Shao v. Phoenix

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

YANG SHAO, Plaintiff/Appellant,

v.

CITY OF PHOENIX, Defendant/Appellee.

No. 1 CA-CV 23-0460
FILED 08-20-2024

Appeal from the Superior Court in Maricopa County
No. CV2022-015771
No. LC2023-000012-001

Phoenix Municipal Court
No. 2190907
No. 2190909
No. 2190910
The Honorable Susanne C. Pineda, Judge

AFFIRMED

COUNSEL

Law Office of Brian K. Stanley PLLC, Phoenix
By Brian K. Stanley
Counsel for Plaintiff/Appellant

Phoenix City Attorney’s Office, Phoenix
By Julie M. Kriegh, Daniel J. Inglese
Counsel for Defendant/Appellee

SHAO v. PHOENIX
Decision of the Court

MEMORANDUM DECISION

Judge Brian Y. Furuya delivered the decision of the Court, in which
Presiding Judge Anni Hill Foster and Vice Chief Judge Randall M. Howe
joined.

F U R U Y A, Judge:

¶1 Plaintiff Yang Shao appeals a denial of her request for
declaratory relief and injunction against the City of Phoenix (“the City”)
relating to whether the City’s ordinance regarding boarding houses is
preempted by the State’s regulation of vacation and short-term rental
properties. For the following reasons, we affirm.

FACTS AND PROCEDURAL HISTORY

¶2 Plaintiff owns three residential properties in Phoenix located
in an R1-10 zoning district and classified for tax purposes under Arizona
Revised Statutes (“A.R.S.”) § 42-12004. All three properties are registered as
short-term rental properties under Phoenix City Code § 10-195. Each
property has between nine and eleven rooms that Plaintiff rents on a daily
or weekly basis.

¶3 The City cited Plaintiff for maintaining a non-permitted use
by operating a boarding house in an R1-10 zoning district, and Plaintiff
appealed to the municipal court. See Phoenix Zoning Ordinance § 608(D),
(E)(9) (allowing boarding houses in R-3, R-3A, R-4, R-4A, and R-5 zoning
districts with use permits only); § 611(B) (allowing only single-family
detached homes in R1-10 zoning districts). The municipal court upheld the
violations, and Plaintiff appealed to the superior court. Separately, Plaintiff
sought a declaratory judgment that boarding houses are permissible and a
permanent injunction prohibiting further enforcement of the zoning
ordinance. Because both matters raised the same issues, the superior court
consolidated the appeal and the declaratory judgment action.

¶4 After oral argument, the superior court concluded that the
short-term rental statute, A.R.S. § 9-500.39, did not preclude enforcement of
the zoning ordinance prohibiting boarding houses in R1-10 zoning districts.
As a result, the court dismissed the declaratory judgment action and
affirmed the municipal court’s ruling on the zoning violations.

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SHAO v. PHOENIX
Decision of the Court

¶5 Plaintiff timely appealed. We have jurisdiction over the
dismissal of the declaratory judgment action under A.R.S. § 12-2101(A)(1).
We also have appellate jurisdiction over the superior court’s ruling that
affirmed the citations because Plaintiff challenges the validity of the zoning
ordinance. See A.R.S. § 22-375(A); City of Tucson v. Grezaffi, 200 Ariz. 130,
133 ¶ 3 (App. 2001).

DISCUSSION

¶6 Plaintiff argues the ordinance prohibiting boarding houses in
R1-10 zoning districts is preempted by the State’s statute that restricts
municipalities from prohibiting vacation and short-term rentals. We review
de novo issues involving interpretation of a statute or city ordinance. See
Whiteco Outdoor Advert. v. City of Tucson, 193 Ariz. 314, 316–17 ¶ 7 (App.
1998).

¶7 “A city may ‘exercise all powers granted by its charter,
provided that the exercise is not inconsistent with either the constitution or
general laws of the state.’” Babe’s Cabaret v. City of Scottsdale, 197 Ariz. 98,
101 ¶ 7 (App. 1999) (as amended) (quoting City of Tucson v. Rineer, 193 Ariz.
160, 161–62 ¶ 2 (App. 1998)). But when the state legislature has provided
clear direction that a state policy enacted through law is of statewide
concern, conflicting ordinances or regulations by cities, towns, or political
subdivisions are preempted. Jett v. City of Tucson, 180 Ariz. 115, 121 (1994).
For a municipal ordinance to be preempted, it “must actually conflict with
governing state law.” Winkle v. City of Tucson, 190 Ariz. 413, 416 (1997).
When reviewing whether a state law preempts a local ordinance, a court
must examine whether: “(1) the subject [is] of statewide concern; and (2) the
state legislation [has] appropriated the field.” State v. Mercurio, 153 Ariz.
336, 340 (App. 1987) (citation omitted).

¶8 To determine the subject matter is of statewide concern, a
court must “examine the validity and substance of the governing state
statute.” Winkle, 190 Ariz. at 417. Here, the Legislature enacted a statute that
prohibits cities from banning vacation and short-term rentals. See A.R.S. §
9-500.39(A). That statute was part of a larger statutory scheme enacted in
2016 by the Legislature that created a framework for growing an innovative
industry of vacation and short-term rental properties which outlined how
the industry fit within the Arizona’s tax code. See 2016 Ariz. Sess. Laws, ch.
208, §§ 1–2, 5–13. The legislation prohibited not just cities and towns but
also county governments from banning vacation or short-term rentals
outright and restricting the “use of or regulat[ion]” of such rentals “based
on their classification, use or occupancy.” 2016 Ariz. Sess. Laws, ch. 208, §§

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SHAO v. PHOENIX
Decision of the Court

1, 2. “Zoning regulation is based upon the police power of the state” and
therefore is a matter of statewide concern. Levitz v. State, 126 Ariz. 203, 204
(1980) (citations omitted). Thus, the regulation of vacation and short-term
rental properties are an issue of statewide concern.

¶9 On the second prong, for a court to find the state legislation
has completely occupied the field in a particular area, “[t]he existence of a
preempting policy must be clear. Also, the assertedly competing provisions
in question must be actually conflicting, rather than capable of peaceful
coexistence. Mere commonality of some aspect of subject matter is
insufficient . . . .” Jett, 180 Ariz. at 121 (alterations in original) (quoting City
of Prescott v. Town of Chino Valley, 163 Ariz. 608, 616 (App. 1989), vacated in
part on other grounds, 166 Ariz. 480, 486 (1990). Here again, the plain
language places restrictions on cities from outright banning vacation and
short-term rentals based on “their classification, use or occupancy” but
allows a city to “adopt and enforce use and zoning ordinances . . . if the
ordinance is applied in the same manner as other property classified under
§§ 42-12003 and 42-12004.” A.R.S. § 9-500.39(A), (B)(2). Thus, the statute
does not completely occupy the field in such a way as to prevent the City
from enacting or enforcing an ordinance that does not conflict with the
provisions of the underlying statute.

¶10 To determine whether a conflict exists among the prohibitions
in the statute, the exemptions, and the ordinance, a careful review of each
must be considered. The statute defines a vacation or short-term rental as:

[A]ny individually or collectively owned single-family or
one-to-four-family house or dwelling unit or any unit or
group of units in a condominium or cooperative that is also a
transient public lodging establishment or owner-occupied
residential home offered for transient use if the
accommodations are not classified for property taxation
under § 42-12001.

[It] [d]oes not include a unit that is used for any
nonresidential use, including retail, restaurant, banquet
space, event center or another similar use.

A.R.S. § 9-500.39(L)(3). Notably, the only property excluded from this
definition is property classified for taxation under A.R.S. § 42-12001, which
consists of commercial property. Id. Phoenix’s zoning ordinance defines a
“boarding house” as

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Decision of the Court

A residential home or building(s) for six or more unrelated
individuals used to provide lodging for compensation. A
boarding house is occupied by individuals where rent or a
lodging fee is charged separately for the individual rooms or
partitioned areas occupied by the renter or occupant.
Individual living units may or may not be equipped with
kitchen facilities; congregate dining facilities may be
provided for the guests. A boarding house is not a community
residence home or center, hotel, motel, residential inn, or bed
and breakfast.

Phoenix Zoning Ordinance § 202. Both the statute and the ordinance apply
to residential homes or buildings. But the statute is more specific, including
“single-family or one-to-four-family house or dwelling unit.” A.R.S. § 9-
500.39(L)(3)(a). It specifies further that the definition includes
condominiums or any “owner-occupied residential home offered for
transient use” but only if they are not classified as a commercial use for tax
purposes. Id. But the ordinance does not use such specificity. See Phoenix
Zoning Ordinance § 202. Instead, it uses clarifying language that states “[a]
boarding house is occupied by individuals where rent or a lodging fee is
charged separately for the individual rooms or partitioned areas occupied
by the renter or occupant.” Id. Like the definition in statute, the boarding
house definition excludes hotels, motels, and other commercial use
accommodations. Id. We hold that overlap exists between the two
definitions but must address the exemptions provided in the statute to
determine if the ordinance is preempted.

¶11 The City contends its regulation of “boarding houses” is
clearly compatible with the regulatory structure set forth in A.R.S. § 9-
500.39. While the City concedes that its ability to directly regulate short-
term rentals is limited, it argues that it may continue to enforce zoning
ordinances intended to protect the public welfare and reduce potential
nuisance. On this point, the City’s reading of the statute is correct. The
statute allows the City to adopt “use and zoning ordinances, including
ordinances related to noise, protection of welfare, property maintenance
and other nuisance issues.” A.R.S. § 9-500.39(B)(2) (emphasis added).

¶12 Phoenix’s residential zoning districts classify property and
establish standards for use of the property. See Phoenix Zoning Ordinance
§ 608(A). The ordinance in question prohibits boarding houses in R1-10
zoning districts, which are classified for single-family detached homes and
single-family and multi-family attached homes. See Phoenix Zoning
Ordinance §§ 608(D), 611(B). But boarding houses are allowed in R-3, R-3A,

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R-4, R-4A, and R-5 zoning districts, which are classified as multifamily
residence districts, subject to a use permit and conditions outlined in each
respective zoning district. See Phoenix Zoning Ordinance §§ 608(D), (E)(9),
615–19. Boarding house operators must apply for a use permit and show
that the boarding house

[w]ill not cause a significant increase in vehicular or
pedestrian traffic in adjacent residential areas; or emit odor,
dust, gas, noise, vibration, smoke, heat, or glare at a level
exceeding that of ambient conditions; or contribute in a
measurable way to the deterioration of the neighborhood or
area, or contribute to the downgrading of property values.

Phoenix Zoning Ordinance § 307(A)(7)(a). Though the definitions of
“‘[v]acation rental’ or ‘short-term rental’” and “boarding house” do
overlap, the City’s ordinance related to boarding houses is a zoning
ordinance that treats similarly classified property the same and does not
prohibit vacation or short-term rentals in the City. Because the zoning
ordinance falls within one of areas of permissible regulation, A.R.S. § 9-
500.39 does not preempt it. See City of Prescott, 163 Ariz. at 616 (holding that
where the competing laws are “capable of peaceful coexistence,” there is no
preemption).

¶13 Plaintiff contends the City cannot enforce the ordinance
prohibiting boarding houses in R1-10 zoning districts because other zoning
districts allow residential properties to operate as boarding houses. We
disagree. The City can enforce zoning ordinances against short-term rental
properties as long as it enforces ordinances in the same manner as to
similarly classified properties. See A.R.S. § 9-500.39(B)(2). Plaintiff’s position
would allow property owners to avoid the zoning ordinances simply by
registering one’s property as a short-term rental. This is inconsistent with
the language of A.R.S. § 9-500.39(B) that allows regulation of vacation and
short-term rentals within certain parameters.

¶14 The zoning restriction on boarding houses applies to all
residential properties in R1-10 zoning districts. Plaintiff failed to show the
City has not applied this restriction similarly to other residential properties
in R1-10 zoning districts. The City is not regulating Plaintiff’s properties
any differently than other boarding house properties in an R1-10 zoning
district and is not treating them differently based on their short-term rental

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SHAO v. PHOENIX
Decision of the Court

status. The City properly enforced its zoning ordinance against Plaintiff’s
properties.1

CONCLUSION

¶15 We affirm the order dismissing Plaintiff’s declaratory
judgment action and affirming the zoning violations.

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

1 Because we find the zoning enforcement was consistent with A.R.S.
§ 9-500.39(B)(2), we need not address subsection (B)(1) and whether the City
waived that argument.

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