The takeaway

Case Participants

What happened

Sunland Village Community Association formerly allocated its annual assessment among members using a formula based in part on the number of residents in each unit. Rene Bishop was one of the members who benefitted from that formula — her share of the common expenses was less than what some of her neighbors paid. In late 2014 the Association’s board adopted a resolution placing on the annual ballot an amendment to the community’s CC&Rs under which every residential unit would pay the same amount regardless of the number of occupants. A “ballot document” explained the effect: using the 2015 budget, a single residential unit’s assessment would be about $414, meaning a single occupant would pay roughly $86 more per year (about $7 per month) and a two-occupant unit about $59 less. Copies went to every member who requested an early ballot and were placed in each voting booth. The members approved the resolution by majority vote in January 2015.

The reallocated assessment was collected for the first time in January 2016, and Bishop’s payment rose about thirty percent, from $328 to $425. She sued the Association and thirteen individually named defendants in Maricopa County Superior Court, alleging breach of the CC&Rs — Article XI, Section 3, which refers any per-unit regular assessment increase of more than ten percent to a vote of the members — along with breach of the implied duty of good faith and fair dealing and violation of A.R.S. § 33-1803, which bars a regular assessment more than twenty percent greater than the prior year’s without majority member approval. In her view, those rules required the board to determine her specific payment amount before the vote, to put that specific amount on the ballot, and to put the increase into effect immediately upon approval.

The early motion practice split. On May 26, 2016, after oral argument, Judge John R. Hannah Jr. denied the Association’s motion to dismiss, finding that homeowners who are not similarly situated to Bishop were proper parties who could appear and argue their position if they chose, but were not necessary parties. On August 15, 2016, however, the court dismissed all claims against the defendants other than the Association. The contract claim failed against the directors individually because they are not parties to the contract between the plaintiff and the Association, and the statutory claim failed because A.R.S. § 33-1803 limits the power of the association but creates no cause of action against individual directors. The court acknowledged that an HOA director can be personally liable for dishonest or bad-faith actions on behalf of the association, citing Albers v. Edelson Technology Partners L.P., but found the amended complaint alleged no specific facts supporting an inference of dishonesty or bad faith — a letter from the plaintiff’s lawyer opining that the directors’ actions were illegal was “not enough.”

In January 2017 the court referred the parties to a mandatory settlement conference and set oral argument on the Association’s motion for summary judgment and Bishop’s cross-motion for summary judgment; in March it added Bishop’s motion to certify the case as a class action to the same hearing. On April 14, 2017 the court heard argument on all three motions and took them under advisement.

The June 12, 2017 under-advisement ruling resolved the case. Assuming for the sake of discussion that A.R.S. § 33-1803(A) and Article XI, Section 3 applied at all — the Association had argued that merely reallocating the existing assessment is not an “increase,” a question the court found unnecessary to decide — the 2015 resolution satisfied both provisions. The statute’s plain language requires only “the approval of the majority of the members of the association,” which the HOA obtained, and it says nothing about the timing of the vote, the ballot language, or board approval of the ballot document; Bishop cited nothing in election law or Title 33 mandating the steps she said were required. The contract and good-faith claims failed for lack of any evidence of a material breach: the reasonable expectation under the CC&Rs was that a substantial assessment increase would be submitted to a fair vote of adequately informed members, which is what happened, and nothing in the ballot document was incorrect or materially misleading. The one-year delay before the new allocation took effect, if anything, benefitted Bishop, and the refund she sought would have forced the Association to disgorge revenues already received and spent — an outcome the court called tantamount to a forfeiture. The court granted the Association summary judgment, denied Bishop’s cross-motion, and denied the class-certification motion as moot.

The endgame was brief. On July 6, 2017 the court noted a joint notice of settlement and a stipulation extending the attorneys’-fees application deadline, placed the case on the dismissal calendar, and vacated all pending hearings. On August 28, 2017 the court approved and entered a formal stipulated judgment against Plaintiff Rene Bishop — the final entry in the collected minute-entry record.

Procedural timeline

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