Administrative Law Judge Decision Briefing: Pointe Tapatio Community Association v. Wilkey

Executive Summary

This briefing synthesizes the findings and decision in case number 19F-H1919044-REL, wherein the Pointe Tapatio Community Association petitioned against residents Lanye C. and Devin E. Wilkey for violating community covenants. The Administrative Law Judge (ALJ) found conclusively in favor of the petitioner, determining that the Wilkeys were operating a business from their residential unit in direct violation of the association’s Covenants, Conditions, and Restrictions (CC&Rs).

The core of the violation centered on CC&R Article 3, Section 3.1, which prohibits any non-residential use that “creates traffic [or] parking.” The Wilkeys acknowledged that two employees of their payroll processing company, Devau Human Resources, regularly commuted to and worked from the unit, thereby creating both traffic and parking. This admission was sufficient to establish a clear and unambiguous breach of the covenant.

The respondents’ primary defense—that they had received verbal permission from a former property manager in 2009—was found to be unsubstantiated and insufficient. The ALJ ordered the Wilkeys to cease all business operations at the residence within 35 days and to pay a civil penalty of $500.00 to the Department of Real Estate within 60 days.

Case Overview

Case Number

19F-H1919044-REL

Petitioner

Pointe Tapatio Community Association

Respondents

Lanye C. Wilkey and Devin E. Wilkey

Hearing Date

April 26, 2019

Decision Date

May 7, 2019

Presiding Judge

Thomas Shedden, Administrative Law Judge

Location

Office of Administrative Hearings, Phoenix, Arizona

Allegation and Governing Rule

The Pointe Tapatio Community Association (Petitioner) alleged that Lanye C. Wilkey and Devin E. Wilkey (Respondents) were in violation of the community’s CC&Rs by using their property at 720 E. North Lane, Unit 1, as an office for their business, rather than exclusively as a residence.

The specific rule cited was CC&Rs Article 3, Section 3.1, which states:

“Residential. Each Residence shall be used, improved, and devoted exclusively to first class residential use, and no gainful occupation, profession, trade, business, religion, or other non-residential use which creates traffic [or] parking … shall be conducted from any Residence [or part thereof.]”

The association requested an order for the Wilkeys to abide by the CC&Rs, the imposition of a civil penalty, and a refund of its filing fee.

Key Findings of Fact

The Business Operation

• Business Entity: The Wilkeys, who are mother and son, co-own and operate Devau Human Resources, a payroll processing company. The business had previously operated from a commercial location before moving to the residential unit in late 2009.

• On-Site Employees: The Wilkeys acknowledged that two employees of Devau Human Resources drive to the unit to work.

◦ One employee works Monday through Thursday, from 9:30 a.m. to 4:00 p.m.

◦ A second employee works Monday through Friday, from 9:30 a.m. to 5:00 p.m.

• Parking and Traffic: It was established that these employees at times park on the community’s streets, thereby creating both traffic and parking related to the business.

• Public Presence: Devau Human Resources’ website lists the E. North Lane address (as a mailing address only) and advertises office hours of 9:00 a.m. to 5:00 p.m., Monday through Friday. Google Maps also shows the business operating from this address.

• Admissions: Ms. Wilkey acknowledged during testimony that they consider the unit to be an office.

• Client Contact: The business does not have clients or customers come to the unit. Mail for the business is received at the unit.

The Respondents’ Defense

• Claim of Permission: The Wilkeys asserted that they received permission to move the business into the unit in 2009 from the property manager at the time, Howard Flisser.

• Lack of Evidence: The respondents acknowledged they had no written confirmation of this permission. Their belief was based on second- and third-hand information.

◦ Ms. Wilkey testified that she asked her husband (since deceased) if they could operate from the unit, who then asked a salesperson, who in turn allegedly asked Mr. Flisser and relayed that it was permissible.

◦ Mr. Wilkey testified that he believed they had permission because his father would not have taken the risk of moving the business without it.

• Claim of Residency: Mr. Wilkey testified that he considers the unit to be one of his two primary residences. However, when asked by attorneys for both parties how often he stayed there, he did not provide a responsive answer.

The Association’s Rebuttal and Position

• Timeline of Action: The Association sent a letter to the Wilkeys on August 8, 2018, informing them they were out of compliance and must cease business operations by August 31, 2018. The official petition was filed with the Department of Real Estate on January 17, 2019.

• Manager’s Testimony: Association board member Paula Duistermars testified that she and the association’s attorney had spoken to Howard Flisser a few days before the hearing. In that conversation, Mr. Flisser stated he could not recall giving permission and had volunteered twice that he “never gave permission for Devau to operate out of the unit.”

• Manager’s Authority: Ms. Duistermars also testified that Mr. Flisser, as property manager, did not have the authority to grant such permission; only the Association’s Board could do so.

• Permitted Businesses: The Association does allow certain home-based businesses that do not generate traffic or parking, such as telecommuting and teaching online classes. These do not require explicit Board permission.

• Origin of Complaint: The Board became aware of the Wilkeys’ business operation when another resident brought the issue to its attention. Ms. Duistermars was unaware of any specific complaints filed against the Wilkeys regarding traffic, parking, or noise.

Conclusions of Law and Rationale

The ALJ’s decision was based on the standard of a “preponderance of the evidence.” The core legal conclusions were as follows:

1. CC&Rs as a Binding Contract: The CC&Rs constitute a contract between the parties, and its terms must be complied with.

2. Unambiguous Language: The language in Article 3, Section 3.1 is clear and unambiguous. It is therefore enforced to give effect to the intent of the parties.

3. Violation Established: The preponderance of evidence demonstrated that the Wilkeys were operating a business from their unit. The Wilkeys’ own admission that two employees drive to and park at the unit to conduct business was sufficient to prove that their business “is creating both traffic and parking.”

4. Violation is Absolute: The ALJ noted there is no requirement in the CC&Rs that the traffic or parking must cause a separate violation or complaint. The mere fact that the business creates traffic and parking is sufficient to trigger the prohibition.

5. Finding of Violation: Based on the evidence, the Wilkeys are in violation of CC&R Article 3, Section 3.1.

6. Penalty Authority: Under ARIZ. REV. STAT. § 32-2199.02, the ALJ has the authority to order compliance and levy a civil penalty. A penalty of $500.00 was deemed appropriate given the unambiguous nature of the violation.

7. Filing Fee Denial: The Association’s request for a refund of its filing fee was denied, as it cited no authority showing this was within the tribunal’s power.

Final Order

Based on the findings of fact and conclusions of law, the Administrative Law Judge issued the following orders to Respondents Layne C. Wilkey and Devin E. Wilkey:

• Cease Business Operations: Within thirty-five (35) days of the effective date of the Order, the Respondents must comply with CC&R Article 3, section 3.1 by ceasing business operations at 720 E. North Lane, Unit 1 (Lot 50), Phoenix, Arizona.

• Pay Civil Penalty: Within sixty (60) days of the effective date of the Order, the Respondents must pay a civil penalty of $500.00 to the Department of Real Estate.

• Rehearing Notice: This order is binding unless a request for rehearing is filed with the Commissioner of the Department of Real Estate within 30 days of the service of the Order.