Briefing Doc – 17F-H1716019-REL
Briefing Document: Janicek v. Sycamore Vista No. 8 HOA
Executive Summary
This briefing document analyzes the administrative legal dispute between petitioner Jay Janicek and respondent Sycamore Vista No. 8 Homeowners Association (HOA), culminating in the case No. 17F-H1716019-REL. The core of the conflict was the HOA Board’s attempt to amend its governing Declaration via a “Declaration of Scrivener’s Error” without the required 75% vote from lot owners. This action was intended to reinsert a definition of “Completed Lots” that had been omitted from a 2009 amendment and was followed by a $10 annual assessment increase on developed lots.
The Administrative Law Judge (ALJ) ultimately ruled in favor of the petitioner, granting his petition and invalidating the “Declaration of Scrivener’s Error.” The judge found that the change was a substantive amendment, not a correction of a clerical error, and the Board’s unilateral action violated Arizona state law (A.R.S. § 33-1817). However, in a critical distinction, the ALJ ruled that the $10 assessment increase on developed lots was permissible and should stand, as the authority to set different rates for completed and uncompleted lots was already established in the valid 2009 First Amendment to the Declaration.
The judge also rejected the petitioner’s conflict of interest claim against three Board members with financial ties to the developer, deeming the petitioner’s interpretation of the relevant statute (A.R.S. § 33-1811) to be overbroad. The final order, adopted by the Arizona Department of Real Estate Commissioner, required the HOA to pay the petitioner’s $500 filing fee and to comply with state statutes regarding amendments and conflicts of interest in the future.
Case Details
Details
Case Name
Jay Janicek, Petitioner, vs. Sycamore Vista No. 8 HOA, Respondent
Case Number
HO 17-16/019
Docket Number
17F-H1716019-REL
Jurisdiction
Office of Administrative Hearings / Arizona Department of Real Estate
Petitioner
Jay Janicek (appeared personally)
Respondent
Sycamore Vista No. 8 HOA (represented by Evan Thomson, Esq.)
Administrative Law Judge
Suzanne Marwil
Hearing Date
March 2, 2017
ALJ Decision Date
March 14, 2017
Final Order Date
March 16, 2017
Commissioner
Judy Lowe, Commissioner, Arizona Department of Real Estate
Background and Core Dispute
The conflict originated from changes to the Sycamore Vista No. 8 HOA’s Declaration of Covenants, Conditions, Restrictions and Easements (Declaration).
• 2005 Declaration: The original “2005 Amended and Restated Declaration” contained Section 6.8, which established a uniform assessment rate for all lots. Crucially, it exempted the Declarant and Developer from payments on any property except for “Completed Lots.” This section provided a specific definition for “Completed Lots,” describing them as any lot with a dwelling unit ready for occupancy.
• 2009 First Amendment: On December 4, 2008, after securing a vote from 75% of lot owners, the HOA adopted the “First Amendment to the 2005 Declaration.” This amendment deleted the original Section 6.8 in its entirety and replaced it with new language stating: “annual dues may be assessed at one uniform rate for Completed Lots and a different uniform rate for Uncompleted Lots.” This amendment, however, omitted the definition of a “Completed Lot” that was present in the 2005 version.
• Seven-Year Period: For seven years following the 2009 amendment, the revised Section 6.8 remained unchanged, without the specific definition.
The “Declaration of Scrivener’s Error”
In June or July 2016, the HOA Board proposed a “Declaration of Scrivener’s Error” to address the omitted definition.
• Board’s Position: The Respondent, represented by its president Steven Russo, argued that the purpose of the declaration was simply to correct a clerical error by reinserting the definition of a developed versus undeveloped lot, which was “inadvertently omitted” from the 2009 First Amendment. The Board stated it was acting on the advice of its legal counsel.
• Petitioner’s Position: Mr. Janicek contended that this declaration was not a correction of a minor error but was a substantive change to the Declaration. As such, he argued it required the approval of 75% of the lot owners, a process that was not followed.
• Adoption: On August 3, 2016, the Board adopted the Declaration of Scrivener’s Error by a 3-2 vote. Petitioner Janicek and another Board member representing developed lot owners voted against the measure.
• Immediate Consequence: Following the adoption, the Board voted to increase the annual assessment for developed lot owners by $10.00, while the assessment for undeveloped lots remained unchanged. This action prompted Mr. Janicek to file his petition.
Allegations of Fiduciary Duty and Conflict of Interest
Petitioner Janicek accused the Respondent of a violation of its fiduciary duty and a conflict of interest. He noted that three members of the Board had a financial interest in NT Properties, the company that owned the community’s undeveloped lots. These lots directly benefited from the assessment structure that placed a higher burden on developed lots.
Administrative Law Judge’s Decision and Rationale
The ALJ’s decision, issued on March 14, 2017, contained three central conclusions of law that addressed the distinct issues raised in the petition.
1. The “Scrivener’s Error” was an Invalid Amendment
The judge found decisively in favor of the petitioner on the core issue of the amendment process.
• Substantive Change, Not Clerical Error: The Tribunal found that the change constituted an amendment to the Declaration, not a correction of a simple clerical error.
• Violation of A.R.S. § 33-1817: The judge ruled that the procedure for amending the Declaration requires a vote by the lot owners, as specified in the Declaration and state law. The HOA violated this statute by attempting to amend the document via a simple Board vote.
• Key Judicial Reasoning: The judge noted that the same section had been properly amended by a homeowner vote in 2009. The ruling states, “after a period of seven years, it defies logic to suggest that a further change to section was simply a clerical error.”
• Conclusion: The Declaration of Scrivener’s Error (Exhibit C) was declared invalid and could not operate to amend the Declaration.
2. The Assessment Increase Was Valid
Despite invalidating the method used by the Board, the judge upheld the Board’s right to implement the assessment increase.
• Existing Authority: The ruling stated that the invalidity of Exhibit C “does not implicate Respondent’s right to impose an increased assessment on the developed lots.”
• Basis in 2009 Amendment: The judge found that the language of the valid 2009 First Amendment—which expressly states that “annual dues may be assessed at one uniform rate for Completed Lots and a different uniform rate for Uncompleted Lots”—provided the Board with sufficient authority to set differential rates.
• Conclusion: The raised assessment was allowed to stand.
3. Conflict of Interest Claim Rejected
The Tribunal rejected the petitioner’s argument that Board members with ties to NT Properties had a conflict of interest under A.R.S. § 33-1811.
• “Overbroad” Interpretation: The judge found the petitioner’s interpretation of the conflict-of-interest statute to be “overbroad.”
• Rationale: The ruling stated that this interpretation “ignores that make-up of the Board as outlined in the Declaration and disregards the express language permitting the Board to assess annual dues.”
• Conclusion: The Board members were not required to declare a conflict of interest and were permitted to vote on the issue.
Final Order
The petition filed by Jay Janicek was granted. The Administrative Law Judge’s decision was officially adopted by the Commissioner of the Arizona Department of Real Estate in a Final Order dated March 16, 2017. The final order mandated the following:
• The Sycamore Vista No. 8 HOA must pay the petitioner, Jay Janicek, the $500.00 filing fee.
• The HOA must comply with the applicable provisions of Arizona Revised Statutes § 33-1817 (regarding the proper procedure for amending a declaration) and § 33-1811 (regarding conflicts of interest) in the future.
