Case Summary
| Case ID | 21F-H2120003-REL |
|---|---|
| Agency | ADRE |
| Tribunal | OAH |
| Decision Date | 2021-06-03 |
| Administrative Law Judge | Thomas Shedden |
| Outcome | loss |
| Filing Fees Refunded | $500.00 |
| Civil Penalties | $0.00 |
Parties & Counsel
| Petitioner | Keith D Smith | Counsel | — |
|---|---|---|---|
| Respondent | Sierra Foothills Condominium Association | Counsel | Stuart Rayburn |
Alleged Violations
CC&R section 7.1(C)
ARIZ. REV. STAT. section 33-1248
Outcome Summary
The petition was dismissed as the Petitioner failed to prove by a preponderance of the evidence that the Association violated CC&R section 7.1(C) or ARIZ. REV. STAT. section 33-1248. The rule limiting sign use was deemed reasonable.
Why this result: Petitioner failed to meet the burden of proof on both issues.
Key Issues & Findings
Alleged unreasonable discrimination in adopting rules regarding common elements (monument sign)
Petitioner alleged the Association violated CC&R 7.1(C) by adopting a rule limiting the use of the common element monument sign to only owners in Building B, arguing this was unreasonable discrimination against Building A owners.
Orders: Petition dismissed for this issue.
Filing fee: $250.00, Fee refunded: No
Disposition: petitioner_loss
- CC&R section 7.1(C)
- CC&R section 6.26(a)
- ARIZ. REV. STAT. section 33-1217
Alleged open meeting law violation at the June 10, 2020 Board meeting
Petitioner alleged the Board violated open meeting laws by communicating via email and reaching a decision prior to the June 10, 2020 meeting, claiming the President called for a vote without discussion.
Orders: Petition dismissed for this issue.
Filing fee: $250.00, Fee refunded: No
Disposition: petitioner_loss
- ARIZ. REV. STAT. section 33-1248
Analytics Highlights
- ARIZ. REV. STAT. section 33-1248
- CC&R section 7.1(C)
- ARIZ. REV. STAT. Title 32, Ch. 20, Art. 11
- ARIZ. ADMIN. CODE § R2-19-119
- ARIZ. REV. STAT. § 41-1092.07(F)(6)
Video Overview
Decision Documents
21F-H2120003-REL-RHG Decision – 885949.pdf
21F-H2120003-REL-RHG Decision – ../21F-H2120003-REL/837073.pdf
Administrative Hearing Briefing: Smith v. Sierra Foothills Condominium Association
Executive Summary
This briefing summarizes the administrative legal proceedings between Keith D. Smith (Petitioner) and the Sierra Foothills Condominium Association (Respondent) regarding Case No. 21F-H2120003-REL and its subsequent rehearing. The dispute centered on two primary allegations: that the Association’s Board of Directors established an unreasonable and discriminatory rule regarding a common-element monument sign, and that the Board violated Arizona’s open meeting laws during the adoption of said rule.
Following an initial hearing on October 26, 2020, and a subsequent rehearing considered on June 3, 2021, the Administrative Law Judge (ALJ) dismissed the petition in its entirety. The rulings established that the Association acted within its authority under the Declaration of Covenants, Conditions, and Restrictions (CC&Rs) to create rules for common elements, provided those rules are reasonable. The ALJ found that limiting sign usage to specific buildings was a reasonable exercise of power based on the physical layout of the property. Furthermore, the Petitioner failed to provide substantial evidence to support claims of illegal pre-meeting communications by the Board.
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Core Dispute: Monument Sign Usage
The central conflict involved a monument sign located on the common elements of a commercial condominium consisting of two buildings, Building A and Building B.
The Challenged Rule
On June 10, 2020, the Association Board adopted a policy limiting the use of the monument sign exclusively to Unit owners in Building B. The monument sign contains only five advertising spaces.
Association Justification
The Association argued that the rule was necessary due to the physical limitations of the property:
• Space Scarcity: The sign has a finite capacity (five spaces) that cannot accommodate all owners.
• Building Frontage: Building A has direct street frontage, allowing its owners to hang signs directly on the building wall.
• Lack of Frontage: Building B does not have street frontage, significantly limiting the utility and visibility of any signs hung on its walls.
• Zoning Restrictions: Under the City of Phoenix Sign Code, businesses cannot post signs on buildings they do not occupy. Therefore, Building B owners are prohibited from hanging signs on Building A, making the monument sign their only viable external advertising option.
Petitioner’s Arguments
Mr. Smith, a Unit owner in Building A, challenged the rule based on the following:
• Common Interest: He asserted that his deed grants him an undivided interest in common elements, meaning no owner should have exclusive use of the sign.
• Disparate Treatment: He argued the rule violated CC&R section 6.26(a), which prohibits treating owners differently regarding occupancy and use restrictions.
• Alternative Solutions: Mr. Smith proposed altering the sign to increase capacity or reducing existing sign sizes by half (which he offered to fund).
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Legal Analysis of CC&R Provisions
The ALJ’s decision hinged on the interpretation of specific articles within the Association’s governing documents.
CC&R Section 7.1(C): Board Authority
This section grants the Board the power to adopt, amend, and repeal Rules and Regulations to restrict and govern the use of any area.
• Condition: Rules must not “unreasonably discriminate” and must be consistent with the Declaration and the Act.
• Ruling: The ALJ concluded that discriminating among owners is permitted under 7.1(c) as long as it is not unreasonable. Given the lack of street frontage for Building B, the restriction was deemed a reasonable management of limited resources.
CC&R Section 6.26(a): Use Restrictions
The Petitioner argued that this section required all limitations to be applicable to all occupants equally.
• Scope Limitation: The ALJ found that section 6.26(a) explicitly applies only to “occupancy and use restrictions contained in this Article 6.”
• Ruling: Because the sign rule was promulgated under Article 7, the restrictive language of Article 6.26(a) did not apply.
Common Element Status and Partition
During the proceedings, the Association initially argued the sign was not a common element but later waived this argument. The Petitioner argued that common elements cannot be partitioned under A.R.S. § 33-1217. However, the ALJ found no evidence that the monument sign had been “partitioned” in a legal sense, merely that its use was regulated.
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Open Meeting Law Allegations
Mr. Smith alleged that the Association violated A.R.S. § 33-1248 regarding the conduct of the June 10, 2020, meeting.
Claims of Pre-Meeting Deliberation
The Petitioner asserted that Board members had “obviously” communicated via email and reached a decision before the meeting. His evidence for this was:
• The Board President called for a vote immediately without initiating discussion.
• The Board members appeared to have their minds made up.
Evidence and Testimony
The ALJ rejected these claims based on the following:
• Lack of Proof: The Petitioner admitted he had no emails or physical evidence to support the claim of private deliberation.
• Conflicting Testimony: Association witnesses provided “credible testimony” that a protracted discussion took place, lasting approximately 90 minutes. Mr. Smith himself spoke for 20 minutes during this period.
• New Evidence Barred: During the rehearing, Mr. Smith claimed to possess an email supporting his position. The ALJ refused to consider it, citing Arizona Administrative Code § R2-19-115, which requires all evidence to be presented at the original hearing.
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Procedural Findings and Rehearing
The rehearing (Case No. 21F-H2120003-REL-RHG) addressed the Petitioner’s claims of administrative error and “arbitrary” findings.
ALJ Determination
Number of Issues
The hearing was limited to two issues because the Petitioner only paid the fee for a two-issue hearing. Claims of other meeting deficiencies were excluded.
Sufficiency of Evidence
The ALJ found that the original decision was supported by substantial, reliable, and probative evidence as required by A.R.S. § 41-1092.07.
Reasonableness of Rule
The ALJ reaffirmed that the unequal access to the monument sign was not “unreasonable discrimination” given the objective differences in building locations.
Sign Modification
The Association argued that modifying the sign would require rescinding previous approvals granted to other businesses, a position the ALJ did not find unreasonable.
Final Conclusion
The Administrative Law Judge dismissed the petition in both the original hearing and the rehearing. The final order, dated June 3, 2021, is binding. The Association’s rule limiting monument sign access to Building B was upheld as a reasonable exercise of Board authority, and the Petitioner failed to meet the burden of proof regarding violations of Arizona’s open meeting laws.
Study Guide: Keith D. Smith vs. Sierra Foothills Condominium Association
This study guide examines the administrative proceedings and legal conclusions regarding the dispute between Keith D. Smith and the Sierra Foothills Condominium Association. The guide covers the original hearing (October 26, 2020) and the subsequent rehearing (March 21, 2021), focusing on the interpretation of CC&Rs, open meeting laws, and the standards of evidence in administrative hearings.
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Part I: Short-Answer Quiz
Instructions: Answer the following questions in two to three sentences based on the provided source context.
1. What were the two primary issues the Petitioner was permitted to raise during the hearings?
2. Why did the Association Board decide to limit the use of the monument sign specifically to owners of units in Building B?
3. What was the Petitioner’s argument regarding his “undivided interest” in the common elements of the condominium?
4. How did the Administrative Law Judge (ALJ) interpret the scope of CC&R section 6.26(a)?
5. What specific evidence did the Petitioner provide to support his allegation that Board members had communicated via email prior to the June 10, 2020, meeting?
6. How did the testimony of Stuart Rayburn and Harold Bordelon contradict the Petitioner’s claim regarding the lack of discussion at the June 10 meeting?
7. What were the two physical alterations to the monument sign suggested by the Petitioner to allow for more advertising space?
8. Why did the ALJ refuse to consider certain City of Phoenix zoning ordinance arguments and new email evidence during the rehearing?
9. According to the “Conclusions of Law,” what is the definition of a “preponderance of the evidence”?
10. What is the final recourse for a party wishing to appeal the order issued following the rehearing?
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Part II: Answer Key
1. The Petitioner was limited to whether the Association violated CC&R section 7.1(C) regarding the Board’s authority to make rules for the monument sign and whether the Association violated open meeting laws under ARIZ. REV. STAT. section 33-1248. These limitations were enforced because the Petitioner only paid the required fees for a two-issue hearing.
2. The Board limited the sign to Building B because the monument sign has space for only five businesses, and unlike Building A, Building B does not have street frontage for advertising. Building A owners have the option to hang signs on their own building walls, a utility not available to Building B owners under city ordinances.
3. The Petitioner argued that his deed grants him an undivided interest in the common elements, which he interpreted to mean that no owner should have exclusive use of the monument sign. He contended that the Association’s common elements cannot be partitioned and that all owners should have access to the advertising space.
4. The ALJ ruled that section 6.26(a), which prohibits disparate treatment of owners, is expressly limited to the occupancy and use restrictions contained within Article 6. Because the rule in question was adopted under the authority of Article 7, the non-discrimination requirements of 6.26(a) did not apply.
5. The Petitioner admitted during the hearing that he had no emails or physical evidence to support his allegation of prior communication among Board members. He relied on the reasoning that because the President called for a vote immediately, they must have “obviously” reached a decision beforehand.
6. The Association’s witnesses provided credible testimony that a protracted discussion took place before the vote, lasting approximately 90 minutes. They noted that the Petitioner himself spoke for twenty minutes and that research on city ordinances and governing documents was presented before the board took action.
7. The Petitioner proposed either reducing the size of existing signs by one-half to create more slots—which he offered to pay for—or increasing the overall size of the monument sign. The Association resisted these plans, arguing they would require rescinding prior approvals and might not meet city codes.
8. The ALJ excluded this information because administrative findings must be based exclusively on evidence and issues raised in the original petition. New evidence or legal theories (such as ARIZ. REV. STAT. section 33-1217) not presented at the original hearing cannot be introduced during a rehearing.
9. A “preponderance of the evidence” is defined as the greater weight of the evidence that possesses the most convincing force. It is evidence sufficient to incline a fair and impartial mind toward one side of an issue rather than the other, even if it does not eliminate all reasonable doubt.
10. The order following a rehearing is binding; however, a party may seek judicial review as prescribed by ARIZ. REV. STAT. Title 12, Chapter 7, Article 6. This appeal must be filed with the superior court within thirty-five days from the date the order was served.
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Part III: Essay Questions
Instructions: Use the provided documents to develop comprehensive responses to the following prompts.
1. The Balance of Equity in Association Governance: Discuss how the Board justified a rule that seemingly treats Building A and Building B owners differently. In your answer, evaluate the ALJ’s conclusion that this “discrimination” was not unreasonable given the physical layout of the property.
2. Statutory Interpretation of CC&Rs: Analyze the conflict between reading the CC&Rs as a “continuous document” versus the ALJ’s strict adherence to the express terms of specific sections (Article 6 vs. Article 7). How does the wording “subject to the provisions of this Declaration” in section 7.1(c) impact this interpretation?
3. Procedural Rigidity in Administrative Hearings: Explain the impact of the Petitioner’s decision to only pay for two issues. How did this choice limit his ability to introduce alternative legal arguments, such as the non-partition of common elements or additional open meeting law violations?
4. The Role of Testimony vs. Allegation: Compare the Petitioner’s reliance on “rhetorical questions” and “obvious” conclusions with the Respondent’s use of witness testimony. How does this case demonstrate the burden of proof required to establish a violation of ARIZ. REV. STAT. section 33-1248?
5. Impact of Local Ordinances on Private Governance: Assess how the City of Phoenix Zoning Ordinance (Section 705) and Sign Code influenced the Board’s policy and the ALJ’s final decision. Why was the distinction between “contiguous” signage and “flexible” placement critical to the reasonableness of the Association’s rule?
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Part IV: Glossary of Key Terms
Definition
Administrative Law Judge (ALJ)
A presiding officer who conducts hearings and issues decisions on disputes involving state agency regulations or statutes.
ARIZ. REV. STAT. section 33-1248
The Arizona state statute governing open meeting laws for condominiums, requiring transparency in Board deliberations.
Covenants, Conditions, and Restrictions; the governing documents that dictate the rules and operations of a common interest development.
Common Elements
Portions of a condominium project other than the individual units, managed by the Association and intended for common use.
Monument Sign
A ground-level sign, typically located near a property entrance, used to identify the businesses or residents within a complex.
Partition
The act of dividing a property into separate parts or to sever the unity of possession; in this context, the Petitioner argued common elements cannot be partitioned.
Preponderance of the Evidence
The legal standard of proof in civil and administrative cases, meaning the evidence on one side is more convincing than the other.
Rehearing
A second consideration of a case, usually based on specific grounds such as an irregularity in the original proceeding or an error of law.
Respondent
The party against whom a petition is filed; in this case, the Sierra Foothills Condominium Association.
Substantial Evidence
Evidence that a reasonable mind might accept as adequate to support a conclusion; a requirement for the validity of an ALJ decision.
Undivided Interest
The legal right of each owner to use the whole of the common property, rather than a specific, physically divided portion.
The Monument Sign Mystery: 4 Surprising Lessons in HOA Power and “Reasonable” Fairness
1. Introduction: The Paradox of Undivided Interest
In the world of commercial real estate, few phrases carry as much weight—or cause as much confusion—as “undivided interest.” When Keith D. Smith purchased a unit in the Sierra Foothills Condominium Association, his deed granted him an interest in the common elements. To many owners, this implies a fundamental right to equal use of every square inch of the property, including high-visibility signage.
However, a recent dispute between Mr. Smith and his Association highlights a complex legal paradox: an owner can have an undivided interest in a common element while being legally barred from using it. The conflict arose when the Board restricted a five-space monument sign to a specific subset of owners, sparking a claim of “unreasonable discrimination.”
Does fairness require a Board to grant every owner a “slice of the pie,” or can they prioritize certain owners for the functional benefit of the whole? The ruling in this case provides a masterclass in how administrative courts define “reasonableness” and “fairness” within a shared property.
2. Takeaway 1: When Equality Isn’t “Reasonable”
At first glance, the Association’s rule seemed blatantly unfair. The Board enacted a policy that limited the use of the monument sign exclusively to owners in Building B, completely barring Building A owners like Mr. Smith.
However, the Administrative Law Judge (ALJ) looked beyond the surface-level exclusion to the “functional reality” of the property. Building A enjoys direct street frontage, allowing its owners to hang signs directly on their building. Building B, situated behind Building A, has no such visibility.
The “legal knot” that sealed the decision was a City of Phoenix Zoning Ordinance. While Building A owners had their own signage options, the ordinance prohibited Building B owners from hanging signs on Building A—the only building visible from the street. Because Building B owners were effectively invisible without the monument sign, the Board’s “discrimination” was deemed a logical, functional necessity rather than an arbitrary act.
CC&R section 7.1(c) grants the Board broad authority to manage common areas:
The Board … subject to the provisions of this Declaration, may adopt, amend and repeal Rules and Regulations. The Rules and Regulations may … restrict and govern the use of any area by any Owner or Occupant…; provided however that the Rules and Regulations shall not unreasonably discriminate among Owners and Occupants.
Because the rule addressed a specific geographical disadvantage, the court found the Board’s decision was reasonable and consistent with its governing authority.
3. Takeaway 2: The “Fine Print” Trap of Article Silos
Mr. Smith argued that the sign rule violated CC&R section 6.26(a), which requires that use restrictions be “applicable to all Occupants.” It is a compelling argument for any property owner: if the rules say everyone must be treated the same, how can the Board pick favorites?
The legal reality, however, comes down to the structural logic of the CC&Rs—what we might call “Article Silos.” The ALJ pointed out that the “equality clause” Mr. Smith cited was explicitly limited to the confines of Article 6 (Occupancy and Use). The Board, however, enacted the sign rule under the powers granted in Article 7 (Association Powers).
In legal interpretation, the specific placement of a rule dictates its reach. The decision emphasized this “smoking gun” phrasing:
…although CC&R section 6.26 does prohibit disparate treatment of Owners, by its express terms, CC&R section 6.26 applies only to CC&R Article 6, and not Article 7.
This serves as a critical warning for property professionals: a protection in one article of a governing document does not necessarily limit the powers granted in another.
4. Takeaway 3: The Burden of Proof and the “Pre-Meeting” Myth
Property owners often suspect that by the time a public meeting begins, the “real” decision has already been made in secret. Mr. Smith alleged that the Board violated Arizona’s Open Meeting Law (A.R.S. § 33-1248) by reaching a consensus via email before the official vote on June 10, 2020.
His evidence was purely circumstantial; he posed a rhetorical question asking how the Board could call for a vote so quickly if they hadn’t already decided. The court, however, requires “substantial evidence” to overturn a Board action.
Testimony revealed that the meeting was far from a “rubber stamp” event. It involved a “protracted” discussion lasting an hour and a half, during which Mr. Smith himself was allowed to speak for 20 minutes. The ALJ applied the standard of the “Preponderance of the Evidence,” which favors the side with the most convincing weight of facts:
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.
5. Takeaway 4: The “Pay-to-Play” Reality of Administrative Hearings
The final lesson is a procedural one that every petitioner must understand: administrative law is a “one-shot” game governed by fees and strict paperwork.
When Mr. Smith filed his petition with the Department of Real Estate, he paid the fee for a two-issue hearing. Consequently, when he attempted to raise a new legal argument during his rehearing—citing A.R.S. § 33-1217 regarding the partition of common elements—the court flatly rejected it. Because the issue wasn’t in the original petition and he hadn’t paid for it to be heard, it simply didn’t exist in the eyes of the court.
The same “closed-door” policy applied to new evidence. During the rehearing, Mr. Smith claimed he finally had an email to prove the Board’s secret communications. The court refused to look at it, noting that because it wasn’t presented at the original hearing, it could not be considered later. In these proceedings, you must bring every issue and every piece of evidence to the table at the very beginning; there are no “add-ons” in the middle of the process.
6. Conclusion: A New Perspective on Common Ground
The dismissal of all claims against the Sierra Foothills Condominium Association clarifies that “common elements” are not always equally shared in practice. Instead, they are managed for the functional benefit of the whole community. In this instance, providing visibility to the “hidden” units in Building B was a reasonable use of limited space, even if it meant Building A owners had to rely on their own street frontage.
This case leaves property owners with a challenging question: If your “undivided interest” doesn’t guarantee you a spot on the sign, what exactly are you entitled to? The answer is rarely found in the spirit of “fairness,” but rather in the specific, siloed mechanics of your Association’s CC&Rs.
Case Participants
Petitioner Side
- Keith D Smith (petitioner)
Respondent Side
- Sierra Foothills Condominium Association (respondent)
- Stuart Rayburn (president)
Sierra Foothills Condominium Association
Appeared for Respondent - Harold Bordelon (witness)
Testified for the Association
Neutral Parties
- Thomas Shedden (ALJ)
- Judy Lowe (Commissioner)
Arizona Department of Real Estate
Other Participants
- LDettorre (staff)
Arizona Department of Real Estate - AHansen (staff)
Arizona Department of Real Estate - djones (staff)
Arizona Department of Real Estate - DGardner (staff)
Arizona Department of Real Estate - ncano (staff)
Arizona Department of Real Estate
