ACCEPTED 03-14-00660-CV 6585410 THIRD COURT OF APPEALS AUSTIN, TEXAS 8/20/2015 2:48:47 PM JEFFREY D. KYLE CLERK No. 03-14-00660-CV
FILED IN 3rd COURT OF APPEALS In The Court of Appeals For the Third AUSTIN, TEXAS 8/20/2015 2:48:47 PM District of Texas at Austin JEFFREY D. KYLE Clerk
CRAIG ZGABAY AND TAMMY ZGABAY, Appellants, v.
NBRC PROPERTY OWNERS ASSOCIATION, Appellee.
On Appeal from the 433rd District Court of Comal County, Texas Trial Court Cause No. C2014-0501C
Unopposed Tex. R. App. P. 38.7 Motion to Supplement (with Proposed Supplemental Case Citation)
J. Patrick Sutton SBOT 24058143 1706 W. 10th Street Austin Texas 78703 Tel. (512) 417-5903 Fax. (512) 355-4155 jpatricksutton@jpatricksuttonlaw.com
Counsel for Appellants
August 20, 2015
Motion to Supplement and Supplemental Case Citation
Appellants the Zgabays hereby seek leave to supplement
their case authority. The Zgabays' brief listed unanimity amongst
the 14 other states that have rejected the argument that short-
term rentals constitute a "business use." Brief of Appellants at 33-
34. A 15th state, Colorado, has joined in the unanimity. Houston v.
Wilson Mesa Ranch Homeowners Ass'n, Inc., 2015 COA 113, ¶ 18,
2015 WL 4760331 (Colo. App. Aug. 13, 2015). A copy of the opinion
is attached hereto for the Court's convenience.
Conclusion and Prayer Accordingly, the Zgabays ask that the Court grant this
motion and, for brevity, consider their brief supplemented with the
above case authority.
Respectfully submitted, /s/ JPS J. Patrick Sutton Texas Bar No. 24058143 1706 W. 10th Street Austin Texas 78703 Tel. (512) 417-5903 Fax. (512) 355-4155 jpatricksutton@ jpatricksuttonlaw.com
Attorney for Appellants
2
CERTIFICATE OF SERVICE
I certify that on August 20, 2015, per T.R.A.P. 6.3(b), a true and correct copy of this amended brief was served by efiling and email on:
Tom Newton Allen Stein & Durbin, P.C. 6243 IH-10 West, 7th Floor San Antonio, Texas 78201 TNewton@ASDH.com
Brian Hensley Thompson, Coe, Cousins & Irons, L.L.P. 701 Brazos, Suite 1500 Austin, Texas 78701 Ph (512) 708-8200 Fax (512) 708-8777 BHensley@thompsoncoe.com
/s/ J. Patrick Sutton Attorney for Plaintiffs-Appellants
CERTIFICATE OF CONFERENCE
I certify that I conferred with Brian Hensley, counsel for Appellee, regarding this motion, and that he stated his clients are not opposed to this motion.
/s/ J. Patrick Sutton Attorney for Appellants
2015 COA 113
2015 WL 4760331 I. Background
NOTICE: THIS OPINION HAS NOT BEEN RELEASED ¶ 2 Wilson Mesa Ranch is a subdivision in San Miguel FOR PUBLICATION IN THE PERMANENT LAW County. The subdivision is subject to protective covenants REPORTS. A PETITION FOR REHEARING IN THE that are enforced by the Association's board of trustees. COURT OF APPEALS OR A PETITION FOR The covenants provide, as relevant here, that “the lands CERTIORARI IN THE SUPREME COURT MAY BE within Wilson Mesa Ranch [are intended to] be developed PENDING. and maintained as a highly desirable scenic and secluded Colorado Court of Appeals, residential area;” that all tracts designated on the recorded Div. III. plats by number “shall be residential tracts;” and that “[n]o lands within Wilson Mesa Ranch shall ever be occupied or David HOUSTON, Trustee of the used for any commercial or business purpose nor for any David Houston 1997 Trust dated noxious activity and nothing shall be done ... on any of said October 6, 1997, Plaintiff–Appellee, lands which is a nuisance or might become a nuisance to the ...
v. owners of any of said lands.”
WILSON MESA RANCH HOMEOWNERS ASSOCIATION, INC., a Colorado nonprofit ¶ 3 Houston owns a single-family residence in the corporation, Defendant–Appellant. subdivision. Beginning in December 2012, Houston began renting out the property for short-term vacation rentals. He Court of Appeals No. 14CA1086 advertised the residence on the website of VRBO, a company | Announced August 13, 2015 that facilitates the booking of such rentals. When the board learned that Houston had been renting out the residence, it San Miguel County District Court No. 13CV30034, adopted an amendment (“Section 11”) to its administrative Honorable Mary E. Deganhart, Judge. procedures that prohibited Association members from renting out their properties for periods of less than thirty days without Attorneys and Law Firms prior board approval. Section 11 also provided for a $500 fine Solomon Law Firm, P.C., Joseph A. Solomon, Telluride, for each violation of this prohibition. Colorado, for Plaintiff–Appellee.
¶ 4 The board notified Houston of its adoption of Section Dewhirst & Dolven, LLC, Miles M. Dewhirst, Jeffery 11 and ordered him to comply with it. Houston objected D. Bursell, Denver, Colorado; Garfield & Hecht, PC, to Section 11 as an unlawful attempt to amend the Mary Elizabeth Geiger, Glenwood Springs, Colorado, for covenants. The board responded that short-term rentals were Defendant–Appellant. a commercial use that was already prohibited under the covenants, and that Section 11 was simply adopted to clarify Opinion the board's position and set forth procedures for seeking an exception to the prohibition.
Opinion by JUDGE VOGT * ¶ 5 After the board denied Houston's request to continue * Sitting by assignment of the Chief Justice under leasing the property on a short-term basis, he took two provisions of Colo. Const. art. VI, § 5(3), and § 24–51– additional rental reservations through VRBO. The board 1105, C.R.S. 2014.
treated these reservations as anticipatory breaches of the *1 ¶ 1 In this dispute regarding the scope of restrictive covenants and Section 11 and fined Houston $500 for each covenants, defendant, Wilson Mesa Ranch Homeowners reservation. Association, Inc., appeals the district court's judgment on the pleadings in favor of plaintiff, David Houston, Trustee of the ¶ 6 Houston then filed this action, seeking a declaration David Houston 1997 Trust dated October 6, 1997. We affirm. that the Association could not bar the short-term rental of his property based on the commercial use prohibition in the covenants. The Association counterclaimed for a declaration
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that the covenants barred rentals of less than thirty days; meaning of a covenant, we must adopt the construction that that Section 11 was enforceable against Houston; and that favors the unrestricted use of property. Id. at 253–54; see also Houston was in violation of the covenants and Section 11 Double D Manor, Inc. v. Evergreen Meadows Homeowners' by advertising, and taking reservations for, short-term rentals Ass'n, 773 P.2d 1046, 1048 (Colo. 1989). of his property. The Association also sought a permanent injunction requiring Houston to comply with the covenants and Section 11.
B. Scope of the Covenants
*2 ¶ 7 Both parties moved for judgment on the pleadings ¶ 10 It is undisputed that the covenants do not expressly pursuant to C.R.C.P. 12(c). In a detailed written order, prohibit short-term rentals of residences within Wilson Mesa the district court entered judgment in favor of Houston Ranch. The issue is whether such rentals are prohibited by and dismissed the Association's counterclaims. It reviewed necessary implication based on covenant language that (1) the covenant language, found no Colorado case law that Wilson Mesa Ranch is to “be developed and maintained was “dispositive on the issue of whether a prohibition on as a ... residential area,” with all subdivision tracts to commercial use bars short term rentals or conversely whether be “residential tracts,” and that (2) “[n]o lands within the requirement of residential use is somehow inconsistent Wilson Mesa Ranch shall ever be occupied or used for with short term rentals,” and reviewed cases from other any commercial or business purpose.” The Association jurisdictions that the parties had cited. The court concluded contends that the district court erred in failing to construe that nothing in the covenants prohibited short-term rentals, the “commercial use” prohibition as precluding unapproved either expressly or by implication; that the covenant language rentals of less than thirty days, and in failing to recognize that was ambiguous regarding the permissibility of short-term such short-term rentals are inconsistent with the covenants' rentals; and that, because such ambiguity required that all “residential use” requirement. We disagree. doubts be resolved in favor of the free and unrestricted use of property, the covenants did not prohibit or limit Houston's ¶ 11 We are aware of no Colorado case that has addressed short-term vacation rentals. It also found that Section 11's the meaning of prohibitions against “commercial use” or “differentiation between forbidden ‘short term’ rentals and requirements of “residential use” in the context of short-term permitted ‘long term’ rentals [was] arbitrary and ... not rentals of residences. With the exception of Double D Manor, plainly within the confines of the [c]ovenants;” thus, the fines discussed below, Colorado case law discussing these terms imposed against Houston were not enforceable. in other contexts affords little guidance in resolving the issue before us.
II. Discussion ¶ 12 Like the district court, we find the two Colorado cases on which the Association relies—Jackson & Co. (USA), Inc. v. Town of Avon, 166 P.3d 297, 298–300 (Colo. App.
A. Standards of Review and Applicable Law 2007), and E.R. Southtech, Ltd. v. Arapahoe County Board of Equalization, 972 P.2d 1057, 1059–60 (Colo. App. 1998)—
¶ 8 Our review is de novo, both because the district court's to be distinguishable. The Jackson division concluded that a judgment was a judgment on the pleadings, see Melat, duplex with six individual bedroom-bathroom suites, used for Pressman & Higbie, L.L.P. v. Hannon Law Firm, L.L.C., short-term vacation rentals, qualified as a “lodge” under the 2012 CO 61, ¶ 17, 287 P.3d 842, and because the court definition of that term in a municipal ordinance; thus, such construed a written instrument. See In re Estate of Foiles, short-term rentals were impermissible under the ordinance 2014 COA 104, ¶ 20, 338 P.3d 1098.
and a subdivision plat that explicitly prohibited the use of property within the residential subdivision as a lodge. There ¶ 9 We construe restrictive covenants according to their plain is no such explicit prohibition in the covenants here.
language, interpreting them as a whole and keeping in mind their underlying purpose. See Evergreen Highlands Ass'n v.
¶ 13 In Southtech, the division held that, for property tax West, 73 P.3d 1, 3 (Colo. 2003); Good v. Bear Canyon Ranch purposes, rentals of space in a large housing complex for less Ass'n, 160 P.3d 251, 253 (Colo. App. 2007). A covenant will than thirty days should be taxed as a “hotel-type commercial be enforced as written if it is clear on its face. Good, 160 P.3d use,” while longer rentals should be taxed as “apartmentat 253. However, if there is any ambiguity or doubt as to the
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type residential” use. The division relied on constitutional and used as a dwelling place, or it can refer to a place where statutory provisions that excluded “hotels and motels” from one intends to live for a long time.”); Scott v. Walker, 274 the definition of “residential real property” for property tax Va. 209, 645 S.E.2d 278, 283 (2007) (Restrictive covenant's purposes but included “apartments” in that definition. Again, requirement that lots be used for “residential purposes” was the covenants at issue here do not contain similar definitional “ambiguous both as to whether a residential purpose requires language. an intention to be physically present in a home for more than a transient stay and as to whether the focus of the inquiry is on *3 ¶ 14 We therefore look to the plain meaning of the the owner's use of the property or the renter's use.... Moreover, covenant language, and we find guidance in cases from other if the phrase ‘residential purposes' carries with it a ‘duration jurisdictions that have applied this language in situations of use’ component, it is ambiguous as to when a rental of involving short-term rentals of residential property. the property moves from short-term to long-term.”); see also Dunn v. Aamodt, 695 F.3d 797, 800 (8th Cir. 2012) (phrase “residential purposes” in restrictive covenant was ambiguous as to short-term rental of property). These courts concluded 1. Requirement That Subdivision that, because ambiguities in restrictive covenants were to be Tracts Be “Residential”
construed in favor of the free use of property, short-term ¶ 15 “Residential” is defined as “used, serving, or designed as rentals were not precluded as inconsistent with residential a residence or for occupation by residents.” Webster's Third use. New International Dictionary 1931 (2002). “Residence” means “the act or fact of abiding or dwelling in a place for ¶ 18 Other courts have found no ambiguity, reasoning that, some time; an act of making one's home in a place.” Id.; as long as the property is used for living purposes, it does see also The American Heritage Dictionary of the English not cease being “residential” simply because such use is Language 1483 (4th ed. 2000) (defining “residential” as “[o]f, transitory rather than permanent. In Lowden, 909 A.2d at 267, relating to, or having residence,” or “[o]f, suitable for, or the court summarized cases applying the term “residential” limited to residences,” and defining “residence” as “[t]he to a variety of structures used for habitation purposes and place in which one lives; a dwelling,” or “[t]he act or a period recognizing that the transitory or temporary nature of such of residing in a place”). use did not defeat the residential status. It concluded that “[w]hen the owner of a permanent home rents the home to ¶ 16 “ ‘Residential use,’ without more, has been consistently a family, and that family, as tenant, resides in the home, interpreted as meaning that the use of the property is for there obviously is no violation of the [d]eclaration. While the living purposes, or a dwelling, or a place of abode.” Lowden owner may be receiving rental income, the use of the property v. Bosley, 395 Md. 58, 909 A.2d 261, 267 (2006); see also is unquestionably ‘residential’.” Id. In Pinehaven Planning Mullin v. Silvercreek Condo. Owner's Ass'n, 195 S.W.3d Board v. Brooks, 138 Idaho 826, 70 P.3d 664, 667–68 (2003), 484, 490 (Mo. Ct. App. 2006) (A place used for “residential the covenants at issue restricted the use of residential property purposes” is, according to its plain and ordinary meaning, to the construction of a single-family residence, which could “one in which people reside or dwell, or which they make not be used for commercial, industrial, or business purposes. their homes, as distinguished from one which is used for The Idaho Supreme Court held that renting a property to commercial or business purposes.” (quoting Blevins v. Barry– people who used it for residential purposes, whether short Lawrence Cnty. Ass'n for Retarded Citizens, 707 S.W.2d 407, or long term, did not violate the covenants. Id. at 668– 408 (Mo. 1986))). 69; see also Slaby v. Mountain River Estates Residential Ass'n, 100 So.3d 569, 579 (Ala. Civ. App. 2012) (“[P]roperty ¶ 17 Although “residential” unambiguously refers to use for is used for ‘residential purposes' when those occupying it living purposes, courts have recognized ambiguity in the do so for ordinary living purposes. Thus, so long as the term in cases involving short-term rentals or other situations renters continue to relax, eat, sleep, bathe, and engage in where those residing in the property are living there only other incidental activities ... they are using the [property] temporarily, not permanently. See Yogman v. Parrott, 325 Or. for residential purposes.”); Ross v. Bennett, 148 Wash.App. 358, 937 P.2d 1019, 1021 (1997) (“The ordinary meaning of 40, 203 P.3d 383, 388 (2008) (rejecting argument that short- ‘residential’ does not resolve the issue between the parties. term vacation rentals were distinguishable from permitted That is so because a ‘residence’ can refer simply to a building long-term rentals and concluding that: “Renting the ... home
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to people who use it for the purposes of eating, sleeping, Also, these are seven acre parcels and do not have and other residential purposes is consistent with the plain neighbors wall to wall. language of the ... [c]ovenant. The transitory or temporary nature of such use by vacation renters does not defeat the residential status.”). 2. Prohibition Against Commercial Use
¶ 20 “Commercial” means “occupied with or engaged in *4 ¶ 19 In this case, the pleadings and attached documents do commerce ... related to or dealing with commerce ... [or] not suggest that renters used Houston's residence for anything having profit as the primary aim.” Webster's Third New other than ordinary living purposes, and the Association International Dictionary 456 (2002). “Commerce,” in turn, does not so argue. 1 In these circumstances, we agree with means “the exchange or buying and selling of commodities the courts that have held that mere temporary or short-term esp. on a large scale,” but it can also mean “dealings of any use of a residence does not preclude that use from being kind.” Id. A “commercial use” is one “that is connected with “residential.” Moreover, even if we were to find the covenants or furthers an ongoing profit-making activity.” Black's Law ambiguous in this regard, we would be required to adopt Dictionary 1775 (10th ed. 2014). the construction of “residential” that favors the free and unrestricted use of Houston's property. See Good, 160 P.3d ¶ 21 As with the requirement of “residential use,” the at 253–54. dictionary definitions of “commercial” and “commercial use”
do not by themselves resolve the question of whether short-
1 In a letter to the Association (which, because it was term vacation rentals are prohibited under the covenants at attached to Houston's verified complaint, could be issue here; and the covenants do not further define those considered by the district court in ruling on cross- terms. motions under C.R.C.P. 12(c), see Van Schaack v. Phipps, 38 Colo.App. 140, 143, 558 P.2d 581, 584 ¶ 22 As in cases construing “residential use,” some courts (1976); see also C.R.C.P. 10(c)), Houston's counsel have recognized an ambiguity in the term “commercial explained the use of the property as follows: use” when deciding whether prohibitions against commercial The HOA also argues that the current use is a use apply to short-term rentals of residential property. See commercial use. It is not. Mr. Houston has owned Yogman, 937 P.2d at 1021 (“commercial” use encompasses his Wilson Mesa home for over twenty years. At one a broad range of meanings, from merely using the property point, he used the home for long-term rental. After that time, he made the decision he did not want the in a way that generates revenue up to operating a business, wear and tear on the house that permanent tenants such as a bed and breakfast, with profit as its primary bring. As a consequence he stopped renting it and aim); see also Russell v. Donaldson, 222 N.C.App. 702, 731 hoped to use it more. S.E.2d 535, 538–39 (2012) (where covenants did not define However, it became apparent without people in “business or commercial purpose,” they were ambiguous as the house and the accompanying maintenance, the to whether short-term residential vacation rentals came within house actually suffered. Mr. Houston decided the the prohibition against use of lots for such purpose; however, best solution for the property was to have it used to upon review of cases from other states, and given requirement some extent, and thus he has been leasing it out for that ambiguities be construed in favor of unrestricted use of some vacation rental use. property, court held that prohibition did not bar short-term The home is very small. Occupancy is limited to residential vacation rentals).
a maximum of four guests. It is typically used by a couple, or a single adult. Mr. Houston also has *5 ¶ 23 Other courts have held that prohibitions against a local caretaker handling maintenance and other related home needs.
commercial or business uses unambiguously do not bar short-
The amount of people staying in the residence with term vacation rentals of residences where a renter uses the one vehicle certainly presents less road traffic than premises for residential activities such as eating and sleeping if Mr. Houston had a permanent tenant with two and not for commercial activities such as running a business. vehicles. Also, Wilson Mesa is usually quite vacant. In Slaby, a residential association claimed that property Most properties are rarely occupied second homes. owners' short-term rentals of their cabin violated restrictive Very few homes are occupied on a full time basis. covenants prohibiting commercial use. 100 So.3d at 571.
However, the court reviewed case law from other states
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and agreed with “the majority of other jurisdictions” that 108, 110–13 (2008), the amended covenants—unlike the rental of the cabin for eating, sleeping, and other residential covenants here—expressly prohibited rentals of under thirty purposes did not amount to commercial use. Id. at 580–82; days. Similarly, in Munson v. Milton, 948 S.W.2d 813, 817 see also Pinehaven Planning Bd., 70 P.3d at 668 (“[R]enting (Tex.App.1997), the court relied on specific language in the [defendants'] dwelling to people who use it for the purposes covenants that defined “business use” to include “transientof eating, sleeping, and other residential purposes does not type housing” as supporting a conclusion that short-term violate the prohibition on commercial and business activity rentals were prohibited. as such terms are commonly understood.”); Lowden, 909 A.2d at 267 (“The owners' receipt of rental income in no ¶ 27 Finally, in concluding that short-term rentals were way detracts from the use of the properties as residences by prohibited under the covenants at issue in Benard v. Humble, the tenants.”); Mason Family Trust v. DeVaney, 146 N.M. 990 S.W.2d 929, 930 (Tex.App.1999), the court applied a 199, 207 P.3d 1176, 1178 (N.M.Ct.App.2009) (“While [the Texas statute requiring that covenant language be “liberally owner's] renting of the property as a dwelling on a short-term construe[d].” Noting the tension between the statutory basis may have constituted an economic endeavor on [his] requirement and the common law, the court observed: part, to construe that activity as one forbidden by the language of the deed restrictions [prohibiting use for business or The present case is a prime example commercial purposes] is unreasonable and strained. Strictly of the dilemma: The deed restrictions and reasonably construed, the deed restrictions do not forbid in question do not explicitly contain short-term rental for dwelling purposes.”). language covering temporary renting of property. Were we to give ¶ 24 We agree with the cases discussed above and conclude construction against the drafter of that short-term vacation rentals such as Houston's are not the covenant [instead of liberally barred by the commercial use prohibition in the covenants. construing it], we would be required Our conclusion is consistent with the Colorado Supreme to reverse the trial court's judgment Court's holding, in a different context, that receipt of [finding that short-term rentals are income does not transform residential use of property into prohibited]. commercial use. In Double D Manor, the court addressed a Id. at 931.
homeowners association's challenge to use of property in the subdivision as a home for developmentally disabled children.
¶ 28 Unlike Texas, Colorado adheres to the common law 773 P.2d at 1046. In rejecting the association's argument principle that ambiguities in covenants are construed in favor that such use was not a permissible “residential use” because Double D used the property to earn money to pay wages and of the unrestricted use of property. 2 cover costs, the court stated: “Double D's receipt of funding and payment to its staff to supervise and care for the children 2 In its reply brief, the Association also cites unpublished do not transform the use of the facilities from residential to cases from three other jurisdictions. Because these commercial.” Id. at 1051. unpublished opinions are not to be used as precedent under the rules of those jurisdictions, we do not consider ¶ 25 Finally, we are not persuaded to reach a contrary them.
conclusion based on the cases on which the Association relies. *6 ¶ 29 In sum, we conclude that Houston's short-term vacation rentals are not barred under the covenants.
¶ 26 Ewing v. City of Carmel–By–The–Sea, 234 Cal.App.3d 1579, 286 Cal.Rptr. 382, 388 (1991), cited by the Association for the proposition that short-term vacation rentals are C. Validity of Section 11 inconsistent with the residential character of a neighborhood, was addressing the validity of a municipal ordinance ¶ 30 The Association further contends that the district court explicitly prohibiting rentals under thirty days in an area erred in concluding that Section 11, the amendment to the zoned for single-family residential use; it was not interpreting board's administrative procedures that precludes unapproved a covenant lacking any such explicit prohibition. In Mission short-term rentals and imposes fines for violations of that Shores Ass'n v. Pheil, 166 Cal.App.4th 789, 83 Cal.Rptr.3d prohibition, was arbitrary and thus unenforceable. We agree
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property were invalid because they were not promulgated in with the district court that Section 11 is unenforceable, compliance with covenant provisions regarding amendment although we reach that conclusion for reasons other than those procedures); Johnson v. Howells, 682 P.2d 504, 505 (Colo.
stated by the district court. See Meister v. Stout, 2015 COA App. 1984) (same); cf. Good, 160 P.3d at 253–55 (where 60, ¶ 8, ––– P.3d –––– (where district court reaches correct covenants allowed amendment and amendment procedures result, its judgment may be affirmed on different grounds that were followed, amendment prohibiting construction of guest are supported by the record).
houses and caretaker residences was valid).
¶ 31 The Association argues that Section 11 was adopted at a “duly called and duly conducted board meeting” to “clarif[y] that the [covenants'] prohibition on commercial and D. Attorney Fees business uses of property ... prohibits the unapproved short- term rental” of lots within the subdivision. However, as set ¶ 33 Given our resolution of the issues raised in this appeal, forth above, the covenants do not prohibit such rentals. we deny the Association's request for attorney fees under section 38–33.3–123(1)(c), C.R.S. 2014.
¶ 32 Thus, while the Association has the authority to enforce the covenants, it cannot rely on that authority to enforce a nonexistent covenant provision. For short-term vacation III. Conclusion rentals to be prohibited, the covenants themselves must be amended. It is undisputed that the amendment procedure set ¶ 34 The judgment is affirmed. forth in the covenants—which, among other things, requires a vote of three-fourths of the Association members and permits such vote only at ten-year intervals—was not followed JUDGE LICHTENSTEIN and JUDGE FOX concur.
here. The board's attempt to accomplish such amendment through its administrative procedures was unenforceable. All Citations See Mauldin v. Panella, 17 P.3d 837, 838–39 (Colo. App. 2000) (purported amendments to restrictive covenants that --- P.3d ----, 2015 WL 4760331, 2015 COA 113 would have precluded the plaintiff's proposed use of his
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