ALJDEC decisions subject to certification as final

18F-H1817018-REL · Department of Real Estate - H/C · 2018-07-19

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Scott S. Servilla,

Petitioner,

vs.

Village of Oakcreek Association,

Respondent

No. 18F-H1817018-REL

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: June 26, 2018

APPEARANCES: Petitioner Scott S. Servilla appeared on his own behalf. Respondent Village of Oakcreek Association was represented by Mark K Sahl.

ADMINISTRATIVE LAW JUDGE: Tammy L. Eigenheer

_____________________________________________________________________

FINDINGS OF FACT

Village of Oakcreek Association (Respondent) is an association of 2436 homeowners located in Arizona.

Scott S. Servilla (Petitioner) filed a petition with the Arizona Department of Real Estate (Department) on or about November 13, 2017, alleging that Respondent had violated A.R.S. § 33-1817(1); A.R.S. § 1812(B)(2); and the community’s Master Declaration.

Initially, Petitioner filed a single issue petition and paid the corresponding $500.00 filing fee. Upon an order from the undersigned Administrative Law Judge instructing Petitioner to identify the single issue upon which he wished to proceed or to pay the additional filing fee for multiple issues, Petitioner paid an additional $1000.00 filing fee and set forth the three issues he wished to be heard at the hearing.

The three issues Petitioner identified were as follows:

the vote November 10, 2016 violated A.R.S. § 33-1817[(A)](1) and Declaration because a majority of vote required 1173 votes to amend the declaration as set forth in section B.1 of the Petition, and, therefore, requests an order that the amendment to the declaration is invalid and a civil penalty to be imposed on Respondent;

the vote November 10, 2016 violated A.R.S. § 33-1812(B)(2) and the Declaration because the written ballot used did not provide a separate opportunity to vote for or against each proposed action as set forth in section B.2. of the Petition, and, therefore, requests an order that the amendment to the declaration is invalid and a civil penalty to be imposed on Respondent; and

the Respondent has violated and continues to violate By-Laws Section 8, Article VIII by imposing fines in excess of $50 per violation before and after the Members of the Association voted against a proposed Amendment to Section 8 of Article VIII of the By-Law to raise the fines as set forth in section B.2. of the Petition, and therefore, requests an order that the Association cannot levy fines in excess of $50 per violation and a civil penalty to be imposed on Respondent.

All errors in original.

Section 9, Subsection 9.04 of the Declaration provides as follows:

These Master Declarations may be amended by a majority vote of the members of the Association voting at any meeting of the membership noticed pursuant to the By-Laws of the Association, provided that the proposed amendment is included in the notice of the meeting.

Article IV, Section 1 of the By-Laws provides as follows:

A majority of affirmative votes cast shall be required for passage of any resolution and twenty (20) percent of the registered memberships shall have voted to constitute a quorum unless stated differently in the Articles of Incorporation, these By-Laws, or Declarations of the Association.

Respondent issued a Notice of Special Meeting of Members (Notice) indicating a meeting would be held on November 10, 2016, and that “[t]he sole purpose of the Special Members Meeting is to [v]ote on the approval of the Leasing and Schedule of Fines Assessment.” Included with the Notice was an absentee ballot setting forth the proposed amendment. No allegation was raised that that notice provided to the members was improper under the governing documents.

The proposed amendment listed changes to the Master Declaration including the addition of a new section, 4.23 Leasing of Lots and Units; Restrictions and Limitations and the complete replacement of an existing section, 5.08 Schedule of Fines. The proposed amendment established a minimum lease term of 30 days, prohibited leases of less than the entire lot or unit, and permitted the committee to adopt a schedule specifying the recommended fines or range of fines for violations.

The absentee ballot allowed the member to cast a vote “FOR THE LEASING AND SCHEDULE OF FINES AMENDMENT” or “AGAINST THE LEASING AND SCHEDULE OF FINES AMENDMENT.” Petitioner returned an absentee ballot voting against the proposed amendment.

On November 10, 2016, the special meeting of members was held. In total, 1067 ballots were received on the proposed amendment, constituting approximately 44 percent of the members voting. Of those voting, 564 voted in favor of the proposed amendment, constituting approximately 53 percent of the votes cast.

This vote was the subject of a lawsuit brought by a different homeowner in Yavapai County Superior Court. In that matter, the Yavapai County Superior Court denied an Application for Preliminary Injunction and, in so doing, made extensive preliminary findings and rulings. Of note, Petitioner requested that the Administrative Law Judge give weight to the findings of the Yavapai County Superior Court as it related to the alleged violation of A.R.S. § 33-1812(A), but ignore the other findings of the court that were contrary to his position.

At hearing, Petitioner argued that a majority of members needed to vote in favor of an amendment to the governing documents. Thus, Petitioner stated that for the proposed amendment to pass, 1219 members would have to vote in favor of it. Petitioner argued that Respondent’s interpretation, that for an amendment to pass only a majority of the quorum needed to vote in favor, would result in 10 percent of members being able to make a major change to the governing documents.

Petitioner also argued that because the By-Laws have a limitation on fines of $50.00 per day and a proposed amendment to the By-Laws to eliminate that limitation was voted down in April 2017, the homeowners expressed their opposition to that part of the proposed amendment at issue in this matter. Petitioner asserted that had the proposed amendment been broken into two parts, the part of the proposed amendment dealing with the fines most likely would have failed. Petitioner acknowledged that he did not raise any objections to the manner in which the November 10, 2016 vote occurred until April 2017 and did not file the instant petition until November 13, 2017. Petitioner urged that the fines should remain at $50.00 per violation.

At hearing, Respondent argued that Petitioner had waived any right to object to the vote by not raising his objection prior to the vote occurring. Respondent maintained that the governing documents are clear that a majority of the members voting are necessary to approve a proposed amendment. Respondent also asserted that, even if Respondent violated A.R.S. § 33-1812(A)(2), the statute does not include an enforcement provision so no remedy exists. Respondent indicated that the fines are $50.00 per day per violation and not per occurrence.

CONCLUSIONS OF LAW

The Department has jurisdiction to hear disputes between a property owner and a homeowners association. A.R.S. § 32-2199 et seq.

In this proceeding, Petitioner bears the burden of proving by a preponderance of the evidence that Respondent violated the governing documents and statutes. A.A.C. R2-19-119.

A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force.” Black's Law Dictionary 1220 (8th ed. 2004).

A.R.S. § 33-1817(A)(1) provides as follows:

The declaration may be amended by the association, if any, or, if there is no association or board, the owners of the property that is subject to the declaration, by an affirmative vote or written consent of the number of owners or eligible voters specified in the declaration, including the assent of any individuals or entities that are specified in the declaration.

Emphasis added.

The clear and unambiguous language of the Master Declarations provides that the “Master Declarations may be amended by a majority vote of the members of the Association voting at any meeting of the membership.” Petitioner’s argument would necessitate ignoring the word “voting” in the applicable language. While Petitioner cited other cases in support of his reading of the Master Declaration, those other cases involve the interpretation of significantly different language in the applicable governing documents.

Thus, the vote at the November 10, 2016 meeting was valid in that a quorum of members voted and a majority of the members voting voted in favor of the proposed amendment.

Petitioner’s first claim must fail.

A.R.S. § 33-1812(A) provides that absentee ballots may be used for voting and requires that “[t]he ballot shall set forth each proposed action” and “shall provide an opportunity to vote for or against each proposed action.”

Respondent argued that the “proposed action” was to amend the Master Declaration. Petitioner argued that the “proposed actions” were 1) to add the new section 4.23 Leasing of Lots and Units; Restrictions and Limitations and 2) to completely replace the existing section, 5.08 Schedule of Fines.

Petitioner’s argument that the absentee ballot did not provide an opportunity to vote for or against each proposed action is well taken. However, the statute does not provide for any enforcement mechanism.

Petitioner’s second claim is granted, but there is no remedy that the Administrative Law Judge may order.

Petitioner identified his third issue to be that “Respondent has violated and continues to violate By-Laws Section 8, Article VIII by imposing fines in excess of $50 per violation . . . .” However, Petitioner presented no evidence that Respondent had, in fact, imposed such fines.

Given that Petitioner failed to establish that the fines underlying his third issue actually occurred, Petitioner is essentially asking the Administrative Law Judge to render a declaratory judgement that the imposition of such fines would be a violation. Such a remedy is not available from the Administrative Law Judge.

Petitioner’s third claim must fail.

The Administrative Law Judge does not find that a civil penalty is warranted in this matter.

order

In view of the foregoing,

IT IS ORDERED that Petitioner’s petition is granted in part and is denied in part.

IT IS FURTHER ORDERED that Respondent pay Petitioner his filing fee of $500.00, to be paid directly to Petitioner within thirty (30) days of this Order.

Pursuant to A.R.S. § 32-2199.02(B), this Order is binding on the parties unless a rehearing is granted pursuant to A.R.S. § 32-2199.04 based on a petition setting forth the reasons for the request for rehearing, in which case the order issued at the conclusion of the rehearing would be binding on the parties.

Done this day, July 19, 2018

/s/ Tammy L. Eigenheer

Administrative Law Judge

Transmitted electronically to:

Judy Lowe, Commissioner

Arizona Department of Real Estate

Transmitted US Mail to:

Scott S. Servilla

2374 Birch Place

Manasquan, NJ 08736

Charles Cruz

Mark K. Sahl

Carpenter, Hazlewood, Delgado & Bolen, PLC

1400 E. Southern Avenue, Suite 400

Tempe, Arizona 85282