Nevada’s Clarification Regarding a HOA’s Representational Standing

On September 27, 2017, the Nevada Supreme Court issued a decision clarifying the prior version of NRS 116.3102(1)(d)¹, under which numerous construction defect cases are pending in Nevada. NRS 116.3102(1)(d), at the time the Complaint was filed, allowed homeowners associations to pursue construction defect claims on behalf of their members. In High Noon², the Nevada Supreme Court considered whether a homeowners’ association has such standing to represent (1) unit owners who purchase their units after the commencement of litigation, and (2) unit owners that sell their units after the commencement of the litigation.

High Noon at Arlington Ranch Homeowners Association (“High Noon”) filed a complaint against D.R. Horton in 2007, “in its own name on behalf of itself and all of the High Noon unit owners.” D.R. Horton filed a motion for partial summary judgment contending that, since only 112 of High Noon’s 342 members were unit owners at the time the complaint was filed, High Noon’s standing should be reduced to those 112 units and the District Court agreed.

On appeal, High Noon argued the district court erred when it found that the association could only maintain an action for those owners who have owned their units continuously since High Noon first filed its complaint. D.R. Horton also argued that the district court erred when it found that High Noon had standing to pursue the claims of former unit owners.

Under NRCP 17(a), a party with statutory authorization before it can assert a third party’s claims. A homeowners’ association’s standing rights are statutorily granted pursuant to NRS 116.3102(1)(d). However, NRS 116.3102(1)(d) does not expressly indicate what happens if a unit owner sells his unit and another person purchases the unit during the time the homeowners’ association is litigating on behalf of its members. The Nevada Supreme Court felt it was prudent to address this issue of first impression by way of this decision.

Since NRS 116.3102(1)(d) does not restrict a homeowners’ association from representing subsequent unit owners if ownership changed, the Nevada Supreme Court held that NRS 116.3102(1)(d) permitted homeowners’ associations to represent current unit owners, even if a unit’s owner changed during the litigation. A contrary result would have undermined a homeowners’ association’s ability to represent the entire community the Legislature’s intent for NRS 116.3102(1)(d), which was to provide a mechanism for associations to represent all of its members.

In its argument regarding the second issue on appeal, D.R. Horton claimed that the district court erred when it found High Noon has standing to pursue claims of former unit owners. The Nevada Supreme Court held that representational standing does not permit a homeowners’ association to represent former unit owners because those owners are no longer members of the association. The benefit of the association’s representative litigation under NRS 116.3102(1)(d) is contingent upon membership in the association. However, membership within High Noon is automatically terminated upon sale of the unit and transferred to the new unit owner. Since the membership is transferred to the new unit owner upon sale, High Noon cannot represent prior unit owners via its representational standing.

To recap, homeowners’ associations do have representational standing to represent unit owners who purchase their units after the litigation commences. However, homeowners’ associations may only represent their members. As such, a homeowners’ association does not have standing to bring, or continue to pursue, claims for unit owners who sell their units after the litigation commences.

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¹ NRS 116.3102(1)(d) was amended by the 2015 Legislature’s enactment of A.B. 125 and the Governor’s subsequent approval on February 24, 2015. The amended statute explicitly provides that a homeowners’ association does not have standing to represent individual units in construction defect actions unless the action pertains exclusively to common elements. All further references to the NRS are based on the statutes in effect at the commencement of this litigation in 2007.
² High Noon at Arlington Ranch Homeowners Ass’n v. Eighth Judicial Dist. Court, 133 Nev. Adv. Op. 66 (Sept. 27, 2017) (en banc).