Arizona Court of Appeals Division One Holds That Its Previous Opinion Declaring Deed Restrictions Invalid and Unenforceable Applies to All Lots Within the Affected Subdivisions, Not Just the Lots Whose Owners Participated in the Litigation.

In Dreamland Villa Community Club, Inc. v. Raimey, 224 Ariz. 42, 226 P.3d 411 (App. 2010), the Court of Appeals held that the amended deed restrictions at issue in that case, which imposed assessments on homeowners, were invalid and unenforceable.  On remand to the trial court, the parties disagreed about the scope of the Raimey decision.  Dreamland Villa Community Club argued that the opinion prohibited it from collecting assessments only from the homeowners who participated in the case.  The homeowners argued that the opinion rendered the deed restrictions unenforceable against all homeowners in the six sections of the community represented by the participating homeowners.  The participating homeowners also requested restitution for judgments they had already paid to Dreamland Villa and attorneys’ fees they had incurred in the trial court throughout the litigation.  The trial court agreed with Dreamland Villa, restricting the application of the Court of Appeals’ opinion only to the participating homeowners.  The court did not address the homeowners’ requests for restitution and attorneys’ fees.

The homeowners filed a petition for special action in the Court of Appeals, which accepted jurisdiction and granted relief.  The Court noted first that, although Raimey concluded that the deed restrictions were “invalid and unenforceable,” it “did not specifically address whether the declarations were unenforceable against other residents of the Six Sections.”  Because deed restrictions constitute a contract between the owners of the subdivision as a whole and the individual property owners, however, one lot “cannot be considered separate and apart from its relation to all lots within a subdivision.”  Therefore, “Raimey’s holding necessarily applies to all homeowners within the Six Sections.”  Allowing Dreamland Villa to enforce the restrictions against some homeowners but not others would contravene “the basic principle that all homeowners within a particular subdivision be subject to the same restrictive covenants.”

The Court rejected Dreamland Villa’s arguments that preclusion principles prevented the non-participating homeowners from benefiting from the judgment against it.  The non-participating homeowners were not benefiting from the judgment against Dreamland Villa.  Rather, the Court said, Dreamland Villa could not enforce the restrictions declared invalid because it was a party to the previous proceeding.   The Court also noted that its opinion declaring the restrictions invalid was “analogous to a court’s decision invalidating a statute as unconstitutional on its face.”

The Court of Appeals also rejected other arguments raised by Dreamland Villa, including an argument that restrictions should be imposed on homeowners who purchased their lots with notice of the restrictions.  The Court said that this suggestion by Dreamland Villa “would contravene longstanding precedent that requires deed restrictions to be enforced uniformly; an invalid restriction does not become valid simply based on the timing of a lot purchase.”

The Court also concluded that the homeowners should be allowed to file a simple notice of invalidity of the deed restrictions with the recorded deed restrictions to ensure that the public is alerted to their invalidity.

On the restitution issue, the Court concluded that the homeowners who paid assessments and late fees pursuant to the trial court judgment that was later set aside by Raimey were entitled to restitution.  

Finally, on the issue of attorneys’ fees, the Court rejected Dreamland Villa’s argument that the homeowners had waived their right to pre-appellate fees because they had failed to include a request for such fees in their Raimey appellate briefs.  The Court concluded that the homeowners’ “broad request” for fees was “sufficient to preserve the issue,” but noted that “the better course would have been to identify the scope of the fee award with specificity.”  The Court also rejected Dreamland Villa’s argument that the trial court lacked jurisdiction to award pre- and post-appellate fees not addressed in the Raimey mandate because “an award of such fees is not inconsistent with the mandate.”

PRACTICE NOTE:  In accepting jurisdiction of the petition for special action, the Court of Appeals noted that special action review is appropriate when a petitioner seeks “review of a trial court’s judgment on remand entered pursuant to specific directions of an appellate court” because such judgments are not appealable.

Judge Brown authored the opinion; Judges Johnsen and Gemmill concurred.