Case Summary
| Case ID | 20F-H2020041-REL |
|---|---|
| Agency | ADRE |
| Tribunal | OAH |
| Decision Date | 2020-05-21 |
| Administrative Law Judge | Tammy L. Eigenheer |
| Outcome | Petitioner was deemed the prevailing party after establishing that the Respondent HOA violated A.R.S. § 33-1817(A)(1) and the community documents by improperly recording Amended CC&Rs without proper owner consent. The Respondent was ordered to refund the $500.00 filing fee. However, the ALJ could not grant the requested relief (rescission of the Amended CC&Rs) due to a lack of statutory authority. |
| Filing Fees Refunded | $500.00 |
| Civil Penalties | $0.00 |
Parties & Counsel
| Petitioner | Douglas J. Karolak | Counsel | — |
|---|---|---|---|
| Respondent | VVE – Casa Grande Homeowners Association | Counsel | David Fitzgibbons |
Alleged Violations
A.R.S. § 33-1817(A)(1); CC&Rs Part 10, Section 10.4
Outcome Summary
Petitioner was deemed the prevailing party after establishing that the Respondent HOA violated A.R.S. § 33-1817(A)(1) and the community documents by improperly recording Amended CC&Rs without proper owner consent. The Respondent was ordered to refund the $500.00 filing fee. However, the ALJ could not grant the requested relief (rescission of the Amended CC&Rs) due to a lack of statutory authority.
Key Issues & Findings
Violation regarding the validity of Amended CC&Rs due to lack of required owner approval.
The Petitioner alleged that the Amended CC&Rs recorded by the Board were invalid because they were not approved by two-thirds (2/3) of the lot owners as required by the CC&Rs and statute. The ALJ agreed, finding the Board acted improperly and violated the documents and statute.
Orders: Respondent was ordered to pay Petitioner the filing fee of $500.00. No civil penalty was assessed. The ALJ determined she lacked the statutory authority to order the rescission of the Amended CC&Rs requested by the Petitioner.
Filing fee: $500.00, Fee refunded: Yes
Disposition: petitioner_win
- A.R.S. § 33-1817(A)(1)
- CC&Rs Part 10, Section 10.4
Analytics Highlights
- 20F-H2020041-REL
- A.R.S. § 33-1817
- A.R.S. § 33-1817(A)(1)
- A.R.S. § 32-2199
- A.R.S. § 32-2199.02
- A.R.S. § 41-1092.07(G)(2)
- CC&Rs Part 10, Section 10.4
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Decision Documents
20F-H2020041-REL Decision – 792824.pdf
20F-H2020041-REL Decision – 792824.pdf
Briefing Document: Karolak vs. VVE – Casa Grande Homeowners Association
Executive Summary
This briefing analyzes the Administrative Law Judge (ALJ) Decision in the case of Douglas J. Karolak vs. VVE – Casa Grande Homeowners Association (No. 20F-H2020041-REL). The central issue was whether the HOA Board had the authority to unilaterally amend and record changes to the community’s Covenants, Conditions, and Restrictions (CC&Rs) without the required homeowner vote.
The petitioner, Douglas J. Karolak, successfully argued that the HOA violated its own governing documents and Arizona state law by filing “Amended CC&Rs” on October 5, 2018, without securing the approval of two-thirds of the lot owners. The HOA contended its actions were a valid exercise of its authority to create “Association Rules.”
ALJ Tammy L. Eigenheer ruled decisively in favor of the petitioner. The decision established a clear legal distinction between the Board’s power to adopt rules and the separate, more stringent process required to formally amend the CC&Rs. The judge found the Board acted improperly, declaring Karolak the prevailing party and ordering the HOA to reimburse his $500 filing fee. Notably, while the judge found the amended document was improperly recorded, she concluded she lacked the statutory authority to order its rescission, which was the remedy the petitioner had requested.
Case Overview
Case Name
Douglas J. Karolak vs. VVE – Casa Grande Homeowners Association
Case Number
20F-H2020041-REL
Arizona Office of Administrative Hearings
Administrative Law Judge
Tammy L. Eigenheer
Hearing Date
May 1, 2020
Decision Date
May 21, 2020
The Central Dispute
The core of the dispute revolved around the legitimacy of a document titled “Restated Declaration of Covenants, Conditions and Restrictions for Val Vista Estates” (Amended CC&Rs), which the HOA Board recorded with the Pinal County Recorder on October 5, 2018.
• Petitioner’s Position (Douglas J. Karolak): The Amended CC&Rs are invalid because they were not approved by “owners of at least two-thirds (2/3) of the Lots,” a requirement explicitly stated in Section 10.4 of the original CC&Rs and supported by Arizona statute A.R.S. § 33-1817(A)(1). Karolak argued that the Board’s action of recording an amendment is fundamentally different from its power to adopt internal “Association Rules.”
• Respondent’s Position (VVE – Casa Grande HOA): The Board argued that its actions were a valid exercise of the authority granted to it under the CC&Rs. It claimed that because the only changes were to Part 7 (Use Restrictions), they fell under the Board’s power to “adopt, amend, or repeal such rules and regulations as it deems reasonable and appropriate” (Section 3.4) and to “modify or waive the foregoing restrictions… by reasonable rules and regulations” (Section 7.43). The Respondent’s counsel did, however, concede that “perhaps the Amended CC&Rs should not have been recorded.”
Factual Background and Chronology
• The VVE – Casa Grande Homeowners Association is a 56-lot community in Casa Grande, Arizona, with 19 lots remaining vacant at the time of the hearing.
• April 30, 1999: The original “Restated Declaration of Covenants, Conditions and Restrictions for VVE” (CC&Rs) was recorded.
• 2014 and 2015: The HOA Board made unsuccessful attempts to amend the CC&Rs through membership votes.
• 2018: Following the failed votes, the Board determined it would make changes to the “rules section” of the CC&Rs under the authority it believed was granted by Section 3.4.
• October 5, 2018: The Board recorded the Amended CC&Rs with the Pinal County Recorder. The HOA acknowledged that these amendments had not been approved by the required two-thirds of lot owners.
Legal Analysis and Key Provisions
The decision rested on the interpretation of specific sections of the community’s CC&Rs and Arizona state law. The judge concluded that the document’s structure clearly separates the process of rulemaking from the process of formal amendment.
Provision
Source
Summary of Stipulation
Amendment Process
CC&Rs Section 10.4
Requires an instrument “executed by the Owners of at least two-thirds (2/3) of the Lots” and recorded to become effective.
Rulemaking Authority
CC&Rs Section 3.4
Empowers the Board to adopt, amend, or repeal “Association Rules” governing the use of the property. States rules have the “same force and effect as if they were set forth in” the CC&Rs.
Statutory Requirement
A.R.S. § 33-1817(A)(1)
Provides that a declaration may be amended by the association via an affirmative vote or written consent of the number of owners specified in the declaration.
The judge’s rationale emphasized that the distinct sections for rulemaking (3.4) and amendments (10.4) demonstrate that the original drafters did not intend for the Board to have the power to unilaterally amend the CC&Rs. The judge stated, “The fact that the two topics are covered as separate topics in the CC&Rs leads to the conclusion that the original drafters of the CC&Rs did not contemplate that the Board had the authority to, on its own, amend the CC&Rs.”
The Court’s Decision and Final Order
The Administrative Law Judge ruled that the petitioner, Douglas J. Karolak, had successfully proven by a preponderance of the evidence that the respondent HOA had acted improperly.
Key Findings:
• The HOA Board did not have the authority to amend the CC&Rs without the approval of two-thirds of the lot owners.
• The Board’s action of recording the Amended CC&Rs on October 5, 2018, was a violation of the community’s governing documents (Section 10.4) and Arizona state law (A.R.S. § 33-1817(A)(1)).
• The Board’s ability to create “Association Rules” is a separate and distinct process from the formal procedure required to amend the Declaration.
Final Order:
• The petitioner, Douglas J. Karolak, was deemed the prevailing party.
• The respondent HOA was ordered to pay the petitioner his $500.00 filing fee within thirty days of the order.
• No civil penalty was found to be appropriate in the matter.
• Critically, the judge determined that under the applicable statute (A.R.S. § 32-2199.02), the Administrative Law Judge does not have the authority to order the Amended CC&Rs rescinded, despite this being the remedy requested by the petitioner.
The order is binding on both parties unless a request for rehearing is filed with the Commissioner of the Department of Real Estate within 30 days of the decision.
Study Guide: Karolak v. VVE – Casa Grande Homeowners Association
This guide is designed to review the key facts, legal arguments, and outcomes of the Administrative Law Judge Decision in the case of Douglas J. Karolak vs. VVE – Casa Grande Homeowners Association (No. 20F-H2020041-REL).
Short-Answer Quiz
Instructions: Answer the following questions in two to three complete sentences, drawing all information directly from the provided legal decision.
1. Who were the petitioner and the respondent in this case, and what was the petitioner’s core allegation?
2. What specific statute and section of the community documents did the petitioner claim the respondent violated?
3. According to Section 10.4 of the original CC&Rs, what was the required procedure for amending the Declaration?
4. Under what authority did the VVE – Casa Grande HOA Board claim it could make changes to the community documents without a membership vote?
5. What key event occurred on or about October 5, 2018, that became the central point of the dispute?
6. What was the respondent’s primary argument for why their actions were valid?
7. What is the “preponderance of the evidence,” and which party bears the burden of proof to establish a violation?
8. Why did the Administrative Law Judge conclude that the Board’s authority to create “Association Rules” was a separate process from amending the CC&Rs?
9. What remedy did the petitioner request, and why was it not granted by the Administrative Law Judge?
10. What was the final order issued by the Judge in this case?
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Answer Key
1. The petitioner was Douglas J. Karolak, a homeowner. The respondent was the VVE – Casa Grande Homeowners Association. Karolak’s core allegation was that the HOA had improperly amended the community’s governing documents.
2. The petitioner alleged a violation of Arizona Revised Statute (A.R.S.) § 33-1817(A)(1). He also claimed a violation of Part 10, Section 10.4 of the community’s Covenants, Conditions, and Restrictions (CC&Rs).
3. Section 10.4 of the CC&Rs stipulated that the Declaration could be amended by an instrument executed by the owners of at least two-thirds (2/3) of the lots. The amendment would not be effective until that instrument was officially recorded.
4. The HOA Board claimed it had the authority to make the changes under Section 3.4 of the CC&Rs. This section empowered the Board to adopt, amend, or repeal “Association Rules” as it deemed reasonable and appropriate.
5. On or about October 5, 2018, the Board recorded a document titled “Restated Declaration of Covenants, Conditions and Restrictions for Val Vista Estates” (Amended CC&Rs) with the Pinal County Recorder. This was done without the required two-thirds vote from the lot owners.
6. The respondent argued that because the only changes made were to Part 7 (Use Restrictions), which fell under the type of rules the Board was authorized to adopt, the Amended CC&Rs were a valid exercise of the Board’s authority. Their counsel did acknowledge, however, that perhaps the document should not have been recorded.
7. A “preponderance of the evidence” is proof that convinces the trier of fact that a contention is more probably true than not. The petitioner bears the burden of proof to establish that the respondent committed the alleged violations by this standard.
8. The Judge concluded they were separate processes because the CC&Rs cover the topics in different sections. This separation led the Judge to believe the original drafters did not intend for the Board to have the authority to amend the CC&Rs on its own.
9. The petitioner requested that the improperly recorded Amended CC&Rs be rescinded. This remedy was not granted because the applicable statute, A.R.S. § 32-2199.02, does not give the Administrative Law Judge the specific authority to order a document rescinded.
10. The final order deemed the petitioner the prevailing party. It further ordered the respondent to repay the petitioner his $500.00 filing fee within thirty days, but found that no civil penalty was appropriate.
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Essay Questions
Instructions: The following questions are designed to promote deeper analysis of the case. Formulate a comprehensive response to each, using only the information presented in the legal decision.
1. Analyze the distinction made by the Administrative Law Judge between the Board’s authority to create “Association Rules” under Section 3.4 and the process for amending the Declaration under Section 10.4. Why was this distinction critical to the case’s outcome?
2. Discuss the legal standard of “preponderance of the evidence” as defined in the decision. How did the petitioner successfully meet this burden of proof to establish the respondent’s violation, and what specific facts supported this conclusion?
3. Examine the respondent’s (HOA’s) argument regarding its authority to amend the CC&Rs. What were the fundamental flaws in this argument, and how did their counsel’s acknowledgment about the recording of the Amended CC&Rs potentially weaken their position?
4. Explain the legal framework governing this dispute, citing the specific Arizona Revised Statutes (A.R.S.) mentioned in the decision. Detail the roles of the Arizona Department of Real Estate, the Office of Administrative Hearings, and the Administrative Law Judge in resolving this type of HOA conflict.
5. Evaluate the final Order of the Administrative Law Judge. While the petitioner was deemed the prevailing party, why was their requested remedy (rescission of the Amended CC&Rs) denied? What does this reveal about the specific limits of the Administrative Law Judge’s authority in such cases under A.R.S. § 32-2199.02?
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Glossary of Key Terms
Definition
Administrative Law Judge (ALJ)
An official who presides over administrative hearings. In this case, Tammy L. Eigenheer of the Office of Administrative Hearings made the findings of fact, conclusions of law, and issued the final order.
A.R.S. § 33-1817(A)(1)
The specific Arizona Revised Statute cited by the petitioner. It states that a declaration may be amended by the association with an affirmative vote or written consent of the number of owners specified in the declaration.
Amended CC&Rs
The document titled “Restated Declaration of Covenants, Conditions and Restrictions for Val Vista Estates,” which the HOA Board recorded on October 5, 2018, without the required two-thirds owner approval.
Association Rules
Rules and regulations that the HOA Board is empowered to adopt, amend, or repeal under Section 3.4 of the CC&Rs to govern the use of Common Areas and other parts of the Project. The Board argued their changes fell under this authority.
Burden of Proof
The obligation to prove one’s assertion. In this case, the petitioner bore the burden of proof to establish the respondent’s violations by a preponderance of the evidence.
An acronym for Covenants, Conditions, and Restrictions. These are the governing legal documents for a planned community. The original “Restated Declaration of Covenants, Conditions and Restrictions for VVE” was recorded on April 30, 1999.
Department
Refers to the Arizona Department of Real Estate, the agency with which the petitioner filed his Homeowners Association (HOA) Dispute Process Petition.
An acronym for Homeowners Association. In this case, the VVE – Casa Grande Homeowners Association, an association of 56 lot owners in Casa Grande, Arizona.
Office of Administrative Hearings
The office responsible for conducting hearings for disputes filed with state agencies like the Department of Real Estate.
Petitioner
The party who initiates a legal action or petition. In this case, homeowner Douglas J. Karolak.
Preponderance of the Evidence
The evidentiary standard required to win the case, defined as “such proof as convinces the trier of fact that the contention is more probably true than not.”
Respondent
The party against whom a petition is filed. In this case, the VVE – Casa Grande Homeowners Association.
Your HOA Just Changed the Rules? Why This Homeowner’s $500 Victory is a Warning to Everyone
For millions of Americans, living in a planned community means living under the authority of a Homeowners Association (HOA). While intended to protect property values, these relationships can often feel one-sided, with boards issuing mandates and homeowners feeling powerless to push back. It’s a common frustration, but it’s rare to see a single homeowner challenge their board and force a legal reckoning.
A recent case from Arizona, Douglas J. Karolak versus the VVE – Casa Grande Homeowners Association, provides a critical case study in board overreach and the surprising limits of legal victory. Karolak alleged his HOA board violated its own governing documents and state law by improperly changing the community’s core rules.
He took his case to an administrative law judge and, in a significant ruling, he won. But the outcome of this seemingly straightforward dispute was far from simple. The final decision reveals a shocking twist that holds critical lessons for every homeowner about the difference between being right on paper and getting the remedy you actually want.
There’s a Huge Difference Between a ‘Rule Change’ and a ‘Declaration Amendment’
The first lesson from this case is a critical one for every homeowner: understand the constitutional hierarchy of your community’s documents. The core of the dispute was the HOA Board’s attempt to amend its foundational document, the CC&Rs (Covenants, Conditions, and Restrictions), without getting the required approval from the homeowners.
Here are the key facts of the case:
• The Original Rule: The community’s CC&Rs explicitly stated in Section 10.4 that any amendment required a vote and execution by “at least two-thirds (2/3) of the Lots.” This is the highest level of authority in a planned community, akin to a constitution.
• The Failed Attempts: The Board had tried to get this two-thirds vote in both 2014 and 2015, but was unsuccessful.
• The Workaround: In 2018, the Board decided to bypass the homeowners. It used a separate power granted in Section 3.4 of the CC&Rs—the authority to create day-to-day “Association Rules”—to make what it called changes to the “‘rules section’ of the CC&Rs, specifically targeting the Use Restrictions in Part 7.”
The judge’s conclusion was crystal clear: The CC&Rs were drafted to treat the power to create “rules” and the power to “amend” the declaration as two entirely separate processes. This separation acts as a crucial check on the board’s power, preventing a small group from unilaterally changing the fundamental property rights of all owners. As the judge noted, “the original drafters of the CC&Rs did not contemplate that the Board had the authority to, on its own, amend the CC&Rs.”
Recording a Document Doesn’t Magically Make It Valid
To make their changes appear official, the HOA Board took a significant step. On October 5, 2018, they filed a document titled “Restated Declaration of Covenants, Conditions and Restrictions for Val Vista Estates (Amended CC&Rs)” with the Pinal County Recorder.
For the average homeowner, a formally recorded document filed with the county looks final, official, and legally binding. It’s an intimidating piece of paper that suggests any challenge would be futile.
However, the judge’s ruling highlights a critical legal truth: procedural legitimacy is paramount. An official-looking document, even one filed with the county, is invalid if the legal process required to create it was ignored. The judge found that because the Board did not follow the correct internal procedure—securing the two-thirds vote from homeowners—the very act of recording the document was improper. Even the HOA’s own lawyer seemed to concede this point during the hearing, acknowledging that “perhaps the Amended CC&Rs should not have been recorded.”
The Winner’s Paradox: You Can Be Right and Still Not Get Your Desired Fix
The final order from the Administrative Law Judge was unambiguous: Douglas Karolak, the petitioner, was officially deemed the “prevailing party.” The judge concluded that the HOA had acted in violation of its own community documents and Arizona state law. This was a clear-cut victory for the homeowner.
But here is the shocking twist. Karolak’s requested remedy was for the illegally filed “Amended CC&Rs” to be rescinded—in other words, to have them officially nullified and removed. This seems like the logical and necessary fix to the problem.
The judge, however, was bound by the limits of her authority. The final decision states plainly: “The Administrative Law Judge does not have the authority under the applicable statute to order the Amended CC&Rs rescinded.” This highlights a critical jurisdictional gap. The Administrative Law Judge’s role in this venue is to determine if a violation occurred and assign limited penalties, not to perform the function of a higher court, which might have the power to void a recorded document.
So, what was the actual remedy for this clear violation? The judge ordered the HOA to repay Karolak his $500 filing fee. No other civil penalty was issued. The homeowner won the argument but did not get the one thing he asked for to correct the board’s improper action.
A Victory on Paper, A Question in Practice
The case of Douglas J. Karolak is a powerful real-world lesson. It proves that a single homeowner, armed with a thorough understanding of their community’s governing documents, can successfully challenge an overreaching HOA board and win. It confirms that procedural shortcuts, even when filed and recorded, do not make an illegal action legal.
But it also reveals the frustrating limitations that can exist within the legal process. The homeowner was proven right, but the improperly filed document remains on the books, unable to be rescinded in this specific venue. It raises a crucial question for homeowners everywhere: How do you ensure your victory has real teeth?
Case Participants
Petitioner Side
- Douglas J. Karolak (petitioner)
Respondent Side
- David A. Fitzgibbons III (HOA attorney)
Fitzgibbons Law Offices PLC
Represented VVE – Casa Grande Homeowners Association - CV Mathai (witness)
VVE – Casa Grande Homeowners Association - John Kelsey (witness)
VVE – Casa Grande Homeowners Association - Kristi Kelsey (witness)
VVE – Casa Grande Homeowners Association - William Findley (witness)
VVE – Casa Grande Homeowners Association - Kay Niemi (witness)
VVE – Casa Grande Homeowners Association - Mark Korte (witness)
VVE – Casa Grande Homeowners Association - Felicia Del Sol (property manager rep)
Norris Management
Neutral Parties
- Tammy L. Eigenheer (ALJ)
Office of Administrative Hearings - Judy Lowe (Commissioner)
Arizona Department of Real Estate