HOA - ALJDEC decisions

22F-H2222043-REL · Department of Real Estate - H/C · 2022-10-13

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

R.L. Whitmer

Petitioner

Hilton Casitas HOA

Respondent

No. 22F-H2222043-REL

ADMINISTRATIVE LAW JUDGE

DECISION

Pending before the Office of Administrative Hearings is Petitioner’s Motion for Summary Judgment and Request for Order to Comply with Section 8.2 of the Declaration of Horizontal Property Regime for Hilton Casitas (Motion). Having reviewed the Motion, Respondent’s Response to Petitioner’s “Motion for Summary Judgment” (Response), and Petitioner’s Reply in Support of the Petitioner’s Motion for Summary Judgment (Reply), the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law, and Order.

FINDINGS OF FACT

Through their filings, the parties agreed that there are no genuine issues of material fact and the issue presented is a question of law. The following reflects the facts as agreed upon by the parties and/or as determined by the Administrative Law Judge:

The Parties and Governing Documents

Respondent, an association of 29 condominium owners in Scottsdale, Arizona, is an Arizona non-profit corporation governed under the Condominium Act and the Nonprofit Corporation Act.

Respondent and its members are governed by Respondent’s Declaration for Horizontal Property Regime (Declaration) recorded in 1972, the Bylaws for Hilton Casitas Council of Co-Owners (Bylaws), and the Articles of Incorporation.

Section 1.4 of the Declaration provides as follows:

“Council” shall mean the Council of Co-owners as defined in the Horizontal Property Regime Act, and consists of all of the Owners of the Casitas.

Emphasis added.

Section 1.8 of the Declaration provides as follows: “‘Owner’ shall mean the record owner of a Casita.”

Section 6.6 of the Declaration provides, in pertinent part, as follows:

Council’s Rights and Powers as Set Forth in Bylaws: In addition to the rights and powers of the Council set forth in this Declaration, the Council shall have such rights and powers as are set forth in its Bylaws and any Articles of Incorporation which may be adopted.

Section 8.2 of the Declaration provides, in pertinent part, as follows:

Establishment and Basis of Common Expenses: The Owner of each Casita, for himself, his heirs, executors, administrators, successors and assigns covenants and agrees that each Casita shall be subject to an annual assessment in an amount to be determined by the Council, which shall be such Casita’s pro rata share (as determined in Section 3.6 hereof) of the following aggregate costs: . . . .

Emphasis added.

Pursuant to the Declaration, the Council was authorized to enact Bylaws that would be binding on the Owners.

With respect to voting, the Declaration provides as follows:

Section 6.4. Voting: Each Owner of a Casita shall have one vote. In the event any Casita is owned by two or more persons, whether by joint tenancy, tenancy in common, community property, or otherwise, the membership as to such Casita shall be joint and a single membership for such Casita shall be in the names of all, and they shall designate to the Council, in writing, one of the number who shall hold the membership and have the power to vote said membership, and, in the absence of such designation and until such designation is made, the Board at any time, or from time to time, shall make such designation.

Section 6.5. Suspension of Voting Rights: In the event any Owner shall be in arrears in the payment of any amount due under any of the provisions in this Declaration or any amount legally imposed by the Council upon the Owners for a period of fifteen (15) days, or shall be in default in the performance of any of the terms of this Declaration for a period of fifteen (15) days, said Owner’s right to vote as a member of the Council shall be suspended and shall remain suspended until all payments are brought current and all defaults cured.

Emphasis added.

Article III, Section 1 of the Bylaws provides that Membership is limited to Owners as the term is defined in the Declaration.

Article III, Section 6 of the Bylaws provides, in pertinent part, as follows:

Quorum. The presence at any meeting in person or by proxy of a majority of members shall constitute a quorum, and the acts of a majority of the members at any meeting at which a quorum is present shall be the acts of the Council except as otherwise provided herein.

Emphasis added.

Article III, Section 7 of the Bylaws provides, in pertinent part, as follows:

Voting. . . . In the event any Casita is owned by two or more persons, by a corporation, partnership or other entity having more than one person as a member, whether by joint tenancy, tenancy in common, community property, or otherwise, the membership as to such Casita shall be joint and a single membership for such Casita shall be issued in the names of all, and they shall designate to this Council, in writing, at the time of issuance, one of their number who shall have the power to vote said membership, and, in the absence of such designation and until such designation is made, the Board of Directors of the Council shall make such designation.

Article IV, Section 2 of the Bylaws provides, in pertinent part, as follows:

Powers. The Board of Directors shall have all powers necessary for the administration of the affairs of the Council and may do all such acts and things therefor as are not by law, the Declaration or these Bylaws directed to be exercised or done only by the members.

Article XI, Section 1 of the Bylaws provides that the Bylaws are set forth to comply with the provisions of the Declaration and that, “[i]n case any of the provisions of these Bylaws conflict with the provisions of said Declaration, the provisions of said Declaration shall control.”

Background and Procedure

On or about November 5, 2021, Respondent’s board noticed a November 10, 2021 Respondent’s board meeting with an agenda for the Respondent’s board’s “discussion and approval of 2022 proposed budget.”

On or about November 25, 2021, Respondent’s board noticed a November 29, 2021 board meeting with an agenda that the board would be discussing the 2022 proposed budget, and the “process for Owner Ratification of 2022 budget.”

On or about November 29, 2021, the Respondent’s board canceled the November 29, 2021 board meeting.

On or about December 2, 2021, Respondent’s board noticed a December 6, 2021 board meeting with an agenda that the board would be discussing the 2022 proposed budget and the “process for Owner Ratification of 2022 budget.”

On or about December 30, 2021, Petitioner emailed Respondent’s treasurer regarding the lack of an approved budget and the need to comply with Section 8.2 of the Declaration.

On or about January 12, 2022, Petitioner received an email from Respondent’s president regarding whether Petitioner had received the 2022 budget.

On or about January 13, 2022, Petitioner emailed Respondent’s president affirming that he and several homeowners had not received the 2022 budget and reminding Respondent’s president that Respondent’s board needed to comply with Section 8.2 of the Declaration.

On or about January 16, 2022, Petitioner emailed Respondent’s treasurer in response to the treasurer’s email stating he had received his 2022 budget packaged by USPS mail. Petitioner affirmed that he and several homeowners had not received the 2022 budget and reminded Respondent’s treasurer that Respondent’s board needed to comply with section 8.2 of the Declaration.

On or about January 18, 2022, Respondent’s president emailed a meeting notice to the homeowners that Respondent’s board would be holding a closed board meeting with its attorney.

On or about January 19, 2022, Petitioner emailed Respondent’s board about incurring expenses prior to an approved budget and assessment, and once again reminded Respondent’s president that Respondent’s board needed to comply with Section 8.2 of the Declaration.

On or about January 25, 2022, Petitioner received an email from Respondent’s board cancelling the January 26, 2022 special members 2022 budget meeting that Petitioner had not received notice of. The email also noticed a rescheduled special members 2022 budget meeting for February 9, 2022 with a “Budget Ratification Absentee Ballot” and a summary budget. The ballots were for “ratification” only.

At the February 9, 2022 meeting, 14 Owners participated, either in person or by absentee ballot. The result of the 14 ballots submitted included 11 votes for approval, 2 votes for rejection, and 1 not voting. The 14 ballots constituted less than a quorum of Owners.

Petitioner filed the instant Petition asserting that Respondent acted in violation of the Declaration when it “failed to obtain the affirmative approval of the homeowners for the 2022 annual assessment as required by Section 8.2.”

Party Arguments

Petitioner argued that, pursuant to Section 8.2 of the Declaration, a majority of a quorum of owners had to vote to set the annual assessment, and Respondent failed to obtain such a vote. Rather, only 14 ballots were cast, which was one less ballot than necessary to constitute a quorum, even though 11 of those ballots were cast in favor of setting adopting the annual assessment as proposed.

Respondent argued, however, that Petitioner could not prove that Respondent violated Section 8.2 of the Declaration or Arizona Law in setting the 2022 assessments when it adopted the 2022 annual budget. Respondent asserted that the term “Council” in Section 8.2 was not a reference to all of the individual owners, but was a reference to the board.

CONCLUSIONS OF LAW

Petitioner is entitled to summary judgment when the pleadings shows the absence of any factual issues to be resolved at hearing.

In its Response, Respondent agreed to the scope of the Motion as follows:

[t]he only issue in dispute is whether the reference to “Council” within Section 8.2 specifically where it states assessment amounts are “to be determined by the Council” throughout the Section, results in a duty for Respondent to obtain Owner approval in determining the assessment amounts collected each year and incorporating the same into an annual budget.

An association’s governing documents constitute a contract between the association and the owners. When interpreting contractual provisions, the Office of Administrative Hearings should not construe or interpret a contract if the intent of the parties is clear and unambiguous from its plain language.

A contract is interpreted with the purpose of determining and enforcing the intent of the parties.

“Intent is interpreted by examining the plain meaning of the words in the context of the contract as a whole” and “in the context of the surrounding circumstances.”

“Language in a contract is ambiguous only when it can reasonably be construed to have more than one meaning.”

The Horizontal Property Regime Act was in effect at the time the Declaration was recorded. The Arizona legislature repealed the Horizontal Property Regime Act in 1985, and adopted the Condominium Act with an effective date of January 1, 1986.

In 2008, the Arizona legislature amended Ariz. Rev. Stat. § 33-1201 to clarify that the Condominium Act applied to all condominiums “without regard to the date the condominium was created.”

The Horizontal Property Regime Act included a definition of “Council of co-owners” to mean “all of the co-owners of the building.” Ariz. Rev. Stat. § 38-551(5) (1962).

The Condominium Act does not include a definition of “Council of Co-Owners.” Rather, in Ariz. Rev. Stat. § 33-1202, the Condominium Act includes, in pertinent part, the following definitions:

In the condominium documents, unless specifically provided otherwise or the context otherwise requires, and in this chapter:

. . . .

4. “Association” or “unit owners’ association” means the unit owners’ association organized under section 33-1241.

5. “Board of directors” means the body, regardless of its name, designated in the declaration and given general management powers to act on behalf of the association.

Ariz. Rev. Stat. § 33-1241 provides, in pertinent part, as follows:

The membership of the association at all times shall consist exclusively of all the unit owners or, following termination of the condominium, of all former unit owners entitled to distributions of proceeds under section 33-1228, or their heirs, successors or assigns.

Respondent asserted that, based on its reading of Ariz. Rev. Stat. § 33-1201 and § 33-1241, “[t]he language within these statutory provisions clearly suggests the Legislature intended that the previously defined ‘Council,’ is now an ‘Association’ made up of all Owners within a condominium.” Respondent concluded that its “interpretation of ‘Council’ to represent the ‘Association’ within the Declaration is corroborated by the binding statutory provisions.”

Ariz. Rev. Stat. § 33-1243 provides, in pertinent part, as follows:

A. Except as provided in the declaration, the bylaws, subsection B of this section or other provisions of this chapter, the board of directors may act in all instances on behalf of the association.

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.

Respondent argued that, because adopting a budget was not included in the list of actions a board of directors may not take without membership approval, Respondent in this matter acted within its authority to adopt the 2022 budget, including setting the annual assessment, without the approval of the members.

Respondent pointed out provisions in the Declaration that specifically require a vote of the Owners, rather than the Council, as evidence that the two were not intended to be synonymous at the time the Declaration was recorded.

Section 23.3 of the Declaration provides, in pertinent part, as follows:

Amendment or Termination: These Restrictions may be amended at any time during the term hereof by recording in the office of the County Recorder of Maricopa County, Arizona, an instrument in writing reciting said amendments bearing the signed and acknowledged concurrence of the then Owners of fifty-one percent (51%) of the Casitas within the Property . . . .

These Restrictions may be terminated under the same conditions above set forth except that the Owners of one hundred percent (100%) of the Casitas, and the Corporation, must sign such instrument . . . .

Section 6.9 of the Declaration provides, in pertinent part, as follows:

Construction of Additional General Common Elements: Upon the affirmative vote of 75% or more of the Owners, the Council may erect and construct on the General Common Elements of the Property . . . such additional buildings and structures as are desired and contemplated by the Council.

The cited provisions do require a specific percentage of the Owners, rather than the Council, voting to approve these measures. However, the nature of these actions, amending or terminating the Declaration and the construction of new buildings or structures, are inherently different than other actions commonly taken by associations in their day-to-day operations. As such, the fact that these three actions detailed in the Declaration reference a percentage of Owners’ votes is not evidence that Petitioner’s interpretation of Section 8.2 of the Declaration is incorrect.

Respondent pointed out numerous provisions in the Declaration that require an act of the Council in arguing that Petitioner’s interpretation of the Declaration was incorrect. Specifically, Respondent addressed Section 9.2 (the Council may enforce payment of sums assessed by the Council); Section 6.8 (operation and maintenance of the common elements are the responsibility and expense of the Council); and Section 8.3 (the Council has the authority to collect the costs and expenses related to insurance policies as common expenses) in support of its assertion. Respondent concluded that, should that Administrative Law Judge accept Petitioner’s interpretation of “Council”, then each of these would require “a majority of Owners to approve” before the Board could act.

Respondent’s conclusion fails to account for the matter of a quorum as set forth in Article III, Section 6 of the Bylaws, which details that at any meeting with a majority of members participating, either in person or by proxy, the decision of the majority of the members participating “shall be the acts of the Council” unless otherwise provided in the governing documents. Accordingly, for those examples set forth above, 8 votes would be the minimum votes needed to approve an act. That is, 15 members present to constitute a quorum, and 8 of the 15 constituting a majority of those present.

Of note, the Horizontal Property Regime Act was repealed in 1985. As such, Respondent has had in excess of 36 years to amend the Declaration and/or Bylaws to clarify that the interpretation set forth by Petitioner in this matter is incorrect.

The Administrative Law Judge concludes that, the plain language of the Declaration requires a majority of a quorum of all owners vote to set the annual assessments for Respondent. Because a quorum did not vote during the February 9, 2022 meeting, Respondent failed to comply with Section 8.2 of the Declaration.

ORDER

IT IS ORDERED that Petitioner’s petition is affirmed.

IT IS FURTHER ORDERED that Respondent reimburse Petitioner his $500.00 filing fee.

IT IS FURTHER ORDERED Respondent is directed to comply with the requirements of Section 8.2 of the Declaration going forward.

Done this day, October 13, 2022.

/s/ Tammy L. Eigenheer

Administrative Law Judge

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.

-54864001

001

-137160-45720000

Transmitted by either mail, e-mail, or facsimile October 13, 2022 to:

Louis Dettorre

Commissioner

Arizona Department of Real Estate

100 N. 15th Avenue, Suite 201

Phoenix, Arizona 85007

Attn:

[email redacted]

Edith Rudder

Carpenter, Hazlewood, Delgado & Bolen, PLC

1400 E. Southern Ave., Suite 400

Tempe, AZ 85282

[email redacted]

R.L. Whitmer

6333 N. Scottsdale Road

Casita 21

Scottsdale, AZ 85250

[email redacted]

By: Miranda Alvarez

Legal Secretary