U.L.A., part 2 107 (2009). Yet, as the majority
acknowledges, no court, including our Nevada district courts, has read this
termination provision as petitioner does. It is more natural to read the
provision as the district court did: after a notice of termination under NRS
116.3105, an HOA-terminable contract remains in force for at least 90
days. Such a contract is prospectively voidable but not void, in other
words.
Mandamus does not lie to correct a district court's legal error
in denying a motion to dismiss for failure to state a claim upon which
relief can be granted. State ex rel. Dep't of Transp. v. Thompson, 99 Nev.
358, 361-62, 662 P.2d 1338, 1340 (1983); see Int? Union, United Auto.,
Aerospace & Agric. Implement Workers of Am. (UAW) v. Nat'l Caucus of
Labor Comms., 525 F.2d 323, 326 (2d Cir. 1975) ("It is not the function of
mandamus to allow ad hoc appellate review of interlocutory orders when
only error is alleged."). Such an error, if one occurs, is correctable by the
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district court as the case proceeds and by this court on direct appeal from
the eventual final judgment. See Reno Hilton Resort Corp. v. Verderber,
121 Nev. 1, 5-6, 106 P.3d 134, 136-37 (2005) (emphasizing that the final
judgment rule, which withholds appellate review until final judgment is
reached in the district court, plays "a crucial part of an efficient justice
system": "If] or the trial court, it inhibits interference from the appellate
court during the course of preliminary and trial proceedings, and for the
appellate court, it prevents an increased caseload and permits the court to
review the matter with the benefit of a complete record"). Also,
mandamus "requires not only a clear error but one that unless
immediately corrected will wreak irreparable harm" In re Linee Aeree
Italiane (Alitalia), 469 F.3d 638, 640 (7th Cir. 2006); see NRS 34.170
(allowing for mandamus in cases "where there is not a plain, speedy and
adequate remedy in the ordinary course of law"). "[B]ecause an appeal
from the final judgment typically constitutes an adequate and speedy legal
remedy, we generally decline to consider writ petitions that challenge
interlocutory district court orders denying motions to dismiss" Int? Game
Tech., Inc. v. Second Judicial Dist. Court, 124 Nev. 193, 197, 179 P.3d 556,
558 (2008).
This petition, as filed, met none of the conventional criteria for
extraordinary writ relief. It asserts legal error in the denial of a motion to
dismiss. But the error not only was not "clear," as mandamus relief
requires; it was, as the majority concludes, nonexistent. Nor did the
petitioner establish that an eventual appeal would not afford an adequate
legal remedy. The only harm alleged was the expense associated with the
HOA having to defend itself in district court. But this harm inheres in
any order denying a motion to dismiss and, by itself, is not enough to
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justify writ relief "Postponing appeal to the end of a litigation, rather
than interrupting it in medias res with a mandamus proceeding that
would require this court to conduct interlocutory appellate review, is as
likely to reduce as to increase the total expense of the litigation." In re
Linee Aeree Italiane, 469 F.3d at 640.
I recognize that, in International Game Technology, we
deemed advisory or supervisory mandamus permissible when needed to
resolve "an important issue of law [that] needs clarification and
considerations of sound judicial economy and administration militate in
favor of granting the petition." 124 Nev. at 197-98, 179 P.3d at 559. Such
use of extraordinary writ review provides a needed "escape hatch" from
the finality rule, which ordinarily defers appellate review until final
judgment is reached in the district court, and the strict limitations
conventionally imposed on extraordinary writ relief. Cf. Am. Express
Warehousing, Ltd. v. Transamerica Ins. Co., 380 F.2d 277, 282 (2d Cir.
1967). "Even so, proper occasions for employing advisory mandamus are
hen's-teeth rare: it is reserved for blockbuster issues, not merely
interesting ones." In re Bushkin Assocs., Inc., 864 F.2d 241, 247 (1st Cir.
1989). These limitations need to be observed, or the narrow exception to
the rules governing extraordinary writ relief set forth in International
Game Technology will overrun the final judgment rule.
I respectfully disagree with my colleagues in the majority that
petitioner's argument with respect to the UCIOA termination provision
codified as NRS 116.3105 presents the kind of "important issue of law
need[ing] clarification" that would qualify a case for advisory mandamus.
To me, the fact that the provision has existed for more than 30 years
without any court or commentator reading it as the petitioner presses us
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to do should have led us to summarily deny the petition so the case could
proceed in district court. Instead, once this court ordered an answer and
full briefing, the parties voluntarily suspended all proceedings in the
district court, halting its forward progress. I submit that we should have
denied the petition as procedurally insufficient, without reaching the
merits. I therefore concur, but only in the result.
Pickering
I concur:
, J.
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