Opinion
No. 1 CA-CV 19-0007
06-30-2020
MONTANA RANCH HOMEOWNERS ASSOCIATION, Plaintiff/Appellee, v. EDMOND C. BEAITH, et al., Defendants/Appellants.
COUNSEL Lang & Klain, PC, Scottsdale By George H. King, Kent A. Lang Jardine Baker Hickman & Houston, PLLC, Phoenix By Michael Warzynski, Bradley R. Jardine Co-Counsel for Plaintiff/Appellee Manning & Kass Ellrod Ramirez Trester, LLP, Phoenix By Richard V. Mack Counsel for Defendants/Appellants
NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE. Appeal from the Superior Court in Maricopa County
No. CV2016-017160
The Honorable Christopher A. Coury, Judge
REVERSED AND REMANDED
COUNSEL Lang & Klain, PC, Scottsdale
By George H. King, Kent A. Lang Jardine Baker Hickman & Houston, PLLC, Phoenix
By Michael Warzynski, Bradley R. Jardine
Co-Counsel for Plaintiff/Appellee Manning & Kass Ellrod Ramirez Trester, LLP, Phoenix
By Richard V. Mack
Counsel for Defendants/Appellants
MEMORANDUM DECISION
Judge Kent E. Cattani delivered the decision of the Court, in which Presiding Judge Maria Elena Cruz and Judge Jennifer M. Perkins joined. CATTANI, Judge:
¶1 Edmond and Kelly Beaith, as trustees of the Beaith Family Trust, appeal the superior court's declaratory judgment and award of attorney's fees in favor of Montana Ranch Homeowners Association. For reasons that follow, we reverse and remand for further proceedings.
FACTS AND PROCEDURAL BACKGROUND
¶2 The Beaiths' trust owns a home (the "Property") within Montana Ranch. In 2016, they leased the Property to Valor Behavioral Healthcare, which held a license to treat individuals recovering from drug and alcohol addiction. Valor used the Property as part of an all-inclusive residential treatment program, in which up to eight Valor clients stayed at the Property while they participated in 12-step meetings, therapy, and life coaching at another Valor facility. The clients ate and slept at the Property, where they were under 24-hour supervision. The clients also were randomly drug tested at the Property and participated in group meditation and nightly "wrap-ups" at the Property.
¶3 Approximately two months after the Valor lease began, Montana Ranch sent the Beaiths a cease-and-desist letter asserting that the lease violated provisions in the Montana Ranch covenants, conditions, and restrictions ("CC&Rs"), including rules prohibiting use of the Property for a "commercial enterprise" and limiting leasing of the Property to a "single family unit." The Beaiths responded with a letter denying that the Property was being used for a commercial enterprise and asserting that federal and state housing discrimination laws superseded the provisions of the CC&Rs on which Montana Ranch relied.
¶4 Montana Ranch ultimately filed a complaint in superior court, alleging that the Beaiths breached the CC&Rs and seeking a declaration that the CC&Rs prohibited businesses like Valor from operating in Montana Ranch. The Beaiths counterclaimed, alleging that as applied to the Property and the Valor lease, the Montana Ranch CC&Rs interfered with a business expectancy and violated federal Fair Housing Act ("FHA") protections for substance-addicted individuals.
¶5 The Beaiths requested a jury trial on "all triable issues." The parties subsequently agreed, however, that the court would decide Montana Ranch's claims for declaratory relief, leaving the Beaiths' counterclaims to be resolved by the jury. At trial, Montana Ranch's manager testified that the community enforces its rules and that business-use restrictions are common in CC&Rs and are important to maintain home values and the character of the community. The Beaiths in turn asserted that they were entitled to a "reasonable accommodation" under the FHA to afford people with disabilities an equal opportunity to live in the community. The Beaiths also presented testimony that other properties in Montana Ranch were used in connection with businesses, in particular a real estate broker's office and an Airbnb rental, and that Montana Ranch was selectively enforcing community parking restrictions against Valor.
Although Montana Ranch's original complaint sought damages from the Beaiths for violating the CC&Rs, Montana Ranch later modified its request for relief and sought only declaratory and injunctive relief. And because the Valor lease ended before the case proceeded to trial, the superior court determined that Montana Ranch's request for injunctive relief was moot.
¶6 After the close of evidence, and while the jury was deliberating on the Beaiths' counterclaims, the court ruled that the Beaiths' lease to Valor breached the CC&Rs and granted Montana Ranch declaratory relief. The court concluded that Valor's use of the Property violated Section 12.1 of the CC&Rs because the Property was being used "for predominantly a commercial enterprise," and that Valor's use also violated Section 12.21 of the CC&Rs, which limited leasing to "a single family unit." The court also allowed Montana Ranch to file an application for attorney's fees and costs.
¶7 Shortly thereafter, the jury rendered a verdict in favor of the Beaiths on their FHA counterclaim, but did not award damages. The jury found in favor of Montana Ranch on the Beaiths' claim for interference with a business expectancy. Before reaching their verdict, the jurors submitted a question asking whether damages could include attorney's fees. The court responded that any award of fees would be determined by the court and could not be part of the jury's damages analysis. After the verdict, the court initially awarded the Beaiths attorney's fees and costs related to their FHA counterclaim, but the court subsequently granted Montana Ranch's motion to reconsider, finding that the FHA claim had not altered the parties' legal relationship or required modification of Montana Ranch's behavior, so the Beaiths were not "prevailing parties" under federal law.
¶8 The superior court entered a final judgment and award of attorney's fees and costs in favor of Montana Ranch, and the Beaiths timely appealed. We have jurisdiction under A.R.S. § 12-2101(A)(1).
DISCUSSION
I. Declaratory Judgment.
¶9 The Beaiths argue that the superior court erred by interpreting the CC&Rs in a manner that diminished or eliminated a handicapped person's ability to reside in the Montana Ranch subdivision, and that such persons were entitled to a reasonable accommodation under the FHA. In light of the jury's verdict on the Beaiths' FHA claim, we agree.
¶10 We review de novo questions of law, deferring to findings made by the relevant factfinder. Powell v. Washburn, 211 Ariz. 553, 555-56, ¶ 8 (2006); see also Data Sales Co. v. Diamond Z Mfg., 205 Ariz. 594, 601, ¶ 30 (App. 2003) (deferring to a jury's findings of fact); Imperial Litho/Graphics v. M.J. Enters., 152 Ariz. 68, 72 (App. 1986) (deferring to the superior court's findings of fact after bench trial). Section 12.1 of the Montana Ranch CC&Rs prohibits commercial use of properties in the community. Section 12.21 of the CC&Rs allows leasing a property only to "a single family unit." The superior court properly addressed whether Valor was operating a commercial enterprise on the Property in violation of the CC&Rs and whether the lease to Valor violated the single-family-unit requirement. And the evidence presented supported the court's findings that Valor's use of the property, in the abstract, violated both provisions of the CC&Rs.
¶11 But violation of generally applicable CC&R provisions was only the first of two hurdles Montana Ranch had to overcome to prevail against the Beaiths. The Beaiths' counterclaim alleged that under the FHA, they were entitled to an exemption from the CC&Rs—a reasonable accommodation—to afford Valor's clients (who fit within the category of disabled persons under the FHA) an equal opportunity to use the Property. When the court granted Montana Ranch's request for a declaratory judgment, the superior court failed to take into account the jury's finding that the Beaiths had prevailed on their FHA claim.
¶12 Under the FHA, it is unlawful to "make unavailable or deny[] a dwelling to any buyer or renter because of a handicap" of the renter, any person associated with the renter, or any person residing in the rental. 42 U.S.C. § 3604(f)(1)(A)-(C). "[P]ersons recovering from drug and/or alcohol addiction are disabled under the FHA and therefore protected from housing discrimination." Pac. Shores Props., LLC v. City of Newport Beach, 730 F.3d 1142, 1156 (9th Cir. 2013). Discrimination under the FHA includes "a refusal to make reasonable accommodations in rules, policies, practices, or services, when such accommodations may be necessary to afford [a protected] person equal opportunity to use and enjoy a dwelling." 42 U.S.C. § 3604(f)(3)(B).
¶13 In considering the Beaiths' counterclaim, the jury was expressly instructed to consider the "reasonable accommodation" requirement:
"Reasonable Accommodation" means an accommodation in rules, policies or practices to afford people with disabilities an equal opportunity to live in a dwelling. When determining if an accommodation is necessary, the overall focus should be on whether waiver of the rule would be so at odds with the purposes behind the rule that it would be a fundamental and unreasonable change.And after the jury found that application of the CC&Rs to Valor's use of the Property would violate the FHA, the court should have given effect to that finding in its ultimate assessment of whether Montana Ranch was entitled to a declaratory judgment for breach of the CC&Rs.
¶14 Instead, the superior court concluded that the commercial nature of Valor's business violated the CC&R rule prohibiting a commercial enterprise, analogizing Valor's business to other "all inclusive" programs the court concluded would violate the CC&Rs, such as lodging provided as part of a halfway house program for former prisoners, a flight school, or a golf academy. But none of those examples account for the jury's verdict and none involve lodging for persons protected from housing discrimination under the FHA.
¶15 The superior court reasoned that the jury's verdict did not bear on the declaratory judgment on the basis that "the Beaiths breached these CC&Rs well before any discrimination [that the jury may have considered] occurred." The court held that "[t]he moment that the Beaiths signed the lease with Valor, and the moment the first Valor patron began using the Beaiths' residence as part of Valor's rehabilitation program, the Beaiths had violated the contractual obligation to abide by the CC&Rs." The court further found that Montana Ranch's enforcement of the CC&Rs was not motivated by the residents' handicapped status, but rather by the commercial nature of Valor's business.
¶16 None of these findings, however, entitled Montana Ranch to prevail on its claim for declaratory relief. Indeed, the Beaiths' claim for a reasonable accommodation under the FHA presumed that without an accommodation, Valor's operations on the Property would violate the terms of the CC&Rs. And such an accommodation may be warranted under the FHA regardless of a party's motivation in seeking to enforce a rule. Cf. Canady v. Prescott Canyon Estates Homeowners Ass'n, 204 Ariz. 91, 93-94, ¶¶ 10-12 (App. 2002) (as amended) (noting that a reasonable accommodation "may involve 'changing some rule that is generally applicable so as to make its burden less onerous on the handicapped individual'") (citation omitted).
¶17 In Westwood Homeowners Ass'n v. Tenhoff, 155 Ariz. 229, 230-31, 237 (App. 1987), this court held unenforceable a restrictive covenant prohibiting the use of a property for "the care or treatment of the sick or disabled, physically or mentally." This court concluded that applying the restriction to a residential facility for the developmentally disabled was inconsistent with the policy underlying the Developmental Disabilities Act of 1978. Id. at 234. Although the ruling specifically did not decide "whether the facility is a business within the meaning of the deed restriction," Westwood Homeowners supports the proposition that a generally applicable community rule may not be enforced against an individual who is entitled to an exception from the rule as a reasonable accommodation under remedial antidiscrimination legislation. Id. at 231, 237.
¶18 Thus, even though, as the superior court found, the Valor lease violated a CC&R prohibition on commercial use, Montana Ranch was not entitled to declaratory relief if, as the jury verdict indicated, under the FHA, Montana Ranch was required to grant the Beaiths an exception from that community rule as a reasonable accommodation. For the same reasons, the court's ruling that the Valor lease violated the single-family-unit requirement in the CC&Rs is deficient for failure to recognize the need for a reasonable accommodation under the FHA. See Rhodes v. Palmetto Pathway Homes, Inc., 400 S.E.2d 484, 485-86 (S.C. 1991) (holding that a restrictive covenant limiting the property to single-family residential use could not be enforced to prevent the use of a property as a home for the mentally impaired).
¶19 Accordingly, even accepting that Valor's use of the Property was inconsistent with the commercial-use and single-family-use provisions of the CC&Rs, the superior court erred by granting relief to Montana Ranch without giving effect to the jury's verdict on the Beaiths' FHA claim.
II. Evidence of Damages.
¶20 The Beaiths also argue the superior court erred by limiting their evidence of damages because of disclosure violations. The Beaiths argue in particular that they should have been permitted to pursue damages outlined in their declaration dated December 9, 2017, including emotional distress, late payments from their tenant, and the costs of defending a lawsuit at the expense of other desired activities. We disagree.
¶21 As the superior court correctly noted, "even though a claim is recognized, a party litigating this claim still is obligated to comply with Arizona's disclosure rules," i.e., even if a party proves an FHA violation, damages are not recoverable if they are not timely disclosed. Arizona Rule of Civil Procedure 26.1(a)(7) requires disclosure of "a computation and measure of each category of damages alleged by the disclosing party, [and] the documents and testimony on which such computation and measure are based." The fact that damages for FHA claims "are rarely susceptible of the kind of concrete, detailed proof of injury which is available in other contexts," Pac. Shores, 730 F.3d at 1169 (citation omitted), does not excuse a party from timely disclosing evidence in support of a damages claim, including a computation and measure of damages. And the failure to timely make required disclosures precludes a party from presenting that information at trial. Ariz. R. Civ. P. 37(c)(1).
¶22 The superior court concluded that the only evidence of damages the Beaiths timely disclosed was their declaration, but the declaration did not contain any specific damages figures other than $11,000 of missed rent, which Valor eventually paid in full, and an allegation that the Beaiths were unable to contribute $13,000 to their IRA as they had in previous years, which the court ruled was too attenuated to be relevant. Aside from those specific figures, the various grievances recounted in the declaration did not sufficiently disclose damages. Because no recoverable damages were timely disclosed, the superior court did not err by precluding evidence of damages on the Beaiths' FHA claim.
¶23 The Beaiths also argue that the superior court improperly instructed the jury when it responded to a jury question by stating that "'legal fees' [relating to an FHA claim] cannot be awarded by the jury, but can be awarded by the Court, if appropriate, after the trial." The Beaiths rely on Pacific Shores, in which the Ninth Circuit held that a trial court's "conclusion that [legal] costs were 'better resolved' through an application for attorney's fees" was erroneous. 730 F.3d at 1167. In Pacific Shores, however, the legal costs at issue were fees incurred by the plaintiffs to comply with newly enacted city ordinances that the plaintiffs later challenged as discriminatory, not fees incurred as part of the litigation itself. Id. Here, in contrast, the Beaiths did not seek damages in the form of legal fees they incurred in attempting to comply with CC&Rs; the fees they sought were incurred in preparation for anticipated litigation and were therefore properly determined by the court rather than by the jury. See 42 U.S.C. § 3613(c)(2). Consequently, the superior court did not err in answering the jury's question regarding legal fees.
III. Attorney's Fees.
¶24 The Beaiths next argue that the superior court erred by determining that Montana Ranch was the successful party in an action arising out of a contract and by denying the Beaiths' request for attorney's fees under the FHA.
A. Attorney's Fees Under A.R.S. § 12-341.01.
¶25 "The determination of the successful party under A.R.S. § 12-341.01(A) is within the 'discretion of the trial court,' and we will not disturb the court's award 'if any reasonable basis exists' to support it." Lee v. ING Inv. Mgmt., LLC, 240 Ariz. 158, 161, ¶ 8 (App. 2016) (citation omitted). We consider the record in the light most favorable to upholding the superior court's assessment. Berry v. 352 E. Virginia, L.L.C., 228 Ariz. 9, 13, ¶ 21 (App. 2011).
¶26 Here, the superior court found that
Montana Ranch Homeowners Association substantially prevailed as to both claims for relief. Although counsel for the [Beaiths] is correct that the [Beaiths] did prevail on some theories of relief originally asserted in the Complaint, the primary crux of this lawsuit was whether the [Beaiths'] lease to Valor, and Valor's use of [the Property], violated the CC&Rs of Montana Ranch. Recognizing that Montana Ranch prevailed on these central questions, Montana Ranch is the prevailing party.
¶27 Because we have reversed the superior court's ruling granting Montana Ranch declaratory relief, and because the Beaiths prevailed on their FHA claim, we vacate the court's award of attorney's fees to Montana Ranch.
B. Attorney's Fees Under the FHA.
¶28 The superior court declined to award fees to the Beaiths, concluding that the jury verdict did not alter the legal relationship between the parties. The FHA permits a discretionary award of attorney's fees to the prevailing party in a civil action alleging discriminatory housing practices. See 42 U.S.C. § 3613(c)(2). As the superior court noted, the FHA provides that "prevailing party" for these purposes has the same meaning as the term in 42 U.S.C. § 1988. See 42 U.S.C. § 3602(o). Cases interpreting § 1988 have determined that "a plaintiff 'prevails' when actual relief on the merits of his claim materially alters the legal relationship between the parties by modifying the defendant's behavior in a way that directly benefits the plaintiff." Farrar v. Hobby, 506 U.S. 103, 111-12 (1992). Here, the jury verdict materially altered the legal relationship between the parties because it provided a successful defense against Montana Ranch's claim for declaratory relief. Although the superior court stated that it would exercise its discretion to deny the Beaiths attorney's fees even if available under the FHA, we remand for the superior court to reconsider its ruling in light of this decision.
CONCLUSION
¶29 For the foregoing reasons, the judgment of the superior court is reversed, the award of attorney's fees in favor of Montana Ranch vacated, and the cause remanded for the superior court to reconsider an award of fees in favor of the Beaiths. The Beaiths request an award of attorney's fees on appeal, as relevant here, under 42 U.S.C. § 3613(c)(2). In an exercise of our discretion, we award the Beaiths, as the prevailing party on appeal, their reasonable attorney's fees upon compliance with ARCAP 21.