ALJDEC decisions subject to certification as final

18F-H1817018-REL-RHG · Department of Real Estate - H/C · 2019-01-09

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: November 29, 2018, with the record held open until December 20, 2018. APPEARANCES: Petitioner Scott Servilla appeared on his own behalf. Respondent Village of Oakcreek Association was represented by Mark 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.[1] The three issues Petitioner identified were as follows: 1) 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; 2) 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 3) 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.

Following a hearing in this matter, the Administrative Law Judge issued an Administrative Law Judge Decision in which the Administrative Law Judge found that Petitioner failed to prove his claim as to issues one and three listed above. The Administrative Law Judge found that Petitioner established a violation of the applicable statute as to issue two, but that, because the statute did not provide an enforcement mechanism to the Administrative Law Judge, no remedy could be ordered. Following the issuance of the Administrative Law Judge Decision, Petitioner filed a Request for Reconsideration alleging that the conclusion there was no remedy that could be ordered was contrary to the law. On or about September 21, 2018, the Commissioner for the Arizona Department of Real Estate granted the request for rehearing “for the reasons outlined in the Petitioner’s Rehearing Request.” At the rehearing, Petitioner argued that, pursuant to case law, the Administrative Law Judge was authorized to declare the amendment to the Bylaws void and unenforceable. The underlying facts of the case, as set forth in the Administrative Law Judge Decision, were not challenged and, to the extent they are relevant to the present issue, are restated here. 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. 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.[2] 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 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. § 33-1812(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 asserted that the “proposed action” was to amend the Master Declaration. Petitioner asserted 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. Respondent argued that, pursuant to the authority set forth by the Arizona Supreme Court in Zajac v. City of Casa Grande, 209 Ariz. 357, 102 P.3d 297 (en banc) (2004), Petitioner waived the right to raise a complaint regarding the vote after it was completed. Petitioner responded that the logic of Zajac was not applicable to this matter because it did not involve the recordation of an amendment, but involved the election of individuals. Zajac involved a rezoning ordinance passed by the City of Casa Grande that was then upheld by the local electorate in a referendum election. When the referendum passed, Mr. Zajac filed suit alleging that the city failed to comply with the notice requirements applicable to the hearing and enactment process. The Court in Zajac, relying on Allen v. State, 14 Ariz. 458, 130 P. 1114 (1913),[3] ruled that an individual, aware of a procedural issue with an election prior to the vote, cannot wait to discover the results of the vote to lodge a complaint. That is, one cannot knowingly let a defective vote proceed only to complain and seek redress if the results are not to the individual’s liking. In the present case, Petitioner acknowledged he received the absentee ballot on or about October 4, 2016, more than one month prior to the November 10, 2016 vote on the issue. Like Zajac and Allen, Petitioner could have raised an objection to the faulty ballot prior to the vote on November 10, 2016. If an objection had been made in the early stages of the process, the error in the ballot could have been addressed and corrected prior to the vote. Having failed to raise any objection, the vote proceeded as scheduled. Dissatisfied with the vote results, Petitioner then filed the instant petition about the ballot. “He cannot have it both ways; that is, he cannot allow the [vote] to proceed without objection, and then be permitted thereafter to assert his protest.” Zajac, 209 Ariz. at 361, 102 P.3d at 301. As Petitioner was or should have been aware of the alleged issues with the ballot, he waived his right to bring forth a complaint about the ballot when he allowed the vote to proceed on November 10, 2016. Therefore, Petitioner’s claim as to the ballot must fail. order In view of the foregoing, IT IS ORDERED that Petitioner’s petition is denied.

NOTICE This administrative law judge order, having been issued as a result of a rehearing, is binding on the parties. A.R.S. § 32-2199.02(B). A party wishing to appeal this order must seek judicial review as prescribed by A.R.S. § 41-1092.08(H) and title 12, chapter 7, article 6. Any such appeal must be filed with the superior court within thirty-five days from the date when a copy of this order was served upon the parties. A.R.S. § 12-904(A). Done this day, January 9, 2019.

/s/ Tammy L. Eigenheer Administrative Law Judge

Transmitted by either mail, e-mail, or facsimile January 9, 2019 to:

Judy Lowe, Commissioner Arizona Department of Real Estate 100 N. 15th Avenue, Suite 201 Phoenix, Arizona 85007

Mark K. Sahl, Esq. CARPENTER, HAZELWOOD, DELGADO & BOLEN LLP 1400 E. Southern Ave, Suite 400 Tempe, AZ 85282

Scott S. Servilla 2374 Birch Place Manasquan, NJ 08736

By Felicia Del Sol ----------------------- [1] Petitioner asserted that he believed he had set forth a single issue—Respondent failed to comply with the governing documents (Master Declaration and By-Laws) with respect to the Amendments to the Declaration voted on at the November 10, 2016 meeting. [2] Notably, Petitioner indicated that the vote as to this issue was 735 total ballots were received with 387 voting “No” and 361 voting “Yes”. [3] The Court in Zajac described the facts in Allen as follows:

In Allen . . . the legislature enacted a statute making it a crime to kill a quail without a license. After a sufficient number of the voters signed referendum petitioners, a state referendum followed in which voters approved the law. The defendant, who was charged under the statute and admitted killing the quail, argued that the statute was invalid, not as to its substance, but because the matter was allegedly not submitted to the voters at the proper election, and because pre-referendum publicity required by the state constitution had not been provided.

Zajac, 209 Ariz. at 359, 102 P.3d at 299.

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Office of Administrative Hearings 1740 West Adams Street, Lower Level Phoenix, Arizona 85007 (602) 542-9826