Utah HOA Case Law

Grassy Meadows Sky Ranch v. Grassy Meadows, 2012 UT App 182, 283 P.3d 511 (amending CC&Rs by developer).

283 P.3d 511 (2012)2012 UT App 182

Grassy Meadows Sky Ranch Landowners Association, Plaintiff and Appellee,
v.
Grassy Meadows Airport, Inc.; Sky Ranch Development, Inc.; and Michael O. Longley, Defendants and Appellants.

No. 20100925-CA.
Court of Appeals of Utah.
July 6, 2012.

*514 Nathan Whittaker, Murray, for Appellants.  Gregory N. Hoole and John D. Richards III, Salt Lake City, for Appellee.

Before Judges DAVIS, THORNE, and ROTH.

OPINION

DAVIS, Judge:

¶ 1 Grassy Meadows Airport, Inc.; Sky Ranch Development, Inc.; and Michael O. Longley (collectively, Sky Ranch) appeal the trial court's ruling in favor of Grassy Meadows Sky Ranch Landowners Association (the Association). We affirm in part, reverse in part, and remand for further proceedings consistent with this opinion. 

BACKGROUND 

¶ 2 The Association is comprised of the lot owners of the Grassy Meadows Sky Ranch Development located near Hurricane, Utah.[1] Many of the lot owners are private pilots or airplane owners who were attracted to this residential community because it is centered around a private airstrip. The airstrip is owned by Grassy Meadows Airport and leased to the Association. The lease "grant[s] the Association and its members, guests and invitees the exclusive right of use of the ... [a]irport" for a ninety-nine-year term. Sky Ranch also adopted a set of covenants, conditions, and restrictions in July 1990 (the 1990 CCRs) that applied to Sky Ranch and the Association. The 1990 CCRs provided that Sky Ranch could unilaterally amend the CCRs for certain enumerated purposes "until eighty percent (80%) of the lots in the Development (including additional phases as may be added) have been sold to purchasers" (the 80 Percent Provision).

¶ 3 In November and December 2001, Sky Ranch appeared before the Washington County Planning Commission to request a zoning change that would allow the construction of a fixed based operation (FBO) within the development. As described by Sky Ranch, the plans for the FBO included an on-site residence for the FBO operator, a large hangar to be used for aircraft maintenance, and ten to fifteen bed-and-breakfast-style lodging units to accommodate individuals interested in buying property at Grassy Meadows. A representative from the Association appeared at both meetings to oppose the zoning request, which was ultimately denied.

¶ 4 By June 2002, 81.5% of the platted lots in the community had been sold, prompting the Association to write Sky Ranch a letter notifying it that its right to unilaterally amend the 1990 CCRs had terminated in accordance with the 80 Percent Provision. Nevertheless, in October 2002, Sky Ranch unilaterally amended the 1990 CCRs with a new set of CCRs (the 2002 CCRs). The 2002 CCRs contained provisions spelling out Sky Ranch's right to pursue the commercial improvements at issue in the zoning hearings and amending the voting rights of the different categories of lot owners, as well as several other provisions aimed at facilitating the development of a new planned community, Copper Rock, adjacent to the Grassy Meadows community. Michael Longley, the president of both Grassy Meadows Airport and Sky Ranch Development, is also behind the Copper Rock project and wanted "to open the traffic pattern and runway to visitors" of Copper Rock.

¶ 5 On March 31, 2003, several months after the CCRs were amended, the Association received a "Notice of Termination of Lease" from Grassy Meadows Airport alleging that the Association failed to properly maintain the airport, to abide by the terms of the CCRs, to meet the lease's insurance requirements, and to make lease payments on time. Despite the Association's attempts to remedy the alleged breaches, Grassy Meadows Airport terminated the lease on May 5, 2003.[2] Sky Ranch refused to take the payments 515*515 the Association attempted to make under the lease after its termination. The Association subsequently deposited those funds into an escrow account.

¶ 6 The Association filed suit in June 2003. Sky Ranch responded with several counter-claims. The main issues presented at the two-day bench trial in April 2010 were (1) whether the 2002 CCRs were valid; (2) whether the Association breached the lease and, if so, whether Sky Ranch properly terminated the lease; and (3) whether the Association "tortiously interfered with the legitimate business interests of [Sky Ranch] by opposing proposed zoning ordinance changes affecting [the Association]." The trial court determined that the 2002 CCRs were "void ab initio" because Sky Ranch had lost its ability to unilaterally amend the 1990 CCRs when 81.5% of the lots were purchased, and that the lease termination was not justified because the Association did not materially breach the lease. Furthermore, the trial court dismissed Sky Ranch's counterclaim for tortious interference, stating, "[T]here [was] no basis to hold the Association liable...." In light of these conclusions, the trial court determined that the funds held in escrow were to "be released to Defendant Grassy Meadows Airport ... [and] applied as rent paid in full under the Lease." 

ISSUES AND STANDARDS OF REVIEW 

¶ 7 Sky Ranch presents four issues for appeal.  First, Sky Ranch challenges the trial court's invalidation of the 2002 CCRs, which was based on the court's interpretation of a provision it deemed ambiguous in the 1990 CCRs.  Second, Sky Ranch contends that it was entitled to terminate the Association's lease and that the manner in which it terminated the lease was appropriate.  Third, Sky Ranch argues that the trial court prematurely dismissed its claim for tortious interference with business relations.  Last, Sky Ranch argues that the issue of whether the escrow monies constituted full payment of the airport lease was never presented to the court, rendering the trial court's determination both unjustified and based on insufficient evidence.

¶ 8 We review the trial court's interpretation of the CCRs and lease, and its determination that a provision in the CCRs was ambiguous, for correctness.  See Miller v. USAA Cas. Ins. Co., 2002 UT 6, ¶ 19, 44 P.3d 663; Sharon Steel Corp. v. Aetna Cas. & Sur. Co., 931 P.2d 127, 134 (Utah 1997).  See generally Swenson v. Erickson, 2000 UT 16, ¶ 11, 998 P.2d 807 ("Restrictive covenants that run with the land and encumber subdivision lots form a contract between subdivision property owners as a whole and individual lot owners; therefore, interpretation of the covenants is governed by the same rules of construction as those used to interpret contracts.").  We grant the trial court no deference when its interpretation of an ambiguous contract term is not based on extrinsic evidence.  See Meadow Valley Contractors, Inc. v. State Dept. of Transp., 2011 UT 35, ¶ 63, 266 P.3d 671.  Next, "[w]hether an issue was properly before the trial court presents a question of law, which we review for correctness."  Lee v. Sanders, 2002 UT App 281, ¶ 6, 55 P.3d 1127.  And last, "[f]indings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses."  Utah R. Civ. P. 52(a). 

ANALYSIS 

I. Validity of the 2002 CCRs 

¶ 9 Sky Ranch challenges the trial court's determination that the 1990 CCRs were ambiguous, arguing that the trial court improperly "focus[ed] on just one provision of the 1990 [CCRs], rather than construing the document as a whole."[3]  Here, the provision in question, the 80 Percent Provision, states,

*516 Notwithstanding anything herein contained to the contrary, until eighty percent (80%) of the lots in the Development (including additional phases as may be added) have been sold to purchasers, [Sky Ranch] shall have, and is hereby vested with, the right to unilaterally amend this Declaration as may be reasonably necessary or desirable....

The trial court determined the 80 Percent Provision to be unclear as to "whether the number of lots[] from which the 80 percent calculation would be made[] includes only then-existing lots or all future lots." As a result, the trial court concluded that the 1990 CCRs are ambiguous because the language of the 80 Percent Provision is susceptible to two different interpretations. See generally United States Fid. & Guar. Co. v. Sandt, 854 P.2d 519, 523 (Utah 1993) ("An ambiguity in a contract may arise (1) because of vague or ambiguous language in a particular provision or (2) because two or more contract provisions, when read together, give rise to different or inconsistent meanings, even though each provision is clear when read alone."). In light of this ambiguity, the trial court concluded that Sky Ranch's ability to unilaterally amend the CCRs terminated in June 2002 when 81.5% of the platted lots were purchased and that, as a result, the 2002 CCRs were "void ab initio" because Sky Ranch did not have "the authority to amend unilaterally the [1990 CCRs]" when it issued the 2002 CCRs.

¶ 10 However, the trial court "did not base its interpretation of the [80 Percent Provision] ... on extrinsic evidence of the parties' intent. Rather, the trial court simply held that" the ambiguity would be construed against Sky Ranch.  See Meadow Valley, 2011 UT 35, ¶ 63, 266 P.3d 671.  This course of action is unconventional because when a "contract is ambiguous, we seek to resolve the ambiguity by looking to extrinsic evidence of the parties' intent" and only "[i]f extrinsic evidence does not resolve the ambiguity and uncertainty, ... will we resolve the ambiguity against the drafter."  Id. ¶ 64.  Thus, "because the trial court did not base its conclusion ... on extrinsic evidence of the parties' intent, we give that conclusion no deference and review for correctness."  Id. ¶ 63; see also Kimball v. Campbell, 699 P.2d 714, 716 (Utah 1985) ("A contract's interpretation may be either a question of law, determined by the words of the agreement, or a question of fact, determined by extrinsic evidence of intent.  If a trial court interprets a contract as a matter of law, we accord its construction no particular weight, reviewing its action under a correctness standard.").  Accordingly, "[w]e begin ... with the contract itself," see Meadow Valley, 2011 UT 35, ¶ 64, 266 P.3d 671, looking first to its plain "language ... to determine meaning and intent," see Glenn v. Reese, 2009 UT 80, ¶ 10, 225 P.3d 185 (citation and internal quotation marks omitted).  When reviewing the plain language of a contract, we seek to "[h]armonize conflicting or apparently ambiguous contract language before concluding that provisions are actually ambiguous."  See Gillmor v. Macey, 2005 UT App 351, ¶ 19, 121 P.3d 57.  Additionally, "[e]ach contract provision is to be considered in relation to all of the others, with a view toward giving effect to all and ignoring none."  Utah Valley Bank v. Tanner, 636 P.2d 1060, 1061-62 (Utah 1981).

¶ 11 Sky Ranch contends that the 80 Percent Provision's meaning is clear when read in conjunction with other provisions in the 1990 CCRs, particularly the provisions regarding annexation. Sky Ranch interprets the annexation provisions as demonstrating "a clear intent ... that Sky Ranch ... retain the power to amend the [CCRs] until it is finished developing" by providing Sky Ranch with the ability to "continue to annex land to the Development 'for common areas or for subdivisions into additional residential or commercial lots.'" Sky Ranch acknowledges that its right to annex land is limited by the 1990 CCRs "to fifteen years, and to 150 total residential lots," and reconciles these limitations with the 80 Percent Provision by concluding that the 1990 CCRs provide that Sky Ranch's power to unilaterally amend would not terminate until "it has finished developing and 80% of the lots are sold."[4]

*517 ¶ 12 Sky Ranch's interpretation, however, is not "reasonably supported by the language of the contract," which precludes the trial court's finding of ambiguity.  See Ward v. Intermountain Farmers Ass'n, 907 P.2d 264, 268 (Utah 1995); accord Daines v. Vincent, 2008 UT 51, ¶ 31, 190 P.3d 1269 (construing Ward); see also id. ¶ 25 ("A contractual term or provision is ambiguous if it is capable of more than one reasonable interpretation because of uncertain meanings of terms, missing terms, or other facial deficiencies." (internal quotation marks omitted)); McNeil Eng'g & Land Surveying, LLC v. Bennett, 2011 UT App 423, ¶ 8, 268 P.3d 854 ("In determining whether a contract is ambiguous, we 'consider any credible evidence' but will not conclude that the contract is ambiguous unless both interpretations are 'reasonably supported by the language of the contract.'" (quoting Ward, 907 P.2d at 268)).  Sky Ranch interprets the 80 Percent Provision as indicating that its right to unilaterally amend the CCRs terminates when 150 lots are available and 120 of those are sold (i.e., 80% of 150).  However, such an indication could have been unambiguously made by stating an exact number rather than a percentage.  Consistent with our rules of contract construction, we will not interpret the CCRs so as to render the contract's use of a percentage in place of an exact number meaningless.  Cf. Novell, Inc. v. Canopy Grp., Inc., 2004 UT App 162, ¶ 27, 92 P.3d 768 (rejecting an interpretation of a term in a contract that "would render meaningless" another term in the contract).  See generally Utah Valley Bank, 636 P.2d at 1061-62.  The use of a percentage in this provision indicates that the threshold identified in the provision is not 120, a sum calculable from the day the CCRs were drafted.  Rather, the use of a percentage indicates that the threshold is a figure that is related to the number of lots available in proportion to the number of lots sold and may vary throughout Sky Ranch's development of the community, i.e., as new phases are added before the 80% threshold is met in relation to the previous phase's number of lots available and sold.  Further, while the 80 Percent Provision envisions the possibility that Sky Ranch may add lots through additional phases of development, it can also be read as nonetheless requiring the percentage of sold lots to remain below 80% to enable Sky Ranch to unilaterally amend the 1990 CCRs.  This reading does not render the use of a percentage meaningless and still permits Sky Ranch to annex property and continue developing, while also suggesting a pace by which development and lot sales should occur and a threshold at which Sky Ranch, as the developer, should take more of a background role in the ongoing functioning of the community.  Additionally, several portions of the 1990 CCRs conflict with Sky Ranch's interpretation, such as the fifteen-year limitation on Sky Ranch's "right to annex land to the Property" and the fifteen-year limitation on Sky Ranch's voting rights.  These provisions, in addition to the 150-lot cap on development, demonstrate the intent to establish a definite point in time when Sky Ranch would be divested of certain rights. Yet Sky Ranch's reading of the 80 Percent Provision suggests that it could possibly retain the ability to unilaterally amend the 1990 CCRs in perpetuity, i.e., in the event it never finishes developing and/or 80% of the lots are never sold.  Thus, Sky Ranch's suggestion as to how the annexation section could harmonize the terms of the 1990 CCRs and prevent the trial court's finding that the CCRs were ambiguous leads us to the conclusion that the trial court's ultimate determination to construe the 80 Percent Provision as having terminated Sky Ranch's ability to unilaterally amend the CCRs was correct.[5]  Accordingly, although the trial court may have inappropriately jumped to construing the 1990 CCRs against Sky Ranch as the drafter, cf. Meadow Valley, 2011 UT 35, ¶ 63, 266 P.3d 671, its *518 end result — determining that the 2002 CCRs were "void ab initio" — was correct.[6] 

II. Termination of the Lease 

¶ 13 Sky Ranch argues that because the Association "materially breached the terms of the Airport Lease," it was "entitled to termination of the lease and to recover its damages incurred." Sky Ranch cites numerous breaches by the Association relating to the Association's obligation to maintain the airport and the facilities and components associated with the airport, and the Association's failure to maintain liability insurance on the airport. Sky Ranch argues that these breaches indicate that the trial court's finding that the Association substantially complied with the lease is clearly erroneous.

¶ 14 "Substantial compliance is one of the contract law doctrines that has been imported into lease cases." Housing Auth. of Salt Lake City v. Delgado, 914 P.2d 1163, 1165 (Utah Ct.App.1996) (applying the doctrine of substantial compliance to a residential lease); see also Cache Cnty. v. Beus, 1999 UT App 134, ¶¶ 31, 41, 978 P.2d 1043 (acknowledging the potential application of the substantial compliance doctrine to a "negotiated commercial lease between sophisticated parties"). In evaluating lease termination issues, "[w]e observe a general policy disfavoring forfeitures. The substantial compliance doctrine furthers that policy by allowing equity to intervene and rescue a lessee from forfeiture of a lease when the lessee has substantially complied with the lease in good faith." Delgado, 914 P.2d at 1165 (citation omitted). "Whether a breach is so insubstantial as to trigger the application of [the substantial compliance doctrine] is a question of fact." Id. A trial court can look to the following factors for assistance in determining the materiality of a breach:

"(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; (b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; (d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; [and] (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing."

Beus, 1999 UT App 134, ¶ 37, 978 P.2d 1043 (quoting Restatement (Second) of Contracts § 241 (1981)).

¶ 15 Here, the trial court considered the above factors in turn, determining that neither Longley nor the Grassy Meadows Airport would be "deprived of any benefit to which they are entitled under the Lease, including receiving regular lease payments," while "the Association would suffer greatly if the lease were terminated" because "[t]he very purpose for the Community was to have access to a private airport." Next, the trial court found that "[t]he evidence presented established that any alleged breaches have been cured." The trial court noted Longley's own "admission that the Association reacted to his Notice of Termination with `frenzied efforts' to cure the alleged deficiencies," which "also evinces good faith on the part of the Association to comply with all its obligations under the Lease." The trial court listed several repairs and improvements the Association performed on the airport property and noted that "[a]lthough maintenance issues arose from time to time, ... [they fell] within what would reasonably be expected as normal wear and tear," and that otherwise, "the Airport was always in reasonably good 519*519 working order and condition."[7] The trial court also cited "the Association['s] ... continued... use [of] the Airport ... since the alleged breach occurred without further complaint from Mr. Longley and without any accident or adverse incident" as evidence of "[t]he Association's good faith efforts to meet all its obligations under the Lease." Though the record contains some evidence that does not support the trial court's determination, the record also contains sufficient evidence that supports the ruling as not clearly erroneous. Therefore, we affirm the trial court's ruling that the lease should not have been terminated because the Association substantially complied with the lease's terms.[8] 

III. Tortious Interference 

¶ 16 Sky Ranch next contends that it was not given the opportunity to present evidence on its tortious interference counterclaim. The tortious interference claim is based on the argument that the Association agreed to the development of the FBO, thereby prohibiting it from opposing Sky Ranch's request for the zoning change necessary to permit that development. In other words, Sky Ranch alleges that the Association effectively contracted away its right to petition the government in a manner that would "interfere with the development of the FBO."[9] Sky Ranch's trial brief references the airport lease, the 1990 CCRs, a set of Association meeting minutes, and an agreement titled the "FBO Agreement" as allegedly demonstrating the Association's awareness of, and assent to, the development of the FBO. Sky Ranch's third amended counterclaim also references the Association's Articles of Incorporation for support, quoting the articles as stating, "No substantial part of the activities of the corporation shall consist of carrying on propaganda or otherwise trying to influence legislation." (Internal quotation marks omitted.)

¶ 17 Based on the record before us,