Case Summary
| Case ID | 07F-H067033-BFS |
|---|---|
| Agency | Department of Fire, Building and Life Safety |
| Tribunal | Office of Administrative Hearings |
| Decision Date | 2007-08-30 |
| Administrative Law Judge | Michael K. Carroll |
| Outcome | yes |
| Filing Fees Refunded | $550.00 |
| Civil Penalties | $0.00 |
Parties & Counsel
| Petitioner | Thomas Heekin | Counsel | Frederick M. Aspey |
|---|---|---|---|
| Respondent | The Cottage at Coffee Pot Homeowners Association | Counsel | — |
Alleged Violations
Declaration Section 5.6
Declaration Section 10.2.2
Outcome Summary
The ALJ ruled in favor of the Petitioner, vacating two Bylaw amendments adopted by the Board. The ALJ determined that the Bylaws conflicted with the Declaration: one by imposing non-uniform assessments (1% transfer fee) and the other by restricting the Design Review Committee's authority regarding building footprints. The Declaration controls over conflicting Bylaws.
Key Issues & Findings
Validity of Bylaw Article XI (Transfer Assessment)
The Board adopted a Bylaw creating a 1% assessment on home sales. The ALJ found this violated the Declaration's requirement that Regular and Capital Improvement Assessments be uniform for each owner.
Orders: Board's action adopting Article XI of the Bylaws is vacated.
Filing fee: $550.00, Fee refunded: Yes
Disposition: petitioner_win
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Validity of Bylaw Article X (Architectural Restrictions)
The Board adopted a Bylaw prohibiting changes to the original building envelope. The ALJ found this conflicted with the Declaration, which vested authority in the Design Review Committee to approve such changes.
Orders: Board's action adopting Article X of the Bylaws is vacated.
Filing fee: $0.00, Fee refunded: No
Disposition: petitioner_win
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Decision Documents
07F-H067033-BFS Decision – 175114.pdf
Thomas Heekin vs. The Cottages at Coffee Pot Homeowners Association: Administrative Law Judge Decision
Executive Summary
This briefing document analyzes the administrative law decision regarding a dispute between Thomas Heekin (Petitioner) and The Cottages at Coffee Pot Homeowners Association (Respondent). The central conflict involved the Board of Directors’ authority to adopt Bylaws that effectively modified the community’s Declaration of Covenants, Conditions and Restrictions (Declaration) without obtaining the 75% membership approval required for such amendments.
The Administrative Law Judge (ALJ) ruled that the Board overstepped its authority by enacting two specific Bylaws—Article X (architectural restrictions) and Article XI (a 1% transfer assessment). The decision established that when a Bylaw conflicts with the Declaration, the Declaration controls. Consequently, both Bylaws were declared invalid, and the Board’s actions were vacated.
Case Overview
The Cottages at Coffee Pot is a planned community in Sedona, Arizona, consisting of 34 individual townhouses. The Association is governed by a Board of nine members and three primary documents: the Declaration, the Articles of Incorporation, and the Bylaws.
The Core Dispute
In April 2006, the Board attempted to amend the Declaration via a membership vote. The proposed amendments included:
• Reducing the required percentage to change the Declaration from 75% to 66⅔%.
• Implementing a 1% assessment on the sale of any lot.
• Restricting architectural changes to the original building footprint.
When these amendments failed to receive the necessary 75% approval, the Board proceeded to adopt the same restrictions by enacting new Bylaws (Articles X and XI) through a simple Board vote. The Petitioner challenged these actions, alleging they were an attempt to circumvent the will of the membership.
Analysis of Challenged Bylaws
Article XI: The 1% “Special Assessment”
Article XI required all new owners to pay a “Special Assessment” of 1% of the transaction price upon the sale or exchange of a lot, excluding cases of inheritance or will.
The Board’s Justification: The Board argued that A.R.S. §10-3302 allows non-profit corporations to impose dues and transfer fees. They claimed the assessment was necessary to fund upkeep, capital improvements, and contingencies without increasing annual dues for existing members.
The Conflict with the Declaration: The ALJ found that Article XI directly violated Section 5.6 of the Declaration, which mandates:
• Uniformity: “Regular Assessments, Capital Improvement Assessments, and Reconstruction Assessments for each owner shall be uniform.”
• Disproportionality: The 1% fee assessed members unequally based on varying sales prices and applied only to those buying or selling, forcing a specific subset of members to subsidize costs that the Declaration requires all members to share equally.
Conclusion: Because the revenue was used for common expenses normally covered by “Regular Assessments,” it was subject to the uniformity requirement of the Declaration. The Bylaw was therefore invalid.
Article X: Architectural Design Restrictions
Article X prohibited the Design Review Committee (DRC) from approving any changes to the outside dimensions of a cottage, effectively freezing the “building envelope” to the original foundation.
The Board’s Justification: The Board maintained that the Bylaws may contain provisions relating to the conduct of Association affairs as long as they are not inconsistent with the Declaration.
The Conflict with the Declaration: The ALJ identified several points of friction between Article X and the Declaration:
• Committee Authority: Section 10.4 of the Declaration gives the DRC the specific authority to approve or disapprove changes to a unit.
• Developable Area: Section 10.2.2 vests the power to designate the “maximum developable area” of any lot in the DRC.
• Extinguishment of Rights: The Board’s adoption of Article X extinguished the discretionary authority granted to the DRC by the Declaration.
Conclusion: The ALJ noted that while the Board might currently comprise the DRC, future boards or members might wish to maintain the right to submit plans for approval. A Bylaw cannot negate authority explicitly granted in the Declaration.
Legal Findings and Principles
The decision was guided by the following legal and contractual principles derived from the Association’s governing documents and state law:
Principle
Source/Reference
Description
Hierarchy of Documents
Declaration, Section 20.1
If a conflict exists between the Declaration and the Bylaws, the Declaration controls.
Amendment Threshold
Declaration, Section 17.2
Amendments to the Declaration require a 75% vote of the membership.
Contractual Integrity
ALJ Conclusion
Bylaws that conflict with the Declaration violate the contract made between each member and the Association at the time of purchase.
Stability of Provisions
Declaration, Section 18.5
No change of conditions or circumstances shall operate to extinguish or modify the provisions of the Declaration unless expressly provided.
Final Order
The Administrative Law Judge issued the following orders:
1. Vacation of Article X: The Board’s action adopting Article X of the Bylaws (Architectural Restrictions) is vacated.
2. Vacation of Article XI: The Board’s action adopting Article XI of the Bylaws (1% Assessment) is vacated.
3. Reimbursement: The Respondent (The Association) is ordered to reimburse the Petitioner for the $550 filing fee.
This decision serves as a final agency action and is enforceable through contempt of court proceedings.
Legal Analysis Study Guide: Heekin v. The Cottages at Coffeepot Homeowners Association
This study guide reviews the administrative law proceedings regarding the dispute between Thomas Heekin and The Cottages at Coffeepot Homeowners Association. It explores the legal hierarchy of community governing documents and the limitations of a Board of Directors’ authority to amend bylaws.
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Part I: Short-Answer Quiz
Instructions: Answer the following questions in two to three sentences based on the provided administrative law judge’s decision.
1. What was the primary allegation made by the Petitioner in his April 20, 2007, filing?
2. How is the voting power and membership of the Association structured?
3. What was the outcome of the membership vote on April 29, 2006, regarding the proposed amendments to the Declaration?
4. Describe the specific restrictions introduced by the Board through the adoption of Article X of the Bylaws.
5. What was the stated purpose of the 1% “Special Assessment” established in Article XI of the Bylaws?
6. According to Section 5.6 of the Declaration, how must assessments for common expenses be distributed among owners?
7. On what grounds did the Respondent argue that the Board had the authority to impose transfer fees?
8. Why did the Administrative Law Judge (ALJ) determine that Article XI of the Bylaws was invalid despite its name?
9. How did Article X of the Bylaws conflict with the authority granted to the Design Review Committee in the Declaration?
10. What was the final order issued by the Administrative Law Judge regarding the Board’s actions?
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Part II: Answer Key
1. The Petitioner alleged that the Board of Directors adopted Bylaws (Articles X and XI) that violated the Association’s Declaration of Covenants, Conditions and Restrictions (CC&Rs). He argued the Board used a simple majority vote to pass rules that the membership had previously rejected as formal amendments to the Declaration.
2. The Cottages consists of 34 individual townhouse lots, where each lot represents one membership in the Association. Consequently, each lot owner is entitled to one vote in any business of the Association that is subject to a membership vote.
3. The proposed amendments failed because the Board could not secure enough votes to reduce the required approval percentage from 75% to 66⅔%. Because the threshold remained at 75%, there were insufficient votes to pass any of the four proposed changes, including the transfer fee and the construction restrictions.
4. Article X prohibited the Design Review Committee from approving any plans involving changes to the original outside dimensions of a cottage. This included a ban on new construction, add-ons, or modifications to the original building envelope or foundation.
5. The fee was intended to fund the upkeep and maintenance of association property, capital improvements, and contingency funds. The Board president noted that this revenue was necessary to avoid increasing annual dues or imposing a separate maintenance assessment on all homeowners.
6. Section 5.6 of the Declaration requires that Regular Assessments, Capital Improvement Assessments, and Reconstruction Assessments must be uniform for each owner. This ensures that the Proportionate Share of Common Expenses is distributed equally rather than based on individual transactions.
7. The Respondent cited A.R.S. §10-3302, stating that non-profit corporations have the power to impose dues and transfer fees unless prohibited by the Articles of Incorporation. They further argued that Article VIII of the Bylaws empowered the Board to adopt new Bylaws that were not inconsistent with the Declaration.
8. The ALJ found that the “Special Assessment” was actually being used to cover “Common Expenses” typically funded by Regular Assessments. Because Article XI assessed members disproportionately based on sales prices and exempted those who inherited property, it violated the Declaration’s requirement for uniform assessments.
9. Section 10.2.2 of the Declaration explicitly grants the Design Review Committee the power to designate the maximum developable area of any lot. By adopting Article X, the Board effectively extinguished that discretionary authority, which the Declaration protects from being modified by simple Bylaw changes.
10. The ALJ ordered that the Board’s actions in adopting both Article X and Article XI of the Bylaws be vacated. Additionally, the Respondent was ordered to reimburse the Petitioner for his $550 filing fee.
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Part III: Essay Questions
Instructions: Use the facts and legal conclusions provided in the text to develop comprehensive responses to the following prompts.
1. The Hierarchy of Governance: Discuss the legal relationship between a community’s Declaration, Articles of Incorporation, and Bylaws. Based on the judge’s ruling, explain which document takes precedence in a conflict and why this hierarchy is essential for protecting the “contract” between the Association and its members.
2. Circumvention of Membership Will: Analyze the Board’s decision to adopt Articles X and XI as Bylaws after they failed to pass as amendments to the Declaration. Evaluate the Petitioner’s claim that this action constituted a breach of the duty to engage in fair dealing and good faith.
3. Uniformity in Assessments: Examine the distinction between “Common Expenses” and the Board’s 1% “Special Assessment.” Why is the requirement for “uniform” assessments (as found in Section 5.6 of the Declaration) a critical protection for individual homeowners in a planned community?
4. Discretionary Authority of Committees: Explain how Article X of the Bylaws impacted the Design Review Committee. Discuss the judge’s reasoning regarding why the authority of a committee granted by the Declaration cannot be stripped away by a Board-enacted Bylaw.
5. Long-term Implications of Governance Changes: The ALJ noted that while a Bylaw is easily changed by future Boards, the Declaration represents a more permanent agreement. Discuss the importance of maintaining the integrity of the Declaration over time, even when current Board members or a simple majority of residents desire a change.
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Part IV: Glossary of Key Terms
Definition
A.R.S. §10-3302
An Arizona Revised Statute cited by the Respondent, granting non-profit corporations the power to impose dues, assessments, and transfer fees on members.
Building Envelope
The original physical separator between the conditioned and unconditioned environment of a structure, including the foundation and outside dimensions.
Bylaws
The rules adopted by the Board of Directors for the administration and management of the Association; in this case, secondary to the Declaration.
Capital Improvement Assessments
Fees levied against owners to fund major additions or improvements to the Association’s common areas.
Common Expenses
The actual and estimated costs incurred for maintaining, operating, and repairing the project and common areas, shared by all members.
Declaration (CC&Rs)
The primary governing document of a planned community that sets forth covenants, conditions, and restrictions; it holds superior authority over Bylaws.
Design Review Committee
The body authorized by the Declaration to approve or disapprove architectural changes and designate maximum developable areas on lots.
Petitioner
The party (Thomas Heekin) who brings a legal petition or claim against another party in an administrative hearing.
Proportionate Share
The equal distribution of common expenses among all owners, as mandated by the Declaration to ensure assessment uniformity.
Regular Assessment
The recurring amount paid by each owner to cover their share of the Association’s ongoing operating and maintenance costs.
Respondent
The party (The Cottages at Coffeepot HOA) against whom a petition or legal claim is filed.
Special Assessment
A one-time or specific fee; in this case, the term was used by the Board to describe a 1% fee on property sales, which was eventually ruled invalid.
Legal Analysis Study Guide: Heekin v. The Cottages at Coffeepot Homeowners Association
This study guide reviews the administrative law proceedings regarding the dispute between Thomas Heekin and The Cottages at Coffeepot Homeowners Association. It explores the legal hierarchy of community governing documents and the limitations of a Board of Directors’ authority to amend bylaws.
——————————————————————————–
Part I: Short-Answer Quiz
Instructions: Answer the following questions in two to three sentences based on the provided administrative law judge’s decision.
1. What was the primary allegation made by the Petitioner in his April 20, 2007, filing?
2. How is the voting power and membership of the Association structured?
3. What was the outcome of the membership vote on April 29, 2006, regarding the proposed amendments to the Declaration?
4. Describe the specific restrictions introduced by the Board through the adoption of Article X of the Bylaws.
5. What was the stated purpose of the 1% “Special Assessment” established in Article XI of the Bylaws?
6. According to Section 5.6 of the Declaration, how must assessments for common expenses be distributed among owners?
7. On what grounds did the Respondent argue that the Board had the authority to impose transfer fees?
8. Why did the Administrative Law Judge (ALJ) determine that Article XI of the Bylaws was invalid despite its name?
9. How did Article X of the Bylaws conflict with the authority granted to the Design Review Committee in the Declaration?
10. What was the final order issued by the Administrative Law Judge regarding the Board’s actions?
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Part II: Answer Key
1. The Petitioner alleged that the Board of Directors adopted Bylaws (Articles X and XI) that violated the Association’s Declaration of Covenants, Conditions and Restrictions (CC&Rs). He argued the Board used a simple majority vote to pass rules that the membership had previously rejected as formal amendments to the Declaration.
2. The Cottages consists of 34 individual townhouse lots, where each lot represents one membership in the Association. Consequently, each lot owner is entitled to one vote in any business of the Association that is subject to a membership vote.
3. The proposed amendments failed because the Board could not secure enough votes to reduce the required approval percentage from 75% to 66⅔%. Because the threshold remained at 75%, there were insufficient votes to pass any of the four proposed changes, including the transfer fee and the construction restrictions.
4. Article X prohibited the Design Review Committee from approving any plans involving changes to the original outside dimensions of a cottage. This included a ban on new construction, add-ons, or modifications to the original building envelope or foundation.
5. The fee was intended to fund the upkeep and maintenance of association property, capital improvements, and contingency funds. The Board president noted that this revenue was necessary to avoid increasing annual dues or imposing a separate maintenance assessment on all homeowners.
6. Section 5.6 of the Declaration requires that Regular Assessments, Capital Improvement Assessments, and Reconstruction Assessments must be uniform for each owner. This ensures that the Proportionate Share of Common Expenses is distributed equally rather than based on individual transactions.
7. The Respondent cited A.R.S. §10-3302, stating that non-profit corporations have the power to impose dues and transfer fees unless prohibited by the Articles of Incorporation. They further argued that Article VIII of the Bylaws empowered the Board to adopt new Bylaws that were not inconsistent with the Declaration.
8. The ALJ found that the “Special Assessment” was actually being used to cover “Common Expenses” typically funded by Regular Assessments. Because Article XI assessed members disproportionately based on sales prices and exempted those who inherited property, it violated the Declaration’s requirement for uniform assessments.
9. Section 10.2.2 of the Declaration explicitly grants the Design Review Committee the power to designate the maximum developable area of any lot. By adopting Article X, the Board effectively extinguished that discretionary authority, which the Declaration protects from being modified by simple Bylaw changes.
10. The ALJ ordered that the Board’s actions in adopting both Article X and Article XI of the Bylaws be vacated. Additionally, the Respondent was ordered to reimburse the Petitioner for his $550 filing fee.
——————————————————————————–
Part III: Essay Questions
Instructions: Use the facts and legal conclusions provided in the text to develop comprehensive responses to the following prompts.
1. The Hierarchy of Governance: Discuss the legal relationship between a community’s Declaration, Articles of Incorporation, and Bylaws. Based on the judge’s ruling, explain which document takes precedence in a conflict and why this hierarchy is essential for protecting the “contract” between the Association and its members.
2. Circumvention of Membership Will: Analyze the Board’s decision to adopt Articles X and XI as Bylaws after they failed to pass as amendments to the Declaration. Evaluate the Petitioner’s claim that this action constituted a breach of the duty to engage in fair dealing and good faith.
3. Uniformity in Assessments: Examine the distinction between “Common Expenses” and the Board’s 1% “Special Assessment.” Why is the requirement for “uniform” assessments (as found in Section 5.6 of the Declaration) a critical protection for individual homeowners in a planned community?
4. Discretionary Authority of Committees: Explain how Article X of the Bylaws impacted the Design Review Committee. Discuss the judge’s reasoning regarding why the authority of a committee granted by the Declaration cannot be stripped away by a Board-enacted Bylaw.
5. Long-term Implications of Governance Changes: The ALJ noted that while a Bylaw is easily changed by future Boards, the Declaration represents a more permanent agreement. Discuss the importance of maintaining the integrity of the Declaration over time, even when current Board members or a simple majority of residents desire a change.
——————————————————————————–
Part IV: Glossary of Key Terms
Definition
A.R.S. §10-3302
An Arizona Revised Statute cited by the Respondent, granting non-profit corporations the power to impose dues, assessments, and transfer fees on members.
Building Envelope
The original physical separator between the conditioned and unconditioned environment of a structure, including the foundation and outside dimensions.
Bylaws
The rules adopted by the Board of Directors for the administration and management of the Association; in this case, secondary to the Declaration.
Capital Improvement Assessments
Fees levied against owners to fund major additions or improvements to the Association’s common areas.
Common Expenses
The actual and estimated costs incurred for maintaining, operating, and repairing the project and common areas, shared by all members.
Declaration (CC&Rs)
The primary governing document of a planned community that sets forth covenants, conditions, and restrictions; it holds superior authority over Bylaws.
Design Review Committee
The body authorized by the Declaration to approve or disapprove architectural changes and designate maximum developable areas on lots.
Petitioner
The party (Thomas Heekin) who brings a legal petition or claim against another party in an administrative hearing.
Proportionate Share
The equal distribution of common expenses among all owners, as mandated by the Declaration to ensure assessment uniformity.
Regular Assessment
The recurring amount paid by each owner to cover their share of the Association’s ongoing operating and maintenance costs.
Respondent
The party (The Cottages at Coffeepot HOA) against whom a petition or legal claim is filed.
Special Assessment
A one-time or specific fee; in this case, the term was used by the Board to describe a 1% fee on property sales, which was eventually ruled invalid.
Case Participants
Petitioner Side
- Thomas Heekin (Petitioner)
The Cottages at Coffeepot
Owner of residence at The Cottages - Frederick M. Aspey (attorney)
Attorney for Petitioner
Respondent Side
- Armistead Gilliam (representative)
The Cottage at Coffee Pot Homeowners Association
Appeared on behalf of Respondent - Charles Nyberg (representative)
The Cottage at Coffee Pot Homeowners Association
Appeared on behalf of Respondent - Peter Fagan (representative)
The Cottage at Coffee Pot Homeowners Association
Listed contact for Respondent in service list
Neutral Parties
- Michael K. Carroll (ALJ)
Office of Administrative Hearings
Administrative Law Judge - Robert Barger (agency official)
Department of Fire Building and Life Safety
Recipient of original decision transmission - Joyce Kesterman (agency official)
Department of Fire Building and Life Safety
Recipient of original decision transmission
