Double Diamond v. Second Jud. Dist. Ct. (Nev. Supreme Ct. – July 30, 2015)

NRS 116.3105(2) permits a homeowners’ association that provides at least 90 days’ notice to terminate any contract that is not in good faith or was unconscionable to the units’ owners at the time entered into. The issue is whether the 90 days’ notice operates as a statute of limitations or a notice for the recipient to commence litigation.

In 1996, Rowe, the developer of Double Diamond Ranch Master Association (the Association) entered into a Maintenance and Operation Agreement (Maintenance Agreement) with the City of Reno. Because the property was in a flood zone, the Federal Emergency Management Agency required the developer to obtain a Letter of Map Revision and enter into the Maintenance Agreement prior to developing the South Meadows and Double Diamond Ranch homes in Reno, Nevada. The Maintenance Agreement required, among other obligations, that the Association maintain certain flood control channels, provide rock rip-rap protection in the Double Diamond/South Meadows area, and file an annual report.

In February 2012, the Association gave notice to the City that it was terminating the contract pursuant to NRS 116.3105(2). This statute permits homeowners’ associations to terminate at any time a contract that was entered into by a declarant if the contract was (1) unconscionable to the units’ owners at the time entered into, and (2) the association provides 90 days’ notice to the recipient. In its notice, the Association claimed that it should not have been a party to the Maintenance Agreement because Mr. Rowe signed the agreement on the Association’s behalf one day before the Association legally came into being. Further, the Association claimed that Mr. Rowe entered into the Maintenance Agreement for his own benefit, in order to develop the adjacent property as he desired. Finally, the Association claimed that the City never sought to enforce the Maintenance Agreement and only learned about its existence recently. Later that month, the City rejected the Association’s notice of termination.

In October 2013, the City brought an action against the Association seeking specific performance of the Maintenance Agreement. The Association moved to dismiss the complaint for failure to state a claim for relief and failure to join indispensable parties. More specifically, the Association argued that the contract was invalid as the Association had statutorily terminated the Maintenance Agreement 20 months before. The Association also contended that it did not own the property at issue, and other indispensable parties were necessary, such as the land owner and Mr. Rowe, the developer.

At the hearing on the motion, the Association argued that the statute required the recipient of the notice of contract termination to file suit within 90 days. More specifically, the Association argued that the burden shifted to the recipient to bring a cause of action within that time if it questioned an association’s claim of unconscionability or lack of good faith. The district court ultimately denied the Association’s motion to dismiss. The court determined that there were several genuine issues of material fact; for example, whether the Association, including the property owners, benefited from the Maintenance Agreement and whether the parties’ agreement was unconscionable. Further, the court stated that the statute provided no guidance as to when a recipient must pursue legal action, and instead, the City’s letter rejecting the Association’s notice of termination provided enough notice to the Association that a justiciable controversy may exist as a result. Thereafter, the Association petitioned the Nevada Supreme Court for a writ of mandamus or prohibition directing the district court to vacate its order denying the Association’s motion to dismiss and to order dismissal instead.

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