ALJDEC decisions subject to certification as final

19F-H1918034-REL · Department of Real Estate - H/C · 2019-03-05

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: February 20, 2019, at 1:00 p.m. APPEARANCES: Linda Curtin (“Complainant”) appeared on her own behalf; The Ridge at Diamante del Lago Homeowners Association (“Respondent”) appeared through Tracy Schofield, its Community Manager. 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 homeowners’ associations (“HOAs”) and from HOAs in Arizona. Respondent is an HOA whose members own single-family houses on lots in the The Ridge at Diamante del Lago in Fountain Hills, Arizona.. Petitioner owns a house in and is a member of Respondent. On or about November 28, 2018, Petitioner filed a single-issue petition with the Department that alleged that Respondent had violated Covenants, Conditions, and Restrictions (“CC&Rs”) § 4.8 and A.R.S. § 33-1805 by refusing to make available association records or to produce a receipt that identified the contractor and the amount paid to a contractor who had built a cinderblock wall by the community’s clubhouse in response to a request that Complainant had first made on August 1, 2018.[1] On or about December 10, 2018, Respondent filed a written answer to the petition, stating that “[a]ll of the complaint items have been resolved” and attaching a receipt from ValleyWide Custom Painting Inc. dated November 2, 2017 for $1,000.00 which contained the following scope of work: AC Wall Removal, various stucco repairs to be made to clubhouse retaining wall in preparation for painting, and expansion of existing trash can storage area with addition of block wall. Wall Addition to be approximately 2.5 feet wide, 3 feet deep and feet high adjoined to existing trash can storage wall.

Stucco repairs to pool retaining wall, trash can storage wall to be constructed using 8 inch cinder block, with stucco sand finish. Job bid to include all materials and labor. Contractor to facilitate site prep, clean up and material disposal.

Contractor contact information: Castro’s Stucco. All work performed by Gualberto Stucco & Repairs Cualberto Castro [telephone number].[2] . Petitioner sent a letter to the Department, disputing that the issue had been resolved because she was dissatisfied with and suspicious of the documents that Respondent had provided.[3] The Department referred the petition to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing. A hearing was held on February 20, 2019. Petitioner submitted four exhibits and testified on her own behalf. Respondent submitted one exhibit and presented the testimony of its Community Manager, Tracy Schofield. Relevant CC&R and Statute Respondent’s CC&R 4.8 provides as follows: Accounting. The Board, at all times, shall keep, or cause to be kept, true and correct records of account in accordance with generally accepted accounting principles, together with recent financial statements. The Board shall keep such books and records available for the inspection of all Owners, First Mortgagees and Institutional Guarantors, upon request, during normal business hours or other reasonable ties. Required books and records shall specify in reasonable detail all expenses incurred and funds accumulated from assessments or otherwise.[4]

A.R.S. § 33-1805(A) provides as follows: Except as provided in subsection B of this section, all financial and other records of the association shall be made reasonably available for examination by any member or any person designated by the member in writing as the member's representative. The association shall not charge a member or any person designated by the member in writing for making material available for review. The association shall have ten business days to fulfill a request for examination. On request for purchase of copies of records by any member or any person designated by the member in writing as the member's representative, the association shall have ten business days to provide copies of the requested records. An association may charge a fee for making copies of not more than fifteen cents per page.

A.R.S. § 33-1805(B) provides certain kinds of communications that may be withheld from disclosure based on privilege, closed board meetings, pending litigation, job performance and compensation of employees, and personal information of members. Respondent did not allege that A.R.S. § 33-1805(B) allowed it to withhold the documents that Petitioner requested. Hearing Evidence On August 1, 2018, Petitioner sent an email to Ms. Schofield requesting the name of a contractor that Respondent had used in the past to help her design and build a retaining wall. After Ms. Schofield stated that she did not know of such a contractor, on August 2, 2018, Petitioner asked “[d]o you happen to know who installed the garbage can walls at the clubhouse?” In an email exchange between August 2, 2018, and September 11, 2018, Ms. Schofield stated that the contractor’s name was Roberto, but that she did not set up the work and that she was unable to obtain his number. Petitioner demanded to know how had set up the work and Ms. Schofield stated that Jim Mackiewicz, Respondent’s Board’s Treasurer, had set up the work.[5] Although Petitioner never specifically requested that she be allowed to view or that she be provided copies of any of Respondent’s records in the email exchange, in the petition that she filed with the Department she characterized the exchange as “evasive.”[6] On or about September 12, 2018, Petitioner sent a letter to Ms. Schofield at Metro Property Management requesting “a copy of the invoice submitted to The Ridge HOA for materials and services rendered for the construction of the garbage can screen masonry structure in front of the community clubhouse.”[7] On or about September 24, 2018, Ms. Schofield responded to Petitioner’s letter on Respondent’s behalf, stating that “I do not have copies of previous years’ invoices/payments as your community retains records in the community and not at my office. I have printed a report for you with regards to work that was constructed with the requested vendor.”[8] Ms. Schofield attached to her September 24, 2018 letter a printout of payments that Respondent had made to Gaulberto Castro between August 19, 2015, and April 5, 2018, including a check dated November 1, 2017 for $1,000.00 for “Block work – clubhouse.”[9] Petitioner did not include this document in her exhibits, although she referenced it in her legal arguments by pointing out that the date of the check was the day before the invoice that Respondent provided with its answer. On November 5, 2018, Petitioner sent an email to Ms. Schofield, stating that “you mentioned that the community retains records in the community” and requesting that “Jim bring a copy of the invoice to the HOA board meeting today.”[10] Petitioner testified that the requested document was not provided to her on November 5, 2018. Petitioner testified that the next week she made 15 telephone calls to Ms. Schofield, requesting a copy of the Architectural Control Committee meeting minutes in which the garbage can enclosure wall at the clubhouse had been approved. Since she did not get a satisfactory response, she filed the petition with the Department on November 28, 2018. On December 10, 2018, Ms. Schofield sent an email to Complainant, to which she attached Mr. Castro’s invoice.[11] On December 11, 2018, Petitioner asked for ”a copy of the cashed check (front and back) and the payee’s mailing address, as well as the completed Architectural Control Committee Application that was submitted that includes the contractor’s address, License Number and Insurance Company.”[12] Petitioner testified that Ms. Schofield stated that the requirement of Architectural Control Committee approval was not applicable to work that Respondent had performed on common areas. Ms. Schofield eventually provided a copy of the cancelled check dated November 1, 2017, made payable to Mr. Castro in the amount of $1,000.00.[13] Petitioner continued to complain that she was not satisfied with the documents that Respondent provided because Mr. Castro did not comply with the Registrar of Contractors statutes in that he was not a licensed contractor, the clubhouse job was a commercial project, and the amount of the job was not less than $1,000.00 for the Registrar of Contractors’ exemption to apply.[14] Petitioner also opined that November 2, 2017 receipt appeared to have two different kinds of handwriting and might be a forgery. The Administrative Law Judge did not see different handwriting and Complainant did not present the opinions of a handwriting expert. Petitioner acknowledged that the workmanship on the garbage can enclosure wall at the clubhouse appeared to be adequate. Petitioner testified that she also requested information and records that Respondent possessed that pertained to comments and feedback from Respondent’s Board members about the garbage can enclosure wall at the clubhouse. Petitioner complained at the hearing the minutes of Board meetings did not authorize the $1,000.00 garbage can enclosure project at the clubhouse.[15] However, this was not the issue that Petitioner raised in the single-issue petition that she filed with the Department. Petitioner also complained that the draft minutes of the November 5, 2018 Board meeting reflected among the new business that the Board had unanimously resolved “[t]o approve $125,000 for the pool remodel project with a 10% incidental fund for unforeseen issues and to propose these projects and funding to the membership for a vote . . . .”[16] Ms. Schofield testified that at Respondent’s January 17, 2019 general membership meeting, Petitioner objected to reconvening of the November 5, 2018 meeting to allow membership to vote on the expenditure for the pool remodel project. Ms. Schofield testified that $125,000 is not an amount that the Board can approve on its own without approval from membership. There will be a special meeting of members in the spring to vote on the pool expenditure. Ms. Schoefield testified that she is not an onsite community manager, that she works as a community manager for numerous associations, and that she does not have any of the associations’ records in her office. Ms. Schofield testified that she provided what information she had to Petitioner and communicated with Petitioner on every issue. Ms. Schofield noted that all of her emails contained her office hours and, during the holidays, the days on which she would not be in her office. Ms. Schofield noted that Petitioner sent numerous emails in December 2018, demanding an immediate response. Ms. Schofield testified that in the future, if Petitioner requests a specific record, she will schedule a time for her to go through the records at Respondent’s records depository within ten days. CONCLUSIONS OF LAW A.R.S. § 32-2199(B) permits an owner or a planned community organization to file a petition with the Department for a hearing concerning violations of planned community documents under the authority Title 33, Chapter 16.[17] 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 CC&R § 4.8 and A.R.S. § 33-1805(A) by a preponderance of the evidence.[18] Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.[19] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[20] 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.”[21] “A cardinal rule of statutory interpretation is to give full effect to each statutory word or phrase so that no part is rendered void, superfluous, contradictory or insignificant.”[22] Similarly, if a restrictive covenant is unambiguous, it is enforced to give effect to the intent of the parties.[23] “Restrictive covenants must be construed as a whole and interpreted in view of their underlying purposes, giving effect to all provisions contained therein.”[24] CC&R § 4.8 requires the Board to keep records in accordance with generally accepted accounting principles, along with recent financial statements, and to make such records accessible to HOA members upon request. Although the $1,000.00 expenditure for the garbage can enclosure was made ten months before Petitioner asked for it and was for a nominal amount, A.R.S. § 33- 1805(A) required Respondent to provide access to Petitioner to view records related to the expenditure within ten days of her request. A.R.S. § 33- 1805(A) contains similar requirements, with the additional requirement that access must be provided within ten days of a request. Respondent established that, eventually, it provided all documents in its possession elated to the expenditure. However, it acknowledged that it did not provide the documents or provide access to Petitioner to view the documents within ten days of Petitioner’s September 12, 2018 request. Therefore, Petitioner established that Respondent violated A.R.S. § 33- 1805(A). All that CC&R § 4.8 requires is that Respondent keep records and make them available to members. All that A.R.S. § 33-1805(A) requires is that Respondent made records available to members within ten days of members’ request for the records. The legislature has not authorized the Department to enforce the Registrar of Contractors’ statutes in an HOA petition or that HOAs produce records that satisfy all of a members’ stated concerns. Petitioner’s concern with “transparency” and dissatisfaction and suspicions about the records that were eventually provided do not entitle her to any additional relief in this forum. The Administrative Law Judge hopes that, in the future, Petitioner can set aside her concerns and suspicions to cooperatively build a better community with Respondent. RECOMMENDed order IT IS ORDERED that Petitioners’ petition is granted because she has established that Respondent violated A.R.S. § 33-1805(A). IT IS FURTHER ORDERED that Respondent shall reimburse to Petitioner the $500.00 that she paid to file her single-issue petition. 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 days of the service of this Order upon the parties. Done this day, March 5, 2019.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

Judy Lowe, Commissioner Arizona Department of Real Estate

Linda Curtin 17320 E. Sunscape Dr. Fountain Hills, AZ 85225

The Ridge at Diamante del Lago Homeowners’ Association, Inc. c/o Mitch Kellogg (statutory Agent) 150 E. Alamo Dr., #3 Chandler, AZ 85225

By: Felicia Del Sol ----------------------- [1] See Petitioner’s Exhibit 1. [2] Petitioner’s Exhibit 1 at 24-25. [3] See Petitioner’s Exhibit 1 at 29. [4] Petitioner’s Exhibit 4 at 88. [5] See Petitioner’s Exhibit 1 at 8-11. [6] Exhibit 1 at 4. [7] Petitioner’s Exhibit 1 at 6. [8] Id. at 7. [9] Respondent’s Exhibit A at 2. [10] Respondent’s Exhibit A at 4. [11] See Respondent’s Exhibit A at 5. [12] Respondent’s Exhibit A at 5. [13] See Respondent’s Exhibit A at 11. [14] See Petitioner’s Exhibit 1 at 29, Exhibit 2 (citing A.R.S. § 32-1132- 1121(A)(14)(b)). [15] See Petitioner’s Exhibit 2. [16] Petitioner’s Exhibit 3 at 79. [17] See A.R.S. § 33-1803, which authorizes homeowners associations in planned communities to enforce the development’s CC&Rs. Petitioner argued that Title 33 did not apply to Respondent because it is a non-profit organization, apparently based on the arguments mentioned by the law firm of Carpenter Hazlewood in Petitioner’s Exhibit 4. The Administrative Law Judge does not address this argument because she does not believe it has merit. She also does not believe that Petitioner contemplated the legal consequences of his argument because if Title 33 did not apply to this dispute, neither the Office of Administrative Hearings (“OAH”) nor the Department have jurisdiction to decide the merits of Petitioner’s claim. Although Petitioner argued that the Department must consider his petition because he has no other forum, as executive agencies, OAH and the Department can only enforce duly enacted statutes within the authority given by such statutes. The Department may consider this argument because lack of jurisdiction is may not be waived. [18] See A.R.S. § 41-1092.07(G)(2); A.A.C. R2-19-119(A) and (B)(1); see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [19] See A.A.C. R2-19-119(B)(2). [20] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [21] Black’s Law Dictionary at page 1220 (8th ed. 1999). [22] Westburne Supply, Inc. v. Diversified Design and Construction, Inc., 170 Ariz. 598, 600, 826 P.2d 1224, 1226 (Ct. App. 1992). [23] See Powell v. Washburn, 211 Ariz. 553, 556 ¶ 9, 125 P.3d 373, 376 (2006). [24] Lookout Mountain Paradise Hills Homeowners’ Ass’n v. Viewpoint Assocs., 867 P.2d 70, 75 (Colo. App. 1993) (quoted in Powell, 211 Ariz. at 557 ¶ 16, 125 P.3d at 377).

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