ALJDEC decisions subject to certification as final

17F-H1716024-REL · Department of Real Estate - H/C · 2017-05-11

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Kurt Gronlund,

Petitioner,

vs.

Cottonfields Community Association,

Respondent.

No. 17F-H1716024-REL

ADMINISTRATIVE LAW JUDGE DECISION

Pending before the Office of Administrative Hearings is Cottonfields Community Association’s (“Respondent’s”) Motion for Summary Judgment and Kurt Gronlund’s (“Petitioner’s”) responses thereto on the issue of whether the Arizona Department of Real Estate (“the Department”) has jurisdiction to consider the merits of Petitioner’s Homeowners Association (HOA) Dispute Process Petition. Based on the undisputed facts and legal analysis set forth below, the Administrative Law Judge recommends that the Commissioner of the Department grant Respondent’s motion for summary judgment.

UNDISPUTED FACTS

Petitioner owns a home in and is a member of Respondent.

On or about December 11, 2001, the developer of the residential development that became Respondent after homes were sold and the owner of the golf course that was part of the residential development, a separate legal entity (“the Golf Course Owner”), recorded a Reciprocal Easement and Maintenance Agreement (“the REMA”) at the Maricopa County Recorder’s Office. Section 5.1 of the REMA provides as follows:

Use Restriction. The Golf Course Property shall be used solely and exclusively for Golf Course Use or as open space, and for no other purposes. The Golf Course Owner shall have the right, from time to time, in the exercise of its sole and absolute discretion, to determine whether the Golf Course Property (or any portion thereof) will be used for Golf Course Use or as open space.

Article 12 of the REMA provides in relevant part as follows:

This Agreement may be terminated, canceled, changed, modified or amended in whole or in part only by written and recorded instrument executed by (i) The Golf Course Owner, [and] (ii) the Board (acting on behalf of the Association) . . . . Notwithstanding any contrary provision hereof: . . . (b) no termination, cancellation, change, modification or amendment of paragraph 5.1 or paragraph 5.3 of this Agreement shall be made without the written approval thereof by the number of Members (as defined in the [Declaration of Covenants, Conditions and Restrictions (“CC&Rs”)] required to amend the Declaration pursuant to Section 13.2 thereof. . . .

On December 11, 2001, the developer also recorded Respondent’s CC&Rs.

Section 14.2 of Respondent’s CC&Rs provides in relevant part as follows:

Amendment. Except as otherwise provided in this Declaration and subject to the provisions of Section 14.17 below, this Declaration may be amended only by the affirmative vote (in person or by proxy) or written consent of: (a) Members holding not less than two-thirds (2/3) of all Class A votes then entitled to be cast; and (b) Members holding not less than two thirds (2/3) of all Class B votes then entitled to be cast . . . . No amendment to this Declaration shall be effective unless and until such amendment is recorded.

Section 13.2 of the CC&Rs provides as follows:

Release. Each Owner, Occupant, and other Person acquiring any interest in the Property, or any part thereof, does hereby release and discharge the City of Phoenix, Declarant, each Declarant Affiliate, each Designated Builder, each Designated Builder Affiliate, and each of their respective employees, agents, invitees, licensees, contractors, officers, directors, shareholders, affiliates, successors and assigns, from any liability of any kind that may arise at any time in the future from the use of the agricultural Properties for farming or other agricultural purposes and/or any of the other matters described herein.

Section 14.17 of the CC&Rs provides as follows:

Amendments Affecting Declarant, Golf Course Owner or Designated Builder Rights. Notwithstanding any other provision of this Declaration to the contrary, no provision of this Declaration (including but not limited to, this Section) which grants to or confers upon Declarant or any Designated Builder any rights, privileges, easements, benefits or exemptions (except for rights, privileges, easements, benefits, or exemptions granted to or conferred upon Owners generally) shall be modified, amended or revoked in any way, so long as Declarant (or such Designated Builder, as applicable) owns any portion of the Property, without the express written consent of Declarant (and such Designated Builder, as applicable). Notwithstanding any other provision of this Declaration to the contrary, no provision of this Declaration (including but not limited to, this Section) which grants to or confers upon the Golf Course Owner or the Golf Course Property any rights, privileges, easement, benefits or exemptions shall be modified, amended or revoked in any way without the express written consent of the Golf Course Owner.

(Emphasis added.)

On or about February 3, 2017, Petitioner filed a Homeowners Association (HOA) Dispute Process Petition with the Department, alleging in relevant part as follows:

[In] March 2011 the HOA board voted 3-2 to unilaterally amend REMA 5.1’s use restriction on the golf course property without the required vote of the approximately 450 eligible class members by altering the legal description of the golf course property and recording amendment 2 and 3 reflecting those alterations on March 3, 2011 and May 16, 2011 respectively. Despite this violation by the HOA board, the GC zoning of the golf course property provided homeowners with a last layer of protection for their property values. However, on Oct. 5, 2016, the HOA president stripped away that last layer of protection when he appeared before the City Council and represented that the homeowners favored a rezone from CG to Commercial. Relying on amendments 2 and 3, the City Council approved the rezone to Commercial . . . .

I respectfully request that the Administrative Court:

Find that REMA 5.1 may NOT be amended without the vote required by REMA Article 12 and set forth in CC&Rs 14.2;

Find that Amendments 2 and 3 are void and unenforceable; and

Order the HOA Board to remove amendments 2 and 3 from the record.

Respondent filed an answer, denying any violation of the CC&Rs or applicable statutes. The Department referred the matter to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing.

On or about April 27, 2017, Respondent filed a motion for summary judgment. The motion did not dispute the facts set forth in the petition and noted that in 2011, Respondent’s Board and the Golf Course Owner amended the REMA to revise the definition of “Golf Course Property” set forth in Recital C of the REMA and that the second and third amendments to the REMA had been recorded at the Maricopa County Recorder’s Office. Respondent also noted that in 2014, litigation arose between the Association and the Golf Course Owner regarding the REMA and the validity of the amendments in Maricopa County Superior Court Case No. CV2014-000639, that in July 2015, the Association and the Golf Course Owner executed a settlement agreement, and that the lawsuit was dismissed with prejudice on August 7, 2015.

Respondent argued in the motion for summary judgment that the Department could not determine the issues on which Petitioner requested relief because the REMA was not a community document under A.R.S. § 32-2199.01(A) and the Golf Course Owner was a third party over whom the Department lacked jurisdiction.

The Administrative Law Judge permitted Petitioner to file a response to the motion for summary judgment. Petitioner did not dispute the additional facts noted in Respondent’s motion for summary judgment, but argued that because the REMA was referred to the CC&Rs, the Department had jurisdiction to grant the relief requested. Petitioner also noted that Respondent’s attorney had taken the position in Case No. CV2014-0000639 that the second and third amendments were void and unenforceable because the REMA was tied to the CC&Rs, thereby providing protection to Respondent’s members from a decision by the Golf Course Owner to use the golf course for further development. Petitioner also stated that members of other homeowners’ associations in the Phoenix metropolitan area are in the process of fighting efforts by developers to entice the associations’ boards to allow golf courses to be developed.

Oral argument on the motion for summary judgment was held on May 10, 2017. Petitioner presented testimony that other members relied on the CC&Rs and REMA when they purchased their homes because they believed that the golf course could not be developed without a two-thirds majority of members’ approval.

CONCLUSIONS OF LAW

The CC&Rs speak for themselves. Although A.R.S. § 32-2199.02(A) allows the Administrative Law Judge to “order any party to abide by the statute, condominium documents, community documents or contract provision at issue and may levy a civil penalty on the basis of each violation,” she cannot prospectively resolve disputes under the CC&Rs that have not yet arisen. Petitioner’s petition challenges certain actions that Respondent’s board took in 2011, some six years in the past.

A.R.S. § 33-1802(2) provides that “[c]ommunity documents" means the declaration, bylaws, articles of incorporation, if any, and rules, if any.” Although the REMA references the CC&Rs, or Declaration, it is not a community document as defined in A.R.S. § 33-1802(2).

Petitioner seeks an order from the Department finding that the second and third amendments to the REMA are void and unenforceable under the CC&Rs and requiring Respondent to ask the Maricopa County Recorder to remove the recorded second and third amendments.

A.R.S. § 32-2199.01(A) sets forth Department’s authority to resolve disputes between homeowners’ associations and members of such associations, in relevant part as follows:

For a dispute between an owner and a . . . planned community association that is regulated pursuant to title 33, chapter 9 or 16, the owner or association may petition the department for a hearing concerning violations of condominium documents or planned community documents or violations of the statutes that regulate . . . planned communities. . . .

(Emphasis added.) Respondent’s board may have entered into contracts with the Golf Course Owner to amend the REMA without a two-thirds majority vote of Respondent’s members, in violation of the CC&Rs. However, the relief that Petitioner seeks implicates the Golf Course Owner’s interests in its property and may affect the settlement that the Golf Course Owner entered into with Respondent in August 2015 to resolve the litigation about the two amendments. A.R.S. § 32-2199.01(A) does not give the Department jurisdiction over disputes that implicate the rights of third parties.

Petitioner’s concerns about development of the golf course may be well-founded. However, under applicable statutes, at this time, his available remedies are to elect a board that will better protect members’ interest in maintaining the golf course, to file suit in a judicial forum against Respondent and the Golf Course Owner, or to ask the legislature to amend A.R.S. §§ 33-1802(2) and 32-2199.01(A).

ORDER

Based on the foregoing, it is recommended that the Complaint in this matter be dismissed.

Done this day, May 11, 2017.

/s/ Diane Mihalsky

Administrative Law Judge

Copy mailed/e-mailed/faxed May 10, 2017 to:

Judy Lowe, Commissioner

Arizona Department of Real Estate

2910 North 44th Street, Room 100

Phoenix, AZ 85018

Attn: [email redacted]

[email redacted]