Briefing Document: Janicek v. Sycamore Vista No. 8 Homeowners Association

Executive Summary

This document synthesizes the findings from the Administrative Law Judge (ALJ) Decision in case number 19F-H1918001-REL-RHG, concerning a dispute between homeowner Jay Janicek (“Petitioner”) and the Sycamore Vista No. 8 Homeowners Association (“Respondent”). The central conflict revolved around the HOA Board of Directors’ unilateral amendment of the Association’s Bylaws on November 20, 2017, without a vote of the general membership.

The ALJ ruled decisively in favor of the Petitioner, invalidating the Board’s amendment. The decision hinged on the interpretation of the word “members” in Article XIII of the Bylaws, which governs amendments. The ALJ concluded that “members” unambiguously refers to the homeowners who constitute the Association, not the members of the Board of Directors. Consequently, the Board’s action was found to be outside its authority as defined in the governing documents.

Furthermore, the ALJ determined that the Board’s action violated Arizona’s Open Meeting Law, specifically ARIZ. REV. STAT. § 33-1804(B), because the required notice for a proposed bylaw amendment was not provided to the Association’s membership. The Respondent’s arguments were found to be unpersuasive. As a result of the ruling, the amendment was nullified, and the HOA was ordered to pay the Petitioner’s filing fee and a civil penalty of $250.

1. Case Overview

• Case Number: 19F-H1918001-REL-RHG

• Petitioner: Jay Janicek, a property owner and member of the Association.

• Respondent: Sycamore Vista No. 8 Homeowners Association (“the Association”).

• Presiding Judge: Administrative Law Judge Jenna Clark.

• Central Issue: “Whether Sycamore Vista No. 8 Homeowners Association (Respondent) violated Association Bylaws Article III, Sections 3 & 4 and Article VIII, Section 1 in an action taken by the board on November 20, 2017.”

2. Procedural History and Timeline

• July 25, 2018: Petitioner Jay Janicek filed a petition with the Arizona Department of Real Estate.

• September 5, 2018: An initial evidentiary hearing was held at the Office of Administrative Hearings (OAH).

• September 25, 2018: The OAH issued an initial ALJ Decision in favor of the Petitioner.

• October 23, 2018: Respondent submitted a Request for Rehearing.

• November 7, 2018: The Department granted the Respondent’s request for a rehearing.

• March 5, 2019: A rehearing was held. Per a stipulated agreement, no new evidence was presented; instead, counsel for both parties submitted legal briefs and presented closing arguments.

• March 25, 2019: The final ALJ Decision was issued, reaffirming the initial ruling in favor of the Petitioner.

3. The Disputed Action of November 20, 2017

At a regular Board of Directors meeting held on November 20, 2017, the Association’s Board voted to approve a third amendment to the Association Bylaws. The amendment altered Article VIII Section 6(d), which pertains to the Association’s financial oversight.

• Original Clause: Required the Board to “cause an annual audit of the Association books to be made by a public accountant at the completion of each fiscal year.”

• Amended Clause: Changed the requirement to “cause an annual audit, review, or compilation of the Associations financial records to be made by a public accountant within 180 days after the end of the HOA’s fiscal year.”

The Petitioner argued that while he had not been directly impacted, he could be in the future, as the amendment modified a prior third-party audit requirement. He asserted an interest as a homeowner in ensuring the Association’s financials were correct and not subject to self-auditing.

4. Analysis of Core Arguments

The case centered on the conflicting interpretations of the Association’s governing documents, particularly the clause authorizing Bylaw amendments.

4.1. Petitioner’s Position (Jay Janicek)

The Petitioner contended that any amendment to the Bylaws required a vote by the general membership of the Association, not just the Board of Directors.

• Textual Interpretation: Petitioner focused on Bylaws Article XIII, Section 1, which states: “These Bylaws may be amended at a regular or special meeting of the Board of Directors of the Association by a vote of a majority of a quorum of members present in person or by proxy.” He argued “members” refers to homeowners as defined in the Association’s Declaration, not Board members.

• Use of “Proxy”: The inclusion of the term “proxy” was cited as evidence supporting this interpretation, as Board members are not permitted to vote by proxy, whereas Association members are.

• Delineation of Powers: Petitioner noted that Article VII, which outlines the “Powers and Duties of the Board of Directors,” does not grant the Board the authority to amend the Bylaws.

• Intent of the Drafter: The argument was made that the Bylaws’ drafters intentionally used the words “directors” and “members” distinctly throughout the document, indicating that the use of “members” in the amendment clause was a deliberate choice to refer to the homeowners.

• Statutory Violation: The Petitioner argued the Board’s action violated Arizona’s Open Meeting Law (ARIZ. REV. STAT. § 33-1804), which requires specific notice to members between 10 and 50 days in advance of any meeting where a Bylaw amendment is proposed.

• Legal Precedent: The Petitioner cited Powell v. Washburn, which holds that restrictive covenants should be interpreted to give effect to the intention of the parties as determined from the language of the entire document.

4.2. Respondent’s Position (Sycamore Vista No. 8 HOA)

The Association argued that the Board of Directors possessed the authority to amend the Bylaws during a properly convened Board meeting.

• Board Authority: Respondent cited Article IV of the Bylaws, which states that the “affairs of this Association shall be managed by a Board.”

• Meeting Protocol: The action took place at a regular monthly Board meeting, as permitted by Article VI. The meeting on November 20, 2017, had three Board members present, constituting a quorum as required by the Bylaws.

• Interpretation of “Members”: The Respondent’s central argument was that the phrase “a quorum of members” in Article XIII referred to the members of the Board of Directors, thereby empowering them to pass the amendment.

• Compliance with Open Meeting Law: The Association argued its conduct was not a violation of the law because a necessary quorum of directors was present for the vote.

5. Administrative Law Judge’s Findings and Conclusions

The ALJ found the Petitioner’s arguments convincing and concluded that he had sustained his burden of proof by a preponderance of the evidence. The Respondent’s closing arguments were described as not persuasive.

• Violation of Statute: The Judge determined that the Board’s action violated ARIZ. REV. STAT. § 33-1804(B) because “there was no notice of the proposed amendment” provided to the Association members. The conduct was described as going “against the spirit of the legislative intent” of the statute due to a lack of transparency.

• Interpretation of Governing Documents: The decision firmly established the correct interpretation of the Bylaws.

◦ The terms “members” and “directors” are clearly and intentionally differentiated throughout the document. “Members” refers to the body of homeowners, while “directors” refers to the elected Board.

◦ The conclusion states: “The voices of few cannot speak for all, unless all have bestowed those few with the power and authority to speak on their behalf.”

◦ It was concluded that the Board “does not have power to act where authority is expressly delegated to the membership of the Association.”

• Invalidation of Board Action: The ALJ concluded that the Board’s action on November 20, 2017, was invalid because it was taken “in the absence of a quorum of Association members whereby a majority of said members voted in favor of the proposed third amendment.”

6. Final Order and Penalties

Based on the findings of fact and conclusions of law, the Administrative Law Judge issued the following orders:

1. Petition Granted: The Petitioner’s petition was granted.

2. Amendment Invalidated: The “third amendment to the Association Bylaws, as taken on November 20, 2017, is invalidated.”

3. Fees and Penalties: The Respondent (HOA) was ordered to:

◦ Pay the Petitioner the filing fee.

◦ Pay a civil penalty of $250.00 to the Planned Community Hearing Office Fund.

The decision, having been issued as a result of a rehearing, is binding on the parties.