Gelb v. Dept. of Fire, Bldg. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . and Life Safety

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DIVISION ONE FILED: 10-28-2010 RUTH WILLINGHAM, ACTING CLERK BY: GH IN THE COURT OF APPEALS STATE OF ARIZONA DIVISION ONE ) ) ) Plaintiff/Appellant, ) ) v. ) ) DEPARTMENT OF FIRE, BUILDING AND ) LIFE SAFETY, a political subdivision ) of the State of Arizona; SEDONA CASA CONTENTA HOMEOWNERS ASSOCIATION, INC., ) ) an Arizona non-profit corporation, ) ) Defendants/Appellees. _______________________________________ ) CHRIS GELB, 1 CA CV 09-0744 DEPARTMENT D O P I N I O N Appeal from the Superior Court in Yavapai County Cause No. V1300CV820080197 The Honorable Michael R. Bluff, Judge VACATED WITH INSTRUCTIONS Aspey, Watkins & Diesel, P.L.L.C. By Frederick M. Fritz Aspey and Carson T. H. Emmons and Diana J. Elston Attorneys for Plaintiff/Appellant Flagstaff Terry Goddard, Attorney General Phoenix By Camila Alarcon, Assistant Attorney General Attorneys for Defendant/Appellee Department of Fire, Building and Life Safety Carpenter, Hazlewood, Delgado & Wood, PLC Tempe By Jason E. Smith and Mark K. Sahl and Carrie H. Smith Attorneys for Defendant/Appellee Sedona Casa Contenta Homeowners Association, Inc. T H U M M A, Judge ¶1 This homeowner, appeal arises out plaintiff/appellant of Chris a dispute Gelb between ( Gelb ), and a her homeowners association, defendant/appellee Sedona Casa Contenta Homeowners Association ( HOA ), regarding the application of the conditions, covenants, Gelb s property. and restrictions ( CC&Rs ) governing The dispositive issue is whether a statutory administrative hearing process for the resolution of disputes between homeowners and homeowners associations in planned communities, such as Gelb s dispute with her HOA, violates the Arizona Constitution s separation of powers provision. We hold the administrative hearing process violates the separation of powers provision of Article 3 of the Arizona Constitution. We therefore vacate the judgment of the superior court and direct the Department of Fire, Building and Life Safety ( DFBLS ) to dismiss Gelb s complaint without prejudice for lack of established an jurisdiction. FACTS AND PROCEDURAL BACKGROUND I. Administrative Process ¶2 In 2006, the Arizona Legislature administrative hearing process for the resolution of disputes between homeowners and homeowners associations communities ( Administrative Process ). 2 in planned See Ariz. Rev. Stat. ( A.R.S. ) §§ 41-2198 to -2198.05 (Supp. 2009); see also A.R.S. § 33-1802(4) (2007) associations). The ( planned community includes scope of the Administrative homeowners Process is limited to claimed violations of planned community documents or statutes.1 ¶3 A.R.S. § 41-2198.01(B). Under the Administrative Process, the homeowner or homeowners association may file a petition for hearing with the DFBLS. A.R.S. § 41-2198.01(B). After reviewing the petition and response, the DFBLS director may refer the petition to the office of administrative hearings ( OAH ) for a hearing before an administrative law judge ( ALJ ). A.R.S. § 41-2198.01(E). The DFBLS has no further involvement in the matter. ¶4 After a hearing, the ALJ will render a decision and may order a party to comply with the relevant planned community documents or statutes. A.R.S. § 41-2198.02(A). The ALJ s decision is final and not subject to any review or rehearing by the DFBLS. A.R.S. § 41-2198.02(B). The sole relief available to a party aggrieved by the ALJ s decision is review by the 1 Community documents are the declaration, bylaws, articles of incorporation, if any, and rules, if any. A.R.S. § 33-1802(2). Declarations are any instruments, however denominated, that establish a planned community and any amendment to those instruments. A.R.S. § 33-1802(3); see also A.R.S. §§ 33-1801 to -1816 (2007 & Supp. 2009) (governing planned communities). 3 superior court. A.R.S. §§ 12-905(A), (B)(2)-(3) (2003); 41-1092.09(B) (2004); 41-2198.04(A). II. Gelb s Dispute with the HOA ¶5 In 2005, Gelb began building a home in a subdivision managed by the HOA. after a crushed dispute rock in In 2007, without Gelb s permission and arose the over her common area landscaping, in front the of HOA placed Gelb s home. Pursuant to the Administrative Process, Gelb filed a petition with the DFBLS in 2008, alleging the HOA had violated the CC&Rs. After the HOA filed a response, the DFBLS referred the matter to the OAH. ¶6 Later in 2008, following a hearing, the ALJ issued a decision finding that the HOA had not violated the CC&Rs. Gelb then filed a complaint in superior court seeking review of the ALJ s decision. asserting because it the After HOA moved Administrative violates powers provision. motion. The the to dismiss Process Arizona was the complaint, unconstitutional Constitution s separation of The superior court summarily denied the HOA s additional briefing and oral argument, the superior court found the ALJ s decision was supported by the substantial weight of the evidence and denied Gelb relief. timely appealed to this court. Gelb We have jurisdiction pursuant to A.R.S. § 12-2101(B) (2003). 4 DISCUSSION ¶7 Gelb argues the superior court should have vacated the ALJ s decision because, first, the ALJ failed to address all issues raised in her complaint and, second, the decision was arbitrary and failed apply to capricious. the proper Gelb asserts standard of the superior review and court erred in finding substantial evidence supported the ALJ s decision. The HOA the argues we need not reach these issues because Administrative Process is unconstitutional as it violates the Arizona Constitution s separation of powers provision. The HOA, therefore, contends the superior court properly rejected Gelb s claim for relief, albeit for a different reason. Finding the constitutional issue properly is before this court2 and the case 2 Gelb argues the constitutional issue is not properly before this court because the HOA failed to file a cross-appeal. We allowed the parties to address the issue in supplemental briefing and now reject Gelb s argument. An appellee must file a cross-appeal for an appellate court to modify the judgment to enlarge the rights of the appellee or to lessen the rights of the appellant. ARCAP 13(b)(3). By holding the Administrative Process unconstitutional, we are neither enlarging the HOA s rights nor lessening Gelb s rights, meaning the HOA was not required to cross-appeal. 5 cannot be fairly decided on nonconstitutional grounds,3 we hold that the Administrative Process is unconstitutional, a decision that resolves the appeal. ¶8 The Arizona Constitution expressly provides that [t]he powers of the government of the state of Arizona shall be divided into three separate departments, the legislative, the executive, and the judicial. Arizona Constitution, Ariz. Const. art. 3. The written after generations of experience and experimentation under the United States Constitution, spells out the separation of powers doctrine even more specifically than does the national document. State ex rel. Woods v. Block, 189 Ariz. 269, 275, 942 P.2d 428, 434 (1997). Arizona Constitution states the three Article 3 of the departments shall be Gelb also argues waiver, claiming the HOA failed to raise the constitutional issue before the superior court. We disagree. In the superior court, the HOA moved to dismiss the matter, asserting the Administrative Process was unconstitutional and citing applicable authority. Therefore, the HOA sufficiently apprised Gelb and the superior court of the constitutional issue. Accordingly, the constitutional issue was not waived by the HOA and is properly before this court. See also State v. Silva, 222 Ariz. 457, 459, ¶ 9, 216 P.3d 1203, 1205 (App. 2009) (noting issue of subject matter jurisdiction is never waived and can be raised for the first time on appeal ). 3 See, e.g., R.L. Augustine Constr. Co. v. Peoria Unified Sch. Dist. No. 11, 188 Ariz. 368, 370, 936 P.2d 554, 556 (1997) ( We will not reach a constitutional question if a case can be fairly decided on nonconstitutional grounds. (citing Petolicchio v. Santa Cruz Cnty. Fair & Rodeo Ass n, 177 Ariz. 256, 259, 866 P.2d 1342, 1345 (1994))). 6 separate and distinct, and no one of such departments shall exercise the powers properly belonging to either of the others. Ariz. Const. art. 3. of each Despite this express directive, the powers department Constitution are allows departments. some not mutually blending exclusive; of the authority Arizona among the Cactus Wren Partners v. Ariz. Dep t of Bldg. & Fire Safety, 177 Ariz. 559, 562, 869 P.2d 1212, 1215 (App. 1993) (citing J.W. Hancock Enters., Inc. v. Ariz. State Registrar of Contractors, 142 Ariz. 400, 405, 690 P.2d 119, 124 (App. 1984)). ¶9 The Arizona Legislature properly has vested various administrative agencies with certain judicial powers. Administrative agencies appropriately may See id. resolve disputes between private parties if this authority is auxiliary to and dependent power. upon the proper exercise Id. (emphasis added). of legitimate regulatory An agency s statutory grant of authority violates Arizona s separation of powers limitations when the agency s authority usurps the power of another department, causing significant interference . . . with the operations of another department. J.W. Hancock, 142 Ariz. at 405, 690 P.2d at 124. ¶10 forth The parties agree Cactus Wren and J.W. Hancock set the proper analysis to determine whether a statute unconstitutionally usurps power properly belonging to another 7 department. The analysis involves the consideration of four non-exclusive factors: (1) the essential nature of the power exercised; (2) the degree of control exercised by the agency in the exercise of the power; (3) the [L]egislature s objective in establishing the agency s functions; result of the mingling of roles. and (4) the practical Cactus Wren, 177 Ariz. at 562, 869 P.2d at 1215 (citing J.W. Hancock, 142 Ariz. at 405, 690 P.2d at 124). ¶11 In applying these factors, we are mindful that duly enacted laws are entitled to a strong presumption of constitutionality and any doubts should be resolved in favor of upholding a statute against constitutional challenges. Aros v. Beneficial Ariz., Inc., 194 Ariz. 62, 67, 977 P.2d 784, 789 (1999); Ruiz v. Hull, 191 Ariz. 441, 448, 957 P.2d 984, 991 (1998). The HOA bears the burden of overcoming this strong presumption of constitutionality. Eastin v. Broomfield, 116 Ariz. 576, 580, 570 P.2d 744, 748 (1977). ¶12 Starting with the first factor, the Administrative Process involves the adjudication of a dispute between private parties over the CC&Rs. The parties do not seriously dispute that this power is judicial in nature. See also J.W. Hancock, 142 Ariz. at 406, 690 P.2d at 125 ( Generally the adjudication 8 of a dispute between two private parties is considered judicial. ). ¶13 Turning to administrative control the - second factor - the degree of although exercising judicial power, the Administrative Process does not exert a coercive influence over the judiciary since the judiciary has the ultimate power of review. Id. Judicial review of the ALJ s decision is a critical judicial check of administrative power, preventing the Administrative Process constitutional scope. at 1216 (citing from exceeding its proper Cactus Wren, 177 Ariz. at 563, 869 P.2d authority). Accordingly, the second factor supports the constitutionality of the Administrative Process. ¶14 Although distinct, the third and fourth factors share a common element -- to be constitutional, the agency s actions must be related to the agency s primary regulatory purpose. J.W. Hancock, 142 Ariz. at 406, 690 P.2d at 125. See Stated differently, the agency s actions must be reasonably necessary to effectuate the administrative agency s regulatory purposes. primary, legitimate Cactus Wren, 177 Ariz. at 562, 869 P.2d at 1215 (quoting McHugh v. Santa Monica Rent Control Bd., 777 P.2d 91, 106 (Cal. 1989)). The Administrative Process fails to meet this standard. 9 ¶15 The third factor looks at the [L]egislature s objective in establishing the agency s functions. Id. This inquiry turns on whether the agency permissibly cooperates with the judiciary impermissibly judiciary in by furnishing attempts an area to some special establish essentially expertise superiority judicial in over nature. or the J.W. Hancock, 142 Ariz. at 405, 690 P.2d at 124 (quoting State ex rel. Schneider v. Bennett, 547 P.2d 786, 792-93 (Kan. 1976)). As applied, this factor requires a nexus between the primary regulatory purpose of the DFBLS and the adjudicatory authority granted in the Administrative Process. See Cactus Wren, 177 Ariz. at 562-63, 869 P.2d at 1215-16. ¶16 The DFBLS was established in 1986 to combine the functions of the office of manufactured housing and the office of fire marshal into one department with administrative support to further the public interest of building and fire safety. 1986 Ariz. Sess. Laws, ch. 330, § 1. The stated purpose of the DFBLS is to: further the public interest of safety and welfare by maintaining and enforcing standards of quality and safety for manufactured homes, mobile homes and factory-built buildings and by reducing hazards to life and property through the maintenance and enforcement of the state fire code by providing fire training, fire investigations and public life safety education as provided for [by Arizona law]. 10 It is also the purpose of the [DFBLS] to establish a procedure to protect the consumer of such products and services. A.R.S. § 41-2141(A) (Supp. 2009). Nowhere in this express purpose is the DFBLS authorized to regulate planned communities in any respect. Indeed, other than adjudication through the Administrative Process itself, there is no nexus between the regulatory authority or purpose of the DFBLS and the authority to regulate planned communities (which the DFBLS does not possess). ¶17 In Cactus Wren, the court held the DFBLS properly could adjudicate disputes between private parties relating to the Arizona Mobile Home Parks Residential Landlord and Tenant Act because such power supplements expressed in its statutory purpose. at 1216. the DFBLS s mission as 177 Ariz. at 563, 869 P.2d Here, by contrast, the DFBLS adjudicated a dispute between private parties relating to planned community documents, even though the DFBLS possesses no regulatory authority over planned community associations or documents. ¶18 Unlike mobile established a within DFBLS the home regulatory (or, parks, framework apparently, for any Arizona planned other has never communities agency). For planned communities, the DFBLS lacks the most basic of powers to administer a regulatory framework. 11 For example, unlike its powers regarding mobile home parks, the DFBLS is not authorized to conduct any review of, and cannot modify or suspend, any ALJ decision regarding claimed violations of planned community documents or statutes and no party can apply for a rehearing with the DFBLS. A.R.S. § 41-2198.02(B). Given this lack of regulatory and other authority over planned community documents, statutes, or disputes, the Administrative Process does not enable the DFBLS to furnish[] some special expertise to the judiciary or otherwise. J.W. Hancock, 142 Ariz. at 405, 690 P.2d at 124 (quoting Bennett, 547 P.2d at 792). ¶19 Although Administrative the Process legislative appears to set history forth for a need the for administrative regulation of planned communities,4 the amendments establishing 4 the Administrative Process did not alter the The Senate Fact Sheet for House Bill 2824 states the amendment creating the Administrative Process grants an ALJ jurisdiction over disputes between homeowners associations and their members. Senate Final Amended Fact Sheet for H.B. 2824, 47th Leg., 2d Reg. Sess. (June 26, 2006). The House of Representatives Committee Minutes discussing the amendment indicated issues with homeowners associations continued to be problematic and that going to court was not an adequate remedy for homeowners when paying the homeowners associations fees or assessments would be less expensive than initiating court action. Minutes of Meeting Before the H. Comm. on the Judiciary on Feb. 16, 2006, 47th Leg., 2d Reg. Sess. 10 (Ariz. 2006) (statement of Rep. Farnsworth, Member, H. Comm. on the Judiciary). The amendment was designed to hold homeowners associations accountable without prohibitive costs to homeowners. Id. (statement of Rep. Gray, Member, H. Comm. on the Judiciary). 12 purpose or authority planned communities. of the DFBLS to include regulation of As a result, the Administrative Process lacks any nexus between the regulatory purpose of the DFBLS and the statutory authority to regulate planned communities. ¶20 The fourth factor examines the practical result of the mingling of roles, including actual experience over a period of time where such evidence is available. J.W. Hancock, 142 Ariz. at 405, 690 P.2d at 124 (quoting Bennett, 547 P.2d at 792). In J.W. Hancock, dissatisfied individuals could either (1) file an administrative complaint with the Registrar of Contractors seeking discipline against a contractor s license (which could involve a contractor s failure to comply with contract terms and could result in a limited statutory appeal to superior court) or (2) file an action in superior court. 125. Id. at 406, 690 P.2d at The court found the Registrar of Contractors limited ancillary power to construe contracts [in addressing an administrative complaint] does not threaten the core functions of the courts, due to the Registrar of Contractors connection to the subject matter in dispute (i.e., discipline against a contractor s license). ¶21 Under the Administrative administrative Id. Process, homeowners or homeowners associations may either (1) petition the DFBLS for a hearing concerning violations of planned community documents or 13 statutes or (2) file an action in superior court. 2198.01(B). Unlike the Registrar of A.R.S. § 41- Contractors in J.W. Hancock, or regulation by the DFBLS of mobile homes in Cactus Wren, the DFBLS lacks any connection - regulatory or otherwise -- to planned communities. specialized knowledge or Nor is the DFBLS relying on any expertise - or applying any power related to its express regulatory purpose -- in mechanically processing paperwork filed by private parties to a dispute over planned community documents or statutes. Thus, when viewing the practical result of the Administrative Process, the regulatory authority of the DFBLS arguably threaten[s] the core functions of the courts. J.W. Hancock, 142 Ariz. at 406, 690 P.2d at 125. ¶22 The DFBLS itself has taken action consistent with this conclusion. Because this case implicates the constitutionality of a statute, we provided notice of the issue to counsel for the DFBLS.5 In response, the DFBLS noted it wished to remain a nominal party and took no position on the constitutionality of the Administrative Process. other cases found the The DFBLS further noted that two Administrative Process violated the Arizona Constitution s separation of powers provision, one of 5 We also provided notice to the Speaker of the House and President of the Senate pursuant to A.R.S. § 12-1841(A) (Supp. 2009). Neither of these officials sought to be heard in this proceeding. 14 which enjoined the DFBLS from taking any further action under the Administrative Process. The DFBLS did not appeal in either case and, in January 2009, the DFBLS completely discontinued processing any claims under the Administrative Process. actions - by DFBLS based on its own experience These -- are consistent with our conclusion that the Administrative Process creates a departments. constitutionally improper mingling of separate Id. at 405, 690 P.2d at 124. ¶23 We do not suggest that the Legislature is without the power to properly grant administrative associations agency) through the DFBLS (or any other appropriate authority a to comparable regulate homeowners administrative process. Indeed, the HOA concedes that the Legislature properly could create a new administrative agency or empower an existing agency to regulate community associations. Because such express regulatory authority was not properly granted here, however, the Administrative Process is not constitutional. ¶24 In accordance with well-established legal authority, the HOA has overcome the presumption of constitutionality of A.R.S. § 41-2198(3) and we hold the Administrative Process, as it applies to planned communities, violates the separation of powers provision Constitution. set forth in Article 3 of the Arizona We therefore vacate the superior court s judgment 15 denying Gelb relief and direct the DFBLS to dismiss Gelb s complaint without prejudice for lack of jurisdiction. CONCLUSION ¶25 For the foregoing reasons, we vacate the judgment of the superior court. /s/ ___________________________________ SAMUEL A. THUMMA, Judge* CONCURRING: /s/ _____________________________________ LAWRENCE F. WINTHROP, Presiding Judge /s/ ____________________________________ PATRICK IRVINE, Judge *Pursuant to Article 6, Section 3 of the Arizona Constitution, the Arizona Supreme Court designated the Honorable Samuel A. Thumma, Judge of the Arizona Superior Court, to sit in this matter. 16

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