Case Summary
| Case ID | 18F-H1818052-REL-RHG |
|---|---|
| Agency | ADRE |
| Tribunal | OAH |
| Decision Date | 2019-01-17 |
| Administrative Law Judge | Thomas Shedden |
| Outcome | loss |
| Filing Fees Refunded | $0.00 |
| Civil Penalties | $0.00 |
Parties & Counsel
| Petitioner | Lawrence M. Stewart | Counsel | — |
|---|---|---|---|
| Respondent | Canyon Gate Condominium Association, Inc. | Counsel | Nicolas C. S. Nogami |
Alleged Violations
Association Bylaws section 5.4
Outcome Summary
The Administrative Law Judge dismissed Petitioner Lawrence M. Stewart's petition and deemed the Respondent, Canyon Gate Condominium Association, Inc., to be the prevailing party.
Why this result: Petitioner failed to prove the Association violated Bylaws Section 5.4 or acted unreasonably or in bad faith when denying his request for a variance. The Bylaw section cited was determined to be a liability shield for the Board, not a source of duty owed to the homeowner.
Key Issues & Findings
Alleged failure of HOA Board to act in good faith when denying Petitioner's request for a variance for unauthorized common area changes
Petitioner made changes to the common area without permission and the Board denied his subsequent request for a variance. Petitioner alleged the Board violated Bylaws Section 5.4 by failing to act in good faith and showing bias. The ALJ found that Section 5.4 is a liability shield for the Board, not a duty imposed upon them, and Petitioner failed to meet the burden of proof to show bad faith or unreasonableness.
Orders: Petitioner Lawrence M. Stewart’s petition is dismissed. Respondent is deemed to be the prevailing party in this matter.
Filing fee: $0.00, Fee refunded: No
Disposition: respondent_win
- ARIZ. REV. STAT. Title 32, Ch. 20, Art. 11
- ARIZ. ADMIN. CODE § R2-19-119
- McNally v. Sun Lakes Homeowners Ass’n #1, Inc., 241 Ariz. 1, 382 P.3d 1216 (2016 App.)
- Tierra Ranchos Homeowners Ass'n v. Kitchukov, 216 Ariz. 195, 165 P.3d 173 (App. 2007)
Analytics Highlights
- ARIZ. REV. STAT. Title 32, Ch. 20, Art. 11
- ARIZ. ADMIN. CODE § R2-19-119
- McNally v. Sun Lakes Homeowners Ass’n #1, Inc., 241 Ariz. 1, 382 P.3d 1216 (2016 App.)
- Tierra Ranchos Homeowners Ass'n v. Kitchukov, 216 Ariz. 195, 165 P.3d 173 (App. 2007)
Video Overview
Audio Overview
Decision Documents
18F-H1818052-REL-RHG Decision – 683622.pdf
18F-H1818052-REL-RHG Decision – 694095.pdf
18F-H1818052-REL-RHG Decision – ../18F-H1818052-REL/660026.pdf
18F-H1818052-REL-RHG Decision – ../18F-H1818052-REL/720468.pdf
Briefing Document: Stewart v. Canyon Gate Condominium Association, Inc.
Executive Summary
This document synthesizes the findings and conclusions from an administrative legal case involving Petitioner Lawrence M. Stewart and Respondent Canyon Gate Condominium Association, Inc. The core of the dispute revolves around Mr. Stewart’s unauthorized modifications to a common area, for which the Association’s Board of Directors denied a retroactive variance. Mr. Stewart alleged the Board violated its bylaws by acting in bad faith, that a specific Board member was biased against him, and that he was subjected to unfair treatment compared to other homeowners.
The Administrative Law Judge, in both an initial hearing and a subsequent rehearing, consistently ruled against Mr. Stewart. The judge determined that the specific bylaw cited (Section 5.4) was an indemnification clause that shields the Board from liability and does not impose a duty of action. Crucially, Mr. Stewart failed to meet the legal burden of proving his claims by a “preponderance of the evidence.” The Board’s rationale for the denial—to avoid setting a precedent, or “opening a Pandora’s Box”—was deemed a reasonable position for a condominium association. Evidence presented to support claims of bias and unequal treatment was found to be insufficient or not probative. Ultimately, Mr. Stewart’s petition was dismissed in its entirety.
Case Overview
This matter, designated as No. 18F-H1818052-REL, was adjudicated by the Office of Administrative Hearings under the authority of the Arizona Department of Real Estate. The case centered on a petition filed by Mr. Stewart on May 21, 2018, alleging a violation of the Association’s Bylaws by the Board of Directors.
Parties Involved
Name / Entity
Representation
Petitioner
Lawrence M. Stewart
On his own behalf
Respondent
Canyon Gate Condominium Association, Inc.
Mark K. Sahl, Esq. & Nichols C. S. Nogami, Esq.
Administrative Law Judge Thomas Shedden
Case Chronology
• November 15, 2017: The Association’s counsel informs Mr. Stewart in a letter that he is in violation of section 5.1 of the CC&Rs for making unapproved changes to a common/limited common area.
• Post-November 15, 2017: Mr. Stewart, then a member of the Board, requests a variance for the changes.
• December 27, 2017: The Association’s attorney sends a letter stating an understanding that Mr. Stewart had recused himself and that the other two Board members (Sandra Fernandez and David Larson) had required the area to be restored.
• January 4, 2018: Mr. Stewart writes to the other Board members, refuting that he had agreed to recuse himself and requesting a formal meeting to consider his variance request.
• February 18, 2018: At a Board meeting, Mr. Stewart resigns from the Board. The remaining two members vote to deny his variance request and require him to restore the area to its original condition.
• May 21, 2018: Mr. Stewart files his petition with the Arizona Department of Real Estate.
• September 6, 2018: The initial administrative hearing is conducted.
• September 14, 2018: The Administrative Law Judge (ALJ) issues a decision dismissing Mr. Stewart’s petition.
• January 2, 2019: A rehearing is conducted.
• January 17, 2019: The ALJ issues a final decision following the rehearing, again dismissing the petition.
Petitioner’s Central Allegations
Mr. Stewart’s case rested on four primary claims against the Association’s Board.
1. Violation of Bylaws Section 5.4
The formal petition alleged a violation of Association Bylaws Article V, Section 5.4 (Liability), which states in part:
“So long as he/she has acted in good faith on the basis of information actually possessed, neither the Board nor any member of the Board nor any officer of the ASSOCIATION shall be liable to the ASSOCIATION, any OWNER, or to any other party for any damage, loss, or prejudice suffered or claimed on account of: (i) the approval or disapproval of any plans, drawings, or specifications, whether or not defective…or (v) any act or failure to act by the ASSOCIATION, or Board.”
Mr. Stewart cited this section because it was the only part of the governing documents he could find that included a “good faith” requirement.
2. Lack of Good Faith by the Board
Mr. Stewart asserted that the Board did not act in good faith when it denied his variance request. He based this claim on several points:
• He resigned from the Board during the February 18, 2018 meeting because he “got the sense ‘right away’ that the other Board members’ minds were made up and that they would not approve his request.”
• He presented unrebutted testimony that the Board members were unwilling to physically look at the changes he had made and only gave a “cursory look” at photographs he provided.
• The Board’s decision appeared to have been made prior to the meeting, as evidenced by the attorney’s December 27, 2017 letter which erroneously stated he had recused himself.
3. Bias of Board Member David Larson
A significant portion of Mr. Stewart’s argument was that Board member David Larson was personally biased against him. The evidence presented to support this included:
• Initial Hearing Evidence:
◦ A biography of Mr. Larson prepared by the property manager. When questioned, Mr. Stewart could not identify specific information showing bias but stated the “entire document coupled with the other statements shows a bias.”
◦ Notes from a November 28, 2017 Board meeting where Mr. Larson informed members that enforcement actions (towing, violation notices) would begin immediately and that he was “too busy to talk to people about Board business in driveways.”
• Rehearing Evidence:
◦ A letter dated October 3, 2018, from Mr. Larson to Association members urging them not to vote for Mr. Stewart in an upcoming election.
4. Unfair and Unequal Treatment
Mr. Stewart claimed he was treated unfairly because other units in the condominium were also not in conformity with the CC&Rs.
• He presented photos of units he believed were out of compliance.
• He testified that he had verified with the Association that none of these units had received a variance in the last two years.
• However, he acknowledged he did not know if variances had been granted more than two years prior or if the changes had received pre-approval, which would not require a variance.
Respondent’s Position and Legal Arguments
The Canyon Gate Condominium Association, represented by counsel, did not present witnesses but argued on legal grounds.
• Inapplicability of Bylaws Section 5.4: The Association’s core argument was that Section 5.4 was not applicable to Mr. Stewart’s complaint. They contended the section is an indemnification clause designed to act as a “shield” to protect Board members from liability when they act in good faith, not a “sword” that imposes an affirmative duty on them that can be violated.
• Reasonableness of Board Decision: The Association maintained that the Board’s decision was reasonable. According to Mr. Stewart’s own testimony, the Board’s basis for denial was the fear that granting his variance would “open a Pandora’s Box where other unit owners would request variances.”
Administrative Law Judge’s Rulings and Conclusions
The ALJ’s decisions in both the initial hearing and the rehearing were consistent, ultimately finding in favor of the Respondent.
Legal Framework
• Burden of Proof: The ALJ established that Mr. Stewart, as the petitioner, bore the burden of proof. The standard of proof was a “preponderance of the evidence,” defined as evidence with “the most convincing force” that is sufficient “to incline a fair and impartial mind to one side of the issue rather than the other.”
• Board’s Duty: The judge noted that while the Bylaws are a contract, the Association, in exercising its authority, must “act reasonably.”
Analysis of Bylaws Section 5.4
• The judge agreed entirely with the Association’s interpretation, concluding that Section 5.4 “does not impose any duty on the Board members, but rather merely shields them from liability if they act in good faith.”
• In the initial hearing, the judge noted Mr. Stewart “appeared to acknowledge that section 5.4 acts as a ‘shield’ and not a ‘sword.'”
• By the rehearing, this was solidified, with the finding that “Mr. Stewart acknowledges that the Association has not violated Bylaws Section 5.4.”
Assessment of ‘Good Faith’ and Bias Claims
• The ALJ concluded that even if Section 5.4 were applicable, Mr. Stewart “has not shown by a preponderance of the evidence that the Board did not act in good faith, that it had a bias against him, or that it treated him unfairly.”
• The judge found the Board’s reasoning for the denial—the “Pandora’s Box” concern—was “not an unreasonable position for the Board of a condominium association.”
• Given this reasoning, the judge stated that “the specifics of the changes Mr. Stewart made would not be germane to the decision,” thereby neutralizing the claim that the Board failed to properly inspect the modifications.
Evaluation of Unfair Treatment Claim
• The evidence of other non-compliant units was deemed “not probative of the issue at hand.”
• The judge reasoned that there was “no evidence to show that they had requested that the Board grant variances,” meaning their situations were not comparable to Mr. Stewart’s, who had made unapproved changes and was subsequently denied a variance.
Final Disposition
• Initial Decision (September 14, 2018): IT IS ORDERED that Petitioner Lawrence M. Stewart’s petition is dismissed. This order was subject to a request for rehearing within 30 days.
• Rehearing Decision (January 17, 2019): IT IS ORDERED that Petitioner Lawrence M. Stewart’s petition is dismissed. This final order was noted as binding on the parties, with any further appeal requiring judicial review filed with the superior court within 35 days.
Study Guide: Stewart v. Canyon Gate Condominium Association, Inc.
This guide provides a review of the administrative case Lawrence M. Stewart, Petitioner, vs. Canyon Gate Condominium Association, Inc., Respondent (No. 18F-H1818052-REL), including the initial hearing and a subsequent rehearing.
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Short-Answer Quiz
Instructions: Answer the following questions in two to three sentences, based on the provided case documents.
1. What action by Petitioner Lawrence M. Stewart initiated the dispute with the Canyon Gate Condominium Association?
2. What specific provision of the Association Bylaws did Mr. Stewart allege was violated in his petition?
3. Why did Mr. Stewart resign from the Association’s Board during the February 18, 2018 meeting?
4. What was the Board’s stated reason for denying Mr. Stewart’s request for a variance?
5. Explain the legal interpretation of Bylaws Section 5.4 as a “shield” and not a “sword.”
6. List two pieces of evidence Mr. Stewart presented at the initial hearing to support his claim that Board member David Larson was biased against him.
7. What was the legal standard of proof in this case, and which party was required to meet it?
8. How did Mr. Stewart attempt to prove he was being treated unfairly in comparison to other unit owners, and why did the judge find this evidence unconvincing?
9. At the rehearing, what new evidence did Mr. Stewart present regarding Mr. Larson’s alleged bias?
10. What was the final outcome of both the initial administrative hearing and the subsequent rehearing?
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Answer Key
1. Mr. Stewart initiated the dispute by making changes to the common area and/or limited common area around his unit without first receiving permission from the Association. The Association informed him in a letter dated November 15, 2017, that this was a violation of section 5.1 of the CC&Rs.
2. Mr. Stewart alleged in his petition that the Association violated Bylaws Section 5.4. He later acknowledged this section was not technically violated but cited it because it was the only provision in the governing documents he could find that included a “good faith” requirement.
3. Mr. Stewart resigned from the Board because he “got the sense ‘right away’ that the other Board members’ minds were made up” and that they would not approve his request for a variance, regardless of the details.
4. The Board denied Mr. Stewart’s request on the basis that approving it would “open a Pandora’s Box” where other unit owners would then also request variances. The Administrative Law Judge found this was not an unreasonable position for a condominium association board to take.
5. The interpretation of Section 5.4 is that it acts as a “shield” to protect, or indemnify, Board members from liability for damages, loss, or prejudice, provided they have acted in good faith. It is not a “sword” that imposes an affirmative duty on the Board that Mr. Stewart could use to compel a certain action or claim a violation.
6. At the initial hearing, Mr. Stewart presented two of the following: (1) a biography of Mr. Larson; (2) notes from a November 28, 2017 meeting where Mr. Larson stated that enforcement actions would begin immediately; and (3) a letter from the Association’s attorney that erroneously stated Mr. Stewart had recused himself, suggesting the matter was decided without him.
7. The standard of proof was a “preponderance of the evidence.” The burden of proof rested entirely on the petitioner, Mr. Stewart, to show that the Association had acted improperly.
8. Mr. Stewart presented testimony and photos of other units that he believed were not in conformity with the CC&Rs. The judge found this evidence was not probative because Mr. Stewart provided no evidence that those owners had requested and been denied variances, and he acknowledged he did not know if they had received variances more than two years prior or had received preapproval.
9. At the rehearing, Mr. Stewart entered into evidence an October 3, 2018 letter from Mr. Larson to the Association’s members. In this letter, Mr. Larson urged the members not to vote for Mr. Stewart in an upcoming election.
10. In both the initial decision (September 14, 2018) and the decision following the rehearing (January 17, 2019), the Administrative Law Judge ordered that Mr. Stewart’s petition be dismissed. The Respondent, Canyon Gate Condominium Association, Inc., was deemed the prevailing party in the matter.
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Essay Questions
Instructions: The following questions are designed for a more in-depth analysis of the case. Formulate a comprehensive response for each prompt, citing specific facts and legal conclusions from the case documents.
1. Analyze the Administrative Law Judge’s reasoning for concluding that Bylaws Section 5.4 was not applicable to Mr. Stewart’s petition. How did Mr. Stewart’s own testimony during the legal proceedings support this conclusion?
2. Discuss the concept of “preponderance of the evidence” as defined in the case documents. Evaluate the evidence Mr. Stewart presented across both hearings and explain why the judge found it insufficient to meet this standard regarding his claims of bias, bad faith, and unfair treatment.
3. Examine the Canyon Gate Board’s justification for denying the variance request (the “Pandora’s Box” argument). Based on the legal principles cited in the decisions, why was this considered a reasonable position for a condominium association board to take, and why did it render the specifics of Mr. Stewart’s changes non-germane?
4. Trace the procedural timeline of this case from the Association’s initial notice of violation on November 15, 2017, to the final binding order issued on January 17, 2019. Identify the key events, arguments, and decisions at each stage of the administrative process.
5. Mr. Stewart argued that he was treated unfairly because other units were also out of compliance with the CC&Rs. Deconstruct this argument and explain why the judge dismissed this line of reasoning as not being probative to the issue at hand in both the initial hearing and the rehearing.
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Glossary of Key Terms
Definition
Administrative Law Judge (ALJ)
The official (Thomas Shedden) who presides over hearings at the Office of Administrative Hearings and issues a decision on the matter.
Association
The Canyon Gate Condominium Association, Inc., the entity responsible for enforcing the Bylaws and CC&Rs. In this case, it is the Respondent.
The governing body of the Association, which at the time of the variance request included Lawrence M. Stewart, Sandra Fernandez, and David Larson.
Burden of Proof
The obligation to prove one’s assertion. In this case, the burden of proof was on the Petitioner, Mr. Stewart.
Bylaws
A contract between the Association and its members. The parties are required to comply with its terms, and the Association must act reasonably in exercising its authority under them.
Covenants, Conditions, and Restrictions. Mr. Stewart was found to be in violation of section 5.1 of the CC&Rs for making unapproved changes.
Common Area / Limited Common Area
The property around a condominium unit that is shared or has restricted use. Mr. Stewart made unauthorized changes to this area.
Good Faith
A standard of conduct mentioned in Bylaws Section 5.4. It protects Board members from liability so long as they act in good faith based on information they possess. Mr. Stewart claimed the Board failed to meet this standard.
Indemnification
The act of compensating for loss or damage. Bylaws Article V, which contains Section 5.4, pertains to indemnification.
Petitioner
The party who files a petition initiating a legal case. In this matter, the petitioner was Lawrence M. Stewart.
Preponderance of the Evidence
The standard of proof required in this case, defined as “The greater weight of the evidence… sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”
Rehearing
A second hearing granted in a legal matter. A rehearing was conducted on January 2, 2019, after which the judge issued a final, binding order.
Respondent
The party against whom a petition is filed. In this matter, the respondent was Canyon Gate Condominium Association, Inc.
Variance
An official exception or deviation from a rule. Mr. Stewart requested a variance to allow the unapproved changes he had made, which the Board denied.
A Homeowner Sued His HOA and Lost—The Surprising Reasons Why Might Save You Thousands
Introduction: The Perennial Battle Between Homeowner and HOA
For many homeowners, the relationship with their Homeowners’ Association (HOA) can feel like a constant source of friction. From landscaping rules to paint colors, the potential for disputes is endless. But what happens when a homeowner feels so strongly wronged that they take the ultimate step of suing their association? More importantly, what happens when they lose?
This is the story of a homeowner who was also a board member. After making unauthorized changes to his property, he was denied his request for a variance to approve the changes he had already made. Believing the Board had acted in bad faith, he sued the association. His case failed, not on a minor technicality, but due to fundamental misunderstandings of how HOA law and governing documents function.
This outcome highlights a common, and costly, misconception about HOA governance. We will explore the surprising legal realities revealed in the case of Lawrence M. Stewart vs. Canyon Gate Condominium Association, Inc., offering several crucial takeaways for any homeowner before they decide to challenge their HOA.
1. A “Good Faith” Clause Can Be a Shield, Not a Sword
Mr. Stewart based his entire case on the claim that the Board violated Section 5.4 of the bylaws by not acting in “good faith,” as this was the only section in the governing documents he could find that mentioned the phrase.
This is where the case pivots on a crucial legal distinction. The court found that this clause was not intended to impose a duty on the board that a homeowner could sue over (a “sword”). Instead, its function was to protect board members from liability if they acted in good faith (a “shield”). Legally, this is an indemnification clause. Think of it as a form of insurance, designed to protect volunteer board members from being personally sued for making reasonable decisions, not a weapon for homeowners to attack those decisions.
In his testimony, Mr. Stewart even acknowledged this “shield” versus “sword” distinction but proceeded with the argument anyway. The lesson for homeowners is unequivocal: you must understand the precise legal function of a clause within your governing documents, not just its keywords.
2. The “Pandora’s Box” Defense Is a Powerful Argument
The Board’s primary reason for denying Mr. Stewart’s variance request was its fear that approval “would open a Pandora’s Box where other unit owners would request variances.” While a homeowner might hear “Pandora’s Box” and think it’s a lazy excuse, the court viewed it as the board performing its fundamental duty.
The judge stated this reasoning “was not an unreasonable position for the Board of a condominium association.” This validation is incredibly impactful because it shifts the focus from the merits of one homeowner’s request to the Board’s overarching fiduciary duty to uphold the rules consistently for the entire community. It shows that an HOA’s duty to maintain consistent enforcement and avoid setting a messy precedent is a legally sound basis for a decision, making the specific details of one homeowner’s changes irrelevant.
3. Being on the Board Won’t Give You a Pass
In a surprising twist, Mr. Stewart was a member of the HOA Board at the very time he made the unauthorized changes and requested the variance. This created a clear conflict of interest and ultimately did not help his case.
The situation culminated in Mr. Stewart resigning from the Board during the meeting where his request was considered. He stated he resigned because he felt “the other Board members’ minds were made up” and they would not approve his request. This incident serves as a stark reminder: holding a position on the board does not grant special privileges or exceptions to the rules. In fact, it can complicate personal matters and highlight a direct conflict between a board member’s duties to the association and their personal interests.
4. “Whataboutism” Is Not a Legal Strategy
Like many homeowners in a dispute, Mr. Stewart argued that he was being treated unfairly because other units in the community were also out of compliance with the CC&Rs. This is a common defense, but its legal failure in this case is a masterclass in what courts actually require for proof.
Mr. Stewart’s effort was commendable but legally insufficient. He presented photos of other non-conforming units and even “verified with the Association that none of these units had received a variance in the last two years.” However, his evidence collapsed under cross-examination when he “acknowledged… he did not know if any of these units had received variances more than two years ago or whether preapproval for the changes had been granted.”
The judge dismissed his evidence entirely. This transforms the lesson from a simple “don’t point fingers” to a much more sophisticated legal principle: to prove selective enforcement, you must prove others in the identical procedural situation were treated differently, and incomplete evidence is no evidence at all.
5. The Burden of Proof Is Everything
Perhaps the most stunning fact from the case is that the Association “presented no witnesses” at either the initial hearing or the subsequent rehearing. They won the case without putting a single person on the stand to testify.
They could do this because the legal system placed the “burden of proof” squarely on Mr. Stewart. As the petitioner, it was his job to prove his claims of bad faith, bias, and unfair treatment by a “preponderance of the evidence.” The Association didn’t have to prove it acted in good faith; Mr. Stewart had to prove it acted in bad faith. He failed to meet this standard. In other words, he had to prove that his claims were more likely to be true than not—even if only by a 51% to 49% margin.
The court document formally defines this legal standard as:
The greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.
In a legal dispute with your HOA, the case is not about who is morally right or wrong. It’s about who can meet their required burden of proof with convincing, relevant evidence.
Conclusion: Know the Rules Before You Fight the Rulers
The case of Lawrence M. Stewart is a cautionary tale that every homeowner should internalize. His failed lawsuit, which likely became a five-figure mistake when factoring in legal fees for both sides, underscores that HOA governing documents are a binding contract. Challenging the Board requires more than a sense of unfairness. It demands a precise, evidence-backed legal argument that aligns with the specific terms of that contract and the applicable legal standards.
Before you declare war on your HOA, ask yourself: are you prepared to prove your case with irrefutable evidence, or are you just banking on a feeling of being wronged?
Case Participants
Petitioner Side
- Lawrence M. Stewart (petitioner)
Also served as a Board member for Respondent until resigning during the variance request consideration.
Respondent Side
- Mark K. Sahl (attorney)
CARPENTER, HAZLEWOOD, DELGADO & BOLEN LLP
Represented Respondent in the initial hearing. - Nicolas C. S. Nogami (attorney)
CARPENTER, HAZLEWOOD, DELGADO & BOLEN LLP
Represented Respondent in both the initial hearing (listed as 'Nichols C. S. Nogami') and the rehearing. - Sandra Fernandez (board member)
Canyon Gate Condominium Association, Inc.
Voted to deny Petitioner's variance request. - David Larson (board member)
Canyon Gate Condominium Association, Inc.
Voted to deny Petitioner's variance request; Petitioner alleged he was biased.
Neutral Parties
- Thomas Shedden (ALJ)
Office of Administrative Hearings - Judy Lowe (commissioner)
Arizona Department of Real Estate
Recipient of the decision copies. - F. Del Sol (administrative staff)
Office of Administrative Hearings
Signed the transmission of the decision copies.
