ALJDEC decisions subject to certification as final- REVISED

18F-H1817020-REL · Department of Real Estate - H/C · 2018-05-29

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Lewis Smith

Petitioner

vs.

Desert Isle Homeowners Association, Inc.

Respondent

No. 18F-H1817020-REL

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: April 16, 2018, with the record held open until May 9, 2018 for the purpose of receiving written closing arguments.

APPEARANCES: Mark J. Bainbridge, Esq. appeared on behalf of Petitioner Lewis Smith. William D. Condray, Esq. appeared on behalf of Respondent Desert Isle Homeowners Association, Inc.

ADMINISTRATIVE LAW JUDGE: Velva Moses-Thompson

_____________________________________________________________________

FINDINGS OF FACT

On October 23, 2017, Petitioner Lewis Smith, William H. Winn, Kevin Barnett and Chester Jay submitted a request for a special meeting (“Petitioner’s request”) to the Desert Isle Home owners Association, Inc.’s board of directors (“Board”). The request provides, in relevant part, as follows:

Per Section 2.5(b) of the Desert Isle CC&R’s [sic] the Members hereby request the Desert Isle HOA to schedule an all member meeting within 30 days of the receipt of this request.

The purpose of the meeting is as follows:

1. Select an attorney and appropriate the funds needed to said attorney to review Desert Isle By-laws [sic] and CC&R’s [sic] for the purpose of updating them to current AZ laws applicable to planned communities and non-profit corporations by drafting amendments to each. Also to provide a summary of how to schedule and hold meetings and elections. The amendments, once received and approved by the Board, can be voted upon by the members. An absentee Ballot shall be provided to all lot owners in case [sic] they cannot make the Special Meeting

2. Discuss obtaining a reserve study to better determine the associations capital needs for the common area

3. Discuss attorney letter regarding Desert Isle HOA governance and next steps

On October 24, 2017, the Board responded to Petitioner’s request. The response which is signed by the Board President, Doug Robinson, provides, in relevant part, as follows:

I am in receipt of your letter dated 10/23/17, thank you for your concerns. I’m much in favor of having a meeting to discuss our Desert Isle issues.

However, I don’t believe that 30 days will be long enough to gather all the supporting documentation for the meeting. I am not aware of this AZ law requiring this to be done within 30 days, can you please advise which AZ Revised Statue [sic] you’re quoting?

As soon as possible I will be calling a Board of Directors Meeting to discuss the supporting materials required to have the requested Membership Special Meeting.

Again, I’m much in favor of this meeting and I diligently work with the

Board of Directors to get all the material together, prepare an agenda and ballots to mail to all homeowners.

Approximately one week after receiving Petitioner’s request, on October 31, 2017, Greg Yacoubian, Doug Robinson, Curt Carlson and Mike Andrews requested that the Board add the subject of amending the CC&Rs to prohibit short term rentals to the special meeting agenda. The October 31, 2017 request provides, in relevant part, as follows:

Per Section 2.5 (b} of the Desert Isle CC&R’s [sic], we are entitled to request that a special meeting be held. However, knowing that a meeting has already has been requested by another group or homeowners we are requesting that our subject be added to that meeting agenda and discussed and voted on just as the other subjects. By combining the two requests into one meeting will save the board and the association time and money.

Our request is to amend the CC&Rs by adding a section prohibiting

"Short Term Rentals" and defining minimum time allowed for Rentals.

The meeting notice may be signed in counterparts by the members.

On November 5, 2017, the Board provided a copy of the agenda for a special board of directors meeting scheduled for November 8, 2017 to the Desert Isle Homeowners Association, Inc. (“Desert Isle”) homeowners. See Petitioner’s Exhibits 4 and 5. The agenda for the November 8, 2017 board meeting provides, in relevant part, as follows:

IV. NEW BUSINESS (Discussion/Action)

A. Condition of the Association

B. Designation of Officers (Bylaws 5.1).

C. Removal of Officers (Bylaws 5.3).

D. Election of Officers/Assistances (Bylaws 5.2)

E. Calling a Special Meeting (Bylaws 3.4, 3.5 & ARS 33-1804).

F. Special Meeting Format/Requirement/Reviewed

(Szabo letter of 7-27-16).

G. Association Insurance (Szabo letter of 11-2-17, Article IX).

H. Reserve Study (CC&Rs 5.2(b), Article VIII).

I. 2018 Association Budget

The agenda for the November 8, 2017 did not include the subject of amending CC&Rs to prohibit short term rentals. See Petitioner’s Exhibit 5.

The minutes from the November 8, 2017 meeting provide, in relevant part, as follows:

I. CALL TO ORDER

A. The meeting was called to order by the president Doug Robinson at 1:00 P. M.

II. ROLL CALL

A. Board Member - Doug Robinson, Curt Carlson, Mike Andrews present.

B. Officers: Judy Carlson-Treasurer, Terri Robinson-Secretary present.

C. Association Members: Terry Constantino, Lynn Hammond, Lewis Smith, Mike and Kim Sharp (representatives for Kevin Barrett) in attendance.

D. Guest Speaker: Dale Collins introduced by Doug Robinson.

III. REVIEW PREVIOUS MEETING BOARD MEETING

(dated 10/6/2017)

A. A motion was made by Curt Carlson, seconded by Mike Andrew to approve the minutes dated 10/06/17 with 2 corrections to change the board quorum from 5 to 3 and the vote to be changed from 5-0 to 3-0. Motion passed unanimously.

IV. NEW BUSINESS

A. A motion from Curt Carlson to remove officers (VP, treasurer and secretary) Mike seconded the motion - no discussion was made. Motion passed unanimously.

B. A motion from the president Doug Robinson to elect Mike Andrews as VP and treasurer and secretary to Curt Carlson. Curt Carlson seconded the motion. No discussion was made. Motion passed unanimously.

C. A motion from Curt Carlson to elect an assistant to the treasurer to Judy Carlson and an assistant to the secretary to Terri Robinson.

Mike Andrews seconded the motion. Motion passed unanimously.

D. Curt Carlson put in motion to call a Special Meeting requested by 2 groups of owners, Mike seconded the motion. Discussion: the board will call the meeting before November 23, 2017. Packages will be prepared by the board and send [sic] to all owners to vote on items on the special agenda when prepared, motion passed unanimously.

E. A motion was made by Curt Carlson to have Jamie Kelly attorney to review the packages for the Special Meeting before sending them out and to hold the ballots until the meeting which has not been schedule [sic] yet . Mike Andrews seconded the motion. Discussion: Great Idea - Motion passed unanimously.

F. Insurance policy needs to be reviewed and maybe have a local agent handle the policy.

G. Reserve Study was discussed and will be discussed more in a special meeting that will be sent to all owners.

H. Budget discussed and the president will work with the treasurer for 2018. No budget has been done since 2013.

V. HOMEOWNERS INPUT: Lewis spoke regarding past issues. Mike Sharp asked about voting at this meeting.

VI. BOARD INPUT: Curt Carlson spoke of past issues about short term renting.

VII. SCHEDULE NEXT MEETING: At this time the board does not have future meetings scheduled. Further meetings will be called by the President and an email will be sent to all homeowners.

VIII. MEETING ADJOURNMENT

On November 10, 2017, the Board sent an electronic mail message (“e-mail”) to Petitioner. The e-mail provides, in relevant part, as follows:

At the 11/8/17 Board meeting your petition for a Special Meeting of Members was acknowledged by the Board and the need to schedule the meeting was agreed [sic].

Now, in order to proceed to prepare the packages of information which will be sent to all homeowners we need a narrative explanation from you on each of your subjects. Along with your narrative please include the attorneys [sic] engagement letters you have referred to in your emails. The way we read your petition item I actually included 2 subjects while items 2 and 3 are signal subjects. Therefore we will expect 4 narratives plus any attachments you have.

Upon receipt of your materials we will complete the package which will be sent to all homeowners. This package will include the agenda, your material, the Boards [sic] material (if any) and a secret ballot.

We are eager to get this meeting completed so we would request you get your materials back to us no later than next Friday 11/17/17. In order that we can prepare the needed Special Meeting package. [sic]

On November 18, 2017, the Board sent an agenda for a special board of directors meeting scheduled for November 20, 2017 to all members. The agenda states that “Review/approval of special meeting mailing package” will be discussed. However, the agenda did not provide any details regarding a proposed amendment to the CC&Rs to prohibit short term rentals.

On December 1, 2017, the Board sent an electronic mail message (“e-mail”) to Petitioner and other homeowners. The e-mail provides, in relevant part, as follows:

To all owners:

I would like to take a minute to explain why we are having a [sic] owners meeting Dec 16 [sic].

A signed petition hy [sic] Lot 3, 4, 5 8 & 14 was submitted to the board which required action to be taken. This letter was included in the package that was sent to all of you.

Then [sic] Lot 6, 7, 11 & 12 owners submitted a petition for no short term renting and to amend the CC&Rs which was also included in the package that was sent to all of you.

To avoid cost and time we put both petitions together and are having one meeting that will required [sic] all owners to vote for or against these two petitions.

The board has been taking a lot of heat and especially since I became President October 6 [sic]. What we are trying to do is get the Association back on track and to [sic] following [sic] our governing documents this is why we are having several boards [sic] meetings to accomplish this [sic] We were legally bound to put together a petitioner package for vote and schedule this upcoming meeting for Dec 16 [sic]. We are trying to settle the problems so we can all enjoy our homes in Desert Isle.

With that being said, please make sure you mail in your ballot in the blue pre-stamped envelope or bring the ballot inside the blue

envelope to the meeting or your vote will not count.

As I stated before your ballot is secret and will be separated from the blue

envelope and left folded to insert in the ballot box. There will be no ballots handled [sic] out to vote at the meeting.

I would please ask as I have before to stop all this email thread that is interrupting owners regarding this upcoming meeting as it is

scheduled, ballots will be counted on two items, and the meeting will not be cancelled.

Please feel free to call me direct or send in writing your questions.

Thank you for your time!

The Board attached the agenda for the December 16, 2017 special meeting for Desert Isle owners to the December 1, 2017 e-mail. The agenda provides, in relevant part, as follows:

III. REVIEW/DISCUSSION FOR/AGAINST FOR BILL WINN, LEWIS SMITH, KEVIN BARRETT AND CHESTER JAY PETITION DATED 10-23-17 (COPY ENCLOSED).

A. Paragraph 1 - Have an attorney review governing documents, amend and provide summary. Note: Engagement of an attorney will result in a "Special Assessment" to owners.

B. Paragraph 2- Discussion regarding Reserve Study.

C. Paragraph 3 - Discuss attorneys [sic] letter.

IV. REVIEW/DISCUSSION FOR/AGAINST FOR GREG YACOUBIAN, DOUG ROBINSON, CURT CARLSON AND MIKE ANDREWS PETITION DATED 0-31-17 (COPY ENCLOSED).

A. Prohibit short term rentals in Desert Isle.

V. APPOINT ELECTION INSPECTOR TO OPEN BALLOT ENVELOPES AND COUNT SECRET BALLOTS.

VI. ELECTION INSPECTOR ANNOUNCE RESULTS.

VII. ADJOURN.

At the December 16, 2017 special board meeting, six homeowners voted against a proposed amendment to the CC&Rs to prohibit short term rentals. Nine homeowners voted in favor of the proposed amendment.

On or about December 5, 2017, Petitioner Lewis Smith filed a petition with the Arizona Department of Real Estate (“Department”) alleging that Desert Isle violated Ariz. Rev. Stat. section 33-1804. The petition provides, in relevant part, as follows:

Desert Isle HOA has three Directors they are Doug Robinson, Mike Andrews and Curt Carlson. note: Greg Yacoubian replaced Mike Andrews on 11/20/17. All Board members have been meeting to discuss and add an amendment to the CC&R’s [sic] Prohibiting short term renters. These meetings have not been conducted openly and no notice or agenda were provided containing information necessary to inform members of the association of the matters to be discussed.

..................................

At no time was the issue to add an amendment for short term rentals properly noticed or on an agenda for discussion before it became a ballot vote.

On January 22, 2018, the Department issued a Notice of Hearing setting the above-captioned matter for hearing on March 8, 2018, at the Office of Administrative Hearings in Phoenix, Arizona.

The Notice of Hearing shows that Petitioner Lewis Smith alleged that Respondent Desert Isle violated Ariz. Rev. Stat. section 33-1804.

Section 33-1804(B) requires the homeowners association to provide notice of any meeting of the members not fewer than ten nor more than fifty days prior to the meeting. Section 33-1804(B) requires that the “notice of any annual, regular or special meeting of the members shall also state the purpose for which the meeting is called, including the general nature of any proposed amendment to the declaration or bylaws, changes in assessments that require approval of the members and any proposal to remove a director or an officer.” Section 33-1804(B) also provides, “the failure of any member to receive actual notice of a meeting of the members does not affect the validity of any action taken at that meeting.”

Section 33-1804(E)(1) requires that the association make the agenda available to all members attending a board of directors meeting.

Section 33-1804(F) provides, “It is the policy of this state as reflected in this section that all meetings of a planned community, whether meetings of the members' association or meetings of the board of directors of the association, be conducted openly and that notices and agendas be provided for those meetings that contain the information that is reasonably necessary to inform the members of the matters to be discussed or decided and to ensure that members have the ability to speak after discussion of agenda items, but before a vote of the board of directors or members is taken. Toward this end, any person or entity that is charged with the interpretation of these provisions, including members of the board of directors and any community manager, shall take into account this declaration of policy and shall construe any provision of this section in favor of open meetings.”

CONCLUSIONS OF LAW

Ariz. Rev. Stat. section 41-2198.01 permits an owner or a planned community organization to file a petition with the Department for a hearing concerning violations of planned community documents or violations of statutes that regulate planned communities. That statute provides that such petitions will be heard before the Office of Administrative Hearings.

Petitioner bears the burden of proof to establish that Respondent violated Ariz. Rev. Stat. section 33-1804 by a preponderance of the evidence. Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.

“A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” 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; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”

Petitioner established by a preponderance of the evidence that the Board violated Ariz. Rev. Stat. section 33-1804(F) when it failed to provide notice or an agenda to all of its members of information that was reasonably necessary to inform the members that an amendment to the CC&Rs to prohibit short term members would be discussed at its special board of directors meetings held on November 8, 2017 and November 20, 2017.

The evidence of record supports Petitioner’s request for relief outlined in his petition.

ORDER

IT IS ORDERED that Petitioner’s petition in this matter be granted.

Pursuant to Ariz. Rev. Stat. section 32-2199.02(A), the Respondent shall pay to Petitioner the filing fee required by Ariz. Rev. Stat. section 32-2199.01.

NOTICE

Pursuant to Ariz. Rev. Stat. section 32-2199.02(B), this Order is binding on the parties unless a rehearing is granted pursuant to Ariz. Rev. Stat. section 32-2199.04. Pursuant to Ariz. Rev. Stat. section 41-1092.09, a request for rehearing in this matter must be filed with the Commissioner of the Department of Real Estate within 30 days of the service of this Order upon the parties.

Done this day, May 29, 2018.

Transmitted electronically to:

Judy Lowe, Commissioner

Arizona Department of Real Estate

Mark J. Bainbridge, Esq.

The Bainbridge Law Firm LLC

2122 E. Highland Ave. Ste. 250

Phoenix, AZ 85016-4779

Lewis Smith

5459 E. Sorrento Dr.

Long Beach, CA 90803

William D. Condray, Esq.

2031 Highway 95 Ste. 2

Bullhead City, AZ 86442-6004

Desert Isle Homeowners Association, Inc.

411 Riverfront Dr. #7

Bullhead City, AZ 86442