OAH-035: Do delegate voting systems violate AZ law against proxies?

After a hearing today of some 5 hours, ALJ Carroll summed up the issue for consideration:  Do HOA delegate (representative) voting mechanisms violate Ariz. ARS 33-1812’s prohibition on proxies?  Are delegates really proxies?  Petitioner Bill Brown alleges, in just 31 words, that Terravita’s delegates violate the new proxy law.

HOA attorneys, Ekmark law firm, argue that they are not, and that Title 10, corporation law allows the use of delegates.  And further, Title defines proxies and delegates as two different animals. The attorney argued it just like voting for a Congressman.  The attorney attempted to  make a fine distinction between the use of ballots to elect the delegates and the unrestricted voting by the delegates at board meetings.

The Title 10 definitions may make a delegate more than a proxy, but when he votes in the place of the homeowner he is acting like a proxy.  HOA attorney tried to mislead the ALJ that a proxy is the instruction form to restrict the conduct of the proxy, and not a person. But, even 10-3724 clearly defines a proxy (“member may appoint a proxy”), as does Black’s law Dictionary, as a person and not the instruction form given to a person. There is no conflict between Title 10 and Title 33.

As for “delegates”, 10-3640 allows for delegates to have nonspecific and generalized authority of a member, but is silent on his role as a proxy in elections.  This is clarified by 33-1812 with a resounding NO, the delegate cannot function as a proxy in HOAs!

The impact of this decision, surely to be appealed, will be far reaching.

The related laws and definitions, relevant parts:

33-1812. Proxies; absentee ballots; definitionA. Notwithstanding any provision in the community documents, after termination of the period of declarant control, votes allocated to a unit may not be cast pursuant to a proxy. The association shall provide for votes to be cast in person and by absentee ballot and may provide for voting by some other form of delivery

10-3708. Action by written ballotA. Unless prohibited or limited by the articles of incorporation or bylaws, any action that the corporation may take at any annual, regular or special meeting of members may be taken without a meeting if the corporation delivers a written ballot to every member entitled to vote on the matter.B. A written ballot shall: [Goes on to specifiy what a written ballot is to contain under corporate law].10-3640. DelegatesA. A corporation may provide in its articles of incorporation or bylaws for delegates that have some or all of the authority of members.

10-3724. ProxiesA. A member may vote the member’s votes in person or by proxy.B. Unless the articles of incorporation or bylaws prohibit or limit proxy voting, a member may appoint a proxy to vote or otherwise act for the member by signing an appointment form, either personally or by the member’s attorney-in-fact.

OAH update: 07F-H067022-BFS

Complaint:

Submission of petition not included on annual ballot

Source of Law:

CC&Rs & bylaws

Discussion:

1.          On April 12^th, 2006, in response to the submitted petition, the Board adopted Resolution 0607.  That Resolution referred to the TEPOA Articles of Incorporation.  The Articles incorporated TEPOA as a non-profit corporation within the meaning of A.R.S. Title 10.  The Articles vested in the Board the power to make “payments and disbursements” in furtherance of its purposes, which include, without limitation, capital expenditures.  Thus, the Board, in Resolution 0607, determined that, even in the event the members voted on the question in the petition and approved it, its substance would violate the Articles of Incorporation by having a mere By-Law abrogate Board authority granted by the Articles of Incorporation, which take precedence over the By-Laws. 

1.          Petitioner filed the instant Petition on January 18^th, 2007, complaining that the Respondent failed to recognize a valid Petition, failed to notify the members of it, failed to place it on the ballot, and declared it null and void.

Holding:  

1.         A.R.S. Title 10 governs non-profit corporations in Arizona.  Petitioner’s proposed amendment to the TEPOA By-Laws would have the effect of abrogating the Articles of incorporation in violation of A.R.S. Title 10.  See: A.R.S. 10-3801.B. and C.  This limitation is similar to the relationship between a statute law and a constitutional provision.  A statute cannot abrogate the constitution, in much the same way a By-Law cannot abrogate the Articles of Incorporation.  Thus, as a matter of law, the TEPOA Board did not act improperly in declining to place the Petition on the ballot, unless and until the Articles of incorporation would be amended to allow it.        ORDER            Based on the above, the Petition is hereby dismissed.

Comments:

The ALJ decided that articles do not allow a vote of homeowners to amend the articles of incorporation in order to place restraints on HOA board. Board had argued that its corporation articles under corporate law, allows them to make these decisions. 

The logic of the ALJ escapes me in this case.  Petitioner sought an amendment to articles when board informed him that articles allow it to charge any capital assessment without any homeonwer vote.  Board refused to place HOA petition signed by a quroum of homeowners to place the isue before the next baord meeting.  Board refused and did not.  (So much for the new proxy law).

ALJ ignored HOA CC&Rs and bylaws and decided it simply didn’t make any difference since articles are articles.  He ruled on the wrong issue!! 

Petitioner did not make any attempt to obtain any knowledge or information relating to the OAH hearing process, and has no idea as to what is required or how to proceed.  ALJ tried to explain to Petitioner how to proceed with respect to agreed upon evidence; otherwise he must prove his allegation. 

A bylaw amendment to restrict board capitol spending on a project was not placed on the ballot because HOA felt it violated CC&Rs and state laws. Petition of some 400 members was submitted to members for inclusion on HOA annual election ballot, but was not included on ballot.  Petitioner did not hear from the HOA on the ballot question.  Board “accepted” and voted on the petition, but did not approve the petition as a ballot issue since they felt it would violate state laws.  Petitioner did not understand the meaning of the board’s “no” vote.

Petitioner wants board members to pay any penalties out of their own pockets.

HOA attorney argues that board must act in accordance with the nonprofit corporation act in contrast to governing documents.  She argues that the articles of incorporation grant the board the power to make changes to bylaws, subject to vote of the members, referring to nonprofit corporation statutes relating to nonprofits and never once mentioning CC&Rs. Is she confusing Articles with CC&Rs?  She objects to petition that would restrict board’s powers, and as such would violate state laws giving sole power to the board to manage.

Carolyn Goldschmidt for the HOA.

OAH stats update

Since my last accounting back on June 18th, 3 decisions were made on 4 cases, OAH-012/013 were consolidated (count as 2 cases).

OAH-12/13 was dismissed because homeowner failed to make his case — insufficient evidence.

OAH-020 was won by HOA for lack of sufficient evidence.

OAH-022 was dismissed since petitioner’s claimed of HOA violation would result in violation of corporate law.

Stats: (44% for HOs (8/18)

HOs      8

HOAs   10

split       3

vacated 3

In my reviews I keep on stressing the difference from complaining about the board or something you don’t like about the board, and the judicial requirement to prove your case with FACTS — evidence.   If you can’t prove it, save your money and don’t file.

If you don’t like something about the board, well, recognize the fact that HOA living is now being admitted as being communal living (see Twin Rivers opinion) — your neighbors are like your spouse and you can’t do anything without his/her agreement.  Like in marriage, compromise or get out!  These type of “I don’t like” complaints should be handled through the voting mechanisms, poor and biased as they may be, but that’s the nature of the CC&Rs adhesion contract.