Desert Mountain v. Graham

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

DESERT MOUNTAIN CLUB INC., Plaintiff/Appellee,

v.

ERIC GRAHAM, et al., Defendants/Appellants.

No. 1 CA-CV 17-0100
FILED 4-12-2018

Appeal from the Superior Court in Maricopa County
Nos. CV2014-015333, CV2014-015334, CV2014-015335
(Consolidated)
The Honorable David B. Gass, Judge

AFFIRMED

COUNSEL

Fennemore Craig, PC, Phoenix
By Christopher L. Callahan, Theresa Dwyer, Jennifer L. Blasko
Counsel for Plaintiff/Appellee

Baird Williams & Greer, LLP, Phoenix
By Daryl M. Williams, Annelise M. Dominguez
Counsel for Defendants/Appellants
 DESERT MOUNTAIN v. GRAHAM et al.
Decision of the Court

MEMORANDUM DECISION

Judge Peter B. Swann delivered the decision of the court, in which Presiding
Judge Jon W. Thompson and Judge James P. Beene joined.

S W A N N, Judge:

¶1 This case concerns a dispute between members of a golf club,
who sought to resign their memberships, and the club, which sued to hold
the members to their obligations under its bylaws. The superior court
granted the club summary judgment and the members appeal. We
conclude that the bylaws did not grant the members a unilateral right to
resign without obligation, and that the divestiture provisions in the bylaws
barred resignation pursuant to A.R.S. § 10-3620. We therefore affirm.

FACTS AND PROCEDURAL HISTORY

¶2 Eric and Rhona Graham and Thomas and Barbara Clark
(collectively “Members”) purchased equity memberships from the
predecessor entity of Desert Mountain Club Inc. (“Club”), a non-profit
member-owned golf and recreation club located in Scottsdale. The
Members retained their equity memberships when the Club took control in
December 2010, and signed a Membership Conversion Agreement, stating
that they would comply with the terms of that Agreement, the Club’s
bylaws, and its rules and regulations. As equity members of the Club, the
Members had access to its facilities and were eligible to vote at its meetings,
were responsible for sharing in its deficits, and were entitled to a share of
its assets in the event of dissolution. The Club controlled the total number
of equity members and the admissions process for new members.

¶3 The Club amended its bylaws in 2010, 2012, 2013, and 2014,
but the parties agree that the relevant provisions did not change. The
bylaws expressly allow a member to terminate membership with the Club
in four ways: (1) resale through the Club, (2) transfer to a purchaser of the
member’s real property within the Desert Mountain residential
community, (3) transfer to a Club-approved family member, or (4)
reissuance to a new person by the Club upon the member’s death. The
bylaws mention no other means of divestiture.

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¶4 To resell a membership, an existing equity member must
surrender it to the Club for resale, and must continue to pay all Club dues
and fees until the membership is sold. Upon resale, the selling member
may collect the proceeds, but must pay the Club a transfer fee of $65,000 or
20% of the sale price, whichever is greater. The bylaws give the Club’s
Board discretion on how to resolve issues with the resale of memberships
and with members who are delinquent on payments.

¶5 The Clarks sent a letter to the Club in late 2013 stating that
they were resigning as of January 1, 2014, and asserted that the resignation
“terminates [their] obligation to pay dues and assessments.” Likewise, the
Grahams stopped making payments to the Club in May 2014, asserting in
an email that they were resigning their membership and therefore had “no
further obligation” to the Club. Both the Grahams and the Clarks impliedly
contended that their resignation would relieve them of their obligation to
pay the transfer fee upon any resale of their membership. In the past, the
Club had expelled other equity members who stopped paying their dues,
and relieved them of their obligation to pay the transfer fee. More recently,
the Club and an equity member who stopped making payments entered a
settlement agreement that allowed the member to pay a reduced transfer
fee.

¶6 In December 2014, the Club filed separate lawsuits against the
Grahams, the Clarks, and Barry and Lori Fabian — a couple who similarly
attempted to resign their membership in the Club but who are not parties
to this appeal. The Club moved for summary judgment against the Fabians,
and the court granted the motion in October 2015. In December 2015, the
court consolidated the three lawsuits. And in January 2016, shortly after
receiving favorable judgment against the Fabians, the Club moved for
summary judgment against the Clarks and the Grahams. The court granted
the motions, adopting the reasoning of the Fabian court. The Members
timely appeal.

DISCUSSION

¶7 Summary judgment is proper if “there is no genuine dispute
as to any material fact and the moving party is entitled to judgment as a
matter of law.” Ariz. R. Civ. P. 56(a). We review a grant of summary
judgment de novo, and we view the facts in the light most favorable to the
non-moving party. St. George v. Plimpton, 241 Ariz. 163, 165, ¶ 11 (App.
2016). We also review the superior court’s legal conclusions, including its
interpretation of statutes and contracts, de novo. Dreamland Villa Cmty.
Club, Inc. v. Raimey, 224 Ariz. 42, 46, ¶ 17 (App. 2010).

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 DESERT MOUNTAIN v. GRAHAM et al.
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I. THE CLUB’S BYLAWS AND A.R.S § 10-3620 DO NOT GRANT THE
MEMBERS A UNILATERAL RIGHT TO RESIGN.

¶8 The Members contend that the bylaws allowed them to resign
from the Club without obligation because the bylaws’ terms do not
explicitly address resignation and because A.R.S. § 10-3620, which
specifically permits resignation, is incorporated into the bylaws by
operation of law. See Qwest Corp. v. City of Chandler, 222 Ariz. 474, 485, ¶ 37
(App. 2009). Section 10-3620 provides:

A. A member may resign at any time, except as set forth in or
authorized by the articles of incorporation or bylaws.

B. The resignation of a member does not relieve the member
from any obligations the member may have to the corporation
as a result of obligations incurred or commitments made prior
to resignation.

(Emphasis added.)

¶9 The parties do not dispute the bylaws’ terms. Rather, they
disagree over whether the rules on membership divestment are sufficiently
comprehensive and exclusive to preclude resignation as a matter of contract
and to invoke the statutory exception to the right of resignation. While the
bylaws do not use the term “resignation,” we conclude that the bylaws do
create a comprehensive rule. See Smith v. Melson, Inc., 135 Ariz. 119, 122
(1983) (holding that “the purpose of an agreement is to be divined from the
entire instrument and the surrounding circumstances”). By providing a
specific list of four ways to divest membership, and by requiring members
to continue to pay dues until they have successfully divested their
membership, the bylaws effectively bar the possibility of simple
resignation. Any other interpretation would render remaining bylaws
ineffective by allowing members to avoid the Club’s transfer fee and their
continuing responsibility for dues. An interpretation that allows members
to freely resign would also require the Club to place additional financial
burdens on the remaining members at the discretion of resigning members,
and would render the extensive scheme of rules requiring resale through
the Club meaningless. See Scholten v. Blackhawk Partners, 184 Ariz. 326, 329
(App. 1995).

¶10 The Members challenge the divestiture provisions of the
bylaws as burdensome because memberships are not as liquid as they
would prefer, and the divestiture process is both burdensome and
expensive. Though these criticisms are well-founded, they only describe

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the contractual arrangement between members and the Club — they do not
undo it.

¶11 Section 10-3620 does not guarantee a member of a non-profit
the right to resign without obligation. By its terms, the statute allows
articles or bylaws to restrict the default right of resignation. The Members
urge us to interpret the exception “except as provided by the . . . bylaws” to
apply only to the phrase “at any time,” and not to the right of resignation
itself. To support their argument, the Members invoke the “last antecedent
rule,” which “requires that a qualifying phrase be applied to the word or
phrase immediately preceding [it] as long as there is no contrary intent
indicated.” Phoenix Control Sys., Inc. v. Ins. Co., 165 Ariz. 31, 34 (1990). But
here, a plain reading of the statute shows that the exception’s antecedent
phrase is the entire phrase, “[a] member may resign at any time,” rather
than the second portion of the antecedent phrase — a phrase within a
phrase — “at any time.” Separating the sub-phrase “at any time” would
not fit within the scheme of the statute, as nowhere else does § 10-3620
mention the timing of a resignation, only resignation itself. See Bell v. Indus.
Comm’n of Ariz., 236 Ariz. 478, 482, ¶ 16 (2015) (reading a statute as a whole).
And § 10-3620(B), which requires a member to fulfill all obligations
incurred before resignation, evinces an intent contrary to the Members’
proposed course of action. In their view, a resignation would relieve them
of their obligation to pay the Club’s transfer fee and monthly dues. Nothing
in the language of the statute or the bylaws suggests that such a result is
possible without the exercise of discretion by the Club.

II. THE CLUB DID NOT VIOLATE A.R.S. § 10-3610 BECAUSE ITS
BYLAWS PERMITTED IT TO TREAT ITS MEMBERS
DIFFERENTLY.

¶12 The Members next contend that A.R.S. § 10-3610 mandates
equal treatment for all members of a non-profit, and that by permitting
others to resign or settle, but suing the Members for attempting to do the
same, the Club has arbitrarily treated its members differently and has
therefore violated the statute.

¶13 The parties agree that the Members stopped paying their dues
and fees and sent letters to the Club’s Board asserting that they had
resigned their memberships. They also agree that the Club treated former
members differently under similar circumstances. For example, there is no
dispute that the Club expelled two members for delinquency when they
stopped paying their dues, and that those members were not required to
pay the Club’s $65,000 transfer fee upon expulsion. The parties also agree

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that the Club entered a settlement agreement by which another member
was only required to pay $37,000 (including $17,000 in outstanding dues
and $20,000 towards a transfer fee) upon divestment.

¶14 Such disparate treatment, however, was permitted under the
bylaws and § 10-3610, which provides that “[a]ll members have the same
rights and obligations with respect to . . . transfer, unless the . . . bylaws
establish classes of membership with different rights or obligations or
otherwise provide.” This section, like § 10-3620(A), makes the non-profit’s
bylaws the higher authority. See Terence W. Thompson et al., 7 Ariz. Prac.,
Corporate Practice App’x D (2016) (noting that the Legislature modified this
statute to clarify that bylaws may provide for different rights for its
members even if different classes are not created).

¶15 Here, the bylaws gave the Club’s Board discretion on how to
enforce delinquent or non-payments, including by expulsion or “any and
all other remedies allowed by law.” The Club therefore had discretion to
redress some members’ delinquent payments with expulsion, and others’
— like the Members’ — with a lawsuit to collect its dues and transfer fee.
And although the Members argue that such a change in treatment indicated
that the bylaws did not actually prohibit resignation, the change was
indicative only of how the Club enforced the rule, which was subject to
change under its discretion.

¶16 Relying on Capital Options Invest. v. Goldberg Bros.
Commodities, 958 F.2d 186, 189 (7th Cir. 1992), the Members also argue that,
while the Club has discretion to discipline its members, the question of
whether it exercised its discretion arbitrarily by filing lawsuits against some
members and not others “raises a factual issue.” But the parties do not
dispute any material facts regarding the former members’ divestment, only
the characterization of those facts — whether the former members were
allowed to resign or whether they just received more lenient consequences
for their non-payment. Even if the facts are characterized as the Members
suggest, the fact remains that the Club had a clear financial interest in
recovering its dues and transfer fees, and its exercise of business discretion
is protected — not prohibited — by the bylaws. See id. (“Contractual
discretion must be exercised reasonably and not arbitrarily or
capriciously.”); see also United Dairymen of Ariz. v. Schugg, 212 Ariz. 133, 140–
41, ¶ 32 (App. 2006) (“Absent an abuse of discretion, business judgments
will be respected by the courts.”).

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 DESERT MOUNTAIN v. GRAHAM et al.
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III. THE CLUB’S BYLAWS GOVERN SUBSTANTIVE RIGHTS LIKE
THE RESIGNATION OF ITS MEMBERS.

¶17 Citing A.R.S. § 10-3206, the Members finally argue that the
Club’s bylaws cannot restrict member resignation because “[s]uch
unlimited dominion is not the province of corporate bylaws.” But § 10-
3206(B), which provides that “bylaws . . . may contain any provision for
regulating and managing the affairs of the corporation,” does not limit the
dominion of bylaws to the extent that the Members suggest. See Thompson
et al., 7 Ariz. Prac., Corporate Practice § 13:103 (offering an example form for
nonprofit bylaws that includes restrictions on termination and transfer of
membership). Because “managing the affairs” of the Club includes
controlling its collection of dues and fees, as well as the total number of
equity members, and because of the contractual nature in which the
Members agreed to the bylaws, we hold that the Club’s bylaws govern the
resignation of its members.

CONCLUSION

¶18 For the foregoing reasons, we affirm the superior court’s grant
of summary judgment. The Club is entitled to costs and attorney’s fees
incurred on appeal upon compliance with ARCAP 21.

AMY M. WOOD • Clerk of the Court
FILED: AA

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