Elk Point CC HOA v. K.J. Brown, LLC

138 Nev., Advance Opinion
IN THE SUPREME COURT OF THE STATE OF NEVADA
ELK POINT COUNTRY CLUB No. 82484
HOMEOWNERS' ASSOCIATION, INC.,
A/K/A ELK POINT COUNTRY CLUB,
INC., A NEVADA NONPROFIT,
NONSTOCK CORPORATION, F1L
Appellant,
vs. AUG 1 8 2022
K.J. BROWN, LLC, A NEVADA EL
LIMITED LIABILITY COMPANY; AND BY
IEF DEPUTY CLERK
TIMOTHY D. GILBERT AND NANCY
AVANZINO GILBERT, AS TRUSTEES
OF THE TIMOTHY D. GILBERT AND
NANCY AVANZINO GILBERT
REVOCABLE FAMILY TRUST DATED
DECEMBER 27, 2013,
Respondents.
Appeal from a district court order granting a preliminary
injunction. Ninth Judicial District Court, Douglas County; Nathan Tod
Young, Judge.
Reversed.
Resnick & Louis, P.C., and Prescott T. Jones and Carissa C. Yuhas, Las
Vegas,
for Appellant.
Leach Kern Gruchow Anderson Song and Sophie A. Karadanis and Gayle
A. Kern, Reno,
for Respondents.
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BEFORE THE SUPREME COURT, SILVER, CADISH, and PICKERING,
JJ.
OPINION
By the Court, CADISH, J.:
The challenged district court order enjoins appellant, a
homeowners' association, from allowing its members to use their units in
the common-interest community for short- or long-term rental use.
Appellant asserts that the district court's injunction is based on a faulty
reading of the homeowners' association's governing documents and its
resulting erroneous conclusion that such rental activity violates the Bylaws'
provisions restricting the units to "single family residential purposes only"
and prohibiting appellant from operating "its properties or facilities with
the view of providing profit to its Unit Owners." Pursuant to NRS
116.340(1)(a), we conclude that members of a common-interest community
may use their units for transient commercial use, such as a short-term
vacation rental, even when the association's governing documents contain
a "residential use" restriction, so long as the governing documents do not
prohibit transient commercial use. Because appellant's Bylaws do not
prohibit transient commercial use, the district court abused its discretion
when it granted respondents' motion for a preliminary injunction.
Accordingly, we reverse the district court's order.
FACTS AND PROCEDURAL HISTORY
In 1925, several individuals incorporated appellant Elk Point
Country Club Homeowners' Association, Inc. (EPCC) as a Nevada nonprofit
corporation. EPCC is a private, members-only social club with federal tax-
exemption status under 26 U.S.C. § 501(c)(7). However, EPCC operates like
an HOA, where individual members own the 100 individual units within
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EPCC, but EPCC holds title to all other real property, including roads and
parking areas, a 13-acre beach and beach deck, a marina and boat storage
area, a private water system and water tank, a barbeque area, and 89-acre
feet of water rights. No individual member has any ownership right or
interest in EPCC's real property, but individual members do have the
ability to access and use common areas. EPCC's current governing
documents consist of its 2005 Amended Bylaws (Bylaws), and the recorded
Elk Point Country Club Homeowners' Rules, Regulations, and Guidelines
(Rules).'
K.J. Brown, LLC, Timothy D. Gilbert, and Nancy Avanzino
Gilbert (collectively, respondents) are members of EPCC. They filed the
underlying lawsuit against EPCC, asserting claims for violations of NRS
Chapter 116 and various contract breaches and torts, based on allegations
that several other EPCC members were using their units for short-term
vacation rentals. Shortly thereafter, respondents moved for a preliminary
injunction to enjoin EPCC "from allowing, actively engaging in, and
providing permission to" EPCC members to use their units for short-term
vacation rentals. Respondents argued that they had a likelihood of success
on the merits because the members who rented their units violated the
Bylaws, which specifically prohibited EPCC from operating its properties or
facilities to provide income to members and because EPCC's tax-exernpt
status prohibits members from using their units in EPCC to generate
income. They also asserted that they faced irreparable harm because the
1EPCC'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., Adv. Op. 24, 507 P.3d 199, 201 (2022)
(explaining that EPCC's Bylaws are equivalent to CC&Rs found in most
modern common-interest communities).
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prohibited rentals jeopardized EPCC's tax-exempt status and revocation of
that status would result in "serious" tax exposure for respondents as unit
owners and would "certainly alter the character of the community."
After a hearing, the district court granted the preliminary
injunction, finding that "a consistent reading of the Bylaws that gives
meaning to all provisions included therein is that members are not
permitted to operate their Units or any EPCC property and facilities in
order to generate revenue or for a profit," including renting units for short-
and long-term rental use. The court also found "that there are many
different classifications of tenancies recognized by the State of Nevada" and
that it would "lead to inconsistent and contradictory results" to interpret
the word "tenant" in the Bylaws to include renters. The court concluded
that respondents showed a reasonable likelihood of success on the merits
because the Bylaws prohibited members from using or operating any unit
in EPCC or its property and facilities to generate profit or revenue. It also
concluded that respondents dernonstrated the threat of irreparable harm
due to the financial costs if EPCC lost its tax exemption, as well as the
change in the nature and character of the community. Accordingly, the
district court enjoined all short- and long-term rentals in EPCC.
DISCUSSION
"We review a decision to grant a preliminary injunction for an
abuse of discretion." Duong v. Fielden Hanson Isaacs Miyada Robison Yeh,
Ltd., 136 Nev. 740, 742, 478 P.3d 380, 382 (2020). However, we review
questions of law implicated by the preliminary injunction de novo.
Excellence Cmty. Mgmt., LLC v. Gilmore, 131 Nev. 347, 351, 351 P.3d 720,
722 (2015). A preliminary injunction is appropriate where the moving party
can demonstrate that (1) "it has a reasonable likelihood of success on the
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merits"; and (2) "absent a preliminary injunction, it will suffer irreparable
harm for which compensatory damages would not suffice." Id.EPCC argues that the district court's interpretation that the
Bylaws preclude short-term rentals by restricting the property to "single
family residential purposes only" conflicts with NRS 116.340(1), which
allows individuals in planned communities to engage in short-term rental
activity absent an explicit prohibition of such activity in the governing
documents. Because EPCC's Bylaws do not include an explicit provision
precluding owners from renting their units to others, EPCC contends that
the district court erroneously concluded that respondents had a likelihood
of prevailing on the merits of their complaint. Finally, EPCC argues that
the district court erred by sua sponte ordering that the preliminary
injunction applied to long-term rentals because respondents did not address
long-term rentals in their motion practice and the injunction in that regard
was wholly unsupported. We agree and therefore reverse the district court's
preliminary injunction.
The Bylaws state that "[t]he property of Unit Owners shall be
used for single family residential purposes only." By statute, a property
owner who, like here, owns "one or more units within a planned community
that are restricted to residential use by the [governing] declaration may use
that unit ... for a transient commercial use only if... [t]he governing
documents of the association and any master association do not prohibit
such use."2 NRS 116.340(1)(a) (emphases added). While jurisdictions are
2Transient commercial use "means the use of a unit, for
remuneration, as a hostel, hotel, inn, motel, resort, vacation rental or other
form of transient lodging if the term of the occupancy, possession or use of
the unit is for less than 30 consecutive calendar days." NRS 116.340(4)(b)
(emphasis added).
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split regarding the scope of the phrase "single family residential purposes
only," see Slaby v. Mountain River Estates Residential Ass'n, Inc., 100 So.
3d 569, 575 (Ala. Civ. App. 2012) (recognizing that the phrase "single family
residential purposes only," and "other similar phrases, has engendered
many conflicting opinions across the country as to whether the language
restricts the types and number of structures that may be erected on the
property, the use to which those structures may be put, or both"),
respondents do not argue that the phrase as used in the Bylaws has a
meaning distinct from "restricted to residential. use" as used in NRS
116.340(1)(a). Thus, we assume, without deciding for purposes of this
appeal, that the Bylaws' language restricting use to "single family
residential purposes only" is equivalent to a "residential use" restriction
such that NRS 116.340(1)(a) applies, and the restriction to residential use
cannot be construed as a prohibition on short-term rentals within the
meaning of that statute since NRS 116.340(1)(a) explicitly says that
residents in a community limited to such use may engage in such rentals
absent a prohibition in the governing documents. The Bylaws thus do not
contain an express prohibition against owners using units for transient
commercial use, i.e., short-term rentals. Accordingly, unless the Bylaws or
other governing documents contain other language that implicitly or
necessarily prohibits such rentals, respondents cannot show a reasonable
likelihood of success on the merits, as short-term rentals would be
permissible.
We review questions of contract interpretation de novo. Oella
Ridge Tr. v. Silver State Sch. Credit Union, 137 Nev., Adv. Op. 80, 500 P.3d
1253, 1255 (2021); see Nev. State Educ. Ass'n v. Clark Cty. Educ. Ass'n, 137
Nev. 76, 83, 482 P.3d 665, 673 (2021) (observing that bylaws are a contract
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subject to contract interpretation rules). When interpreting a contract, we
"look[ 1 to the language of the agreement and the surrounding
circumstances," Am. First Fed. Credit Union v. Soro, 131 Nev. 737, 739, 359
P.3d 105, 106 (2015) (quoting Redrock Valley Ranch, LLC v. Washoe County,
127 Nev. 451, 460, 254 P.3d 641, 647-48 (2011)), and "enforce[ [" the contract
"as written" if the "language of the contract is clear and unambiguous,"
Davis v. Beling, 128 Nev. 301, 321, 278 P.3d 501, 515 (2012).
Here, neither the Bylaws nor the other governing documents
explicitly or even implicitly prohibit EPCC members from using their units
for short- or long-term rentals. First, the plain language of the Bylaws'
preamble does not prohibit unit rentals as it merely states that EPCC "shall
not operate its properties or facilities with the view of providing profit to its
Unit Owners but rather, such properties and facilities shall be held,
operated, and made available for the use and enjoyment of its Unit Owners."
(Emphasis added.) While such language obligates EPCC to regularly
maintain its properties and facilities and precludes EPCC itself from
operating the same with an intent to increase or otherwise provide profit to
its members, on its face it does not prohibit EPCC members from profiting
from their individual units.
Second, the Bylaws do not define "tenant," but they make
numerous references to members and their "tenants" or "guests." For
example, the Bylaws give the Executive Board the power to "adopt as
necessary, rules for the conduct and government of the Unit Owners, their
guests and tenants, in connection with the exercise of their privileges as
Unit Owners, tenants and guests and their use of the Corporation property."
The Bylaws also provide that lilt shall be each Unit Owner's responsibility
to require guests and tenants to obey said rules," and that a Unit Owner's
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rights "shall be suspended" if a "Unit Owner or the tenant or guests, of the
Unit Owner" violate or otherwise fail to comply with EPCC's governing
documents. (Emphases added.) These references provide a context for
interpreting "tenant" according to its plain meaning, which is defined as
"[s]omeone who pays rent for the temporary use and occupation of another's
land under a lease or similar arrangement." Tenant, Black's Law
Dictionary (11th ed. 2019). Accordingly, to give the Bylaws' terms their
plain meaning, the word tenant includes a renter, and such renters are
explicitly contemplated and permitted by the Bylaws.
Third, the other governing documents support this
interpretation. Notably, the Rules provide that "[mlembers are responsible
for the actions and behavior of their renters and guests" and that "[r] enters
must comply with all rules and regulations of the [Elk Point] Country Club."
The Rules also provide that "[m]embers renting their property must notify
the Caretaker (for the Board of Directors), of the names of the tenants and
the terms of their rental agreement." Thus, not only do the Rules explicitly
refer to renters, but they also equate "tenants" with "renters." Although the
district court found that it would "lead to inconsistent and contradictory
results" to interpret the word "tenant" in the Bylaws to include renters, the
record, as discussed above, does not support that finding. Because the
Bylaws and other governing documents do not preclude EPCC members
from renting out their units in the community, we hold that the district
court abused its discretion by concluding that respondents showed a
reasonable likelihood of success on the merits.
Respondents' arguments to the contrary are not persuasive.
First, the preamble does not clearly prohibit the "operation of EPCC's
properties or facilities which provide profit to EPCC or its social club
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members." Instead, the preamble only prohibits EPCC from operating its
properties or facilities "with the view of providing profit to its Unit Owners."
This language is directed at EPCC common properties and facilities, and by
not addressing members, the preamble implicitly allows a member to profit
from his or her own unit regardless of how EPCC itself operates the common
properties and facilities. See Alta Vista Props., LLC v. Mauer Vision Ctr.,
PC, 855 N.W.2d 722, 727 (Iowa 2014) (applying the canon that "the
expression of one thing of a class implies the exclusion of others not
expressed" to the interpretation of a lease). Further, respondents' "plain
language" analysis parses individual clauses of the preamble such that it
renders other provisions in the Bylaws that allow tenants meaningless in
violation of well-established canons of construction. See Road & Highway
Builders, LLC v. N. Nev. Rebar, Inc., 128 Nev. 384, 390, 284 P.3d 377, 380-
81 (2012) (explaining that this court reads contracts "as a whole" to "avoi [d]
negating any contract provision").
Second, respondents waived the argument that EPCC is not a
common-interest community governed by NRS Chapter 116 because they
did not raise that argument below, even after EPCC argued that NRS
116.340 allows Unit Owners to rent out their units in the community. See
Old Aztec Mine, Inc. v. Brown, 97 Nev. 49, 52, 623 P.2d 981, 983 (1981)
(recognizing that arguments raised for the first time on appeal are waived).
Regardless, respondents initially alleged that EPCC violated NRS Chapter
116, and NRS Chapter 116 applies only to common-interest communities.
See NRS 116.1201 (providing that NRS Chapter 116 "applies to all common-
interest communities created within this State"). Thus, respondents'
contention that EPCC violated NRS Chapter 116 constitutes a judicial
admission regarding whether EPCC is a common-interest community in
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this case.3 See Reyburn Lawn & Landscape Designers, Inc. u. Plaster Dev.
Co., Inc., 127 Nev. 331, 343, 255 P.3d 268, 276 (2011) (explaining that a
judicial admission is a "deliberate, clear, unequivocal statementH by a
party about a concrete fact within that party's knowledge" (quoting Smith
v. Pavlovich, 914 N.E.2d 1258, 1267 (111. 2009))).
Moreover, because the Bylaws do not prohibit members from
renting out their units, EPCC's actions in maintaining a rental calendar
that tracks when a property is rented do not violate the Bylaws and are
consistent with the Rules' requirement that EPCC members inform EPCC
of the names and terms of any rental agreement. Accordingly, because NRS
116.340(1) allows homeowners in common-interest communities with
residential use restrictions to use their units for transient commercial use,
unless the community's governing documents otherwise prohibit transient
commercial use, and the Bylaws and Rules here do not prohibit such use,
we conclude that the district court abused its discretion by granting
respondents' motion for a preliminary injunction based on its finding that
respondents demonstrated a reasonable likelihood of success on the merits.4
3We have previously recognized that EPCC is a common-interest
community. Moretto, 138 Nev., Adv. Op. 24, 507 P.3d at 201 (observing that
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").
41n light of our conclusion that respondents failed to show a
reasonable likelihood of success on the merits, we need not address EPCC's
remaining arguments regarding irreparable harm. However, we agree with
EPCC that the district court improperly enjoined long-term rentals, as the
injunction on such rentals exceeds the scope of relief respondents sought.
Cf. Williams v. Cottonwood Cove Dev. Co., 96 Nev. 857, 860, 619 P.2d 1219,
1221 (1980) ("The pleading must give fair notice of the nature and basis of
the claim.").
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CONCLUSION
Under NRS 116.340(1), respondents could only establish a
likelihood of success to support their request for a preliminary injunction
against short-term vacation rentals in their community by showing that
EPCC's governing documents prohibited members from using their units
for that purpose. Because the plain language of EPCC's Bylaws and Rules
both implicitly and explicitly acknowledges that members may rent their
properties and does not contain any prohibition of short-term vacation
rentals, we conclude that respondents failed to show a reasonable likelihood
of success on the merits of their claims. Thus, the district court abused its
discretion when it granted respondents' motion for a preliminary injunction.
Accordingly, we reverse the district court's order granting respondents'
motion for a preliminary injunction.
Cadish
61.4 7
We concur:
J.
Silver
, J.
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