## Facts

- John and Margaret Valenti owned a two-story home in the West Ridge Subdivision in Deschutes County, Oregon.
- Benjamin and Susan Hopkins owned a lot across the street and sought approval to build a two-story home.
- Recorded restrictive covenants governing the subdivision created an Architectural Control Committee (ACC) and vested it with authority to evaluate proposed improvements affecting views.
- Earlier covenants provided that improvement height could not materially restrict other owners’ views and that the ACC would be the sole judge of suitability.
- Amended covenants limited view protection to “adjacent lot owners,” and the ACC interpreted “adjacent” to exclude owners whose lots were across the street rather than contiguous.
- Over the Valentis’ objection that the Hopkinses’ construction would obstruct their view, the ACC approved the Hopkinses’ plans and construction began.
- The Valentis sued to enforce the covenants and sought injunctive relief to stop or modify construction.

## Issues

1. What is the proper standard of judicial review for decisions by a contractually created private architectural control committee interpreting and applying subdivision restrictive covenants?
2. Under that standard, could the ACC’s approval of the Hopkinses’ plans be set aside based solely on disagreement with the ACC’s interpretation of “adjacent lot owners”?

## Decision

- The Oregon Supreme Court reversed the Court of Appeals.
- The Court held that a court may not review de novo an ACC decision made under authority granted by restrictive covenants.
- The ACC’s decision is binding unless challengers prove fraud, bad faith, or failure to exercise honest judgment.
- Because the record did not establish fraud, bad faith, or dishonest judgment, the ACC’s approval could not be overturned on the basis that a court would interpret the covenants differently.
- The case was remanded for further proceedings consistent with the deferential standard of review.

## Legal Principles

- Restrictive covenants that create and empower a third-party decisionmaker (such as an architectural control committee) allocate interpretive and discretionary authority by contract among affected property owners.
- Courts must give substantial deference to such a committee’s determinations and may set them aside only upon proof of fraud, bad faith, or failure to exercise honest judgment.
- Judicial review does not turn on whether a court agrees with the committee’s interpretation of covenant terms; it turns on whether the committee’s decisionmaking process was infected by disqualifying misconduct.

## Conclusion

A covenant-created architectural control committee’s approval of construction is not subject to de novo judicial re-interpretation of the covenants; absent proof of fraud, bad faith, or failure to exercise honest judgment, courts must uphold the committee’s decision and cannot invalidate it merely because they would read the covenants differently.


Valenti v. Hopkins, 324 Or. 324, 926 P.2d 813 (1996)