Summary

Your Association should ensure that the language and definitions in governing documents reflect the intentions of the Association.  If they don’t, amend them, don’t just pretend they say something they don’t say

Facts

Sunburst Farms East (the “Association”) is a residential community consisting of four sections with individual lots (Sections 2, 3, 4, and 7).  Each Section had its own deed restrictions embodied in their own Declaration of Covenants, Conditions and Restrictions (“CC&Rs”).  Every property owner in each Section automatically became a member of the Association, which was created to provide water to its members.  Under the CC&Rs the Association could impose assessments on its members, even if they didn’t use the services.  Over time, a majority of the owners in Sections 3, 4 and 7 voted to amend their CC&Rs to revoke mandatory payment obligations, and Section 7 also voted to revoke automatic membership.

Obviously, this created differences between the various Sections, since they now had different rules.  In 2007, all four Sections attempted to amend the existing CC&R’s and stated in the document that all four Sections seek to amend their CC&R’s and the prior CC&R’s are superseded.  After an election, the CC&R’s were recorded because they had been allegedly approved by a majority of property owners in each Section.  In response to a suit brought by owners, the Association filed a suit seeking a declaration that the 2007 CC&R’s were valid.  During the suit, the owners learned that the CC&R’s had not in fact been approved by a majority of the owners in Section 7.  Therefore, these owners argued the 2007 CC&R’s were invalid.

Trial Court

The Association’s motion for summary judgment was granted and over the owner’s objection, the trial court awarded the Association $300,000 in attorney fees as the prevailing party.  The owners appealed.

Court of Appeals

On appeal, the court took a very straightforward approach.  Section 7 did not pass the amended CC&R’s.  The proposed action was for all four Sections to adopt new CC&R’s.  Since all four Sections did not pass the amendments, they failed and therefore held, as a matter of law, “that the 2007 CC&R’s are invalid.”  Neither side was awarded attorney fees.

Lesson(s) Learned

1. The Association clearly spent well in excess of $300,000 arguing this case that it eventually lost. Before spending that amount of money, you will likely want to make sure that your attorneys confirm that they believe you will likely win; and
2. Even if the unit owners spent only $200,000 on the case, that is still a total of $500,000 in attorney fees for a court to determine that a group of homeowners have not agreed to something – take your time to accurately and honestly count ballot and election results.

Sunburst Farms East, Inc. v. Braden, (Arizona) 2020 WL 1952458