Court Opinion

ID: 7801751
Source: CourtListenerOpinion
Date Created: 2022-08-18 17:08:26.61693+00
Date Added: 2024-06-11T16:29:20.471539
License: Public Domain

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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