Stromme, Walter A. -v- Apache Wells Homeowners Association, Inc.

Posted on February 12, 2007 by [email protected]

Case Summary

Case ID	07F-H067009-BFS
Agency	DFBLS
Tribunal	OAH
Decision Date	2007-02-12
Administrative Law Judge	Lewis D. Kowal
Outcome	partial
Filing Fees Refunded	$550.00
Civil Penalties	$0.00

Parties & Counsel

Petitioner	Walter A. Stromme	Counsel	Michael K. Hair
Respondent	Apache Wells Homeowners Association, Inc.	Counsel	Eric M. Jackson

Alleged Violations

CC&R §§ 3m and 4a and b
Article X, Section 2d(1)

Outcome Summary

The ALJ ruled in favor of the Respondent regarding the building purchase, finding the Board had authority to use general funds. The ALJ ruled in favor of the Petitioner regarding the transfer fee, finding the increase to $950 was arbitrary and capricious as it was not reasonably related to specific expenses. The fee increase was voided, and Respondent was ordered to refund the Petitioner's filing fee.

Key Issues & Findings

Purchase of building without homeowner vote

Petitioner alleged the Board purchased a building for $723,000 without a vote by homeowners, arguing general funds are for maintenance only and a special assessment was required.

Orders: No action required; Board acted appropriately.

Filing fee: $275.00, Fee refunded: No

Disposition: respondent_win

Cited:

Divizio v. Kewin Enterprises Inc.
Restatement (Third) of Property: Servitudes
Candlelight Hills Civic Association, Inc. v. Goodwin

Increase of transfer fee

Petitioner challenged the Board's increase of the transfer fee from $300.00 to $950.00 without a vote and without rational justification for the specific amount.

Orders: The increase of the transfer fee is voided and the transfer fee shall be $300.00.

Filing fee: $275.00, Fee refunded: Yes

Disposition: petitioner_win

Cited:

Restatement (Third) of Property: Servitudes
Powell v. Washburn

Audio Overview

Decision Documents

07F-H067009-BFS Decision – 162088.pdf

Uploaded 2026-01-25T15:19:30 (145.5 KB)

Briefing Doc – 07F-H067009-BFS

Administrative Law Judge Decision: Stromme v. Apache Wells Homeowners Association

Executive Summary

This briefing document synthesizes the February 12, 2007, decision by Administrative Law Judge (ALJ) Lewis D. Kowal regarding a dispute between homeowner Walter A. Stromme (Petitioner) and the Apache Wells Homeowners Association (Respondent). The Petitioner alleged that the Association’s Board of Directors violated governing documents by purchasing a building and increasing transfer fees without membership votes.

Key Takeaways:

• Building Purchase Upheld: The ALJ ruled that the Board acted within its authority when it purchased a $723,000 building using general funds. The governing documents permit, but do not mandate, the use of special assessments for property acquisition.

• Transfer Fee Increase Voided: The Board’s decision to increase the transfer fee from $300 to $950 was declared void. The ALJ found the increase to be “arbitrary and capricious,” as the Association failed to provide a rational justification or evidence of specific expenses related to the increase.

• Prevailing Party Status: Because the Petitioner successfully challenged the transfer fee increase, he was deemed the prevailing party and awarded a reimbursement of his $550 filing fee. Requests for attorney fees were denied for both parties.

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Issue 1: Unauthorized Purchase of Real Property

The Petitioner challenged the Board’s 2006 purchase of a building for $723,000, arguing that such an acquisition required a majority vote of the homeowners under the Association’s Declaration of Covenants, Conditions, and Restrictions (CC&Rs).

Financial and Operational Context

• Acquisition Cost: $723,000, consisting of a $123,000 down payment and a $600,000 bank loan.

• Funding Source: The Board utilized general funds rather than a special assessment.

• Justification: The Association required additional office and meeting space. An architect advised that purchasing the building was more cost-effective than new construction, which was estimated at $1.5 million.

• Loan Terms: A 15-year loan with no prepayment penalty; the Board projected it could be retired in seven years using general assessment funds.

Legal Analysis and Findings

The dispute centered on the interpretation of two paragraphs in the Declaration:

• Paragraph 3M: Establishes general assessments for maintenance and “all services” furnished by the Association.

• Paragraph 4: Grants the power to acquire property and states that “any such special assessment” requires a two-thirds Board vote and ratification by a majority of owners.

The Petitioner argued that Divizio v. Kewin Enterprises Inc. established that maintenance fees cannot be used for property acquisition. However, the ALJ distinguished this case, noting that the Apache Wells Bylaws (Article II, Section 1(D)) explicitly authorize the Association to “assess members to carry out… the acquisition of property.”

Conclusion: The ALJ concluded that Paragraph 4 permits but does not require a special assessment for property acquisition. Since the Association had sufficient general funds and the purchase served a legitimate business need (office and meeting space), the Board acted appropriately.

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Issue 2: Increase of Transfer Fees

The Board raised the community transfer fee from $300 to $950 on April 20, 2005. The Petitioner contended this increase was unauthorized and violated the Bylaws.

Association Rationale for Increase

The Association argued the fee was necessary to:

1. Fund repairs for Association-owned commercial buildings (strip mall).

2. Establish a $100,000 reserve for a newly constructed library.

3. Fund enhanced security services.

4. Ensure new residents contribute to existing community amenities they did not previously pay to develop.

5. Allocate $100 per fee to golf course maintenance to preserve community property values.

Evidence of Fee Benchmarking

The Association presented research on nine other Arizona homeowner associations to justify the $950 rate:

Fee Amount

Number of Associations

Over $950

$300 – $939

Legal Analysis and Findings

The ALJ utilized the Restatement (Third) of Property: Servitudes, which stipulates that transfer fees are valid only if there is a “rational justification” for the amount.

Critical Deficiencies in the Association’s Case:

• Lack of Cost Accounting: The Association admitted it does not track administrative costs associated with property transfers.

• Vague Expense Projections: The Association failed to provide specific identifiable costs or budget projections that justified the jump to $950.

• Arbitrary Selection: The ALJ determined the amount was “arbitrarily and capriciously selected” and not reasonably related to anticipated expenses.

Conclusion: The increase was deemed unauthorized and voided. The transfer fee was ordered to return to the previous rate of $300.

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Final Orders and Financial Awards

Filing and Attorney Fees

• Petitioner’s Filing Fee: The Respondent (Apache Wells) was ordered to pay the Petitioner $550 within 40 days of the order. This was based on the Petitioner’s status as the prevailing party regarding the transfer fee issue (A.R.S. § 41-2198.02).

• Attorney Fees: Neither party was awarded attorney fees. The ALJ noted that an administrative proceeding is not an “action” under A.R.S. § 12-341.01, and the governing documents did not provide for such an award in this context.

Summary of Rulings

Ruling

Action Required

Building Purchase

Upheld

Transfer Fee Increase

Voided

Fee reset to $300

Filing Fee

Awarded to Petitioner

Respondent to pay $550

Study Guide – 07F-H067009-BFS

Study Guide: Stromme v. Apache Wells Homeowners Association, Inc.

This study guide provides a comprehensive review of the administrative law judge decision regarding the dispute between Walter A. Stromme and the Apache Wells Homeowners Association. It covers the legal arguments, findings of fact, and final rulings concerning association governance and financial management.

Part I: Short-Answer Quiz

Instructions: Answer the following questions in two to three sentences based on the provided source context.

1. Who are the parties involved in this administrative hearing, and what is the nature of their relationship?

2. What were the two primary issues remaining in dispute at the time of the hearing?

3. What were the specific financial terms of the Board’s purchase of the building in 2006?

4. How did the Board justify the purchase of the building without a membership vote?

5. On what grounds did Mr. Stromme argue that the use of general funds for the building purchase was improper?

6. Why did the Administrative Law Judge (ALJ) determine that the Divizio v. Kewin Enterprises Inc. case was not controlling in this matter?

7. What rationales did the Board provide for increasing the transfer fee from $300.00 to $950.00?

8. Why did the ALJ ultimately void the increase of the transfer fee?

9. What was the court’s determination regarding the awarding of attorney’s fees for both parties?

10. How was the “prevailing party” determined, and what specific award did that party receive?

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Part II: Answer Key

1. Who are the parties involved in this administrative hearing, and what is the nature of their relationship? The Petitioner is Walter A. Stromme, a homeowner and member of the Apache Wells Homeowners Association since 1996. The Respondent is the Apache Wells Homeowners Association, Inc., represented by its Board of Directors.

2. What were the two primary issues remaining in dispute at the time of the hearing? The first issue was whether the Board violated governing documents by purchasing a $723,000 building using general funds without a homeowner vote. The second issue concerned whether the Board’s increase of the transfer fee from $300.00 to $950.00 without a membership vote was a violation of the Bylaws.

3. What were the specific financial terms of the Board’s purchase of the building in 2006? The building was purchased for a total of $723,000.00, utilizing a down payment of $123,000.00 from general funds and a bank loan of $600,000.00 structured over a fifteen-year term with no pre-payment penalty.

4. How did the Board justify the purchase of the building without a membership vote? The Board argued that the Bylaws grant them the authority to manage association business and purchase real property to provide necessary office and meeting space. They contended that while Paragraph 4 of the Declaration permits special assessments for such purchases, it does not mandate them if general funds are sufficient.

5. On what grounds did Mr. Stromme argue that the use of general funds for the building purchase was improper? Mr. Stromme argued that according to Paragraph 3M of the Declaration, general assessment funds are strictly intended for maintenance costs. He asserted that any acquisition of real property must instead be funded through a special assessment, which requires ratification by a majority of the homeowners.

6. Why did the Administrative Law Judge (ALJ) determine that the Divizio v. Kewin Enterprises Inc. case was not controlling in this matter? The ALJ found that unlike the association in Divizio, Apache Wells had specific Bylaws (Article II, Section 1(D)) authorizing the acquisition of property. Additionally, the ALJ noted that Apache Wells is governed by modern statutes like the Arizona Non-profit Corporation Act and the Planned Community Act, which were not applicable at the time of the Divizio decision.

7. What rationales did the Board provide for increasing the transfer fee from $300.00 to $950.00? The Board cited the need for additional funds to cover repairs for association-owned buildings, the creation of a $100,000 reserve for a new library, and increased security costs. They also argued the fee ensures new residents contribute to the amenities enjoyed by long-term members, with a portion specifically allocated to golf course maintenance.

8. Why did the ALJ ultimately void the increase of the transfer fee? The ALJ concluded the $950.00 amount was selected “arbitrarily and capriciously” because the Association failed to provide evidence of specific anticipated expenses or a calculated relationship between the fee and administrative costs. While transfer fees are generally valid if they have a rational justification, the Association did not maintain records to justify this specific increase.

9. What was the court’s determination regarding the awarding of attorney’s fees for both parties? The ALJ denied attorney’s fees to both parties, noting that under Arizona law, an administrative proceeding is not considered an “action” that qualifies for fees under A.R.S. § 12-341.01. Furthermore, the governing documents of the Association did not contain provisions for awarding attorney’s fees in this type of proceeding.

10. How was the “prevailing party” determined, and what specific award did that party receive? Mr. Stromme was deemed the prevailing party because he successfully established that the Association acted without authority regarding the transfer fee increase. As the prevailing party, he was awarded a reimbursement of his $550.00 filing fee pursuant to A.R.S. § 41-2198.02.

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Part III: Essay Questions

1. Mandatory vs. Permissive Language in Governing Documents: Analyze how the ALJ interpreted the relationship between Paragraph 3M and Paragraph 4 of the Declaration. How does the distinction between “having the right” to issue a special assessment and being “required” to do so impact Board authority?

2. The Limits of Board Discretion: Discuss the legal standard of “arbitrary and capricious” as applied to the transfer fee increase. What specific evidence could the Board have provided to meet the “rational justification” requirement set forth in the Restatement (Third) of Property: Servitudes?

3. Modern Statutory Context in HOA Disputes: Explore why the ALJ prioritized the Arizona Non-profit Corporation Act and the Planned Community Act over older case law like Divizio. How does the modern legal framework for homeowners associations differ from the mobile home park context addressed in 1983?

4. The Validity of Transfer Fees: Based on the testimony of Mr. Stoll, evaluate the philosophical and practical justifications for transfer fees in a planned community. Is the goal of “making a contribution towards amenities” a sufficient legal basis for such fees if they are not tied to administrative costs?

5. Defining the “Prevailing Party” in Multi-Issue Litigations: In this case, Mr. Stromme lost on Issue 1 but won on Issue 2. Evaluate the ALJ’s reasoning for declaring him the prevailing party and awarding the filing fee. Should a petitioner be considered “prevailing” if they only succeed on a portion of their claims?

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Part IV: Glossary of Key Terms

Definition

Administrative Law Judge (ALJ)

A judge who conducts hearings and makes recommendations or decisions regarding disputes involving government agencies and regulated entities.

Arbitrary and Capricious

A legal standard used to describe a decision made without a rational basis, reasonable justification, or consideration of relevant facts.

A.R.S. § 41-2198.01

The Arizona Revised Statute that grants the Office of Administrative Hearings jurisdiction over disputes between owners and planned community associations.

Bylaws

The internal rules and regulations that govern the management and operation of a corporation or association.

Covenants, Conditions, and Restrictions (CC&Rs)

A legal document, often referred to as the “Declaration,” that imposes specific rules and limits on how land and property within a development can be used.

General Assessment

Periodic fees (often monthly) paid by homeowners to cover the recurring costs of maintenance and association services.

Governing Documents

The collective set of documents—including the Declaration, Bylaws, and Articles of Incorporation—that define the powers of an HOA and the rights of its members.

Preponderance of the Evidence

The burden of proof in civil cases, requiring that a fact is “more probably true than not” or that the evidence is of greater weight than the opposition.

Restatement (Third) of Property: Servitudes

A legal treatise that Arizona courts often look to for guidance in property law disputes in the absence of contrary local precedent.

Special Assessment

A one-time or specific fee charged to homeowners to cover major expenses, such as the acquisition of property or major construction, often requiring a membership vote.

Transfer Fee

A fee assessed to the buyer of a home in a community at the time of sale, intended to raise funds for the general operation or amenities of the association.

Blog Post – 07F-H067009-BFS

The Hidden Limits of HOA Power: Lessons from the Apache Wells Decision

Introduction: The Relatable Struggle of Homeowner Governance

For many residents in planned communities, the relationship with a Homeowners Association (HOA) board is a study in tension. On one hand, the board is tasked with maintaining property values and community standards; on the other, homeowners often feel they are writing blank checks to a body that wields significant power with limited oversight. This power struggle frequently boils down to a single question: When does the board need your permission to spend your money?

This tension was the catalyst for Walter A. Stromme vs. Apache Wells Homeowners Association, Inc., a case heard before an Arizona Administrative Law Judge. The dispute provides a masterclass in the legal boundaries of community governance. It illustrates both the broad discretion boards enjoy over general spending and the strict, data-driven limits placed on their ability to set fees. For anyone living under a set of CC&Rs, the decision is an essential roadmap for understanding where a board’s authority ends and homeowner rights begin.

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Takeaway 1: The “General Fund” Loophole for Massive Purchases

One of the most startling revelations of the Apache Wells case was the Board’s ability to purchase a $723,000 building without a community vote. While many homeowners assume a capital expenditure of nearly three-quarters of a million dollars would trigger a democratic process, the Board successfully argued that the source of the funds, rather than the amount, dictated the rules.

Under the community’s Declaration, a “Special Assessment” required a two-thirds vote of the Board and ratification by a majority of homeowners. However, the Board did not issue a special assessment. Instead, they used the Association’s “General Funds”—money already collected through standard monthly assessments—to make the down payment and secure a loan.

As a legal analyst, it is critical to note that the Board navigated the silence of the governing documents. The Declaration permitted a special assessment for property acquisition but did not mandate it as the exclusive means of purchase. In law, “may” does not mean “must.” Because the documents didn’t expressly forbid using general funds for such a purchase, the Board’s authority was anchored in the By-laws, which allow the Board to:

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Takeaway 2: “Maintenance” is a Broad Legal Bucket (and Statutes Evolve)

The petitioner, Mr. Stromme, argued that the funds were improperly diverted. He contended that according to Paragraph 3M of the Declaration, general assessment fees were intended for the “cost of maintenance” and the “furnishing of services,” not for the acquisition of new real estate.

Mr. Stromme relied on the 1983 case Divizio v. Kewin Enterprises Inc., where the court ruled that maintenance expenses in a mobile home park could not include the purchase of common areas. However, the Judge in Apache Wells rejected this precedent, providing a vital lesson in statutory evolution.

The Judge noted that Divizio was decided before the Arizona Non-profit Corporation Act and the Planned Community Act were in existence. These modern frameworks grant HOAs broader corporate powers. Consequently, the Judge interpreted the phrase “furnishing of any and all services” broadly enough to include the acquisition of property necessary to run the association’s business, such as office space and meeting rooms. For the modern homeowner, “maintenance” is no longer just about fixing a fence; it is about the total infrastructure required to manage the community.

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Takeaway 3: You Can’t Just Pick a Number (The $950 Failure)

While the Board won the right to spend existing funds, they lost the battle over increasing them. In 2005, the Board hiked the community transfer fee from $300 to $950. Their justification was a general need for more income to cover building repairs, security, and reserves.

The Judge voided this increase, citing a lack of “Rational Justification.” The Board’s defense was particularly weak because it was arbitrary: they admitted they did not track specific administrative costs related to property transfers. Furthermore, the Board had allocated $100 of that transfer fee specifically to golf course maintenance. This was a tactical error; using a general transfer fee to subsidize a specific amenity like a golf course, without data-driven cost tracking, is the definition of “arbitrary and capricious.”

Crucially, the Board tried to justify the $950 fee by researching nine other HOAs and showing that some charged even more. The Judge rejected this entirely. Market rate does not equal legal authority. Even if every HOA in the state charges $1,000, if your specific documents or internal cost-tracking don’t support it, the fee is illegal. As the Judge noted:

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Takeaway 4: The Primacy of “Ground Truth” and Business Judgment

The Apache Wells decision underscores the supremacy of “Ground Truth”—the specific wording recorded in the By-laws and Declarations at a community’s inception. Homeowners often rely on “common sense” or “fairness,” but the law prioritizes the four corners of the recorded document. Because the Declaration gave the Association the power to “acquire additional real… property” and did not explicitly force a vote for all acquisitions, the Board’s path was clear.

However, the Board also protected itself through the “Business Judgment” rule. They didn’t just buy the building on a whim; they presented evidence that they had consulted an architect and analyzed long-range plans. The architect advised the Board that building a new facility from scratch would cost $1.5 million, making the $723,000 purchase appear fiscally responsible and prudent by comparison.

When a Board can show a reasonable business need (like office space) and a fiscally responsible execution (saving $777,000 compared to new construction), courts are extremely hesitant to second-guess them.

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Conclusion: The Balance of Power in Modern Communities

The Apache Wells ruling is a split decision that offers both a shield and a sword. For board members, the takeaway is clear: your ledger is your best legal defense. You have significant latitude to manage assets, but you cannot hike fees simply because you want “more income.” Every dollar assessed must be tied to a specific, trackable expense.

For homeowners, this case is a reminder that transparency is the only way to hold a board accountable. While the “General Fund loophole” may seem unfair, it is a legal reality in many communities where the governing documents were written to prioritize board efficiency over total democracy.

The balance of power in your community rests on the data. If your HOA board made a major purchase tomorrow using existing funds, would your governing documents give you a say, or have you already signed that right away?

Case Participants

Petitioner Side

Walter A. Stromme (petitioner)
Homeowner
Member since 1996
Michael K. Hair (attorney)
Michael K. Hair, P.C.

Respondent Side

Eric M. Jackson (attorney)
Jackson White
Representing Apache Wells Homeowners Association
Brian Johnson (witness)
Apache Wells Homeowners Association
Former Board President (Jan 2006-Jan 2007); Board member (2004-2007)
Marvin Stoll (witness)
Apache Wells Homeowners Association
Current Board President

Neutral Parties

Lewis D. Kowal (ALJ)
Office of Administrative Hearings
Robert Barger (Director)
Department of Fire, Building and Life Safety
Listed on transmission of order
Joyce Kesterman (Agency Staff)
Department of Fire, Building and Life Safety
Listed on transmission of order

Fairfield, Michael -v- Rancho Manana Homeowners Association

Posted on February 10, 2007 by [email protected]

Case Summary

Case ID	07F-H067008-BFS
Agency	DFBLS
Tribunal	OAH
Decision Date	2007-02-12
Administrative Law Judge	Daniel G. Martin
Outcome	no
Filing Fees Refunded	$550.00
Civil Penalties	$0.00

Parties & Counsel

Petitioner	Michael Fairfield	Counsel	James L. Tanner, Esq.
Respondent	Rancho Manana Homeowners Association	Counsel	Brian W. Morgan, Esq.

Alleged Violations

Declaration Section 9.1; Declaration Section 9.2; Architectural Standards Paragraph 2

Outcome Summary

The ALJ denied the petition. Although the Petitioner prevailed on the interpretation that his extension was not a 'driveway approach' subject to specific standards, he failed to prove the HOA acted unreasonably or violated documents in denying the request. The Petitioner had installed the improvement without the required prior approval, and the HOA's denial based on harmony of design was upheld.

Why this result: Petitioner proceeded without approval and failed to demonstrate the HOA's denial was arbitrary or capricious.

Key Issues & Findings

Denial of driveway extension approval

Petitioner alleged the HOA improperly denied his request for a driveway extension. He argued the extension did not violate the 'driveway approach' standard and that the denial was unreasonable.

Orders: Petition denied.

Filing fee: $550.00, Fee refunded: No

Disposition: respondent_win

Cited:

Shamrock v. Wagon Wheel Park Homeowners Association, 206 Ariz. 42, 75 P.3d 132 (App. 2003)
Powell v. Washburn, 211 Ariz. 553, 125 P.3d 373 (2006)

Audio Overview

Decision Documents

07F-H067008-BFS Decision – 162011.pdf

Uploaded 2026-01-25T15:19:25 (147.6 KB)

Briefing Doc – 07F-H067008-BFS

Briefing Document: Fairfield v. Rancho Manana Homeowners Association

Executive Summary

This briefing document analyzes the administrative law judge (ALJ) decision in the matter of Michael Fairfield vs. Rancho Manana Homeowners Association (No. 07F-H067008-BFS). The dispute centered on the Petitioner’s unauthorized installation of a 68-foot driveway extension and the subsequent denial of his request for approval by the Rancho Manana Homeowners Association (the “Association”).

The core findings of the Office of Administrative Hearings are as follows:

• Procedural Violation: The Petitioner violated the subdivision’s Declaration of Covenants, Conditions and Restrictions (the “Declaration”) by installing the improvement without seeking prior written approval from the Architectural Committee, despite being explicitly advised to do so.

• Architectural Authority: The Association maintains broad authority under Section 9.1 of the Declaration to approve or disapprove lot alterations based on the “harmony of external design.”

• Interpretation of Standards: While the ALJ found that the extension did not technically violate the specific “driveway approach” standard (as it did not lead to the street), the Association’s denial was upheld based on its overarching power to preserve community aesthetics and its consistent history of denying such extensions.

• Final Order: The Petitioner failed to meet the burden of proof to show the Association acted arbitrarily or in violation of its governing documents. The petition was denied.

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Governing Documents and Architectural Control

The Rancho Manana subdivision, located in Cave Creek, Arizona, is governed by a Declaration of Covenants, Conditions and Restrictions. The Association’s Board of Directors also serves as the Architectural Committee.

Declaration Section 9: Architectural Control

The Declaration establishes strict protocols for any modifications to properties within the subdivision:

• Reservation of Power (Section 9.1): The Architectural Committee has the right and power to approve or disapprove all improvements, alterations, excavations, and landscaping. This power is exercised to preserve the values and amenities of the property and ensures “harmony of external design and location in relation to surrounding improvements and topography.”

• Approval Process (Section 9.2): All requests must be submitted in writing. Approval is deemed granted only if the Committee fails to disapprove a request within 30 days of receipt. Crucially, the non-exercise of this power in one instance does not constitute a waiver of the right to exercise it in others.

Architectural Standards

In addition to the Declaration, the Association utilizes specific Architectural Standards. Paragraph 2 of these standards stipulates: “All driveway approaches must lead to a private garage within the building envelope.”

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The Driveway Extension Dispute

Chronology of Events

1. December 2005: The Association President, Mike Kaus, learned of Petitioner Michael Fairfield’s plan to extend his driveway. Kaus advised Fairfield on two occasions that prior approval from the Architectural Committee was mandatory.

2. January 2006: Despite these warnings, Fairfield installed a 10’ x 68’ natural cement extension connecting his driveway to his back patio without seeking approval.

3. January 23, 2006: The Association notified Fairfield of the violation and requested immediate submission of plans.

4. January 31, 2006: Fairfield submitted a formal request for approval, apologizing for the lack of prior notice and offering to pay a fine. He argued the extension was not a “structure” under local zoning or Association definitions.

5. February 13, 2006: The Board denied the request and ordered Fairfield to remove the concrete and restore the yard by April 1, 2006.

6. October 12, 2006: After failed informal resolution attempts, the Association threatened fines of at least $100 per day until the violation was corrected.

Characteristics of the Improvement

The Petitioner described the improvement as a “walkway/driveway” extension.

• Dimensions: 10 feet wide by 68 feet long.

• Composition: Natural exposed cement, matching the existing driveway.

• Elevation: Surface level, flush with the ground and gravel.

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Legal Analysis and Main Themes

The “Driveway Approach” Controversy

The Association initially denied the request citing the standard that “driveway approaches” must lead to a garage. The ALJ conducted a specific analysis of this terminology:

• Definition: The term “driveway approach” was not defined in the governing documents. However, the parties generally agreed it refers to the section of the driveway leading to or from the street.

• Finding: The ALJ determined that because the extension did not lead to the street, it was not a “driveway approach.” Consequently, the Petitioner did not technically violate this specific Architectural Standard.

Broad Authority vs. Specific Rules

A central theme of the ruling is that a homeowner’s compliance with specific rules (like the driveway approach standard) does not override the general requirement for architectural approval under the Declaration.

• The ALJ found that the Association’s power under Section 9.1 is “broad.”

• Evidence showed the Architectural Committee had not granted any requests for similar extensions in the past six years, establishing a consistent enforcement of “harmony of external design.”

Judicial Precedents and Application

The Petitioner cited two primary cases to support his challenge, both of which were addressed by the ALJ:

Case Citation

Petitioner’s Argument

ALJ’s Conclusion

Shamrock v. Wagon Wheel Park HOA

Associations cannot use rules/regulations to amend the Declaration.

The driveway restriction was a reasonable exercise of existing authority under Section 9.1, not an amendment to the Declaration.

Powell v. Washburn

Enforcement must be reasonable and reflect the intent of the parties and the document’s purpose.

The intent of the Declaration regarding architectural control is plain and unambiguous. The Association acted consistently and reasonably.

The “Unclean Hands” Doctrine

The ALJ noted that the Petitioner came before the tribunal with “unclean hands.” He had explicitly ignored instructions to seek pre-approval, a fact that made his arguments regarding the “reasonableness” of the Association’s enforcement appear “hollow.”

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Final Conclusions and Order

The Administrative Law Judge concluded that Michael Fairfield failed to prove by a preponderance of the evidence that the Association violated its governing documents.

Key Legal Conclusions:

1. Violation Established: Fairfield violated Section 9 of the Declaration by proceeding with construction without prior approval.

2. No Arbitrary Action: The Association did not act arbitrarily or capriciously in denying the request, as the denial was consistent with its treatment of similar requests over a six-year period.

3. Prevailing Party: Although Fairfield was correct that the extension was not a “driveway approach,” he was not the prevailing party because he failed to overturn the Association’s decision to deny the installation and order its removal.

Final Order: The petition filed by Michael Fairfield was denied.

Study Guide – 07F-H067008-BFS

Study Guide: Fairfield v. Rancho Manana Homeowners Association

This study guide provides a comprehensive review of the administrative law case Michael Fairfield v. Rancho Manana Homeowners Association. It explores the legal obligations of homeowners within a common-interest community, the authority of architectural committees, and the interpretation of restrictive covenants.

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Case Overview: Key Facts

Short-Answer Quiz

Instructions: Answer the following questions in two to three sentences based on the provided source material.

1. What was the primary allegation Michael Fairfield brought against the Rancho Manana Homeowners Association?

2. According to Section 9.1 of the Declaration, what is the specific purpose of the Architectural Committee’s reservation of power?

3. What warning did Mike Kaus, the Association President, provide to Fairfield regarding the driveway extension in December 2005?

4. Why did the Administrative Law Judge (ALJ) find Fairfield’s testimony regarding his review of the governing documents “neither credible nor persuasive”?

5. What specific Architectural Standard did the Board of Directors cite in their February 13, 2006, letter when denying Fairfield’s request?

6. How did the ALJ define a “driveway approach” in the context of this case?

7. Why did the ALJ conclude that the driveway extension did not actually violate the “driveway approach” standard?

8. What does the legal concept of “unclean hands” refer to in the context of Fairfield’s petition?

9. Based on the Powell v. Washburn case cited in the text, how should restrictive covenants be interpreted?

10. Why was Fairfield denied the recovery of his $550.00 filing fee despite winning the argument regarding the definition of a “driveway approach”?

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Answer Key

1. Fairfield alleged that the Association improperly denied his request to install a driveway extension in violation of the subdivision’s Declaration and rules. He specifically argued that the extension was consistent with guidelines and that the Association’s enforcement was unreasonable.

2. The committee reserves the power to approve or disapprove improvements to preserve the values and amenities of the property. This authority ensures that all alterations maintain a harmony of external design and location relative to surrounding improvements and topography.

3. Mr. Kaus advised Fairfield on at least two occasions that he was required to submit a formal request to the Architectural Committee for approval prior to beginning installation. Despite Fairfield agreeing to do so, he proceeded with the construction in January 2006 without obtaining that approval.

4. Fairfield claimed he found nothing in the documents prohibiting his actions, yet Section 9.1 plainly requires prior approval for “all improvements” and “all other work” altering a lot’s appearance. Furthermore, his testimony was contradicted by the fact that the Association President had specifically told him he needed prior approval.

5. The Board cited Paragraph 2 of the Architectural Standards, which states that all driveway approaches must lead to a private garage within the building envelope. Because Fairfield’s extension led to the rear of his property/back patio rather than a garage, the Board initially deemed it a violation.

6. The term was not explicitly defined in the Association’s documents, but the parties generally agreed it refers to the section of the driveway leading to or from the street. The ALJ accepted this definition, noting that the extension was an independent structure built separately from the part of the driveway connecting to the street.

7. The ALJ determined the extension was not a “driveway approach” because it did not lead to or from the street. Consequently, the limitation requiring approaches to lead to a garage did not apply to this specific section of concrete.

8. “Unclean hands” refers to Fairfield’s bad-faith conduct in knowingly violating the Declaration by installing the extension without the prior approval he knew was required. The ALJ noted that while this didn’t automatically defeat his case, it made his later arguments for “reasonableness” ring hollow.

9. Restrictive covenants should be interpreted to give effect to the intentions of the parties involved. This intent is determined by examining the language of the entire document and the purpose for which the covenants were originally created.

10. Under A.R.S. § 41-2198.02, the filing fee is only awarded if the petitioner is the prevailing party. While Fairfield won a technical point about the definition of an “approach,” he lost the overarching legal battle regarding the Association’s right to deny his project.

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Essay Questions

Instructions: Use the case facts to develop comprehensive responses to the following prompts.

1. Discretionary Authority vs. Specific Rules: Analyze the difference between the Association’s “Architectural Standards” (specific rules like the garage requirement) and the “Declaration” (broad discretionary powers). How did the ALJ’s distinction between these two affect the final ruling?

2. The Role of Prior Approval: Discuss the importance of Section 9.2 (the approval process) in community management. Why is the requirement for written acknowledgement and a 30-day review period critical for both the HOA and the homeowner?

3. Consistency in Enforcement: The Architectural Committee testified that they had not granted a similar extension request in six years. Evaluate how consistent past enforcement influences an ALJ’s determination of whether an Association acted “arbitrarily or capriciously.”

4. Zoning vs. Private Covenants: Fairfield argued that his extension met City of Cave Creek zoning requirements. Explain why compliance with municipal zoning does not necessarily exempt a homeowner from the restrictions found in a subdivision’s CC&Rs.

5. The Burden of Proof in Administrative Hearings: Explain the “preponderance of the evidence” standard as applied in this case. What specific evidence did Fairfield fail to provide to meet this burden regarding the Association’s alleged violation of its own documents?

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Glossary of Key Terms

• Administrative Law Judge (ALJ): An independent official who presides over hearings and makes findings of fact and legal conclusions regarding disputes involving state agencies or regulated entities.

• Arbitrary or Capricious: Actions taken without a rational basis or in disregard of facts and circumstances; the legal standard used to determine if an HOA abused its power.

• Building Envelope: The designated area on a lot within which structures and improvements must be contained, often defined by setbacks.

• Covenants, Conditions and Restrictions (CC&Rs): A legal document (the Declaration) that imposes specific rules and limits on how a property can be used and maintained within a subdivision.

• Declaration: The primary governing document of a planned community that establishes the rights and obligations of the homeowners and the Association.

• Driveway Approach: The specific portion of a driveway that connects a private lot to the public or common street.

• Harmony of External Design: A subjective but legally recognized standard allowing architectural committees to ensure new improvements match the aesthetic style and quality of the surrounding neighborhood.

• Preponderance of the Evidence: The standard of proof in civil and administrative cases, meaning that a claim is more likely to be true than not true.

• Restrictive Covenant: A clause in a deed or a declaration that limits what the owner of the land can do with the property.

• Unclean Hands: A legal doctrine that prevents a party from obtaining a remedy when they have acted unethically or in bad faith regarding the subject of the complaint.

Blog Post – 07F-H067008-BFS

When Your Home Improvement Project Becomes a Legal Battle: 5 Surprising Lessons from the Front Lines of HOA Disputes

For most homeowners, the urge to improve one’s property is a natural extension of the American Dream. Whether it’s enhancing curb appeal or adding functional space, we often view our lots as our private kingdoms. However, in a planned community, that “kingdom” is governed by a complex web of private contracts. When Michael Fairfield decided to add a 10’ x 68’ concrete extension to his driveway in the Rancho Manana subdivision, he likely thought he was simply making a “pleasant” and “valuable” addition to his home. Instead, he stepped into a legal minefield.

The case of Michael Fairfield vs. Rancho Manana Homeowners Association serves as a masterclass in the pitfalls of HOA litigation. It is a story of a homeowner who did his homework, argued the semantics of his community’s rules with impressive precision, and even won a significant technical victory before an Administrative Law Judge (ALJ). Yet, despite winning the battle over definitions, he ultimately lost the war.

As a property rights analyst, I see this pattern frequently. Homeowners often mistake “being right” for “being compliant.” Fairfield’s experience offers five sobering lessons for anyone looking to pour concrete or paint a fence within the jurisdiction of an HOA.

Section 1: The “Prior Approval” Trap is Non-Negotiable

A common, yet fatal, strategy in HOA disputes is the “ask for forgiveness later” approach. Mr. Fairfield proceeded with his driveway extension in January 2006 without written approval, despite having been warned by Association President Mike Kaus on two separate occasions that prior approval was mandatory. When Association Manager Charles Green sent a formal notice of violation, the legal trap had already snapped shut.

In the eyes of the law, the procedural failure to obtain permission is a standalone violation that often renders the quality or “harmony” of the project irrelevant. Section 9.1 of the Rancho Manana Declaration is remarkably clear on this point:

Fairfield’s mistake was thinking that because his project was “at ground level” and matched the existing concrete, the Association’s approval was a mere formality he could address after the fact. In a planned community, the process is the protection. By skipping the application, he surrendered his strongest legal standing before the first shovel hit the dirt.

Section 2: City Zoning Approval Doesn’t Overrule HOA CC&Rs

One of the most persistent myths in property law is that a “green light” from the city provides a shield against HOA enforcement. Mr. Fairfield argued that he had spent considerable time—by his own testimony, between 24 and 48 hours—researching “Town Hall zoning requirements.” He confirmed that the Town of Cave Creek did not define his extension as a “structure” and that it conformed to local drainage patterns.

While his research was diligent, it was legally misplaced. An HOA is a private contractual entity, and its Declaration of Covenants, Conditions and Restrictions (CC&Rs) can be, and often are, significantly more stringent than municipal codes. A city’s zoning department only cares if you are breaking the law; an HOA cares if you are breaking the neighborhood’s aesthetic contract.

This disconnect led to a stinging rebuke from the ALJ regarding “unclean hands.” The judge found Fairfield’s arguments for reasonableness had a “hollow ring” because he had intentionally bypassed the HOA’s known requirements while simultaneously claiming to be a diligent rule-follower by citing city zoning. In litigation, your credibility is your currency; by deceiving the Board about his intent to submit plans, Fairfield went into court already “in the red.”

Section 3: The Technicality of the “Driveway Approach”

The most fascinating part of this case is the semantic battle over what constitutes a “driveway approach.” The Association denied Fairfield’s project based on a specific rule in their Architectural Standards stating that “all driveway approaches must lead to a private garage.” Since Fairfield’s extension led to the rear of his property, the Board—led by Mike Kaus—argued it was a violation.

In a rare victory for the homeowner, the ALJ actually agreed with Fairfield. The judge’s logic was a masterclass in strict interpretation:

• The Specificity Principle: The term “approach” generally refers only to the section of the driveway leading from the street.

• The Evidence of the Board: President Mike Kaus himself testified that the extension was a “separate entity” from the original driveway, inadvertently undermining the argument that it was part of the “approach.”

• Avoiding Superfluity: The ALJ refused to read the language in a way that would make the word “approach” superfluous. If the drafters wanted to limit all sections of a driveway, they would have said “all driveways,” not “all driveway approaches.”

However, this is where the hierarchy of documents becomes critical. While Fairfield won a victory on the Architectural Standards, he was still bound by the overarching Declaration. Winning a debate over a sub-rule doesn’t excuse you from the master requirement of prior approval found in the Declaration.

Section 4: The Subjective Power of “Harmony”

Even if a project is technically legal under every specific rule, HOAs almost always hold a “wild card” clause: the power to judge “harmony of external design.” As an analyst, I find this is where most homeowners lose their footing. Courts generally defer to an HOA’s aesthetic judgment as long as it is exercised reasonably and consistently.

The Association’s strongest evidence wasn’t a dictionary definition of a driveway; it was their track record. Mike Kaus testified that the Architectural Committee had a six-year history of consistently denying these types of extensions to maintain the subdivision’s design. This consistency proved the HOA wasn’t being “arbitrary or capricious” in Fairfield’s case.

The ALJ’s Conclusion 12 serves as a reminder of the broad authority HOAs wield:

Section 5: Winning the Battle, Losing the War

The final ruling denied Fairfield’s petition entirely. Despite his successful defense regarding the “approach” language, he failed on the “overarching question” of whether the HOA had the right to deny the project. Because he lost the primary conflict, he was not designated the “prevailing party.”

The financial toll of such a loss is steep. Beyond his own legal fees, Fairfield was denied a refund of the $550 filing fee paid to the Department of Fire, Building and Life Safety.

Key Takeaway: Under A.R.S. § 41-2198.02, the “prevailing party” is the one who wins the core legal outcome. Winning a semantic debate over a single definition does not entitle a homeowner to a legal victory if the fundamental breach—the failure to follow the Declaration’s process—remains.

Conclusion: A Thought-Provoking Reality Check

The case of Michael Fairfield vs. Rancho Manana is a cautionary tale for the “DIY” legal strategist. It highlights the brutal reality that in the world of HOAs, procedural compliance is often more important than the merit of the improvement itself. Mr. Fairfield spent dozens of hours researching zoning and drafting arguments, yet he failed to follow the most basic instruction in Section 9.1 of his own Declaration.

Before you begin your next project, ask yourself: Is a concrete extension worth a year of litigation, a $550 administrative fee, the cost of legal representation, and a potential daily fine of $100? In the front lines of HOA disputes, the most expensive mistake you can make is assuming that your definition of “reasonable” is the one that will hold up in court.

Case Participants

Petitioner Side

Michael Fairfield (petitioner)
Owner of lot 93
Sarah Fairfield (petitioner's wife)
Co-recipient of violation letters
James L. Tanner (attorney)
Jackson White

Respondent Side

Brian W. Morgan (attorney)
Maxwell & Morgan, P.C.
Mike Kaus (board president)
Rancho Manana Homeowners Association
Also member of Architectural Committee; testified at hearing
Charles Green (property manager)
Rancho Manana Homeowners Association
Association's manager

Neutral Parties

Daniel G. Martin (ALJ)
Office of Administrative Hearings
Robert Barger (agency director)
Department of Fire, Building and Life Safety
Director receiving copy of decision
Joyce Kesterman (agency staff)
Department of Fire, Building and Life Safety
Receiving copy of decision