HOA - ALJDEC decisions

25F-H002-REL · Department of Real Estate - H/C · 2025-06-04

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

In the Matter of

John Krahn, Janet Krahn, Joseph Pizzicaroli, Michael Holland, John R Krahn Living Trust, and Janet Krahn Living Trust

Petitioners

Tonto Forest Estates Homeowners Association

Respondent

No. 24F-H033-REL

25F-H002-REL

25F-H006-REL

25F-H009-REL

25F-H011-REL

25F-H020-REL

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: December 16, 2024, March 3, 2025, March 19, 2025 and May 5, 2025, with the record held open until May 16, 2025 for submission of written closing arguments.

APPEARANCES: John Krahn, Michael Holland appeared on behalf of Petitioners. Dwight Jolivette appeared on behalf of Respondent Tonto Forest Estates Homeowners Association.

ADMINISTRATIVE LAW JUDGE: Adam D. Stone

EXHIBITS ADMITTED INTO EVIDENCE:

24F-H033-REL: Complainant’s 1-11, and 13.

25F-H002-REL: Complainant’s 1-9, and 11-23.

25F-H006-REL: Complainant’s 1-25.

25F-H009-REL: Complainant’s 1-3, 5-12, and 14-23.

25F-H011-REL: Complainant’s 1, 6, 9, and 18-19.

25F-H020-REL: Complainant’s 1-9.

_____________________________________________________________________

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.

Petitioners filed multiple single-issue petitions against the Tonto Forest Estates Homeowners Association (TFE), with the Department. Petitioner tendered $500.00 to the Department with each petition.

TFE timely responded to each petition, and the Department referred the matter to the Office of Administrative Hearings (“OAH”), an independent state agency, for an evidentiary hearing. For the sake of judicial economy, the tribunal consolidated the matters.

Respondent is a homeowners’ association whose members own properties in a residential real estate development located in Maricopa County, Arizona.

Petitioners are property owners and member of TFE.

TFE is governed by its Covenants, Conditions, and Restrictions (“CC&Rs”), and overseen by a Board of Directors (“the Board”). The Association is also regulated by Title 33, Chapter 16, Article 1 of the Arizona Revised Statutes (“Ariz. Rev. Stat.”)

24F-H033-REL

On January 31, 2024, the Department issued a Notice of Hearing in this case, with the following dispute:

CC&R 4.32 by ‘assessing empty/undeveloped lots to pay for septic related expenses which are expressly not their responsibility’

ARS §33-1802 by ‘assessing empty/undeveloped lots to pay for septic related expenses which are not their ‘obligation under the declaration’

Mr. Krahn and other members of TFE, owned empty lots in addition to their primary residence in TFE. Mr. Krahn testified that TFE was charging an assessment for septic-related obligations to every lot, regardless of whether there was a dwelling unit on the same or whether it was empty. Mr. Krahn also testified that he had attempted to bring this issue up at TFE Board meetings but that he was not allowed to speak. Mr. Krahn was seeking a civil penalty of $500.00.

Mr. Joliette testified that every lot was intended to pay the full amount, and that nothing had been done in bad faith. Mr. Jolivette also did not dispute that there were empty lots within TFE with no dwelling units. Further, Mr. Jolivette testified that trying to enforce section 4.32 should be taken in context with the other provisions of the CC&Rs.

25F-H002-REL

On August 22, 2024, the Department issued a Notice of Hearing in this case, with the following dispute:

Petitioners allege the Respondent of violating CC&R 4.32 by making, ‘an improper payment...in a manner that violated the governing documents’

Mr. Krahn testified that TFE used association funds to reimburse a former Board member and homeowner $75.00 for a replacement to his septic system. Mr. Krahn testified that the “P-Series Float” was a replacement part and not a repair, which made reimbursement under CC&R 4.32, impermissible. Mr. Krahn testified that he was seeking a civil penalty of $500.00 as TFE was acting in bad faith.

Mr. Jolivette testified that there was a lot of ambiguity as to whether this was a replacement or a repair, as the invoice did not specify the same. Because of this, Mr. Jolivette argued, the Board had the right to reimburse the homeowner the $75.00.

25F-H006-REL

On November 15, 2024, the Department issued a Notice of Hearing in this case, with the following dispute:

Petitioners allege Respondent of violating ARS §33-1803(D)(1) by ‘attempt[ing] to enforce compliance with wording NOT FOUND (emphasis in original text) in [the] CCRs.’

Mr. Krahn testified that he received a notice from TFE on or about August 12 2024, informing him that his tree needed to be cut back. Mr. Krahn testified further that he requested an appeal on the violation, but that his appeal was never scheduled before the Board. Mr. Krahn also testified that Mr. Pizzacaroli also received a fine notice from TFE regarding cutting his tree(s) back. Mr. Krahn testified that the notice was also improper because there were no governing sections as to “aesthetics” in the neighborhood, and also demonstrated other properties which appeared to need their trees cut back as well. Mr. Krahn testified he was seeking a civil penalty of $500.00.

Mr. Jolivette testified that as the new Board President, he has been working to ensure that everything is done within compliance of statues. He also testified that the technical issues found in the letters had been remedied, and that as a general proposition, TFE was not interested in trying to collect fines from homeowners.

25F-H020-REL

On December 9, 2024, the Department issued a Notice of Hearing in this case, with the following dispute:

Petitioner alleges that Respondent violated Bylaw 3.9 by adding a ‘signature verification page...to every ballot, allowing anyone to see how much member voted’.

Mr. Krahn testified that the bylaw mandated that all elections be conducted by secret written ballot, and that Respondent violated the bylaw, as they attached the envelopes and the ballots together after the election to store the information. Mr. Krahn testified that this was concerning as anyone could request the records and it would be easy to determine who voted.

Finally, Mr. Krahn testified that he was not seeking a civil penalty.

Mr. Jolivette testified that the bylaw did not address ballot storage after the conclusion of the election. However, Mr. Jolivette testified that moving forward, the Board had updated their storage policy to ensure anonymity even after the election.

25F-H009-REL

On November 15 2024, the Department issued a Notice of Hearing in this case, with the following dispute:

Petitioners allege Respondent of violating ARS §33-1804(A) by deciding, ‘to file a claim with the Directors and Officers (D&O) insurance company’ outside the confines of an Open meeting.

Mr. Krahn testified that this issue stemmed from a lawsuit for defamation by himself against the Board, after the Board accused him of embezzling $250.00. Mr. Krahn testified that the Board decided to make a claim on its liability insurance policy to obtain counsel for its defense, and did so in a closed session, where members were not entitled to vote on the same. Because of this, Mr. Krahn argued that the insurance policy was cancelled, and that the Board was now forced to find new coverage at a much increased price.

Further, Mr. Krahn testified that this was a discretionary financial choice made behind closed doors, without open meeting discussion. Mr. Kahn agreed however, that the Board was allowed to discuss the matter in closed session, but once a decision needed to be made, it should have been done in an open meeting.

Finally, Mr. Krahn was seeking a civil penalty in the amount of $500.00.

Mr. Jolivette testified that the Board had every right to decide to invoke its insurance coverage as it was a legal decision during the pendency of a lawsuit by one of its homeowners. Mr. Jolivette testified it was as if Mr. Krahn wanted to be in the “huddle” to know what the Board was doing, and it ultimately threw his case for a “loop”.

Mr. Jolivette also testified that the increase cost in coverage was not necessarily tied to the claim made, and that their insurance coverage was not dropped because of the claim, rather the company was no longer offering such policies.

25F-H011-REL

On November 15 2024, the Department issued a Notice of Hearing in this case, with the following dispute:

Petitioners allege Respondent of violating ARS §33-1805(A) by failing, ‘to fulfill [Petitioner’s] request for REDACTED (emphasis in original text) association records within ten business days.’

Mr. Krahn testified that on August 19, 2024 he submitted a written request via e-mail for all violation notices which contained similar to the one he received in 25F-H006-REL concerning his tree and “aesthetics” of the neighborhood. Mr. Krahn also requested that the notices be redacted from containing personally identifying information. Mr. Krahn testified that to date, Respondent had failed to produce the records. Mr. Krahn also testified that he was not seeking a civil penalty.

Mr. Jolivette testified that the Board withheld the documents after advice from its attorney as it was a part of the ongoing litigation.

Conclusions of Law

This matter lies within the Department’s jurisdiction. Pursuant to Ariz. Rev. Stat. §§ 32-2102 and 32-2199 et al., 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(D), 32-2199.02, and 41-1092, OAH has the authority to hear and decide the contested case at bar.

In this proceeding, Petitioner bears the burden of proving by a preponderance of the evidence that Respondent violated Ariz. Rev. Stat. § 33-1805.

“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.”

24F-H033-REL

CC&R 4.32 provides:

Required Sewage Treatment System. Each owner who purchases a Lot within the Property acknowledges that it shall be required to construct and install, at such Owner’s sole cost and expense, an AdvanTex sewage treatment system manufactured by Orenco Systems...as part of the construction of an Dwelling Unit on such Owner’s Lot...After installation of the Required Sewage Treatment System, the Association shall assume responsibility for the monitoring, maintenance and repair of the Required Sewage Treatment System, with the costs thereof to be included as part of the Assessments payable by such Owner. If the Required Sewage Treatment System requires any capital improvements or replacements, such capital improvements or replaces shall be the responsibility of the Owner.

After review of the relevant testimony and evidence, the tribunal finds that only lots with dwelling units should be subjected to the assessment. To divide the costs amongst the empty lots would result in those property owners paying “more” of share of the assessment while owners with only one lot would pay less of share. Certainly, when one of those empty lots is converted to include a dwelling unit then an owner should expect to contribute to a greater share of the assessment. However, until that time, the CC&R is clear that only lots with dwelling units are required to share in the Assessments issued. As to the issue of a civil penalty, the tribunal declines to award the same.

25F-H002-REL

CC&R 4.32 provides:

After review of the relevant testimony and evidence, the tribunal finds that the P-Series float in question was a replacement part, and therefore was the responsibility of the homeowner, not subject to reimbursement by the Board. As to the issue of a civil penalty, the tribunal declines to award the same.

25F-H006-REL

Ariz. Rev. Stat. § 33-1803(C) and (D)(1) provide follows:

C. A member who receives a written notice that the condition of the property owned by the member is in violation of the community documents without regard to whether a monetary penalty is imposed by the notice may provide the association with a written response by sending the response by certified mail within twenty-one calendar days after the date of the notice. The response shall be sent to the address identified in the notice.

D. Within ten business days after receipt of the certified mail containing the response from the member, the association shall respond to the member with a written explanation regarding the notice that shall provide at least the following information unless previously provided in the notice of violation:

1. The provision of the community documents that has allegedly been violated.

10. After review of the relevant evidence, the tribunal finds that although the notice was merely a “Friendly Reminder” and not an actual fine notice, notice of violation or something similar, it still did not provide Mr. Krahn with guidance as to which section of the CC&R’s was violated, and exactly how far back to cut his tree without reference to a specific section. As to the request for civil penalty, the tribunal declines to award the same as to this position, as the tribunal finds Mr. Jolivette credible that future notices will contain the specifics needed to comply with the statutes.

25F-H020-REL

Bylaw 3.9 provides:

Election of Directors. Election to the Board shall be by secret written ballot. At such election the Members or their proxies may cast, in respect to each vacancy, as many votes as they are entitled to exercise under the provisions of the Declaration. The persons receiving the largest number of votes shall be elected to the vacant positions. Cumulative voting for directors shall not be required or permitted.

While it is true that the Bylaw does not reference storage following the election, it would necessarily follow that all ballots after counting, should be stored in a similar anonymous fashion. Therefore, while the tribunal finds for Petitioner on this issue, the tribunal also finds Mr. Jolivette credible that ballots storage following an election shall maintain the anonymity of the voters.

25F-H009-REL

A.R.S. § 33-1804(A) provides in pertinent part:

A. 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 allowed 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 allow 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 their 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:

1. 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.

2. Pending or contemplated litigation.

. . .

The tribunal finds that Petitioners have not met their burden to prove Respondent was in violation of the statute. There was no dispute that there was pending litigation, and the Board was within its right to discuss and decide to invoke the insurance policy to cover the costs of the litigation, per number 2, above. There was nothing in the statute that requires that only the discussion must be in private and not the actual action/decision to be made in open, especially when the litigation involved a homeowner/member of the Association.

25F-H011-REL

A.R.S. § 33-1805(A) provides in pertinent part:

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.

The tribunal finds that Respondent wrongfully withheld the notices requested, as they were not privileged in anyway. The tribunal disagrees with Mr. Jolivette’s interpretation of “pending litigation” as defined in this statute, as the notices were drafted and sent out by the Association’s manager, prior to this pending litigation.

ORDER

IT IS ORDERED that Petitioner’s petition in 24F-H033-REL be granted and that Respondent shall follow the CC&R’s. IT IS FURTHER ORDERED, that Respondent shall reimburse Petitioner’s $500.00 filing fee as required by Ariz. Rev. Stat. § 32-2199.01. IT IS FURTHER ORDERED that no civil penalty is awarded.

IT IS ORDERED that Petitioner’s petition in 25F-H002-REL be granted and that Respondent shall follow the CC&R’s. IT IS FURTHER ORDERED, that Respondent shall reimburse Petitioner’s $500.00 filing fee as required by Ariz. Rev. Stat. § 32-2199.01. IT IS FURTHER ORDERED that no civil penalty is awarded.

IT IS ORDERED that Petitioner’s petition in 25F-H006-REL be granted and that Respondent shall follow the Arizona statutes. IT IS FURTHER ORDERED, that Respondent shall reimburse Petitioner’s $500.00 filing fee as required by Ariz. Rev. Stat. § 32-2199.01. IT IS FURTHER ORDERED that no civil penalty is awarded.

IT IS ORDERED that Petitioner’s petition in 25F-H020-REL be granted, and that Respondent shall follow the Bylaws. IT IS FURTHER ORDERED that Respondent shall reimburse Petitioner’s $500.00 filing fee as required by Ariz. Rev. Stat. § 32-2199.01. IT IS FURTHER ORDERED that no civil penalty is awarded.

IT IS ORDERED that Petitioner’s petition in 25F-H009-REL be denied, and that Respondent shall not reimburse Petitioner’s filing fee as required by Ariz. Rev. Stat. § 32-2199.01.

IT IS ORDERED that Petitioner’s petition in 25F-H011-REL be granted and Respondent shall abide by Arizona statutes. IT IS FURTHER ORDERED that Respondent shall reimburse Petitioner’s $500.00 filing fee as required by Ariz. Rev. Stat. § 32-2199.01. IT IS FURTHER ORDERED that no civil penalty is awarded.

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, June 4, 2025.

/s/ Adam D. Stone

Administrative Law Judge

Transmitted by either mail, e-mail, or facsimile June 4, 2025 to:

Susan Nicolson

Commissioner

Arizona Department of Real Estate

[email redacted]

John R and Janet Krahn Living Trust

[email redacted]

Holland Family Trust

Michael Holland

[email redacted]

Barbara Bonilla

[email redacted]

By: OAH Staff