ALJDEC decisions subject to certification as final

18F-H1818048-REL · Department of Real Estate - H/C · 2018-08-21

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Peter Biondi, Jr.,

Petitioner,

vs.

Lakeshore at Andersen Springs Homeowners Association,

Respondent.

No. 18F-H1818048-REL

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: August 8, 2018, at 9:00 a.m.

APPEARANCES: Peter Biondi, Jr. (“Petitioner”) appeared on his own behalf; Lakeshore at Andersen Springs Homeowners Association (“Respondent”) was represented by Maria R. Kupillas, Esq., Law offices of Farley, Choate & Bergin.

ADMINISTRATIVE LAW JUDGE: Diane Mihalsky

_____________________________________________________________________

FINDINGS OF FACT

Background and Procedure

The Arizona Department of Real Estate (“the Department”) is authorized by statute to receive and to decide Petitions for Hearings from members of condominium associations and from condominium associations in Arizona.

Respondent is a condominium association whose members own condominiums in the Lakeshore at Andersen Springs development in Phoenix, Arizona.

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

On or about May 9, 2018, Petitioner filed a single-issue petition with the Department that alleged that Respondent had violated A.R.S. §§ 33-1242 and 33-1243, Respondent’s Bylaw Article II, Section 3 and Article III, Sections 2 and 3, and Respondent’s Covenants, Conditions and Restrictions (“CC&Rs”) Section 8.13. Petitioner stated that the violations occurred when its Board of Directors’ (“Board’s”) sole remaining member, Bonnie Henden, refused to defend a petition that two of Respondent’s former directors on Respondent’s Board had filed with the Department contesting their removal from the Board by their fellow directors for allegedly violating Respondent’s Bylaws and CC&Rs. Instead, Ms. Henden had reinstated the two directors.

Respondent filed a written answer to the petition, denying any violations. The Department referred the petition to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing.

A hearing was held on August 8, 2018. Petitioner submitted three exhibits, testified on his own behalf, and presented the telephonic testimony of Jeffrey Washburn, a former Board member. Respondent submitted five exhibits and presented the testimony of Ms. Henden.

Hearing Evidence

Respondent’s Bylaws and CC&Rs

Article II of Respondent’s Amended and Restated Bylaws concerns Members and provides in relevant part as follows:

SECTION 3. Annual Meetings. Annual meetings of Members shall be held at the time and on a day other that Sunday, in the month of March of each year, as shall be designated by the Board of Directors and stated in the notice of the meeting. At the annual meeting, Members shall elect a Board of Directors and transact such other business as may properly be brought before the meeting.

Article III of the Amendment to Respondent’s Amended and Restated Bylaws concerns Directors and provides in relevant part as follows:

Article III, Section 2. Number, Qualification and Term of Office. The number of Directors shall be not less than one (1) person nor more than seven (7) members. The Directors shall be elected at the annual meeting of the Members, except as provided in Section 3 of this Article, and each Director elected shall hold office until his or her successor is elected and qualified. . . . Any member who is at least sixty (60) days delinquent in the payment of any Assessment or other charge due to [Respondent], or who is otherwise deemed by the Board to be in violation of the Governing Documents, shall not be eligible to serve on the Board. If a Director meets the above criteria at any time during his term, he or she will thereupon cease to be a Director and his or her place on the Board shall be deemed vacant.

Article III, Section 3. Vacancies. Vacancies in the Board of Directors shall be filled by a vote of a majority of the remaining Directors in office or the sole remaining Director, even though they may constitute less than a quorum. A Director appointed to fill a vacancy shall be appointed until the next annual meeting, at which time the members may elect a successor for the remainder of the term. If there are no Directors in office, then an election of Directors shall be held in the manner provided by statute.

Section 8.13 of Respondent’s CC&Rs provides in relevant part as follows:

Leasing. Nothing in the Declaration will be deemed to prevent the leasing of a Unit to a Single Family from time to time by the Owner of the Unit, subject to all of the provisions of the Project Documents. Any Owner who leases his Unit will promptly notify [Respondent] and will advise [Respondent] of the lease period and the name of each lessee. No Owner will be permitted to lease the Owner’s Unit for transient, hotel, club, timeshare or similar purposes or on a recurring basis of more than two separate times in any 12 month period. All leases shall be for a minimum of six (6) months, and the Owner shall be obligated to provide to [Respondent] a complete, signed copy of each applicable lease prior to occupancy by such tenant. . . .

Hearing Testimony

At some time before January 2018, some of Respondent’s members made complaints that Jim Luzzis and Jerry Dubasquier, who both were Directors on Respondent’s Board at the time, were renting their units as short-term Vacation Rental By Owner (“VRBOs”) in violation of CC&R Section 8.13.

Respondent’s Board met to consider the complaint. The other directors on Respondent’s Board concluded that Messrs. Luzzis and Dubasquier had violated CC&R Section 8.13, but unanimously voted to allow them fourteen days to remedy their violation by presenting longer term rental agreements that complied with CC&R Section 8.13 to the Board for approval.

At an executive session of the Board on January 4, 2018, the Board met to consider whether Messrs. Luzzis and Dubasquier had remedied their previous violation of CC&R Section 8.13. Messrs. Luzzis and Dubasquier were asked to step out. The five remaining directors on Respondent’s Board held a meeting that lasted about an hour or an hour and a half.

Ms. Henden testified that the meeting was contentious. She felt that the attempt to remove Messrs. Luzzis and Dubasquier from the Board was a vendetta because they took positions that were opposed to the positions taken by other Board Directors.

The majority of the Board voted to remove or disqualify Messrs. Luzzis and Dubasquier from serving on the Board.

An annual meeting of Respondent’s members was scheduled in March or April 2018. Some members sent in ballots to elect directors to replace Messrs. Luzzis and Dubasquier on Respondent’s Board.

Messrs. Luzzis and Dubasquier filed a complaint with the Department to protest their removal or disqualification from serving as Directors on Respondent’s Board.

According to the petition that was filed in this matter, Petitioner and another director “decided to resign in order to restore calm in the community.” The other director, Mr. Washburn, moved to Florida. Another director failed to pay the assessment that was due to Respondent and either resigned or was removed or disqualified by his fellow directors. By March or April 2018, Ms. Henden was the sole remaining Director on Respondent’s Board.

Ms. Henden consulted Respondent’s attorney at the time. After the attorney learned that directors on Respondent’s Board other than Messrs. Luzzis and Dubasquier also had used their units as short-term VRBOs, he withdrew from representing Respondent.

Ms. Henden then retained the attorney who represented Respondent at the hearing. Ms. Henden consulted that attorney and another attorney about the petition that Messrs. Luzzis and Dubasquier had filed with the Department against Respondent.

As a result of the legal advice that she had obtained from three different attorneys, Ms. Henden chose not to file an answer on Respondent’s behalf to the petition that Messrs. Luzzis and Dubasquier had filed with the Department. The Department issued a decision in Messrs. Luzzis and Dubasquier’s favor on their petition and required Respondent to pay their filing fee.

Ms. Henden reinstated Messrs. Luzzis and Dubasquier as directors on Respondent’s Board to allow them to complete the terms of office to which they had been elected and cancelled the election to allow members to choose their successors.

Petitioner submitted evidence that arguably showed that Messrs. Luzzis and Dubasquier were continuing to advertise their units as VRBOs and that Respondent’s members had been warned in February 2010, that such practice violated Respondent’s CC&Rs.

CONCLUSIONS OF LAW

A.R.S. § 32-2199(1) permits a condominium owner or a condominium owners’ association to file a petition with the Department for a hearing concerning alleged violations of bylaws, CC&Rs, or Arizona Revised Statutes (“A.R.S.”) Title 33, Chapter 9. Such petitions will be heard before the Office of Administrative Hearings, an independent state agency.

Petitioner bears the burden of proof to establish that Respondent violated the charged Bylaws, CC&Rs, and applicable statutes 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.”

But the operative facts in this case were not disputed. The dispositive issue is not the factual issue of whether Messrs. Luzzis and Dubasquier violated CC&R Section 8.13 by using their units as short-term VRBOs, but the legal issue of whether the other directors on Respondent’s Board properly removed them from the Board and whether, as a result, Ms. Henden should have defended Respondent in the petition that Messrs. Luzzis and Dubasquier filed with the Department for their alleged improper removal. Legal issues regarding the construction and application of statutes are determined through de novo review, without regard to the burden of proof used to establish the facts underlying a dispute.

A.R.S. § 33-1243 concerns, among other things, a condominium association’s “[b]oard of directors and officers; conflict; powers; limitations; [and] removal” and provides in relevant part as follows:

B. The board of directors shall not act on behalf of the association to amend the declaration, terminate the condominium, elect members of the board of directors or determine the qualifications, powers and duties or terms of office of board of directors members. Except as provided in subsection H of this section, the board of directors may fill vacancies in its membership for the unexpired portion of any term.

. . . .

H. Notwithstanding any provision of the declaration or bylaws to the contrary, all of the following apply to a meeting at which a member of the board of directors . . . is proposed to be removed from the board of directors:

1. The unit owners who are eligible to vote at the time of the meeting may remove any member of the board of directors . . . by a majority vote of those voting on the matter at a meeting of the unit owners.

. . . .

4. For purposes of calling for removal of a member of the board of directors . . . the following apply:

(a) In an association with one thousand or fewer members, on receipt of a petition that calls for removal of a member of the board of directors and that is signed by the number of persons who are eligible to vote in the association at the time the person signs the petition equal to at least twenty-five percent of the votes in the association or by the number of persons who are eligible to vote in the association at the time the person signs the petition equal to at least one hundred votes in the association, whichever is less, the board shall call and provide written notice of a special meeting of the association as prescribed by section 33-1248, subsection B.

(b) Notwithstanding section 33-1248, subsection B, in an association with more than one thousand members, on receipt of a petition that calls for removal of a member of the board of directors and that is signed by the number of persons who are eligible to vote in the association at the time the person signs the petition equal to at least ten percent of the votes in the association or by the number of persons who are eligible to vote in the association at the time the person signs the petition equal to at least one thousand votes in the association, whichever is less, the board shall call and provide written notice of a special meeting of the association. The board shall provide written notice of a special meeting as prescribed by section 33-1248, subsection B.

(Emphasis added.)

In construing a statute, “we must be guided by the presumption that the legislature did not intend to do a futile act by including a provision which is not operative or that is inert and trivial.” “When provisions of a general statute are inconsistent with those of a special nature on the same subject, the special statute controls.” “Where we have a general statute and a specific statute that are in conflict, the specific governs.”

Under this well-established common law, A.R.S. § 33-1243(B) specifically prohibits a condominium association’s board of directors from determining the qualifications of other directors. A.R.S. § 33-1243(H) specifically provides that the statute trumps whatever provisions may be contained in a condominium association’s bylaws or CC&Rs. A.R.S. § 33-1243(H)(4)(a), (b), and (c) specifically require that the removal of a director must be initiated by a petition signed by a specified number of members of the association and that the removal must be accomplished at majority vote of members at a special meeting. The referenced provisions of A.R.S. § 33-1243 specifically and unequivocally require that the members who elected a director must remove the director. Because Respondent’s Board did not follow any of these specific and unequivocal statutory provisions when it removed Messrs. Luzzis and Dubasquier as directors, Respondent lacked any good legal defense to Messrs. Luzzis and Dubasquier’s challenge to their removal or disqualification by their fellow directors.

A.R.S. § 33-1242 is entitled, “[p]owers of unit owners’ association; notice to unit owner of violation” and provides in relevant part as follows:

A. Subject to the provisions of the declaration, the association may:

. . . .

4. Institute, defend or intervene in litigation or administrative proceedings in its own name on behalf of itself or two or more unit owners on matters affecting the condominium.

(Emphasis added.) The word “may” in a statute “generally indicates permissive intent.” Although Ms. Henden could have contested the petitions that Messrs. Luzzis and Dubasquier filed with the Department challenging their removal from Respondent’s Board by their fellow Directors, she was not required to do so. Ms. Henden consulted three attorneys who advised her that if it contested Messrs. Luzzis and Dubasquier’s petition, based on A.R.S. § 33-1243(B) and (H), Respondent likely would not prevail and likely would incur unnecessary attorney’s fees, as well as being required to pay Messrs. Luzzis and Dubasquier’s filing fee. No statute requires a condominium association or a director to take an ill-advised act or to mount a defense of a previously taken ill-advised act that likely will fail on its merits. Therefore, Petitioner’s petition must be denied.

order

IT IS ORDERED that Petitioner’s petition is denied.

NOTICE

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. Pursuant to A.R.S. § 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, August 21, 2018.

/s/ Diane Mihalsky

Administrative Law Judge

Transmitted by either mail, e-mail, or facsimile August 21, 2018 to:

Judy Lowe, Commissioner

Arizona Department of Real Estate

100 N. 15th Avenue, Suite 201

Phoenix, Arizona 85007

Attn:

[email redacted]

Peter Biondi, Jr.

1825 W. Ray Road, Unit 1136

Chandler, AZ 85224

[email redacted]

Maria R. Kupillas, Esq.

Law offices of Farley, Choate & Bergin

P.O. Box 258829

Oklahoma City, OK 73125-8829

[email redacted]

By: Felicia Del Sol