Tag Archives: Ariz. Rev. Stat. section 33-1248

Smith v. Sierra Foothills Condominium Association: A Briefing on the Monument Sign Dispute

Executive Summary

This briefing document synthesizes two Administrative Law Judge (ALJ) decisions concerning a dispute between Keith D. Smith, a commercial condominium unit owner, and the Sierra Foothills Condominium Association. The core of the dispute is a rule enacted by the Association on June 10, 2020, which restricts the use of a common element monument sign exclusively to unit owners in one of the property’s two buildings.

Mr. Smith filed a petition alleging two primary violations:

1. Unreasonable Discrimination: The sign rule violated the Association’s Covenants, Conditions, and Restrictions (CC&Rs) by unfairly discriminating against owners in his building.

2. Open Meeting Law Violation: The Association’s Board violated state open meeting laws by allegedly deciding on the rule via email before the public meeting and calling for a vote without discussion.

The Administrative Law Judge dismissed Mr. Smith’s petition in an initial decision on November 16, 2020, and again after a rehearing in a final decision on June 3, 2021. The judge concluded that Mr. Smith failed to meet his burden of proof on both claims. The sign rule was deemed a reasonable measure to address the differing visibility and street frontage of the two buildings. The allegation of an open meeting law violation was dismissed due to a lack of substantial evidence from the petitioner and credible contradictory testimony from the Association’s representatives.

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Case Overview

This matter was adjudicated by the Office of Administrative Hearings for the Arizona Department of Real Estate. The case involves a petition filed by a unit owner against his condominium association regarding rules governing common elements.

Detail

Description

Case Numbers

21F-H2120003-REL (Original)
21F-H2120003-REL-RHG (Rehearing)

Petitioner

Keith D. Smith (Owner in Building A)

Respondent

Sierra Foothills Condominium Association

Presiding Judge

Administrative Law Judge Thomas Shedden

Key Dates

July 24, 2020: Petition filed by Keith D. Smith.
October 26, 2020: Original hearing conducted.
November 16, 2020: Initial decision issued, dismissing the petition.
June 3, 2021: Rehearing decision issued, reaffirming dismissal.

Central Issues and Allegations

The dispute centered on a monument sign with space for only five businesses at a commercial condominium property consisting of two buildings, Building A and Building B.

1. The Monument Sign Rule (CC&R Violation)

At a meeting on June 10, 2020, the Association’s Board adopted a rule limiting the use of the monument sign to unit owners in Building B. Mr. Smith, an owner in Building A, alleged this violated the Association’s governing documents.

• Petitioner’s Allegations:

◦ The rule violates CC&R Section 7.1(C), which states that rules “shall not unreasonably discriminate among Owners and Occupants.”

◦ The rule violates the principle of CC&R Section 6.26(a), which requires use restrictions within Article 6 of the CC&Rs to be applicable to all occupants.

◦ As an owner, Mr. Smith holds an undivided interest in the common elements, meaning no owner should have exclusive use of the sign. He argued the rule amounted to an improper “partition” of a common element.

• Respondent’s Position:

◦ The rule is reasonable and non-discriminatory because it addresses a fundamental inequity in property layout: Building A has street frontage for signage, while Building B does not.

◦ The limited space on the monument sign (five slots) necessitates a managed approach to its use.

◦ While initially questioning if the sign was a common element, the Association waived this argument by acknowledging it as such in its official answer.

2. The June 10, 2020 Board Meeting (Open Meeting Law Violation)

Mr. Smith alleged that the Board’s conduct during the meeting at which the rule was passed violated Arizona’s open meeting law, specifically ARIZ. REV. STAT. section 33-1248.

• Petitioner’s Allegations:

◦ The Association’s president called for a vote on the new rule “without discussion,” implying a decision had already been made.

◦ Mr. Smith asserted that Board members must have “Obviously communicated with each other via email and reached their decision without ever hearing my argument.”

• Respondent’s Position:

◦ Association President Stuart Rayburn and witness Harold Bordelon provided “credible testimony” that a “protracted discussion lasting about an hour and a half” occurred before the vote.

◦ They testified that Mr. Smith himself spoke for approximately twenty minutes during this discussion.

Evidence and Proposed Solutions

• Petitioner’s Evidence: Mr. Smith testified on his own behalf and submitted an email from the City of Phoenix regarding signage rules. He also presented two estimates for altering the monument sign to accommodate more businesses—one by reducing the size of existing signs (which he offered to fund) and another by enlarging the monument itself.

• Respondent’s Evidence: The Association presented testimony from its president, Stuart Rayburn, and Harold Bordelon. They submitted Section 705 of the City of Phoenix’s Zoning Ordinance, which they argued showed flexibility in the sign code. Mr. Bordelon testified that some of Mr. Smith’s proposed alterations to the sign did not comply with the city code.

Administrative Law Judge’s Rulings and Rationale

The ALJ’s decisions in both the original hearing and the rehearing were consistent, leading to the dismissal of Mr. Smith’s petition. The core rationale rested on the petitioner’s failure to meet the required burden of proof.

Original Decision (November 16, 2020)

The initial ruling found decisively in favor of the Association.

• On the CC&R Violation: The ALJ concluded that Mr. Smith did not prove a violation of CC&R Section 7.1(C) for two primary reasons:

1. The rule was not unreasonable, as it rationally addressed the physical disadvantage of Building B, which “does not have street frontage,” compared to Building A, which does.

2. Mr. Smith’s reliance on CC&R Section 6.26(a) was misplaced, as “by its express terms, CC&R section 6.26 applies only to CC&R Article 6, and not Article 7,” where the Board’s authority to make rules resides.

• On the Open Meeting Law Violation: The ALJ found the allegation unsupported.

◦ Mr. Smith “offered no substantial evidence” for his claim of pre-meeting communication.

◦ His testimony that the Board called for a vote “without discussion is proven to be in error” based on credible opposing testimony.

Rehearing Decision (June 3, 2021)

Mr. Smith requested a rehearing on several grounds, including alleged irregularities, errors of law, and claims that the findings were arbitrary or not supported by evidence. The ALJ granted the rehearing but ultimately reaffirmed the original decision.

• Scope of the Rehearing: The judge clarified that the rehearing was limited to the two original issues and could not consider new evidence or allegations not raised in the initial petition.

◦ Evidence that Mr. Smith claimed to have (an email supporting the open meeting violation) was not considered because it was not offered at the original hearing.

◦ Arguments related to new statutes (e.g., ARIZ. REV. STAT. section 33-1217 on partitioning common elements) were dismissed as they were not part of the original petition.

• Reaffirmation of Rulings:

◦ The judge reiterated that CC&R Section 6.26(a) explicitly limits its effect to Article 6. He noted that Mr. Smith himself had argued the CC&Rs “should be read and applied as one continuous document unless the document clearly states otherwise,” which it did in this case.

◦ The conclusion that the sign rule was reasonable was upheld.

◦ The dismissal of the open meeting law claim was reaffirmed, as Mr. Smith still presented no substantial evidence, instead relying on a “rhetorical question” about how a vote could be called without prior communication.

Key Legal Standards Applied

The ALJ’s decisions were guided by specific legal principles and administrative codes.

Standard

Application in the Case

Burden of Proof

The Petitioner, Keith D. Smith, bore the burden to prove his allegations by a “preponderance of the evidence.” The ALJ concluded this standard was not met.

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.”

Substantial Evidence

The standard required for an ALJ’s decision, defined as evidence a “reasonable mind would use to reach a conclusion.”

Scope of Adjudication

The hearing and subsequent decisions were strictly limited to the issues formally raised and paid for in the original petition, pursuant to ARIZ. REV. STAT. § 41-1092.07(F)(6).

Admissibility of Evidence

Evidence not presented at the original hearing cannot be considered in a rehearing, as established by ARIZ. ADMIN. CODE § R2-19-115.

Administrative Hearing Briefing: Carr v. Sunset Plaza Condo Association

Executive Summary

This briefing document analyzes the Administrative Law Judge’s decision in the case of David B. Carr versus the Sunset Plaza Condo Association (Case No. 18F-H1817003-REL). The central conflict involved a petition filed by Mr. Carr, a condominium owner, alleging that the Association’s Board of Management violated Arizona’s open meeting law and engaged in financial mismanagement.

The final ruling was a partial victory for the petitioner. The judge found that Sunset Plaza violated Ariz. Rev. Stat. § 33-1248 by failing to provide members with proper notice of board meetings where decisions were made to hire Kinney Management Services and the Mulcahy Law Firm. The Association admitted to this failure, citing a misunderstanding of the law, and pledged future compliance. As the prevailing party on this specific issue, Mr. Carr was awarded reimbursement for his $500 filing fee.

However, the judge dismissed all of Mr. Carr’s other allegations. The claim that a meeting to hire Osselaer Management Company violated the open meeting law was rejected, as the judge deemed it a valid emergency meeting exempt from notice requirements. Furthermore, Mr. Carr’s claims of financial mismanagement and inaccurate record-keeping in violation of the Association’s bylaws were not substantiated. The judge accepted the Association’s defense that alleged financial discrepancies stemmed from a change in accounting practices by a new management company, not from an actual deficit. No civil penalty was imposed on the Association.

I. Case Overview

• Case Number: 18F-H1817003-REL

• Forum: Office of Administrative Hearings, Phoenix, Arizona

• Petitioner: David B. Carr

• Respondent: Sunset Plaza Condo Association

• Administrative Law Judge: Velva Moses-Thompson

• Hearing Date: November 21, 2017

• Decision Date: November 22, 2017

• Core Dispute: A petition filed by a condo owner alleging the association’s board violated state statutes and its own bylaws concerning open meetings, financial record-keeping, and the execution of contracts.

II. Petitioner’s Allegations (David B. Carr)

On August 14, 2017, Mr. Carr filed a petition outlining two primary grievances against the Sunset Plaza Condo Association.

A. Violation of Open Meeting Law (Ariz. Rev. Stat. § 33-1248)

Mr. Carr alleged that the Association’s Board of Management took official action without holding properly authorized and noticed board meetings. This resulted in unapproved contracts and expenditures.

Direct Quotation from Petition:

“SUNSET PLAZA CONDOMINIUM ASSOCIATION BOARD OF MANAGEMENT TAKES ACTION WITHOUT HOLDING AUTHORIZED BOARD MEETING IN VIOLATION OF AZ STATUTE 33-1248. THESE UNAUTHORIZED MEETINGS HAVE RESULTED IN CONTRACTS WITH MANAGEMENT FIRMS AND ATTORNEYS. THESE CONTRACTS HAVE RESULTED IN EXPENSES NOT APPROVED OR REVIEWED BY CONDO OWNERS.”

• Specific Contracts Cited:

◦ Kinney Management (October 2016)

◦ Osselaer Real Estate (September 2016)

◦ Mulcahy Law Firm (May 2016)

• Requested Remedy: Cancellation of all contracts entered into without a properly called board meeting and personal repayment of all related expenditures by the signatory.

B. Violation of Bylaws and Financial Mismanagement (Article XI)

Mr. Carr contended that the Association violated Article XI of its bylaws, which requires it to “keep correct and complete books and records of account.” He identified specific financial discrepancies based on his analysis of the Association’s financial statements.

• Alleged Reserve Fund Discrepancy: Mr. Carr claimed an “unexplained reserve deficit of $10,295.09” based on the following figures, noting there were no reported reserve expenses in 2016.

Financial Statement Item

Amount

2015 Year-End Reserve Equity

$10,295.09

2016 Income Statement Reserve Deposit

$9,180.00

2016 Year-End Balance Sheet Reserve Total

$2,295.44

• Additional Discrepancies:

◦ The 2016 year-end balance sheet failed to identify prior and current year operating equity.

◦ An “expanded 2016 balance sheet” calculation revealed a discrepancy of $2,808.42.

• Requested Remedy: A formal audit of the 2016 and 2017 financial statements and improved future reporting to identify reserve balances and homeowner equity.

III. Respondent’s Defense (Sunset Plaza Condo Association)

The Association, represented by Paige Marks, Esq., and through the testimony of board member Marilyn Gelroth, presented a defense against both allegations.

A. Response to Open Meeting Allegations

• Admission: The Association conceded that it “did not provide notice of its board meetings when it decided to hire Kinney and the Mulcahy firm.”

• Justification: This failure was attributed to the board’s misunderstanding of the open meeting law. The Association represented to the judge that it would abide by the law in the future.

• Emergency Meeting Exemption: The Association argued that the decision to hire Osselaer Management was made at a valid emergency board meeting on September 21, 2016.

◦ Timeline of Events: Kinney Management Services retracted its offer to manage the property on September 15, 2016, after receiving notice of a complaint Mr. Carr had filed against them with the Attorney General’s Office.

◦ Urgency: This retraction created an urgent need for a new management company. Ms. Gelroth testified that the board “needed to move quickly because members needed to know where to send payments.” This situation, they argued, constituted an emergency under the law.

B. Response to Financial Allegations

• Flawed Comparison: The Association contended that Mr. Carr’s financial analysis was fundamentally flawed because he “erroneously compared Sunset Plaza’s 2015 year end balance statement to its 2016 income statement,” which are two different types of financial records.

• Change in Accounting Methods: The primary reason for the apparent discrepancies was a change in how financial data was categorized.

◦ The previous management company, Kolby, separated reserve amounts in its financial statements.

◦ The new management company, Osselaer, “does not separate reserve amounts” and is not required by law to do so. This difference in reporting style accounted for the changes Mr. Carr identified as a deficit.

IV. Administrative Law Judge’s Decision and Rationale

The judge, Velva Moses-Thompson, found Ms. Gelroth’s testimony credible and issued a split decision, upholding one of Mr. Carr’s claims while dismissing the other.

A. Finding on Financial Mismanagement Allegation

Conclusion: Petition Dismissed The judge ruled that Mr. Carr “failed to establish by a preponderance of the evidence that Sunset Plaza violated Article XI of Sunset Plaza’s Bylaws.” The Association’s explanation regarding the different accounting methods used by Kolby and Osselaer, and the flawed comparison of financial documents, was accepted as a valid defense.

B. Finding on Open Meeting Law Allegations

Conclusion: Partial Violation Confirmed

• Hiring of Osselaer Management (No Violation): The judge concluded that Sunset Plaza did not violate Ariz. Rev. Stat. § 33-1248 in this instance. The decision was made at a legitimate emergency board meeting, which exempts the board from the 48-hour notice requirement. The minutes of the meeting stated the reason for the emergency.

• Hiring of Kinney Management and Mulcahy Law Firm (Violation Confirmed): The judge found that Mr. Carr “established by preponderance of the evidence that Sunset Plaza violated Ariz. Rev. Stat. 33-1248” when it decided to hire these two firms. The Association did not dispute that it failed to inform members of these board meetings, which was a key factor in the ruling.

C. Final Order

Based on the findings and conclusions of law, the judge issued the following order:

1. Prevailing Party: Petitioner David B. Carr is deemed the prevailing party solely with regard to the violation of Ariz. Rev. Stat. § 33-1248.

2. Reimbursement: Sunset Plaza is ordered to pay Mr. Carr his filing fee of $500.00 within thirty (30) days of the order.

3. Dismissal: All other aspects of Mr. Carr’s petition are dismissed.

4. Penalty: No Civil Penalty is found to be appropriate in the matter.