HOA - ALJDEC decisions
22F-H2221011-REL · Department of Real Estate - H/C · 2022-03-21
IN THE OFFICE OF ADMINISTRATIVE HEARINGS
John J Balaco,
Petitioner,
vs.
Sun City Oro Valley Community Association, Inc.,
Respondent.
No. 22F-H2221011-REL
ADMINISTRATIVE LAW JUDGE DECISION
HEARING: December 29, 2021, and March 01, 2022.
APPEARANCES: John Balaco (“Petitioner”) appeared on his own behalf with, Diane Paton as a witness. Nicholas Nogami, Esq. and Sami Farhat, Esq. appeared on behalf of Sun City Oro Valley Community Association, Inc. (“Respondent”) with Mark Wade, Randall James Mitchell, and Randy Trenary as witnesses. Marla Balaco, Janet Ambrosio, Sheila Helmuth, Sherokee Ilse, Edward Zwerling, Robin Coulter, Rocky Gedrose, Thelma LaFleur, Tim Kelley, Vicki McFadden, Allan Mashburn, Cathy Winje, Chris Ludwig, Dan Edward, Dibri Ruiz, Donna Harting, Eric Meyers, James Gearhardt, Anthony Denaro, Melanie Stenson, Bertha Medina, Carol Johnson, Rita Petterson, David Sullivan, Gary Lurch, Janet Keller, Joanne Keck, Kaaren Brent, Karen Roche, Ken Sandrick, Kristi Halverson, Lindsay Welbers, Marie Scarpulla, Maxine Yunker, Pamela Sarpalius, Phyliss Austin, Robert Watson, Sandra Fischer, Sharon Kennedy, Vicki McFadin, and William Whitney observed.
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 Commissioner of the Arizona Department of Real Estate (“Department”).
FINDINGS OF FACT
Background and Procedure
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 August 16, 2021, Petitioner filed a single-issue petition with the Department which alleged that the Association violated Article 6.7 of the Association’s Master Declaration by modifying plans to renovate the Association’s Activity Center’s coffee bar to include the sale of alcoholic beverages, sans a vote from the Members. Petitioners further alleged that the Association’s modification converted a portion of the residential common area to a restricted commercial bar under the regulation of the Arizona Department of Liquor License and Control, without the approval of its Members. Petitioner did not indicate on his petition what remedy, if any, he sought from the Department.
On August 19, 2021, Petitioner tendered a $500.00 filing fee to the Department for his petition.
On September 13, 2021, Respondent returned its Answer to the Department whereby it denied all complaint items in the petition.
On September 22, 2021, the Department referred this matter to the Office of Administrative Hearings (“OAH”), an independent state agency, for an evidentiary hearing on November 22, 2021. Per the Notice of Hearing regarding the following issue:
Whether Respondent is in violation of Community Document 5th Amended Master Declaration Article 6.7 for substantially changing use of a portion of the Common Area without approval of at least 60% of Members voting on the matter.
The Parties and Governing Documents
Respondent is a 55+ homeowners’ association whose members own properties in a residential real estate development located in Oro Valley, Arizona. Membership for the Association is compromised of the Sun City Oro Valley subdivision.
Petitioners are Sun City Oro Valley subdivision property owners and members of the Association.
The Association is governed by its CC&Rs, Bylaws, [Amended] Master Declaration, and overseen by a Board of Directors (“Board”). The governing documents 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 governing documents and agrees to be bound by their terms. Thus, the all of the governing documents form an enforceable contract between the Association and each property owner.
On or about March 23, 2021, the 5th Amended Master Declaration was adopted via vote of the Membership of the Association. Article 6, Easements and Common Area, provides, in pertinent part, as follows:
6.7 Change in Use of Common Area. There shall be no substantial change in use of any portion of Common Area unless approved by at least sixty percent (60%) of Members voting on the matter. For purposes of this Section, a “substantial change in use” is one that changes the character and nature of the way in which the Common Area is used, including, but not limited to, changing natural open space to business use.
Hearing Evidence
Petitioner testified on his own behalf, called Diane Paton as a witness, and submitted Exhibits 6-9, 13, 15-18, and 22-24 into the record. Respondent presented the testimonies of Mark Wade, Randall James Mitchell, and Randy Trenary, and submitted Exhibits 1-12 and its Prehearing Memorandum into the record. The Department’s electronic file was also admitted into the record. The substantive evidence of record is as follows:
The Association is a large scale senior community sprawling approximately 22,000 square feet that boasts numerous amenities for residents, including a 1,400 square foot Activity Center that offers a multitude of services for members as well as a coffee bar, Navajo meeting room, and Kiva Patio.
The Activity Center is approximately 34 years old.
On June 14, 1977, the Arizona Department of Liquor License and Control (“DLLC”) issued License No. 06100022 to the Association for Views Restaurant. The license is currently active and is set to expire on September 30, 2022.
On or about May 15, 1990, DLLC approved the Association’s request to permanently extend its liquor service area to the patio and Social Hall.
For the last few years the Association has been renovating the Activity Center. The purpose of the renovation is to update and improve the existing building and aesthetics.
In order to assist the Board with the task, an Activity Center Renovation Committee (“Committee”) was created to provide a recommendation to the Board, which would then be presented before Membership for a vote to expend proposed project funds, pursuant to the Association’s Bylaws.
About 34 open Committee meetings were held with Membership between early-2018 and mid-2021, whereby the Committee conducted surveys, held Resident forums, and interviewed over 55 clubs. During that time, it was suggested that a wine bar be included as part of the renovation.
An early schematic of the proposed renovation prepared by Highton Architects included an early rendering of the Activity Center’s coffee bar updated into a modernized café wine bar, including indoor and outdoor seating.
In November 2020, the Committee completed a recommendation presentation for the Board’s consideration setting forth its proposed plan for the renovation, including a proposed drawing of the coffee/wine bar.
Ultimately, the Board accepted the recommendations from the Committee. In early 2021, the Association published materials for Membership to review. These materials were made available via an explanative video on the Association’s website for the Membership to access.
On March 23, 2021, a vote by the Membership was held regarding the renovation project. Out of the 1,715 Members who voted, 1,121 (65%) voted in favor of the renovation. Only 859 votes were required to pass.
The Board has not taken any action, beyond speculation and gauging Membership interest, regarding submitting a request to DLLC to extend its liquor license into the meeting rooms, patio, or grassy outdoor area(s). The Association has not submitted a new application to DLLC to extend its liquor service area for any proposed renovated common area. Thus, Membership has not had the opportunity to vote on those nonexistent propositions.
As of the date of the hearing, no construction or structural modification of the Activity Center; including the coffee bar, Navajo Room, and Kiva Patio, has taken place.
Once the new café wine bar has been constructed, minors will have to be accompanied by an adult 21 years of age or older. Also, Members will not be permitted to bring off-site alcoholic beverages into the premises.
In closing, Respondent argued that the addition of a wine bar to the Activity Center’s coffee bar did not constitute a substantial change of use in the common area at issue, as all prior services offered before the renovation would still be available to residents after construction was completed. Respondent argued further that because its Membership overwhelmingly voted in favor of its proposed renovations, any and all arguments regarding “substantial change of use” were moot and irrelevant.
In closing, Petitioner argued that the addition of an alcohol component to the Activity Center’s coffee bar amounted to a substantial change in use of a portion of the affected common area because minors would not be permitted in the area unaccompanied by an adult of age. Petitioner also argued that Respondent’s current liquor license does not cover the proposed service area. Petitioner concluded by requesting an order requiring the Board to hold a vote regarding the submission of any application to DLLC regarding the renovation project, and a directive that Respondent comply with Article 6.7 of the amended Master Declaration.
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 community documents or violations of the statutes that regulate planned communities 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(A), 32-2199.01(D), 32-2199.02, and 41-1092 et seq. OAH has the authority to hear and decide the contested case at bar. OAH has the authority to interpret the contract between the parties.
In this proceeding, Petitioner bears the burden of proving by a preponderance of the evidence that Respondent violated a community document.
“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.”
Based upon a review of the credible and relevant evidence in the record, Petitioner has not sustained his burden of proof.
Here, the material facts are clear.
Petitioner’s argument is not ripe.
There is no real grievance, yet. While it is true that the Membership of the Association did vote to renovate the Activity Center, including upgrading the existing coffee bar to a café wine bar, no construction has taken place. The crux of Petitioner’s is theoretical and predicated on action(s) that have yet to occur. None of the potentially negatively impacted minors Petitioner referenced are members of the Association. The record reflects that any adult age 21 plus would have to accompany them to the café wine bar post construction. Therefore, it cannot reasonably be concluded that the Association substantially changed the use of a portion of a common area. Notably, the undersigned cannot make any determinations about whether the Association’s proposed voter-approved construction would alter the character and nature of the common area to such an extent that it would create a “substantial change of use” to the area. Based on Petitioner’s arguments in closing, it is apparent that he is seeking injunctive and/or declaratory relief that is unavailable for litigants in the administrative hearing process in the State of Arizona.
Therefore, the undersigned Administrative Law Judge concludes that, because Petitioner did not establish a violation of Article 6.7 of the Association’s 5th Amended Master Declaration by a preponderance of the evidence, his petition must be denied.
ORDER
Based on the foregoing,
IT IS ORDERED that Petitioners’ petition is denied.
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 Department of Real Estate within 30 days of the service of this Order upon the parties.
Done this day, March 21, 2022.
Office of Administrative Hearings
/s/ Jenna Clark
Administrative Law Judge
Transmitted by either mail, e-mail, or facsimile March 21, 2022, to:
Louis Dettorre, Commissioner
Arizona Department of Real Estate
[email redacted]
John Balaco, Petitioner
[email redacted]
Sun City Oro Valley Community Association, Inc.
c/o Nicholas Nogami, Esq. & Sami Farhat, Esq.
Carpenter Hazlewood Delgado & Bolen LLP, Counsel for Respondent
[email redacted]
[email redacted]
By: Miranda Alvarez