Administrative Law Decision Briefing: Brown and Stevens vs. Mogollon Airpark, Inc.

Executive Summary

This document provides a detailed analysis of the Administrative Law Judge (ALJ) Decision from October 18, 2018, concerning three consolidated petitions filed by homeowners Warren R. Brown and Brad W. Stevens against their homeowners’ association (HOA), Mogollon Airpark, Inc. The core of the dispute centers on Mogollon’s 2018 financial actions, specifically a 39.4% increase in total annual assessments and the imposition of new late payment penalties.

The case produced a split decision. The ALJ ruled in favor of Mogollon Airpark on the primary issue of the assessment increase. The judge determined that the statutory 20% cap on annual increases, as defined in ARIZ. REV. STAT. § 33-1803(A), applies exclusively to “regular assessments” and not to “special assessments.” Mogollon had structured its $325 increase as a combination of a compliant 14.1% regular assessment hike and a separate $209 special assessment, a practice the ALJ found permissible under the law.

Conversely, the ALJ ruled in favor of Petitioner Brown regarding the HOA’s $25 late fee. The judge found this fee to be in direct violation of § 33-1803(A), which limits such charges to “the greater of fifteen dollars or ten percent of the amount of the unpaid assessment.” The ALJ’s rationale was that this statutory limit applies to all “assessments” without qualification, not just regular ones.

While the hearing was limited to these specific statutory violations, the petitions were underpinned by serious allegations from Brown and Stevens of deceptive accounting practices and financial mismanagement by Mogollon’s leadership, intended to create a “fabricated shortfall” to justify the fee increases. These underlying allegations were not substantively addressed in the hearing.

Case Overview

This consolidated matter combines three separate petitions heard before the Arizona Office of Administrative Hearings. The hearing was conducted on September 28, 2018, with Thomas Shedden serving as the Administrative Law Judge.

• Petitioners: Warren R. Brown and Brad W. Stevens.

• Respondent: Mogollon Airpark, Inc.

• Docket Numbers:

◦ 18F-H1818029-REL-RHG (“029 matter”), Petitioner: Warren R. Brown

◦ 18F-H1818045-REL (“045 matter”), Petitioner: Warren R. Brown

◦ 18F-H1818054-REL (“054 matter”), Petitioner: Brad W. Stevens

Core Issues Contested

The dispute arose from Mogollon Airpark’s 2018 decision to increase assessments and institute new fees for late payments and past-due accounts.

1. The 2018 Assessment Increase

The central conflict involved the legality of a significant increase in annual homeowner assessments.

• Financial Details:

◦ Previous Year’s Assessment (2017): $825

◦ 2018 Total Increase: $325

◦ Total Percentage Increase: 39.4%

• Mogollon’s Breakdown of the Increase:

◦ Regular Assessment Increase: $116 (a 14.1% increase over $825)

◦ Special Assessment: $209

Argument on the Assessment Increase

Petitioners (Brown & Stevens)

Argued that the entire $325 increase constituted a single assessment action. Because the 39.4% increase exceeded the 20% annual cap stipulated in ARIZ. REV. STAT. § 33-1803(A), it was unlawful. They contended that the term “regular assessment” in the statute refers to the process by which an assessment is created (i.e., by motion, second, and vote), not a specific type of assessment. They further alleged that Mogollon’s governing documents provided no authority to levy a “special assessment.”

Respondent (Mogollon Airpark, Inc.)

Asserted that § 33-1803(A) applies only to “regular assessments.” They argued that their regular assessment increase of $116 (14.1%) was well within the 20% limit. The $209 portion was a “special assessment,” which they described as a “term of art in the industry” not subject to the 20% cap. They cited the use of the term “special assessment” in another statute, § 33-1806, as evidence of legislative intent to differentiate between assessment types.

2. Late Payment Charges

Petitioner Brown separately challenged the legality of newly instituted penalties for late payments.

• Charges Implemented by Mogollon:

◦ A flat $25 fee for late payments.

◦ 18% interest on past-due accounts.

• Petitioner’s Argument (Brown): The $25 late fee violated the plain language of § 33-1803(A), which explicitly limits late payment charges to “the greater of fifteen dollars or ten percent of the amount of the unpaid assessment.” Brown provided an invoice showing he was charged a $25 late fee and $1.57 in interest.

• Respondent’s Argument (Mogollon): The HOA argued that the statutory limits on late fees did not apply in this case because the fee was charged on a special assessment, which they contended was outside the scope of § 33-1803(A).

Underlying Allegations of Financial Misconduct

Although the hearing was limited to the narrow legal questions above, the petitioners’ filings contained extensive allegations of financial impropriety against Mogollon’s treasurer and board. These claims formed the motive for the contested assessments.

• Core Allegation: The petitioners asserted that the HOA leadership engaged in “numerous accounting improprieties” and used “deceptive and nonstandard accounting methods, including keeping two sets of books.”

• Alleged Purpose: The goal was to create a “fabricated shortfall” and present an “inaccurate picture of the HOA finances.” This was done, according to Mr. Brown, “ostensibly to show that the 2016 board of directors left office showing a loss of funds,” when in fact they had improved the treasury by approximately $200,000.

• Justification for Increase: This artificially created financial need was then used “to convince the Board that a 39.4% increase in dues was required.”

• Evidence and Testimony: Mr. Stevens submitted a 45-page petition with over 600 pages of exhibits detailing the alleged accounting practices. He testified that Mogollon possessed over $1 million and did not need an assessment increase. He also stated his belief that the $209 special assessment was a “trial run” for future assessments for purposes not authorized by the governing documents.

• ALJ’s Position: The judge noted these underlying allegations but stated, “the substance of their allegations was not addressed in this hearing.” A footnote suggested that “the civil courts may be better suited than an administrative tribunal to address the issues they raise.”

Administrative Law Judge’s Decision and Rationale

The ALJ issued a split decision, ruling for the Respondent on the assessment increase and for the Petitioner on the late fee. The decision was based on established principles of statutory construction.

Legal Principles Applied

• Burden of Proof: Placed on Petitioners Brown and Stevens to prove their allegations by a preponderance of the evidence.

• Statutory Construction:

1. Statutes must be interpreted to yield a “fair and sensible result” and avoid “absurd and unreasonable construction.”

2. Every word and phrase in a statute must be given meaning so that no part is “void, inert, redundant, or trivial.”

3. When a term is used in one part of a statute but omitted in another, it should not be read into the section where it is absent.

Conclusion on the Assessment Increase (Matters 029 & 054)

• Verdict: The petitions of Mr. Brown and Mr. Stevens were dismissed. Mogollon Airpark, Inc. was deemed the prevailing party.

• Rationale: The ALJ rejected the petitioners’ definition of “regular assessment.” The judge reasoned that if “regular” simply meant passed by a regular process (motion, second, vote), then the word would be meaningless (“trivial or void”), as all assessments are assumed to follow that process. This would violate a core principle of statutory construction. Therefore, the legislature must have intended “regular assessment” to be a specific type of assessment, distinct from others like “special assessments.” Because the 20% cap in § 33-1803(A) explicitly applies only to regular assessments, Mogollon’s $209 special assessment was not subject to that limit.

Conclusion on the Late Fee (Matter 045)

• Verdict: Petitioner Warren R. Brown was deemed the prevailing party.

• Rationale: The ALJ found that the statutory clause limiting late fees applies to “assessments” in general, not specifically to “regular assessments.” The legislature’s omission of the word “regular” in this part of the statute was deliberate. Mogollon’s argument that the limit only applied to regular assessments required reading a word into the statute that was not there, which “violates principles of statutory construction.” The $25 fee clearly exceeded the allowable limit.

Final Orders

The ALJ issued separate orders for each consolidated docket, reflecting the split decision.

Docket Number

Petitioner

Primary Issue

Outcome

18F-H1818029-REL-RHG

Warren R. Brown

Assessment Increase

Petition Dismissed. Mogollon deemed prevailing party.

18F-H1818054-REL

Brad W. Stevens

Assessment Increase

Petition Dismissed. Mogollon deemed prevailing party.

18F-H1818045-REL

Warren R. Brown

Late Fee Charge

Petitioner Deemed Prevailing Party. Mogollon ordered to rescind the $25 late fee and pay Mr. Brown’s $500 filing fee.