Briefing Document: Analysis of Administrative Law Judge Decision in Biondi v. Lakeshore at Andersen Springs HOA

Executive Summary

This document synthesizes the key findings of the Administrative Law Judge (ALJ) Decision in Case No. 18F-H1818048-REL, involving Petitioner Peter Biondi, Jr., and Respondent Lakeshore at Andersen Springs Homeowners Association (HOA). The ALJ ultimately denied the petition, concluding that the HOA’s actions were legally sound.

The core of the dispute centered on the decision by the HOA’s sole remaining director, Bonnie Henden, to reinstate two board members, Jim Luzzis and Jerry Dubasquier, who had been removed by their fellow directors for alleged violations of the association’s Covenants, Conditions, and Restrictions (CC&Rs). The petitioner argued that Ms. Henden’s refusal to defend the Board’s removal action in a subsequent legal challenge constituted a violation of the HOA’s governing documents and state law.

The ALJ’s decision rested on a critical legal principle: the supremacy of Arizona state law over an association’s internal bylaws. The dispositive finding was that the initial removal of Messrs. Luzzis and Dubasquier by their fellow board members was legally improper. Under Arizona Revised Statute (A.R.S.) § 33-1243, the power to remove a director is reserved exclusively for the association’s unit owners through a formal petition and voting process; a board of directors cannot remove its own members.

Consequently, Ms. Henden’s decision not to defend an indefensible action was deemed a prudent and permissible business judgment. Relying on legal advice from three separate attorneys and the permissive language of A.R.S. § 33-1242, which does not mandate a defense in litigation, her actions were found to have correctly avoided wasting the association’s funds on a legal case it was certain to lose.

Case Overview

• Case Name: Peter Biondi, Jr., vs. Lakeshore at Andersen Springs Homeowners Association

• Case Number: 18F-H1818048-REL

• Adjudicating Body: Office of Administrative Hearings, State of Arizona

• Presiding Judge: Administrative Law Judge Diane Mihalsky

• Date of Decision: August 21, 2018

Summary of Petition

On May 9, 2018, Petitioner Peter Biondi, Jr., a member of the Lakeshore at Andersen Springs HOA, filed a petition alleging that the HOA violated state statutes (A.R.S. §§ 33-1242 and 33-1243) and its own Bylaws and CC&Rs. The alleged violation occurred when the Board’s sole remaining member, Bonnie Henden, refused to defend the HOA against a petition filed by two former directors, Jim Luzzis and Jerry Dubasquier, who were contesting their removal from the Board. Instead of defending the removal, Ms. Henden reinstated them.

Background and Sequence of Events

1. Initial Complaint: Prior to January 2018, complaints were made that two serving directors, Jim Luzzis and Jerry Dubasquier, were violating Section 8.13 of the CC&Rs by renting their units as short-term Vacation Rental By Owner (“VRBOs”). This section mandates a minimum lease period of six months.

2. Board Action and Removal: The Board concluded that the two directors had violated the CC&Rs. At a contentious executive session on January 4, 2018, a majority of the five other directors voted to remove or disqualify Messrs. Luzzis and Dubasquier from their positions on the Board.

3. Legal Challenge: Messrs. Luzzis and Dubasquier filed a complaint with the Arizona Department of Real Estate to protest their removal.

4. Board Collapse: Following the removal, the Board’s composition changed dramatically. The petitioner and another director, Jeffrey Washburn, resigned “to restore calm in the community.” A third director was removed or resigned for non-payment of assessments. By March or April 2018, this series of departures left Bonnie Henden as the sole remaining director.

5. Henden’s Legal Consultation: As the sole director, Ms. Henden consulted the HOA’s attorney regarding the petition filed by Luzzis and Dubasquier. After this attorney learned that other board members had also potentially used their units as short-term rentals, he withdrew from representing the HOA. Ms. Henden subsequently retained new counsel and consulted a total of three different attorneys.

6. Decision Not to Defend: Based on the legal advice she received, Ms. Henden chose not to file an answer on behalf of the HOA to the petition filed by Luzzis and Dubasquier.

7. Reinstatement of Directors: The Department of Real Estate issued a decision in favor of Messrs. Luzzis and Dubasquier, ordering the HOA to pay their filing fee. Ms. Henden then officially reinstated them to the Board to complete their elected terms and cancelled the election that had been scheduled to choose their successors.

Dispositive Legal Analysis and Key Findings

The ALJ determined that the central issue was not the factual question of whether the directors had violated the CC&Rs, but the overriding legal question of whether the Board had the authority to remove them.

“The dispositive issue is not the factual issue of whether Messrs. Luzzis and Dubasquier violated CC&R Section 8.13 by using their units as short-term VRBOs, but the legal issue of whether the other directors on Respondent’s Board properly removed them from the Board…”

Supremacy of State Statute over Association Bylaws

The case highlighted a direct conflict between the HOA’s governing documents and Arizona state law. While the HOA’s bylaws suggested the Board could deem a director ineligible for violating governing documents, this provision was rendered void by state statute.

• A.R.S. § 33-1243 (Director Removal): This statute was the cornerstone of the ALJ’s decision. Its provisions unequivocally establish the process for director removal:

◦ Subsection (B): Explicitly prohibits a board of directors from acting on behalf of the association to “determine the qualifications, powers and duties or terms of office of board of directors members.”

◦ Subsection (H): States that its provisions apply “notwithstanding any provision of the declaration or bylaws to the contrary.” It specifies that only “unit owners who are eligible to vote” may remove a board member, and only by a “majority vote of those voting on the matter at a meeting of the unit owners.” It further details a petition process required to call such a special meeting.

• ALJ Conclusion on Removal: The Board’s action to remove Messrs. Luzzis and Dubasquier was a direct violation of A.R.S. § 33-1243. The Board did not follow the specific and unequivocal statutory requirements, which mandate that only the members who elected a director can remove that director. As such, the HOA “lacked any good legal defense to Messrs. Luzzis and Dubasquier’s challenge to their removal.”

Validation of Henden’s Actions

The ALJ found Ms. Henden’s decision not to defend the HOA was legally justified and prudent.

• A.R.S. § 33-1242 (Duty to Defend): This statute governs the powers of an association. It states that an association “may… defend or intervene in litigation or administrative proceedings.” The ALJ focused on the word “may,” interpreting it according to established legal precedent.

• Permissive, Not Mandatory: The use of “may” indicates permissive intent. Therefore, Ms. Henden was not statutorily required to contest the petition filed by Luzzis and Dubasquier.

• Prudent Business Judgment: Having consulted three attorneys who advised her that the HOA would likely not prevail due to the clear language of A.R.S. § 33-1243, her decision was deemed a reasonable measure to protect the association from incurring unnecessary legal fees for a losing cause. The judge noted:

“No statute requires a condominium association or a director to take an ill-advised act or to mount a defense of a previously taken ill-advised act that likely will fail on its merits.”

Final Order and Conclusion

Based on the finding that the original removal of the directors was illegal and that the subsequent decision not to defend the action was permissible, the judge issued a final, binding order.

IT IS ORDERED that Petitioner’s petition is denied.

The ultimate conclusion of this case establishes a critical precedent for HOA governance in Arizona: a condominium association’s Board of Directors has no authority to remove its own members. That power is reserved exclusively for the unit owners through a specific, statutorily defined process. Any attempt by a board to circumvent this process is legally invalid, and an officer’s decision to avoid defending such an improper action in court is a justifiable exercise of their duties.