HOA - ALJDEC decisions

22F-H2222064-REL · Department of Real Estate - H/C · 2022-09-29

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

In the Matter of:

Kathy J. Green

Petitioner

Cross Creek Ranch

Community Association

Respondent

No. 22F-H2222064-REL

ADMINISTRATIVE LAW JUDGE

DECISION

HEARING: September 16, 2022

APPEARANCES: Petitioner Kathy J. Green, MD appeared on her own behalf. Peter Calogero appeared as a witness for Petitioner. Nick Eicher, Esq. represented Respondent Cross Creek Ranch Community Association. Greg Chambers appeared as a witness for Respondent.

ADMINISTRATIVE LAW JUDGE: Sondra J. Vanella

FINDINGS OF FACT

Cross Creek Ranch Community Association (“Respondent”) is a planned community association located in Sedona, Arizona.

On or about June 24, 2022, Kathy J. Green, MD (“Petitioner”) filed a petition with the Arizona Department of Real Estate (“Department”), alleging that Respondent had violated the provisions of A.R.S. § 33-1804. Petitioner paid the required $500.00 filing fee to address the one issue claimed in the petition.

The Notice of Hearing in this matter set forth the issue to be determined as follows: Respondent “’held a closed executive session on June 9, 2022, at 8:00 AM’ which is in violation of A.R.S. §§ 33-1804(A)(1), (A)(2), (B), and (F).”

Petitioner alleges that Respondent held a closed executive session on June 9, 2022, to discuss comments solicited from homeowners regarding proposed changes to the Architectural Review Committee Design Guidelines (“Guidelines”).

Petitioner submitted into evidence a copy of an email dated June 4, 2022, from Board President, Greg Chambers, to Respondent’s property management representative that stated the following:

We are planning on having a meeting on Thursday, June 9th with the Board and ARC members to discuss the new ARC guideline feedback. I don’t want this to be an open meeting. Can we classify it under ARC Legal Review and keep it closed? I assume we would still have to announce the meeting is taking place, correct?

On June 6, 2022, Respondent emailed the homeowners to advise of the following: “[t]he Board of Directors will be meeting in an Executive Session on Thursday, June 9th, at 8:00 a.m., pursuant to ARS Section 33-1804(A)(1).”

Petitioner testified that she spoke with Mr. Chambers after the June 9, 2022 executive session meeting and that Mr. Chambers told her that it “took the Board and the architectural committee two hours to get through the 80 comments, so you can imagine how difficult it would have been had we had homeowners there.” Petitioner further testified that Mr. Chambers admitted to not being familiar with the rules and statutes pertaining to open meetings.

Petitioner submitted into evidence a copy of the Executive Session Meeting Minutes from June 9, 2022, that indicated that the Board members were present, as well as architectural committee members. The Meeting Minutes state in pertinent part:

• Review community comments on the proposed changes to the Design Guidelines. Some owners of responses did not want their names made public. There was also concern around the legality of some of the proposed changes.

• Agreed to communicate with community on proposed changes and next steps after legal counsel has reviewed all feedback and changes, and given us a written opinion.

Petitioner asserted that the Meeting Minutes demonstrate that the executive session was not held to discuss pending litigation or solicit legal advice from counsel.

Petitioner submitted a variety of emails to illustrate that the June 9, 2022 executive session was contrary to law. Petitioner testified that one such email from the architectural committee chair to the Board members set forth what was discussed at the meeting. Petitioner testified that there were 72 owner comments that were discussed at the meeting, and therefore, the majority of the business conducted at the meeting did not fall into an exception to the public meeting law.

Petitioner submitted email correspondence dated June 20, 2022, eleven days after the executive session, between Mr. Chambers and the property management representative regarding the meeting. Mr. Chambers stated in the email that the topics discussed during the executive session were: i) possible litigation by a homeowner as that homeowner copied their attorney on correspondence; ii) discussion of the personal responses to the Guidelines and the concern that some of the homeowners did not want their comments made public or their names to be used; and iii) legal concerns regarding the Guideline changes. The response to the inquiry indicated the following in pertinent part:

I can see ARC Guidelines being a grey area, but if they have it under attorney feedback of the guidelines as they had them reviewed by an attorney and such feedback discussed during the meeting would work. If they were just simply reviewing the guidelines and said requested changes from the committee without any attorney feedback or legal discussion points, it should have been more like an open Board workshop where no voting took place and members could have attended, unless quorum was not present then they would not need to post it.

Prior to the June 9, 2022 executive session, an attorney had not yet reviewed the proposed revisions to the Guidelines and therefore, did not provide feedback for discussion at that meeting.

Petitioner submitted an email dated June 21, 2022, twelve days after the June 9, 2022 executive session, from a Board member to Respondent’s attorney requesting to engage the attorney to assist with the revisions to the Guidelines, asking five specific questions with regard to the Guidelines that were discussed during the executive session, and requesting a written opinion to support the changes to be shared with the community.

During the course of the hearing, Respondent stipulated that: i) no legal advice was given at the June 9, 2022 executive session; and ii) the meeting was noticed under A.R.S. § 33-1804(A)(1).

Petitioner testified that the majority of the comments that were discussed at the June 9, 2022 executive session were not contemplative of litigation, and there is no pending litigation concerning the Guidelines. Petitioner submitted into evidence the spreadsheet containing the homeowner comments. Petitioner testified that she is aware that there are some subjects, such as pending litigation and contemplated litigation that warrant a closed meeting, however, this was not the case with the instant meeting. Petitioner testified that a simple comment such as “can and will be challenged in court” does not put the Board on notice that someone is imminently going to sue the Board. Petitioner asserted that all of the comments not discussing pending litigation should have been discussed in an open meeting.

Mr. Chambers testified on behalf of Respondent. Mr. Chambers explained that the architectural review committee wanted the Guidelines to be “more professional” as they contained typographical errors, the photographs contained therein needed to be updated, and the Guidelines needed to be revised in such a way to make them less complicated to interpret. Mr. Chambers further testified that some lot owners are proposing to “become their own architect and builder” and that the architectural review committee wanted to ensure that licensed architects and builders were utilized for construction. Mr. Chambers explained that historically, revisions have always been completed by the architectural review committee and homeowner input has not been requested. However, in this instance, one of the homeowners became “contentious” and at least three lot owners are “not happy.” Specifically, Mr. Chambers referenced one lot owner who copied his attorney on a letter to the Board, and testified that the Board “thought he would file litigation.” However, Mr. Chambers acknowledged that the letter was not a letter of intent to sue. Mr. Chambers referenced a few specific comments made by homeowners, characterized those comments as “challenging,” and asserted that the Board “thought of it as a threat of litigation” and that the Board “wanted a legal opinion.”

Mr. Chambers testified that he attended the June 9, 2022 executive session via Zoom and that at the meeting, they reviewed the feedback provided by homeowners and “sent it off to legal for comment.” The 72 comments were reviewed and the participants discussed the risks of litigation versus owner support for the revisions to the Guidelines. The feedback was discussed and the Board was “fearful of pending litigation.” The Board published the comments on August 17, 2022, and held an open meeting on August 29, 2022, to discuss the revisions, the legal review, and vote.

Mr. Chambers acknowledged that not all of the comments submitted by lot owners threatened litigation and that the Board could have had a separate executive session to discuss only the one letter with which the Board was concerned.

CONCLUSIONS OF LAW

The Department has jurisdiction to hear disputes between a property owner and a planned community association.

In this proceeding, Petitioner bears the burden of proving by a preponderance of the evidence that Respondent violated A.R.S. § 33-1804.

A preponderance of the evidence is “[e]vidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not.”

A.R.S. § 33-1804 provides, in relevant part, as follows:

Notwithstanding any provision in the declaration, bylaws or other documents to the contrary, all meetings of the members' association and the board of directors, and any regularly scheduled committee meetings, are open to all members of the association or any person designated by a member in writing as the member's representative and all members or designated representatives so desiring shall be permitted to attend and speak at an appropriate time during the deliberations and proceedings. The board may place reasonable time restrictions on those persons speaking during the meeting but shall permit a member or member's designated representative to speak once after the board has discussed a specific agenda item but before the board takes formal action on that item in addition to any other opportunities to speak. The board shall provide for a reasonable number of persons to speak on each side of an issue. Persons attending may audiotape or videotape those portions of the meetings of the board of directors and meetings of the members that are open. The board of directors of the association shall not require advance notice of the audiotaping or videotaping and may adopt reasonable rules governing the audiotaping and videotaping of open portions of the meetings of the board and the membership, but such rules shall not preclude such audiotaping or videotaping by those attending, unless the board audiotapes or videotapes the meeting and makes the unedited audiotapes or videotapes available to members on request without restrictions on its use as evidence in any dispute resolution process. Any portion of a meeting may be closed only if that closed portion of the meeting is limited to consideration of one or more of the following:

Legal advice from an attorney for the board or the association. On final resolution of any matter for which the board received legal advice or that concerned pending or contemplated litigation, the board may disclose information about that matter in an open meeting except for matters that are required to remain confidential by the terms of a settlement agreement or judgment.

Pending or contemplated litigation.

. . . .

Notwithstanding any provision in the community documents, all meetings of the members' association and the board shall be held in this state. A meeting of the members' association shall be held at least once each year. Special meetings of the members' association may be called by the president, by a majority of the board of directors or by members having at least twenty-five percent, or any lower percentage specified in the bylaws, of the votes in the association. 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. The failure of any member to receive actual notice of a meeting of the members does not affect the validity of any action taken at that meeting.

. . . .

F. It is the policy of this state as reflected in this section that all meetings of a planned community, whether meetings of the members' association or meetings of the board of directors of the association, be conducted openly and that notices and agendas be provided for those meetings that contain the information that is reasonably necessary to inform the members of the matters to be discussed or decided and to ensure that members have the ability to speak after discussion of agenda items, but before a vote of the board of directors or members is taken. Toward this end, any person or entity that is charged with the interpretation of these provisions, including members of the board of directors and any community manager, shall take into account this declaration of policy and shall construe any provision of this section in favor of open meetings.

When construing a statute, the primary goal is to ascertain the legislature’s intent. This is accomplished by first looking to the text of the statute. If the language is clear, its plain meaning is ascribed, unless it would lead to absurd results. If ambiguity exists, secondary principles of statutory construction are used to determine the intent.

A.R.S. § 33-1804(A) requires that all meetings of the board of directors of a planned community association must be open to the members unless the topic being addressed is one of the identified exceptions. A.R.S. § 33-1804(F) sets forth that it is the policy of this state that all meetings of a planned community be conducted openly. A.R.S. § 33-1804(F) further requires that any person or entity that is charged with the interpretation of the statutes, including members of the board of directors and any community manager, shall construe any provision of the statute in favor of open meetings.

In this case, the executive session was noticed pursuant to A.R.S. § 33-1804(A)(1). Respondent stipulated that no legal advice was given at the June 9, 2022 executive session.

Regarding Respondent’s assertion that it conducted an executive session under the authority of A.R.S. § 33-1804(A)(2), pending or contemplated litigation, the Administrative Law Judge does not find Respondent’s argument persuasive, as it is tenuous at best. In this case, Petitioner presented credible and substantial evidence establishing that the topic discussed at the executive session concerned the approximately 72 comments submitted by homeowners in response to the solicitation by Respondent regarding revisions to the Guidelines. Only a select few of those comments were considered “challenging” to the Board, and more specifically, only one that copied an attorney. None of the comments reflected pending litigation and there was no evidence presented establishing pending litigation. Further, the Administrative Law Judge concludes that none of the comments can be reasonably construed as contemplating litigation. As acknowledged by Mr. Chambers, the Board could have held an executive session to discuss only that one comment/letter in which an attorney was copied, and held an open meeting to discuss the other solicited comments. Therefore, the Administrative Law Judge concludes, based upon the probative and credible evidence presented at hearing, that the issue discussed at the June 9, 2022 executive session does not fall under the exceptions listed in A.R.S. §§ 33-1804(A)(1) or (A)(2), and Respondent did not properly consider the issue in an executive session closed to its members.

Accordingly, Petitioner established by a preponderance of the evidence that Respondent committed the alleged violation of A.R.S. § 33-1804.

Based on the facts presented, the Administrative Law Judge finds no civil penalty is appropriate in this matter.

ORDER

IT IS ORDERED that Petitioner’s petition is affirmed.

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

IT IS FURTHER ORDERED Respondent is directed to comply with the requirements of A.R.S. § 33-1804 going forward.

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

-137160-45720000Done this day, September 29, 2022.

/s/ Sondra J. Vanella

Administrative Law Judge

Transmitted by either mail, e-mail, or facsimile September 29, 2022 to:

Louis Dettorre, Commissioner

Arizona Department of Real Estate

100 N. 15th Avenue, Suite 201

Phoenix, Arizona 85007

Attn:

[email redacted]

Kathy J Green

4474 Stonebridge Rd

Destin PL 32541

[email redacted]

Edith I. Rudder & Edward D. O'Brien

Carpenter, Hazlewood, Delgado & Bolen LLP

1400 E Southern Ave., Suite 400

Tempe, AZ 85282-5691

[email redacted]

By: Miranda Alvarez

Legal Secretary