Hon. Adele Ponce (00:00:01)
Association Arizona Department of Real Estate. Please state your appearances for the record beginning with the plaintiff.
John Sullivan — counsel for AZNH Revocable Trust (00:00:10)
Attorney John Sullivan for the NH Revocable Trust and its trustees.
Hon. Adele Ponce (00:00:16)
And for Ms. Nicholson?
Katie Ray, Assistant Attorney General — for Commissioner Nicolson (ADRE) (00:00:22)
Sorry, Katie Ray, Assistant Attorney General and also Raya Gardner is present for the commissioner in the Arizona Department of Real Estate.
Hon. Adele Ponce (00:00:32)
Okay, thank you. And I meant to say Commissioner Nicholson. And for Tammy Igan here?
Kelly Gibson, Assistant Attorney General — for the OAH (Eigenheer) (00:00:39)
Yes, Your Honor. Kelly Gibson from the Arizona Attorney General's office on her behalf.
Hon. Adele Ponce (00:00:47)
Thank you. And then for Sunland Springs?
Chad Gallagher — counsel for Sunland Springs Village HOA (00:00:50)
Good morning, Your Honor. Attorney Chad Gallagher on behalf of defendant Sunland Springs Village Homeowners Association. Also on the phone with us is one of the board members, Larry Newitt.
Hon. Adele Ponce (00:01:01)
Okay, thank you. This is the time set for oral argument. There have been some motions filed, motion for judgment on the pleadings that was filed by the plaintiff, the motion to dismiss filed by Sunland Springs. And then there was also a motion to dismiss Commissioner Nicholson as a party. That motion was fully briefed, but just in the last couple of days there was an amended motion to dismiss that was also filed. And so before we begin, I wanted to ask if the parties have had a chance to confer about the issues in the case and reached any kind of resolution on any of the issues before the court today. And so my question right now, just so it's really clear, is about just the general state of the litigation and whether there have been any agreements reached. I'm not looking right now for advocacy or to get into all the details of the arguments.
Hon. Adele Ponce (00:02:05)
We're going to get to that kind of in a minute. I just want to see sort of the lay of the land and where things stand. And I'll go ahead and hear from Mr. Sullivan first.
John Sullivan — counsel for AZNH Revocable Trust (00:02:16)
Judge, there were discussions between us and the HOA about settling all matters, but those were unsuccessful. So nothing's been resolved, Judge.
Hon. Adele Ponce (00:02:26)
Okay. And Mr. Sullivan, the status of any action currently before the Arizona Department of Real Estate?
John Sullivan — counsel for AZNH Revocable Trust (00:02:39)
I'm not sure what you're asking, Judge.
Hon. Adele Ponce (00:02:42)
Okay. Is the matter there stayed currently? I think the last time we were together there had been… I just, what is the state of the litigation?
John Sullivan — counsel for AZNH Revocable Trust (00:02:56)
Judge, that matter, the ALJ, the administrative law judge conducted a hearing in the absence of the trust and issued a decision and the decision was that the matter was dismissed.
Hon. Adele Ponce (00:03:10)
Okay. And so the matter has been dismissed?
John Sullivan — counsel for AZNH Revocable Trust (00:03:16)
Well, according to the ALJ.
Hon. Adele Ponce (00:03:21)
Okay. All right. I'll go ahead and hear from Mr. Gallagher first. Any addition to that or any updates from your perspective?
Chad Gallagher — counsel for Sunland Springs Village HOA (00:03:37)
Mr. Sullivan's statements were correct. There were extensive discussions attempting to reach a resolution, but ultimately they failed. And so nothing has been recall. With respect to the underlying matter, it did proceed. As I represented to the court, I was willing to stipulate to continue that hearing and from that in writing to Mr. Sullivan right after that March hearing. So Mr. Sullivan was not willing to stipulate with me to continue the ALJ hearing. And so it did take place on April 6th.
Hon. Adele Ponce (00:04:21)
Okay. Thank you for that update. I'll go ahead and hear from… Ms. Ray, you're appearing today on behalf of Commissioner Nicholson and the Department of Real Estate. Or who's addressing the court today?
Katie Ray, Assistant Attorney General — for Commissioner Nicolson (ADRE) (00:04:37)
I would be the person addressing the court today. I'm sorry, Your Honor. I keep forgetting to turn my mic on.
Hon. Adele Ponce (00:04:44)
Oh no, that's all right. And so do you have anything to add at this time? Then if you can clarify with respect to the motions that have been filed, are we proceeding on the motion that's fully briefed? Are we sort of replacing that motion with your amended filing? If you can just kind of update the court on what your
Katie Ray, Assistant Attorney General — for Commissioner Nicolson (ADRE) (00:05:08)
Perspective
Katie Ray, Assistant Attorney General — for Commissioner Nicolson (ADRE) (00:05:08)
Is. I have to apologize to the court. So when I was reviewing the motion that had been filed previously, I realized that the exhibit A that we referenced in the motion had not been filed. And then in the process I went through the motion and though, well, if I'm going to amend the motion to include the exhibit A, I might as well make sure everything else is correct. So we made a couple of minor changes. I apologize for that. And then apparently our office filed the amended motion without the exhibit A and had to refile it again. So that's why you have all those filings. I'm really sorry about that, but the –
Hon. Adele Ponce (00:05:49)
No, that's all right. I did see the multiple filings and I wasn't sure what was going
Katie Ray, Assistant Attorney General — for Commissioner Nicolson (ADRE) (00:05:53)
On there, but I had looked at the most
Hon. Adele Ponce (00:05:54)
Recent
Katie Ray, Assistant Attorney General — for Commissioner Nicolson (ADRE) (00:05:56)
One. Well, basically we just messed up. And the amended motion to dismiss not substantively different than the original motion to dismiss other than we just included exhibit A and corrected a couple of citation errors and that's it. And so substantively it's exactly the same
Hon. Adele Ponce (00:06:18)
If that
Katie Ray, Assistant Attorney General — for Commissioner Nicolson (ADRE) (00:06:18)
Helps.
Hon. Adele Ponce (00:06:20)
All right. Thank you for that. And then I'll go ahead and hear from Ms. Jillian Gibson. Any updates from your perspective? And Your
Kelly Gibson, Assistant Attorney General — for the OAH (Eigenheer) (00:06:28)
Honor, Ms. Gibson is fine. I know I have a hyphenated name, but just Ms. Gibson is fine. Your Honor, we have nothing new from our limited response we filed. As the judicial officer, our position under referrals is that's inappropriate for us to make any type of argument. I would also add it's probably inappropriate for us to be named in the special action under the new rules of special action procedure.
Hon. Adele Ponce (00:06:53)
Okay. And then Mr. Sullivan, there has been the Arizona Department of Real Estate's filed an amended motion to dismiss that they say is not substantively different from what was initially filed, that it just added an exhibit that they had neglected to add and then corrected a few things. I haven't gone through and compared the two, but are you fine proceeding on the amended motion today?
John Sullivan — counsel for AZNH Revocable Trust (00:07:28)
Yes, Judge. There's nothing really substantively different from the first filing. It is what Ms. Ray represented it to be. So I'm a plaintiff in it.
Hon. Adele Ponce (00:07:38)
Okay. So there are three motions that have been filed there. There's a significant amount of overlap in the issues covered in those motions. And so my sense had been to hear from Mr. Sullivan first and he can address sort of all of the issues and I'll ask about kind of each filing so he can address each issue and then kind of go and hear from all of the parties if they have positions on any particular motions or not, or if they want to address the motions that are relevant for them. And then go back and hear from Mr. Sullivan one last time and then probably from the other part, from Mr. Gallagher and then from the Arizona Department of Real Estate one last time as well. And so that's the way that the court is intending to proceed. If someone has a suggestion for a different way to proceed that they think would be more efficient.
Hon. Adele Ponce (00:08:47)
I think when there are these multiple motions, it's just the other way to proceed would be to just start with one motion and then argue the separate motion and go through all of that. But I think there's just so much overlap in all of these that that wouldn't be a good use of time.
Hon. Adele Ponce (00:09:06)
Okay. And then if I can just ask, there are a lot of parties here. If you are not addressing the court, if you could just mute your line so we don't hear a background noise. It's not like speaking, but it is sort of air and other sounds. All right. Anything else to add as a procedural matter before we start?
John Sullivan — counsel for AZNH Revocable Trust (00:09:32)
Judge, this is Attorney Sullivan. I this morning sent a demonstrative to your judicial assistant to print and give to you because I'm going to reference it during my presentation to you. Did you receive that? It's exhibit five from the defendant HOA.
Hon. Adele Ponce (00:09:49)
I did receive it.
John Sullivan — counsel for AZNH Revocable Trust (00:09:50)
Oh, thank you.
Hon. Adele Ponce (00:09:52)
Okay. All right. And so we'll go ahead and start Mr. Sullivan. So right now, I do expect you to address all of the issues. You can start with your motion for judgment on the pleadings. If there's anything else that you want to add to address the motion to dismiss subsequent to that, then you can do that. And then you can then address the motion with respect to Commissioner Nicholson. We were set I believe for… How long are we set for today, Marisol?
Kelly Gibson, Assistant Attorney General — for the OAH (Eigenheer) (00:10:31)
90 minutes, Judge.
Hon. Adele Ponce (00:10:33)
Okay. And so you do have a significant amount of time, but there are other parties who need to address the court today. And so if you can sort of focus your comments and address the court for sort of no more than 10 minutes given that we need to hear rebuttals and all of that. So go ahead, Mr. Sullivan. Judge,
John Sullivan — counsel for AZNH Revocable Trust (00:10:55)
As I understand it, you'd like me to address all the issues at one time. Is that correct? That's
Hon. Adele Ponce (00:10:59)
Correct. All
John Sullivan — counsel for AZNH Revocable Trust (00:11:01)
Right. I don't think I can do that in 10 minutes, Judge, because there's so many… There's a shotgun approach to the defense here. There's a variety of issues to address. So I think I'm going to need more than 10 minutes.
Hon. Adele Ponce (00:11:14)
Okay. I'm giving you 10 minutes now. You can focus your comments. You're going to have an opportunity for rebuttal. And so I will hear from you again. I'm just asking you to focus your comments, please. All
John Sullivan — counsel for AZNH Revocable Trust (00:11:27)
Right, Judge. AZNA Travocal Trust owns a home in Summon Springs Village in Mesa. Summon Springs Village is an age restricted community of approximately 2,500 homes and 4,000 residents across 900 acres. The community contains extensive common use facilities, including auditoriums, multiple sport courts, two fitness centers, multiple activity rooms, multiple swimming pools, and is associated with a homeowner owned 27 hole golf course. The HOA is a nonprofit corporation and operates very much like a small municipality with a multimillion dollar budget funded by large assessments on homeowners. The developer managed and control the community from 1998 till February of 2020, at which point control was turned over to the homeowners and the first homeowner board of directors was elected. Following the transition, the board repeatedly failed to comply with the laws requiring that all election ballots be retained or stored for homeowner review, inspection and recount. That's ARS 331812 and ARS 103708.
John Sullivan — counsel for AZNH Revocable Trust (00:12:24)
The board president, Mr. Penman, and that's a pseudonym that I'm using, Judge, because there's no need to put his name on the record. He's not a party. Refused to discuss the issue and with no other option that led to litigation. The trust filed a petition with the commissioner of the Department of Real Estate, which complained about the failure to retain ballots. You're being asked today to decide whether the trust is entitled to a default decision from the commissioner pursuant to ARS section 32-2199. 01 E as in echo because the corporation failed to file a response. The statute states the failure of the respondent to submit an answer is 'deemed an admission of the allegations made in the petition and the commissioner shall issue a default decision.
John Sullivan — counsel for AZNH Revocable Trust (00:13:08)
Now the uncontroverted facts in this matter support a judgment on the case filings. As I told you, the trust submitted a petition to the commissioner alleging that Sundland Springs Village violated the Planned Communities Act. The commissioner has sent the petition to the corporation with instructions for the corporation to submit a response no later than December 31st of 2025. Per ARS Section 1033-02 whether the defendant matter is a complete, excuse me, is a corporate power. Per ARS Section 10-3801, all corporate powers are vested in the corporate board of directors. And per section 10-3801 and the corporation's articles of incorporation, the corporation's corporate powers cannot be delegated. Per ARS 10-3140, nonprofit corporations exercise corporate powers at a duly called meeting by a qualm majority vote of its directives. The corporation is currently under a court order requiring the board to conduct all voting and formal actions in open meetings.
John Sullivan — counsel for AZNH Revocable Trust (00:14:09)
Per ARS section 10-11601, a nonprofit corporation must keep written minutes of all board meetings and board actions. The corporation's records show that the board did not hold a meeting and took no action authorizing anyone to submit a response to the ADRA commissioner about the petition filed by AZNH Revocable Trust. Per ARS section 32-2199. 01E as in echo. As I said before, failure of the corporation to submit a response is deemed an admission of the allegations made in the petition and the commissioner shall issue a default decision. With knowledge that the corporation's board had not authorized anyone to submit a response, Mr. Penman, who is now a former member of the board, signed a false response and Attorney Gallagher delivered it to the commissioner. Per ARS section 32-21 point, excuse me, 2199. 01, a valid corporate response is jurisdictional. The commissioner may refer a petition to the Office of Administrative Hearings for a hearing only if the corporation exercises its powers to submit a response.
John Sullivan — counsel for AZNH Revocable Trust (00:15:14)
Because of the false response, the commissioner was duped into treating the response as one submitted by the corporation. And because she was duped, she had no actual authority to do anything other than issue a default decision under the statute that I've mentioned. Consequently, the commissioner failed to perform a duty required by law for which he has no discretion and proceeded without or an excessive legal authority. Therefore –
Hon. Adele Ponce (00:15:37)
Let me ask, Mr. Sullivan, did you file any sort of motion in that action sort of raising your concerns about the validity of the response?
John Sullivan — counsel for AZNH Revocable Trust (00:15:51)
There's no procedure for that act in the administrative hearing level, Judge. There's no rule of procedure that covers that.
Hon. Adele Ponce (00:16:00)
Did you raise your concerns about the answer with the board?
John Sullivan — counsel for AZNH Revocable Trust (00:16:11)
With the commissioner of the department?
Hon. Adele Ponce (00:16:12)
With the commissioner, yes.
John Sullivan — counsel for AZNH Revocable Trust (00:16:15)
No, not except through this lawsuit.
Hon. Adele Ponce (00:16:19)
When you say this lawsuit, you mean this special action? That's
John Sullivan — counsel for AZNH Revocable Trust (00:16:22)
Correct,
Hon. Adele Ponce (00:16:23)
Judge. Okay. And so when this answer was filed, you deemed the answer not appropriate and so you filed this special action.
John Sullivan — counsel for AZNH Revocable Trust (00:16:35)
Well, the answer was filed and I discovered after the answer was filed that the corporations had not authorized any response to the –
Hon. Adele Ponce (00:16:45)
I mean, and I understand that that's your perspective. And so I understand that, but I'm saying I'm just clarifying that you didn't take any additional steps before the commission to get any kind of reversal or to raise your concerns about the response.
John Sullivan — counsel for AZNH Revocable Trust (00:17:05)
Well, that's true, Judge. If that's because there's no avenue –
Hon. Adele Ponce (00:17:09)
I mean, I am asking. I'm not stating as a fact. I am asking your question.
John Sullivan — counsel for AZNH Revocable Trust (00:17:15)
Right, right. Yeah, but I just want to make it clear that there just isn't any avenue to do that.
Hon. Adele Ponce (00:17:21)
All right.
John Sullivan — counsel for AZNH Revocable Trust (00:17:22)
And then what I was saying, Judge, is that because of all these facts, the trust was denied its statutory right to a default decision under the statute 32-2199. 01E as an echo. Do you have another question, Judge?
Hon. Adele Ponce (00:17:38)
Not at the moment. All
John Sullivan — counsel for AZNH Revocable Trust (00:17:40)
Right. One of the leading defenses that the HOA is presenting, and they use two pages of their opposition to judgment on the pleadings, to try to convince the court that they didn't need to vote to defend the 2025 matter because they had previously voted to defend the 2024 matter. In making that argument, they didn't produce any records showing that the board voted to do that. I've examined the corporate records and found that there never was a board meeting where the board considered or acted upon the 2024 position. It appears again that Mr. Penman and Attorney Gallagher filed a response without corporate authority. And so it's my position that even that response is a illegal nullity. And then the HOA is trying to argue that the judgment in 2024 was favorable to them, but that judgment has basically been vacated. I'm going to quote from Campbell versus Superior Court, which is a 1972 case where the court said, "Where the statute gives the discretion and final determination to a law board or commission and makes such determination final and conclusive.
John Sullivan — counsel for AZNH Revocable Trust (00:18:59)
It has such conclusive effect only in the absence of an appeal to the Superior Court." And that matter was appealed to the Superior Court. One of the reasons it was appealed to the Superior Court is because after that hearing concluded, I found that the HOA had withheld material and relevant evidence. That matter went before Judge McKish on appeal. And as a result of that, Judge McKish remanded the matter to the Department of Real Estate for an evidentiary hearing. After the judge issued an order for an evidentiary hearing, the commissioner of the Department of Real Estate ordered a rehearing due to multiple legal errors, a denial of fair hearing and findings that were arbitrary, capricious and contrary to the evidence. So the original ALA decision at the moment has no legally operative effect. Now going back to exhibit five that I asked you about at the beginning, I'm –
Hon. Adele Ponce (00:19:55)
I want to make sure I understand what you're talking about right now. So when you say the original ALA decision has no operative effect, are you talking about the dismissal or are you talking about something different? No,
John Sullivan — counsel for AZNH Revocable Trust (00:20:08)
I'm talking about the 2024 matter, Judge, that the HOA has argued is controlling in some way over the 2025 matter. It has no legally operative effect, Judge.
Hon. Adele Ponce (00:20:22)
Okay. And the reason for that is what?
John Sullivan — counsel for AZNH Revocable Trust (00:20:28)
That matter was taken up on appeal. The Superior Court judge remanded the matter because evidence had been withheld by the association and then the commissioner also ordered a rehearing. And the difference between a rehearing and an evidentiary hearing is that with a rehearing under the rules, no new evidence or additional evidence may be introduced. And that's why it's important to recognize that the judge had ordered an evidentiary hearing
Hon. Adele Ponce (00:20:56)
For purposes. What is the status of that matter?
John Sullivan — counsel for AZNH Revocable Trust (00:21:00)
That matter is waiting on a special action judgment from Judge Blaney regarding the administrative law judge exceeding her authority. What happened in that case, Judge, when it was sent back, eventually I submitted a peremptory strike to remove the administrative law judge from the case. The administrative law judge did not comply with the peremptory strike. And Judge Blaney essentially the administrative law judge was wrong to do that and is sending the matter back for the hearing.
Hon. Adele Ponce (00:21:40)
All right. Go ahead and proceed, Mr. Sullivan. I
John Sullivan — counsel for AZNH Revocable Trust (00:21:44)
Just wanted to clarify one thing though. We still haven't got a judgment from Judge Blaney yet. We're waiting on it. Now I did mention exhibit five. If you have that, you'd like to look at that. One of the things I'd like to point out is that that exhibit five is not signed and it's not authenticated. Now, as I said earlier, pursuant to section 10-11601, a corporation is required to keep a written record of all board meetings and board actions. And if you look at that exhibit five, there is nothing in there, nothing at all that shows that the board ratified any of the acts of Mr. Penman or Attorney Gallagher on or about December 23rd, 2025 when Mr. Penman and Mr. Gallagher submitted to the Department of Real Estate Commissioner a response to the November 27th, 2025 petition filed by AZNH Revocable Trust. So that document, even if it had been signed, does not show that the board did anything to ratify the acts of the people that I mentioned.
John Sullivan — counsel for AZNH Revocable Trust (00:22:58)
And then Judge, in asking the court to allow a ratification, the HOA and Attorney Gallagher did not provide any supporting authority for that argument that ratification is somehow allowed. And so the only authority really to reference on that would be the restatement third of agency. And the restatement third, a ratification can't be made once another party's rights have crystallized and come intervene. And so one of the cases, there is no Arizona case that handles this issue or addresses this issue, Judge. So one case that does address the restatement under I think nearly identical circumstances, I think it's on all fours. It's Federal Election Commission versus NRA Policy Victory Fund, which is 513 US 88. That's a 1994 Supreme Court case. And in that case, an unauthorized agent filed a petition before the statutory deadline and the principal attempted to ratify the filing after the statutory period expired.
John Sullivan — counsel for AZNH Revocable Trust (00:24:16)
The Supreme Court applied the restatement and they said, "If an act to be effective in creating a right against another or to provide him of a right must be performed before a specific time. An affirmance not effective against the other unless made before such time. In a different context, we have recognized the rationale behind this rule. The intervening rights of third persons cannot be defeated by the ratification. In other words, it's essential that the party ratifying should be able not merely to do the act ratified at the time the act was done, but also at the time ratification was made. And the court went on to emphasize that allowing retroactive authorization of an untimely pleading would give the principle 'the unilateral power to extend the statutory period by days, weeks or is here even months. Impermissibly blurring a jurisdictional deadline. Now
John Sullivan — counsel for AZNH Revocable Trust (00:25:16)
The HOA has also argued that there's a state regulation, an Arizona regulation that would require the commissioner before issuing a notice of default to give the HOA 15 days to remove the default. That statute, which is R4-28-1304B as in Baker, is found among the regulations related to the licensing and regulation of real estate brokers and salespersons. The statute that applied here, ARS 32-2199. 01, in its own words, applies specifically to "dispute between an owner and a condominium association or a plant community association." Furthermore, there's state law judge that says, for instance, "If an agency rule conflicts with a statute, the rule must yield." And that's the Arizona State Board of Regents Extral Arizona State University versus Arizona State Personnel Board. And there's another case, Arizona Department of Economic Security versus Leonardo. The first case is a 1999 case out of the Supreme Court and the second case, the Leonardo case is a 2001 division one case.
John Sullivan — counsel for AZNH Revocable Trust (00:26:30)
And so the essence of that is that if ratification is going to take place, it has to take place before another person's rights have crystallized or come into effect. Now also the HOA has argued that because of the case of Miller versus Mason McDuffie, a 1987 Arizona case, that even though the president may not have had the authority to submit a response, that it nevertheless is effective under that case, under Miller versus Mason McDuffie. Now that case dealt with detrimental reliance and estoppel, which are contract matters. And what happened in that case was a bank employee who was doing loan originations told a commercial borrower that their loan had been approved and then the bank employee tried and kept the loan origination fee from the commercial borrower. When the bank discovered the fraud, the bank attempted to deny and withhold the loan. The borrower relied on the fake approval that they had to incur debts and other obligations.
John Sullivan — counsel for AZNH Revocable Trust (00:27:38)
And as a result, when they went to court, they prevailed in court because they relied upon, they were successful in relying upon detrimental alliance and estoppel. That case, the Miller versus Mason McDuffie Company has nothing to do with the case that we have here in this court judge. It's a contract case dealing with contract principles and there is no contract in place here, Judge. Now the association, excuse me, the trust has no equally plain, speedy, and adequate remedy at law, which is part of what you were asking about before. If I had tried to do anything with the commissioner of real estate or the administrative law judge, there's no avenue for either one of those entities, those agencies to make a finding that the commissioner, even though she did so unknowingly, to act outside the scope of her ability or to fail to do something that she's required to do for which she has no discretion.
John Sullivan — counsel for AZNH Revocable Trust (00:28:42)
And so Judge, if you look at RPSA rule and procedure for special action two, it will tell you that special actions allow a party to obtain relief in a superior appellate court from a decision of a lower court or from a body officer or person. And then RPSA four spells out the grounds and among those grounds are failing to perform a duty required by law for which the body officer or person has no discretion for if the body officer or person has proceeded without an excessive jurisdiction or legal authority. And then RPSA five says that any person agreed by the action or inaction of body officer or person for the reasons set forth in rule four may file an original special action as a plaintiff. And so there's no requirement of exhausting administrative remedies. That would completely defeat the purpose of a special action because the body officer or person that's being challenged is the only other avenue that could possibly be available.
John Sullivan — counsel for AZNH Revocable Trust (00:29:50)
Under ARS section 41-1092.09 subsection A3, after an administrative hearing is withheld in an HOA dispute A party is not required to file a motion for rehearing or review of the decision in order to exhaust the party's administrative remedies. And then Judge, because the commissioner of Department of Real Estate lacked the actual authority to send the matter to the Office of Administrative Hearings for a hearing, the administrative law judge had no authority to consider the matter that was put before her. And then more importantly, Judge, the administrative law judge's subject matter jurisdiction is strictly limited by section 32-2199 and that authority is limited to adjudicating and enforcing matters that arise under the Planned Communities Act or the community documents. And the state apparently is making an argument that the special action is new because the ALJ made a decision. But as I've said, the ALJ has no authority to dismiss a matter.
John Sullivan — counsel for AZNH Revocable Trust (00:31:04)
She just doesn't have any jurisdiction. But if she did, she also has no authority to dismiss a matter even if she had jurisdiction because under administrative code R2-19-117, if a party fails to appear at a hearing, the administrative law judge may proceed with the presentation of evidence of the appearing party or vacate the hearing and return the matter to the agency for any further action. In the hearing that was held in the 2025 matter, the ALJ did not receive any evidence. The administrative law judge just simply issued a decision. It was dismissed. But as I said, she doesn't have the authority to dismiss. But most importantly, Judge, now that we've reached this point under ARS 41-109208 subsection B, the matter is still not moot because the commissioner can be ordered under that statute to modify, accept or reject. And in this case, we're saying it should be rejected or modified to reject or modify the ALJ decision.
Hon. Adele Ponce (00:32:12)
Have you filed a special action or for review of the dismissal, Mr. Sullivan?
John Sullivan — counsel for AZNH Revocable Trust (00:32:20)
Well, that's what this case is about, Judge, because this is the only avenue I have. This is the only remedy I have. There is no other plain, adequate, and speedy remedy allowed. This is it. Now the state's also arguing that the commissioner and director are not proper defendants, but they are. If you look at rule of procedure special action number five, "The complaint in an original special action must name as a defendant the body officer or person whose decision or action is being challenged. It must also name as defendants all of the parties in whose absence the court cannot afford complete relief." The ADR commissioner is being challenged because although she didn't know it, she did not have the authority to send the matter to the Office of Administrative Hearings for a hearing. And she was required to issue a default decision where the allegations of the complaint are deemed admitted.
John Sullivan — counsel for AZNH Revocable Trust (00:33:13)
And then with respect to the interim director of the Office Administrative Hearings, that interim director is being joined because that decision should be vacated for lack of personal and subject matter jurisdiction. And that pretty much sums up everything that I could do within the time you gave me,
Hon. Adele Ponce (00:33:31)
Judge. Okay. Did you have anything else, Mr. Simon?
John Sullivan — counsel for AZNH Revocable Trust (00:33:36)
Well, other than to tell you that what we're looking for relief in this case, but maybe you'd want to wait, but I can do that now if you like.
Hon. Adele Ponce (00:33:44)
No, I think if you can summarize it now, I think that would be helpful. Just go ahead and tell me.
John Sullivan — counsel for AZNH Revocable Trust (00:33:56)
Well, with respect to everything, Judge, you have the authority under rule 10 of the rules of procedure for special actions to order or prohibit specific action by any defendant. And so what we're looking for is an order declaring that the response signed by Mr. Penman and submitted to the commissioner on or about December 23rd, 2025 is a melody and of no effect. We're also looking for an order requiring the commissioner of the Department of Real Estate to recall a matter identified as their docket number 25H115REL, but we call it from the Office of Administrative Hearings. And we're looking for an order requiring the commissioner of the EDRE, the Department of Real Estate, to proceed with the matter as identified by the statute as provided in the statute, ARS 32-2199. 01E as in echo, which is where the commissioner is required to issue a default decision where the allegations of the petition are deemed admitted.
John Sullivan — counsel for AZNH Revocable Trust (00:34:56)
And then we're also asking for attorney's fees and we're looking for costs. And we're also asking you to grant any other further and additional relief deemed appropriate, Judge.
Hon. Adele Ponce (00:35:09)
Thank you, Mr. Sullivan. I'm going to save you for last, Mr. Gallagher. I'll go ahead and hear from Ms. Ray.
Kelly Gibson, Assistant Attorney General — for the OAH (Eigenheer) (00:35:25)
And
Hon. Adele Ponce (00:35:25)
Then Ms. Gardner, since you're not arguing, I'm going to go ahead and just ask you to turn your camera off.
Katie Ray, Assistant Attorney General — for Commissioner Nicolson (ADRE) (00:35:31)
I think her camera is off. Okay. May I proceed, Your Honor?
Kelly Gibson, Assistant Attorney General — for the OAH (Eigenheer) (00:35:37)
Yes.
Katie Ray, Assistant Attorney General — for Commissioner Nicolson (ADRE) (00:35:38)
So basically what Mr. Sullivan is arguing is that the HOA perpetrated a fraud on the Department of Real Estate and there's no adjudication of that. There's been no determination whether or not that's true. And that determination could have been made in the Office of Administrative Hearings. I know that Mr. Sullivan is saying, well, he doesn't have an avenue to do that, but that's just not correct. I mean, the Office of Administrative Hearings could have taken evidence on that, could have decided whether or not the response was adequate or authorized. All of that could have been decided by the Office of Administrative Hearings. And Mr. Sullivan knew that the case was set on April 6th. He knew that he'd asked for stay, he didn't get it. And he voluntarily chose not to show up. And then he files a special action. Well, actually he filed it beforehand, I think.
Katie Ray, Assistant Attorney General — for Commissioner Nicolson (ADRE) (00:36:42)
And he's just trying to jump the line, Your Honor. And I'm a bit frustrated because this is the fourth case that we've been involved in with Mr. Sullivan. And the department is not a party to these matters. The dispute is between the homeowner's association and Mr. Sullivan. We don't care really whether or not there was fraud. That's something that needs to be decided by a judge, not by the department. The department did exactly what it was supposed to do. It received a petition, it received a response and it sent both of them to the office of administrative hearings, which the case was set for hearing in March and then it was continued to April and Mr. Sullivan didn't show up, neither did his client. And the judge did exactly what she should have done, which is basically vacated the proceeding. And I would say that's a voluntary waiver of any issues that exist in this case.
Katie Ray, Assistant Attorney General — for Commissioner Nicolson (ADRE) (00:37:47)
And Mr. Sullivan has waived his arguments because he didn't make them in the lower adjudicatory body. And it is a case of him failing to exhaust this administrative remedy. If you use a special action to interrupt that process, and I would suggest that perhaps the reason the stay was not granted was just for that very reason, that it would have interrupted the normal process for these types of cases where they go to OA, they get decided if the decision is wrong or somebody takes issue with it, they appeal or maybe take a special action. But in this case, Mr. Sullivan didn't even bother with going through the process. He just ignored it. And so I have this frustration, Your Honor, because I feel like I don't really even understand why we're here. The department is not a party. The department doesn't have anything to do with this internal dispute between the HOA and Mr. Sullivan.
Katie Ray, Assistant Attorney General — for Commissioner Nicolson (ADRE) (00:38:55)
The department is merely a conduit and Gigs in the department and the commissioner did exactly what they were supposed to do. To ask this court to demand or order that the commissioner recall the matter from OA is not something that the commissioner has the power to do. That's just not allowed for. And to state that the commissioner must enter a default judgment also makes no sense to me, Your Honor, because we don't have any evidence in the department is not the body that makes these decisions. It's not a fact finding body. It doesn't adjudicate these matters. It merely forwards them to OAA to allow OAA to adjudicate these matters. And if you say, well, you must issue a default judgment because we have an allegation, which is not proved at this point. We have an allegation that the response was fraudulent. Well, first of all, and Mr. Sullivan admits, the department and the commissioner had absolutely no idea or no reason to know that there was some allegation of fraud or that it actually existed.
Katie Ray, Assistant Attorney General — for Commissioner Nicolson (ADRE) (00:40:11)
So he's asking the commissioner to enter a default judgment contrary to the department statutory authority, which is you get a petition, you get a response. They look like they're on their face. They look okay. You send them to OA and OA deals with it. And that's what we're dealing with here. We're dealing with a situation where this could easily have been handled in the office of the administrative hearings. If the decision was not something that Mr. Sullivan liked, he could have appealed it then, but instead he just allowed it to be vacated, to be dismissed. He doesn't show up. So I'm really strongly suggesting that he has failed to exhaust his administrative remedies in this case and is using the special action to circumvent that statutory process that is required. I really think that it's important that we say that the commissioner is not a proper defendant in this case.
Katie Ray, Assistant Attorney General — for Commissioner Nicolson (ADRE) (00:41:30)
She's not a party. She doesn't care about the substantive dispute. And I don't think these arguments weigh her nominal status because we're just saying jurisdictionally the department and the commissioner should not be here. We should not be involved in this matter. And that's really all I have to say, Your Honor, unless you have questions.
Hon. Adele Ponce (00:42:01)
No, not at this time, Ms. Ray. Ms. Gibson, did you have anything to add today? And your microphone's muted.
Kelly Gibson, Assistant Attorney General — for the OAH (Eigenheer) (00:42:16)
Sorry, Your Honor. We'll just rely on the pleadings that we filed, Your Honor.
Hon. Adele Ponce (00:42:21)
Okay. Thank you. Mr. Gallagher.
Chad Gallagher — counsel for Sunland Springs Village HOA (00:42:27)
Thank you, Your Honor. I would like to start also going back and looking at rule four special actions that provide a basis to bring a special action complaint. Rule four reads a special action may be brought only if a lower court or a body officer or person, and based on ARS 12-2001, that references a body officer person who is exercising a judicial capacity, failed to exercise discretion that they have a duty to exercise or fail to perform a duty required by law for which they have no discretion or proceeded or threatened to proceed without or an excess jurisdiction or legal authority. Those are the two subsections cited by Mr. Sullivan in his pleadings as the basis for bringing the special action. However, as Ms. Ray just indicated, the Department of Real Estate who is according to Mr. Sullivan, the judicial body that made the mistake, they did everything they were supposed to do and they didn't have discretion to do anything else.
Chad Gallagher — counsel for Sunland Springs Village HOA (00:43:49)
Yes, there was.
Chad Gallagher — counsel for Sunland Springs Village HOA (00:43:52)
The association filed a timely response. Mr. Sullivan has unilaterally claimed that it was improper. He had alleged that it was fraudulent. He dislikes or suspects that maybe the corporate formalities were not followed, but he cannot deny that a response was timely filed. It was signed by the board president. It's still the form that is provided by the Department of Real Estate that a condition has been finally up to check the box. What's your position? This is a position that the association had taken for over a year and a half in litigating the issue with Mr. Sullivan. The board president was well aware. The board has discussed it many, many times. And what is our position in this case with respect to the electronic voting electronically production? They discussed it many, many times. And the board president signed the response was filed on behalf of the association timely.
Chad Gallagher — counsel for Sunland Springs Village HOA (00:45:02)
With that file I heard Mr. Sullivan say the Department of Real Estate had no discretion and that's true. But the lack of discretion was to say, okay, we got a petition and a response therefore we sent it to the office of administrative hearings. There was no discretion to do anything else. And so because the Department of Real Estate got a petition and the response and then had no discretion to dig deeper like Attorney Ray mentioned to question on its face whether or not it was valid that they had to turn over to the Office of Administrative Hearings and that's what happened. And so there is no grounds for special actions in this case. There is no discretion or action that was performed by the judicial officer of the department real estate in this case that they had to do something and failed to do it.
Chad Gallagher — counsel for Sunland Springs Village HOA (00:46:06)
No, they did what they had to do. That is no ground under rule four for special actions for even bringing this matter. Now yes, we know that Mr. Sullivan disliked the process that was filed or the process that was followed, that filed a response, but fraud is not even fraud. And his complaint doesn't even allege sufficient allegations to support a claim for fraud against the association. One of the essential elements for fraud is falsely a statement.
Chad Gallagher — counsel for Sunland Springs Village HOA (00:46:46)
He may disagree with the corporate formalities, whether or not they're properly followed, but he cannot disagree with the fact that the response that was filed was truthful. It was accurate. And he should not have been surprised by that because for a year and a half, the association had been arguing the same thing that yes, we conducted a vote by electronic means and we preserved the tally, the record and all of it in the matter. And that's his allegation, his underlying allegation was that the association failed to retain and produce these records from the boat. The association has always maintained that the same position that no, that the electronic records that we kept are accurate. And so for the board president, well aware of the association's position to check the box and say it said no, we deny Mr. Sullivan's allegation, that was the truthful, accurate position of the association.
Chad Gallagher — counsel for Sunland Springs Village HOA (00:47:52)
And to the extent necessary, the board voted on it later to say, yes, this is a truthful position. This is the association's position. We actually truthfully disagreed with the allegations of this complaint, of his petition that was filed before the Department of Real Estate. That's what that exhibit five that Mr. Sullivan was talking about.
Chad Gallagher — counsel for Sunland Springs Village HOA (00:48:14)
A vote to say this really is our position. It's not fraudulent. It's not false. It accurately reflected the association's position. And so even the arguments about ratification or about agency, I cited the Miller case as an extreme example to say if Miller and the Department of Real Estate in these particular cases, they're the compatible parts. In the Miller case, Mr. Miller relied on a true fraud was perpetrated and ended up the court said no. Hey, you relied on it, you did what you were supposed to do based on what was represented to you. Even going that far where true fraud was perpetrated under the much more nothing that agreed has happened here. Actually, the board president signed the response. But even then, even to say it was that response was filed under the cover of darkness. The board didn't know. Somebody snuck in and it wasn't even the board president that signed it.
Chad Gallagher — counsel for Sunland Springs Village HOA (00:49:34)
Even in that case if the response was filed, the Department of Real Estate gets a response and it's entitled to rely on it to say, okay, next step is given to the office of administrative hearings. I don't really think we even need to get that detail because rule four just does not support this special action. And then the second we look at the allegations that Mr. It's all his own interpretation. It's all his own speculation. He thinks it was fraud. If he can't prove fraud, we will not be able to prove fraud because there is no falsity in that document that was filed that was the association for truthful response. And the Department of Real Estate is entitled to rely on that. So unless the court has any other questions, the association requests that this matter be dismissed. We believe it was improperly filed in the first instance and that should be awarded in favor of the association against Mr. Sullivan and the trust for the special action.
Hon. Adele Ponce (00:50:45)
What is your understanding of what avenues Mr. Sullivan had if he had questions or doubts about I think you called it just the process that led to the filing of the answer?
Chad Gallagher — counsel for Sunland Springs Village HOA (00:51:03)
I agree with the Department of Real Estate, Yo Honor. Attorney Ray. Motions are filed all the time before the Office of Administrative Hearings. Mr. Sullivan has even filed motions in other proceedings that we've had. In other department real estate proceedings that got submitted to the Office of Administrative Hearings. I don't know. I see no reason why the Office of Administrative Hearings could not have looked into this matter and made a determination as to the appropriateness of the response.
Hon. Adele Ponce (00:51:38)
All right. Thank you.
John Sullivan — counsel for AZNH Revocable Trust (00:51:44)
I'm sorry, Judge. I didn't hear you.
Hon. Adele Ponce (00:51:48)
I'll go ahead and hear from you again. Thank
John Sullivan — counsel for AZNH Revocable Trust (00:51:50)
You. Judge, you can probably bring it up on your computer right now, ARS 32-2199. That spells out the subject matter jurisdiction of the administrative law judge. And the statute that applies to the commission, which I'm saying that the commissioner didn't follow, is not within the subject matter jurisdiction of the administrative law judge. So the idea that I could go to the administrative law judge and get a ruling on a legal matter over which the administrative law judge has no subject matter jurisdiction is just a red herring, Judge. And I noticed that when Ms. Ray was making her presentation to you, she didn't cite any rule or statute that would allow me to bring the issue to the administrative law judge. And frankly, Judge, if you look at the statute that spells out the jurisdiction, the subject matter jurisdiction of the administrative law judge, it just isn't there.
John Sullivan — counsel for AZNH Revocable Trust (00:52:45)
It's limited to the Condominium Act and the condominium documents and it's limited to the Plant Communities Act and plant community documents. And it says that the Administrative Law Judge shall adjudicate complaints regarding and ensure compliance with those areas of the law. There's just nothing there that would give the Administrative Law Judge the authority to rule on section 32-2199. 01. And also Mr. Gallagher is continuing to argue that the board has –
Hon. Adele Ponce (00:53:26)
Just so I understand though, you're saying that the ALJ didn't have the authority to decide whether or not the procedures that had been followed to file the answer were proper and whether it had a proper answer before it?
John Sullivan — counsel for AZNH Revocable Trust (00:53:46)
That's part of it. But the other part is that Judge, the matter should never have been given to the administrative law judge. And that's because although the commissioner of the Department of Real Estate had been duped and didn't know that the response she had was not a response to the corporation, she still had a duty to issue the default decision. And the only reason she didn't is because she was duped. She thought she had an answer from the HOA and she did not. And this goes back to what I was going to say about Mr. Gallagher. He presents no evidence that the board exercised their corporate powers to issue a response of any kind to either one of the petitions, either the 2024 petition or the 2025 petition. But the 2025 petition is the on before you. And they have not controverted the fact from the documents that we presented, the records that we presented to the court, that the board never met and never authorized any response to the Department of Real Estate.
John Sullivan — counsel for AZNH Revocable Trust (00:54:56)
And that deadline under 32-21. 01 is a firm line. It's not flexible. If you don't file your answer, if the named respondent doesn't file their answer within the time period, the commissioner is required to issue a default decision. There's no discretion in it. And that didn't happen this time. And the only reason it didn't happen is because Mr. Penman and Attorney Gallagher presented a document to the commissioner making the commissioner believe that that was a response of the corporation when it was not. And that's the problem, Judge.
Hon. Adele Ponce (00:55:40)
All right. Did you have anything else to add, Mr. Sullivan? Not
Chad Gallagher — counsel for Sunland Springs Village HOA (00:55:44)
That I can think of, Judge.
Hon. Adele Ponce (00:55:47)
Okay. Do any of the other parties have anything else to ad?
Katie Ray, Assistant Attorney General — for Commissioner Nicolson (ADRE) (00:55:54)
Your Honor, I do have one thing I think I would like to add. And that is that a lot of this argument is based on facts that have never been established in a court of law, any kind of court. It's all of allegations. And so basically Mr. Sullivan is asking you to issue an order based on allegations that have not been proven, which could have been proven at the Office of Administrative Hearings. I don't agree that the Office of Administrative Hearings could not have determined this. They could have. They do that kind of thing all the time. They always look into the substantive arguments of the parties. So I don't agree that Mr. Sullivan could not have dealt with this in the lower court and he didn't. And ordering the department to do something based on allegations that there were fraud that have not been proven anywhere, it would be in my opinion, inappropriate.
Katie Ray, Assistant Attorney General — for Commissioner Nicolson (ADRE) (00:56:59)
Thank you, Your Honor.
Hon. Adele Ponce (00:57:00)
Thank you. Does anyone else have anything else to ad? Yes,
John Sullivan — counsel for AZNH Revocable Trust (00:57:04)
Judge. This is Attorney Sullivan. I'd like to respond to –
Hon. Adele Ponce (00:57:07)
Okay. Hold on. Hold on, Mr. Sullivan. I was actually addressing the other attorneys.
Chad Gallagher — counsel for Sunland Springs Village HOA (00:57:14)
Your Honor, I would like to actually… Just make one comment. Yes, go ahead,
Hon. Adele Ponce (00:57:19)
Mr. Gallagher.
Chad Gallagher — counsel for Sunland Springs Village HOA (00:57:20)
Thank you. Just make one comment quickly. I meant to mention this earlier. One of the things Mr. Sullivan said also during his oral argument, his presentation is that corporate towers cannot be delegated. But that is not accurate and that's not a correct state of the law. In fact, there is in another case involving Mr. Sullivan and the association that resulted in a published court of appeals decision just recently. The court of appeals actually referenced the association's ability to delegate to a board member. Mr. Sullivan has petitioned the Supreme Court for review of that issue, but currently the state of the law at least has expressed in the Southern Springs Village case, the ACNH Trust versus Southern Springs Village that was recently published that there is authority to delegate from a board to a board officer certain actions. So I just wanted to point that out that was an inaccuracy based on the crime state of the law.
Hon. Adele Ponce (00:58:31)
Okay. Thank you. And then Ms. Gibson, you had something.
Kelly Gibson, Assistant Attorney General — for the OAH (Eigenheer) (00:58:42)
Your Honor, I didn't. I was just going to say I had nothing to add.
Hon. Adele Ponce (00:58:45)
Okay, thank you. And Mr. Sullivan, go ahead and have the last word.
John Sullivan — counsel for AZNH Revocable Trust (00:58:50)
Yes, Judge. I'll start off with the very last thing that Mr. Attorney Gallagher told you. The case that's pending at the Arizona Supreme Court does not have anything to do with corporate powers. It does have to do with delegation of duties within the organization, but it doesn't have anything at all to do with corporate powers. The corporate powers are spelled out in the Nonprofit Corporations Act and they're spelled out in 10-3302. And that's what we're talking about is corporate powers. And corporate powers can only be exercised by the board of directors. Now there is one caveat to be clear. If the articles of incorporation for the corporation allow delegation, delegation can happen. But in this case, and I provided you with the articles of incorporation for the HOA, those articles of a corporation do not allow delegation. So the HOA as a corporation, its board of directors is solely vested with the corporate powers and they cannot delegate those powers.
John Sullivan — counsel for AZNH Revocable Trust (00:59:56)
They have to exercise those powers. And only the corporation can answer the petition that was filed. And the corporation did not answer the petition that was filed and they did not give Mr. Penman or Mr. Gallagher any authority to do that. They just absolutely had no authority to do that. They acted on their own. And once again, Ms. Ray says, again, even though I've already cited the limitations on the subject matter jurisdiction of the administrative law judge, she doesn't tell us by what rule or statute I'm supposed to seek some other form of review. My only avenue of review in this is by special action as I spelled out to you earlier, Judge. Thank
Hon. Adele Ponce (01:00:42)
You. Okay. Thank you. That concludes today's proceeding. The court is taking it under advisement. Thank you.
Chad Gallagher — counsel for Sunland Springs Village HOA (01:00:50)
Thank you, Your Honor.
Katie Ray, Assistant Attorney General — for Commissioner Nicolson (ADRE) (01:00:55)
Thank you, Your Honor. Yes.
Kelly Gibson, Assistant Attorney General — for the OAH (Eigenheer) (01:00:58)
Thank
Katie Ray, Assistant Attorney General — for Commissioner Nicolson (ADRE) (01:00:58)
You, Your Honor.
