ALJDEC decisions subject to certification as final

19F-H1918001-REL · Department of Real Estate - H/C · 2018-09-24

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Jay A. Janicek,

Petitioner,

vs.

Sycamore Vista No. 8 Homeowners Association (FKA New Tucson Unit No. 8 Homeowners Association, Inc.),

Respondent.

No. 19F-H1918001-REL

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: September 05, 2018 at 9:00 AM.

APPEARANCES: Jay Janicek (“Petitioner”) appeared on his own behalf. Sycamore Vista No. 8 Homeowners Association (“Respondent” or “the Association”) was represented by Evan Thompson, Esq. Observers present were Dennis Legere, Becky Nutt, and Caleb Rhodes.

ADMINISTRATIVE LAW JUDGE: Jenna Clark.

_____________________________________________________________________

After review of the hearing record in this matter, the undersigned Administrative Law Judge makes the following Findings of Fact and Conclusions of Law, and issues this Order to the Director of the Arizona Department of Real Estate (“the Department”).

FINDINGS OF FACT

Procedure and Background

The Department is authorized by statute to receive and to decide petitions for hearings from members of homeowners’ associations and from homeowners’ associations in Arizona.

On or about July 25, 2018, Petitioner filed a single-issue petition with the Department.

Per the Notice of Hearing, the Department referred this matter to the Office of Administrative Hearings (“OAH”), an independent state agency, for an evidentiary hearing on September 05, 2018 , regarding the following issue:

Whether Sycamore Vista No. 8 Homeowners Association (Respondent) violated Association Bylaws Article III, Sections 3 & 4 and Article VIII, Section 1 in an action taken by the board on November 20, 2017.

The Parties and Governing Documents

Respondent is a homeowners’ association whose members own properties in a residential real estate development located in Tucson, Arizona. Membership for the Association is compromised of the Sycamore Vista subdivision.

Petitioner is a Sycamore Vista subdivision property owner and a member of the Association.

The Association is governed by its Covenants, Conditions, and Restrictions (“CC&Rs”), and overseen by a Board of Directors (“the Board”).

The Association’s CC&Rs were recorded with the Pima County Recorder’s Office on October 17, 2002. They were amended for the third time on November 20, 2017, by the Board. The CC&Rs empower the Association to control certain aspects of property use within the development. When a party buys a residential unit in the development, the party receives a copy of the CC&Rs and agrees to be bound by their terms. Thus, the CC&Rs form an enforceable contract between the Association and each property owner.

Bylaws Article VI, Meeting of Directors, Section 1 states “Regular meetings of the Board of Directors shall be held monthly without notice, at such a place and hour as may be fixed from time to time by resolution of the Board. Should said meeting fall upon a legal holiday, then that meeting shall be held at the same time on the next day which is not a legal holiday.”

Bylaws Article VI, Meeting of Directors, Section 2 states “Special meetings of the Board of Directors shall be held when called by the President of the Association, or by any two Directors, after not less than three (3) days notice to each Director.” [sic]

Bylaws Article VI, Meeting of Directors, Section 3 states “A majority of the number of Directors shall constitute a quorum for the transaction of business.”

Bylaws Article VII, Powers and Duties of the Board of Directors, Section 1, Powers, subsection (c) states “The Board of Directors shall have the power to: (a) Adopt and publish rules and regulations governing the use of the Common Area and facilities, and the personal conduct of the members and their guests thereon, and to establish penalties for any infractions; (b) Suspend the voting rights and tight to use of the recreational facilities of a member during any period in which such member shall be in default in the payment of any assessment levied by the Association. Such rights may also be suspended after notice and hearing, for a period not to exceed sixty (60) days, for infraction of published rules and regulations; (c) Exercise for the Association all powers, duties and authority vested in or delegated to this Association and not reserved to the membership by other provisions of these Bylaws, the Articles of Incorporation, or the Declaration; (d) deem necessary, and to prescribe their duties.”

Bylaws Article XIII, Amendments, Section 1 states “These Bylaws may be amended at a regular or special meeting of the Board of Directors of the Association by a vote of a majority of a quorum of members present in person or by proxy.”

Hearing Evidence

Petitioner testified on his own behalf and submitted five exhibits. Respondent declined to present any witnesses or exhibits of its own, and further declined to cross-examine Petitioner.

Respondent’s position at the hearing was that the parties had different interpretations of the language contained in the Bylaws, and that the matter would be resolved however the tribunal chose to settle their dispute regarding the interpretation of relevant portions of the governing text.

Per Petitioner, he brought forth his action as a result of an action taken by Respondent’s Board of Directors at a regular meeting of the Board held on November 20, 2017, to approve a third amendment to the Association’s Bylaws. Petitioner testified that he believed any amendment to Association Bylaws needed to be taken by a vote of the majority of members, present or by proxy, at a meeting of the members called for that purpose.

Petitioner testified that on January 23, 2017, the Association mailed members, including Petitioner, a list of Board meeting dates for 2017 as follows: January 30, 2017, February 20, 2017, March 20, 2017, April 17, 2017, May 15, 2017, June 19, 2017, July 17, 2017, August 21, 2017, September 18, 2017, October 16, 2017, November 20, 2017, and December 18, 2017. All meetings were scheduled to be held at Tucson Realty & Trust located at 2525 E. Broadway Blvd. #111 Tucson, AZ [85716] at 4:00 p.m.

Petitioner testified that although no Association members were present for the Board’s meeting held on November 20, 2017, that the clause “cause an annual audit of the Association books to be made by a public accountant at the completion of each fiscal year” was removed from Article VIII Section 6(d) from the Association Bylaws by majority vote of the Board, and replaced with “cause an annual audit, review, or compilation of the Associations financial records to be made by a public accountant within 180 days after the end of the HOA’s fiscal year.”

Petitioner testified that, per his understanding, in accordance with the provisions of Ariz. Rev. Stat. §33-1804 and Article III of the Bylaws, the Board’s amendment of the Bylaws was an invalid action and outside their power and authority as defined in the governing documents.

Petitioner testified that Article XIII of the Bylaws described the process for revising Association Bylaws.

Further, Petitioner opined that the word “members” in Section 1 of Article XIII refers not to the members of the Board of Directors, but to the members of the Association as defined in Article II Section 7 which states “‘Member’ shall mean and refer to those persons entitled to membership as provided in the Declaration.”

Petitioner testified that per Section 2.1 of the Declaration, each owner, including Declarant of the lot, by virtue of being an owner shall automatically be a member of the Association.

Petitioner testified that his belief was supported by a review of the rules regarding the term “proxy” as defined in Article III, as it applies to votes of the members and not the Board of Directors, because members of the Board are not permitted to vote by proxy.

Article VII of the Bylaws identifies the powers and duties of the Board of Directors. Petitioner testified that because this section does not expressly grant the Board of Directors authority to make or vote on amendments to the Bylaws, that they are prohibited from doing so.

Petitioner testified that Arizona Revised Statutes (“Ariz. Rev. Stat.”) § 33-1804(b) and Article III of the Bylaws establish notice and meeting requirements, as well as Bylaw amendment requirements.

Petitioner noted that in Powell v. Washburn the Supreme Court of Arizona held that “We today adopt the approach of the Restatement (Third) of Property: Servitudes (“Restatement”) and hold that restrictive covenants shall be interpreted to give effect to the intention of the parties as determined from the language of the document in its entirety and the purpose for which the covenants were created.” See Powell v. Washburn, 125 P.3d 373 (Sup. Ct., Ariz., 2006).

Petitioner admitted that although he had not been directly impacted by the Board’s November 2017 amendment that he could be as the amendment modified a prior third party audit requirement to check the Associations financial records. Petitioner argued that as a homeowner he has an interest in ensuring that the Association’s financials were correct, and that the Association was not performing their own financial audits.

Conclusions of Law

This matter lies within the Department’s jurisdiction. Pursuant to Ariz. Rev. Stat. §§ 32-2102 and 32-2199 et seq., regarding a dispute between an owner and a planned community association, the owner or association may petition the department for a hearing concerning violations of condominium documents or violations of the statutes that regulate condominiums as long as the petitioner has filed a petition with the department and paid a filing fee as outlined in Ariz. Rev. Stat. § 32-2199.05.

Pursuant to Ariz. Rev. Stat. §§ 32-2199(2), 32-2199.01(D), 32-2199.02, and 41-1092 OAH has the authority to hear and decide the contested case at bar. OAH has the authority to interpret the contract between the parties. See Tierra Ranchos Homeowners Ass'n v. Kitchukov, 216 Ariz. 195, 165 P.3d 173 (App. 2007).

In this proceeding, Petitioner bears the burden of proving by a preponderance of the evidence that Respondent violated Ariz. Rev. Stat. § 33-1804.

“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.”

Ariz. Rev. Stat. § 33-1804(B) provides, in pertinent part, as follows:

Not fewer than ten nor more than fifty days in advance of any meeting of the members the secretary shall cause notice to be hand-delivered or sent prepaid by United States mail to the mailing address for each lot, parcel or unit owner or to any other mailing address designated in writing by a member. The notice shall state the date, time and place of the meeting. A 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. (Emphasis added.)

In closing Respondent argued that Bylaws should be reviewed in their entirety and interpreted based on the text of the document, while giving deference to Articles VI, VII, and XIII. Regarding Article XIII, Respondent argued that the term “members” referred to the Board, and not the general members of the Association, as the word is not capitalized, and that section 1 authorized Board members to amend the Bylaws at regular or special meetings as long as there was a quorum of Board members present. Respondent concluded by arguing that the November 2017 amendment was for the benefit of the members of the Association.

Petitioner closed by praying for the following relief: an invalidation the Board’s third amendment of the Bylaws, an order requiring Respondent to comply with the Bylaws and Ariz. Rev. Stat. § 33-1804(b) henceforth, an assessment of a fine against Respondent, an award/refund of his hearing filing fee, and an issued decision in his favor.

Here, it is undisputed that the Board amended the Association Bylaws on November 20, 2017, without first calling for a vote by the members of the Association. The record further establishes that the Association’s governing documents do not support the Board’s action.

In the case at bar Petitioner has sustained his burden of proof.

Bylaws must be construed to avoid an absurdity. The voices of few cannot speak for all, unless all have bestowed those few with the power and authority to speak on their behalf. In this case the governing documents for the Association are clear: “members” refers to the body of owners who make up the membership of the Association, and “Directors” refers to the few who are elected to the membership’s Board. The Board does not have power to act where authority is expressly delegated to the membership of the Association.

Therefore, the Administrative Law Judge concludes that the Board’s action on November 20, 2017, in the absence of a quorum of Association members whereby a majority of said members voted in favor of the proposed third amendment of Association Bylaws, violated the charged provisions of Ariz. Rev. Stat. § 33-1804(B) and Article III of the Association Bylaws.

ORDER

Based on the foregoing findings and conclusions,

IT IS ORDERED that Petitioner’s petition be granted.

IT IS FURTHER ORDERED that Respondent’s third amendment to the Association Bylaws, as taken on November 20, 2017, is invalidated.

IT IS FURTHER ORDERED that pursuant to Ariz. Rev. Stat. § 32-2199.02(A), Respondent shall pay to Petitioner the filing fee required by Ariz. Rev. Stat. § 32-2199.01 and shall pay to the planned community hearing office fund established by Ariz. Rev. Stat. § 32-2199.05 the sum of $250.00 as a civil penalty for the violation(s) as detailed above.

In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order will be five days from the date of that certification.

NOTICE

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

Done this day, September 24, 2018.

/s/ Jenna Clark

Administrative Law Judge

Transmitted electronically to:

Judy Lowe, Commissioner

Arizona Department of Real Estate

Transmitted US Mail to:

Jay Janicek

1098 S. Chatfield Place

Corona de Tucson, Arizona 85641

Sycamore Vista No. 8 HOA

c/o Andrew F. Vizcarra

Tucson Realty & Trust Co. Management

PO Box 57610

Tucson, Arizona 85732