Briefing Document: Krahn et al. v. Tonto Forest Estates Homeowners Association (Consolidated Cases)

Executive Summary

Between January 2024 and August 2025, the Arizona Office of Administrative Hearings (OAH) adjudicated a series of six consolidated petitions filed by John Krahn, Michael Holland, and associated trusts (the "Petitioners") against the Tonto Forest Estates Homeowners Association ("TFE" or the "Respondent"). The disputes primarily concerned interpretations of the Association's Covenants, Conditions, and Restrictions (CC&Rs), bylaws, and Arizona Revised Statutes (A.R.S.) Title 33 regarding planned communities.

The Administrative Law Judge (ALJ), Adam D. Stone, ultimately ruled in favor of the Petitioners on five of the six matters. The rulings established clear boundaries for HOA governance, specifically regarding the assessment of undeveloped lots for septic maintenance, the distinction between "repair" and "replacement" of infrastructure, the requirement for anonymity in secret ballots, and the mandatory transparency of non-privileged association records. While the Petitioners were successful in most claims, the tribunal declined to award civil penalties, finding that the Respondent's new leadership expressed a credible commitment to future compliance.

Detailed Analysis of Key Themes

1. Assessment and Infrastructure Liability (CC&R 4.32)

The most significant financial disputes revolved around Section 4.32 of the CC&Rs, which governs the "Required Sewage Treatment System." Two distinct issues were addressed:

• Assessments on Undeveloped Lots: The Respondent had been assessing all lots for septic-related expenses. The tribunal determined that because the installation of the sewage system is only required upon the construction of a "Dwelling Unit," empty or undeveloped lots should not be subjected to these specific assessments. The ALJ noted that until a lot is converted to include a dwelling, the owner is not required to share in the sewage treatment assessments.
• Repair vs. Replacement Responsibility: Under CC&R 4.32, TFE is responsible for the "monitoring, maintenance and repair" of installed septic systems, while homeowners are responsible for "capital improvements or replacements." The tribunal found that a $75.00 reimbursement for a "P-Series Float" was improper because the part constituted a replacement rather than a repair.

2. Procedural Transparency and Record Access

The litigation highlighted critical failures in the Association’s response to member requests and statutory notice requirements:

• Statutory Record Requests: Under A.R.S. § 33-1805(A), associations must fulfill record requests within ten business days. TFE withheld requested violation notices, claiming they were privileged due to ongoing litigation. The ALJ rejected this, noting the records were created by the manager prior to the litigation and were not privileged.
• Anonymity in Voting: Though TFE’s bylaws mandated secret written ballots for elections, the Association had been attaching ballots to envelopes or signature verification pages during storage. The tribunal ruled that post-election storage must maintain the same anonymity required during the voting process.

3. Standards for Violation Notices (A.R.S. § 33-1803)

The dispute over "Friendly Reminders" regarding tree maintenance (aesthetics) clarified the notice requirements for HOAs. The tribunal held that even informal notices regarding the condition of a property must cite the specific provision of the community documents being violated. Failure to provide guidance on which section of the CC&Rs was violated or the specific metrics for compliance (e.g., how far back to cut a tree) constitutes a violation of A.R.S. § 33-1803.

4. Limits of Open Meeting Requirements (A.R.S. § 33-1804)

The single issue on which the Respondent prevailed concerned the use of executive sessions. The Petitioners argued that the Board’s decision to file a claim with its Directors and Officers (D&O) insurance policy should have been made in an open meeting. The ALJ ruled that because the decision was made during the pendency of litigation (a defamation suit filed by a homeowner), the Board was within its rights to discuss and decide upon insurance invocation in a closed session.

Key Judgments and Financial Orders

The following table summarizes the ALJ's final decisions for each consolidated case:

Note: In the Nunc Pro Tunc order dated June 5, 2025, the filing fee reimbursement for case 24F-H033-REL was corrected from $500 to $1,000.

Important Quotes with Context

On Septic Assessments and Equity

"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… the CC&R is clear that only lots with dwelling units are required to share in the Assessments issued."

• Context: Finding of Fact for Case 24F-H033-REL regarding the fairness of charging owners of undeveloped lots for septic maintenance.

On Anonymity in Governance

"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."

• Context: Ruling on Case 25F-H020-REL regarding the Respondent’s failure to keep ballots and signature pages separate after an election.

On Executive Session Rights

"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."

• Context: Conclusion of Law for Case 25F-H009-REL regarding the Board's right to decide on legal defense strategies behind closed doors.

On Record Withholding

"The tribunal finds that Respondent wrongfully withheld the notices requested, as they were not privileged in anyway… the notices were drafted and sent out by the Association’s manager, prior to this pending litigation."

• Context: Ruling on Case 25F-H011-REL regarding the 10-day record production requirement.

Actionable Insights for Association Management

• Review Assessment Structures: Associations must ensure that assessments related to specific infrastructure (like septic or sewage) are only applied to lots that are statutorily or contractually required to utilize that infrastructure under the CC&Rs.
• Distinguish Maintenance from Replacement: Management boards must maintain clear documentation for infrastructure expenditures. If the governing documents distinguish between "repair" (HOA cost) and "replacement" (Homeowner cost), even minor parts (e.g., a $75 float) should be scrutinized for their functional category to avoid improper use of association funds.
• Formalize "Friendly" Communications: All communications regarding property violations—regardless of how informal the tone—must include specific citations of the governing documents. Failure to cite the specific CC&R or Bylaw section renders the notice legally insufficient under Arizona law.
• Strict Adherence to Record Requests: Associations should not reflexively claim "pending litigation" or "privilege" to deny member record requests. Only documents created for the purpose of litigation or containing attorney-client privileged communications are exempt; general business records (like historical violation notices) must be produced within the 10-day window.
• Maintain Voting Anonymity Throughout: The requirement for "secret ballots" extends beyond the counting process. Boards must implement storage policies that ensure ballots cannot be re-linked to individual voters by anyone reviewing the records post-election.