ALJDEC decisions subject to certification as final

20F-H2020041-REL · Department of Real Estate - H/C · 2020-05-21

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Douglas J. Karolak,

Petitioner,

vs.

VVE - Casa Grande Homeowners Association,

Respondent

No. 20F-H2020041-REL

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: May 1, 2020

APPEARANCES: Petitioner Douglas J. Karolak appeared on his own behalf. Respondent VVE – Casa Grande Homeowners Association was represented by David Fitzgibbons.

ADMINISTRATIVE LAW JUDGE: Tammy L. Eigenheer

_____________________________________________________________________

FINDINGS OF FACT

On or about January 12, 2020, Petitioner Douglas J. Karolak filed a Homeowners Association (HOA) Dispute Process Petition (Petition) with the Arizona Department of Real Estate (Department) alleging a violation of community documents by Respondent VVE – Casa Grande Homeowners Association. Petitioner indicated a single issue would be presented, paid the appropriate $500.00 filing fee, and asserted a violation of A.R.S. § 33-1817(A)(1) and Part 10, Section 10.4 of the CC&Rs.

On or about October 31, 2019, the Department issued a Notice of Hearing in which it set forth the issue for hearing as follows:

The Petitioner alleges in the petition that VVE – Casa Grande Homeowners Association is in violation of A.R.S. § 33-1817(A)(1) and community document CC&Rs Part 10, Section 10.4.

At hearing, Petitioner testified on his own behalf and Respondent presented the testimony of CV Mathai, John Kelsey, Kristi Kelsey, William Findley, Kay Niemi, and Mark Korte. Based on the evidence presented at hearing, the following occurred:

VVE – Casa Grande Homeowners Association is an association of lot owners in Casa Grande, Arizona. Of the 56 lots in the association, 19 are vacant.

On or about April 30, 1999, the Restated Declaration of Covenants, Conditions and Restrictions for VVE (CC&Rs) was recorded with the Pinal County Recorder.

The relevant portions of the CC&Rs provided as follows:

3.4 Association Rules. The Board shall be empowered to adopt, amend, or repeal such rules and regulations as it deems reasonable and appropriate (the “Association Rules”), binding upon all Persons subject to this Declaration and governing the use and/or occupancy of the Common Area or any other part of the Project. The Association Rules may include the establishment of a system of fins [sic] and penalties enforceable as Special Assessments. The Association Rules shall govern such matters in furtherance of the purposes of the Association, including, without limitation, the use of the Common Area; provided, however, that the Association Rules may not discriminate among Owners except as expressly provided or permitted herein, and shall not be inconsistent with this Declaration, the Articles or Bylaws. The Association Rules shall have the same force and effect as if they were set forth in and were part of this Declaration and shall be binding on the Owners and all other Persons having any interest in, or making any use of, the Real Property, whether or not actually received thereby. . . . The Association Rules, as adopted, amended or repealed, shall be available at the principal office of the Association to Association Rules and any provisions of this Declaration or the Articles or Bylaws, the provisions of this Declaration, the Articles or Bylaws shall prevail.

. . . .

7.43 Modification. Except where Declarant’s rights are involved or Declarant’s consent is required, the Board may modify or waive the foregoing restrictions contained in this Part 7 or otherwise restrict and regulate the use and occupancy of the Project, the Lots and the Dwelling Units by reasonable rules and regulations of general application adopted by the Board from time to time which shall be incorporated into the Association Rules.

. . . .

10.4 Amendments. . . . [T]his Declaration may be amended by instrument executed by the Owners of at least two-thirds (2/3) of the Lots, including or incorporated within this Declaration, and such amendment shall not be effective until the recording of such instrument.

After attempts to amend the CC&Rs through membership votes were unsuccessful in 2014 and 2015, the Board determined in 2018, that it would make changes to the “rules section” of the CC&Rs under the authority granted to it by Section 3.4.

On or about October 5, 2018, the Board a document entitled Restated Declaration of Covenants, Conditions and Restrictions for Val Vista Estates (Amended CC&Rs) with the Pinal County Recorder.

The only identified changes between the original CC&Rs and the Amended CC&Rs were found in Part 7, Use Restrictions. Respondent acknowledged that the amendments to the CC&Rs had not been approved by owners of at least two-thirds of the lots.

Petitioner argued that the Amended CC&Rs was not valid because owners of at least two-thirds of the lots in the association did not approve of the amendments. Petitioner asserted that the recording of the Amended CC&Rs was not equivalent to the Board adopting Association Rules that may function as an amendment to the CC&Rs.

Respondent argued that because the only changes in the Amended CC&Rs were of the kind that the Board was authorized to adopt, amend, or repeal as Association Rules, the Amended CC&Rs were a valid exercise of the Board’s authority. Respondent’s counsel acknowledged at one point that perhaps the Amended CC&Rs should not have been recorded with the Pinal County Recorder.

CONCLUSIONS OF LAW

Arizona statute 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. A.R.S. § 32-2199. 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 committed the alleged violations by a preponderance of the evidence. See Ariz. Rev. Stat. section 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). Respondent bears the burden to establish affirmative defenses by the same evidentiary standard. See A.A.C. R2-19-119(B)(2).

“A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” Morris K. Udall, Arizona Law of Evidence § 5 (1960). 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.” Black’s Law Dictionary at page 1220 (8th ed. 1999).

A.R.S. § 33-1817 provides, in pertinent part, as follows:

A. Except during the period of declarant control, or if during the period of declarant control with the written consent of the declarant in each instance, the following apply to an amendment to a declaration:

1. The declaration may be amended by the association, if any, or, if there is no association or board, the owners of the property that is subject to the declaration, by an affirmative vote or written consent of the number of owners or eligible voters specified in the declaration, including the assent of any individuals or entities that are specified in the declaration.

The plain reading of the CC&Rs provided that any amendments to the CC&Rs must be approved by two-thirds of the owners of the lots in the Association. While the Board had the authority to adopt, amend, and repeal Association Rules, which could serve to completely override the recorded CC&Rs, that was a separate process than the amendment process outlined in the CC&Rs. The fact that the two topics are covered as separate topics in the CC&Rs leads to the conclusion that the original drafters of the CC&Rs did not contemplate that the Board had the authority to, on its own, amend the CC&Rs.

Because the Board did not have the authority to amend the CC&Rs without approval of two-thirds of the owners of the lots, the Board acted improperly when it recorded the Amended CC&Rs on October 5, 2018.

Accordingly, Petitioner established Respondent acted in violation of the community documents and A.R.S. § 33-1817(A)(1).

Petitioner requested as a remedy that the improper Amended CC&Rs be rescinded.

A.R.S. § 32-2199.02, provides, in pertinent part, as follows:

A. The administrative law judge may order any party to abide by the statute, condominium documents, community documents or contract provision at issue and may levy a civil penalty on the basis of each violation.

The Administrative Law Judge does not have the authority under the applicable statute to order the Amended CC&Rs rescinded.

ORDER

IT IS ORDERED that Petitioner be deemed the prevailing party in this matter.

IT IS FURTHER ORDERED that Respondent pay Petitioner his filing fee of $500.00, to be paid directly to Petitioner within thirty (30) days of this Order.

No Civil Penalty is found to be appropriate in this matter.

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.

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-137160-45720000Done this day, May 21, 2020.

/s/ Tammy L. Eigenheer

Administrative Law Judge

Transmitted by either mail, e-mail, or facsimile May 21, 2020 to:

Judy Lowe

Commissioner

Arizona Department of Real Estate

100 N. 15th Avenue, Suite 201

Phoenix, Arizona 85007

Douglas J Karolak

12729 W. Marin Rd.

Casa Grande, AZ 85194

David A. Fitzgibbons III, Esq.

Fitzgibbons Law Offices PLC

1115 E. Cottonwood Lane, Suite 150

P.O. Box 11208

Casa Grande, AZ 85230-1208

NORRIS MANAGEMENT

816 W GILA BEND HWY A-1

CASA GRANDE, AZ 85122

By Felicia Del Sol

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001

-137160-45720000