Tag: HOA managers

Management Case Study #1 — BOD good faith conduct

George K. Staropoli

December 22, 2021

“Pay no attention to the man behind the curtain”

(Wizard of OZ)

As applied to HOA-Land, the “man” is the BOD manipulating and controlling the images, propaganda, and marketing designed to placate the wants and desires of the members.

The task

For this case study, you have been engaged to advise the BOD as to its conduct in deciding these difficult and controversial  issues, and are free to comment on any or all aspects of the problem situation. What will you advise?  The  value of your recommendations lies in the quality of your supporting arguments.

Put your management/BD skills to work and join the study. It is very important for the learning process to share your recommendations with others here, and to accept their constructive criticism. You can reject, modify, or remove your recommendations. This approach sharpens your thinking and helps you make a more solid case for HOA reforms.

SB 1454: Machiavelli at work in the AZ legislature – Part 1

Part 1. Rep. Ugenti, Senator Griffin and lobbyist Sandquist 

(See Part 2).

Back in July I commented about SB1454 and wondered whether the Constitution or Machiavelli was alive and well in the Arizona Legislature.  In the subsequent two months I’ve come into possession of additional information on the events surrounding SB 1454 and its predecessor, HB 2371, and the underhanded manner in which it became an unconstitutional law. 

This post elaborates on the above commentary, which should be read first as it provides background information. This post also provides insight on how a legislature really functions, and undoubtedly how your legislature functions with respect to HOA legislation.

Furthermore, for a better understanding of the events the reader should view my video of the HB 2371 hearing before Senator Griffin’s GE committee.  It includes some interesting statements between Rep. Ugenti, who sponsored HB 2371, and Griffin; and between the HOA manager association lobbyist and Griffin. (The lobbyist’s statements begin at 9:13 into the 11 minute video). 

Please pay attention not only to their words, but to their body language as well. Listen to their arguments, but closely examine what is being said “between the lines.”

 

A.        Representative Ugenti

The March video of Senator Griffin’s hearing shows a perky Ugenti exuding confidence. She makes use of the special interest mantra, “stakeholder,” and states how all the stakeholders met and agreed upon the bill. She basically tells the committee that they are vendors (“stakeholders” refers not to homeowners, but to all those vendors who are making money off the HOA and off the homeowners).  The problem is, is that these vendors are daring to set legislation affecting the rights of homeowners that serve their own agenda.  Yet no committee member asks, “Where are the homeowners?”

Ugenti stated that each year there was “a plethora of personal HOA legislation”[1] and tried “to spare the [committee] members the constant agony of many personal pieces of HOA legislation,” as contrasted to the industry legislation. Ugenti also said that she “felt very responsible to the stakeholders.”

 

B.        Senator Griffin

Senator Griffin is also the Senate President Pro Tempore, second in line in the leadership hierarchy. The AZ Legislative Manual states that, “the chief duties of these officers are to preside over Senate and House proceedings and to otherwise assume the duties of the President and the Speaker when they are absent from the Legislature.”  

Griffin played a role in two separate incidents.   The first, see (C) below, is her withdrawal of an amendment to HB 2371, thereby allowing HB2371 to go on the Consent Calendar. This calendar leads to a direct vote by the Floor without further debate by all the representatives. However, it was objected to being on the Consent Calendar, which forced the bill to be debated by the Committee of the Whole (COW).  The bill was never debated and never came to a vote; it died in the Senate.

Second, having faced defeat in her bill Ugenti once again obtained the co-operation of President Pro Tem Griffin. Griffin added the failed HB 2371 HOA amendments to HB 2518 (Rep. Olson was the Sponsor), now before the Senate.  The bill passed the Senate and was sent to the House where a Conference Committee was recommended – the House did not accept the Griffin/Ugenti amendment.  This time, the House failed to hear the amended HB 2518 and it, too, died along with Ugenti’s HB 2371 HOA amendments.[2]

  “The role of morals in politics is mainly to cultivate illusions . . . politics is merely appearance and morality is merely pretense.” (“Machiavelli and America,” Hadley Arkes, p. 104, The Prince (Yale University Press, 1999)).

 

 C.       Jeff Sandquist, AACM lobbyist

At the end of the above mentioned video (see Part 1), Jeff Sandquist, lobbyist for the Arizona Association of Community Managers (AACM) addressed the committee.  AACM stood to gain much from HB 2371, which would allow its members to represent HOAs in small claims court and before administrative law judges at OAH (Office of Administrative Hearings).  State certified legal document preparers (paralegals) are not allowed this right. There were no provisions in the bill for licensing, training, or educating property managers to adequately represent HOAs. Nor equal representation for homeowners.

Note the very friendly dialogue between Sandquist and the Chair, Griffin, which is out of order for a committee hearing.  “Tell your Mom hello for me.” Griffin mentions that making an amendment got her to see her “buddy” Sandquist.  He thanks her for not offering her amendment.

Sandquist also vaguely spoke about how the courts would like to see a provision moved to another section, implying an acceptance by the courts. It also implies a recognition of a separation of powers issue on granting HOA managers representation rights.

Two days after filing the complaint, about a month after the Governor signed SB 1454, a Supreme Court Rule 31 change was requested seeking an exception for HOA managers to be able to represent HOAs in small claims court (still pending).

[1] I digress. My emphasis reflects, to good extent, homeowners failing to see the broader picture beyond their HOA problem, such as raising substantive issues of constitutionality. Ugenti is saying that homeowners don’t really understand the problems with HOAs, which only the HOA industry special interests can solve. It is evident that this is the view held by all state legislatures across the country. Homeowners have failed to deal with this reality.

[2] In my 13 years I have seen isolated cases in various legislatures in different states where the right and ethical action was taken and legislation was defeated or passed as appropriate, as we see here with these 2 bills.  But, on the whole, far too few.

SB 1454: Machiavelli at work in the AZ legislature – Part 2

Part 2 – UPL violations and “HOAS” in the title.

(See Part 1).

E.         Sanctions against HOA managers violating UPL

In spite of several emails sent to Rep. Ugenti, the Senate GE members, and the public in general there was no mention in the public hearings about the actions taken by the Arizona Supreme Court document preparer board in 2012 regarding the unauthorized practice of law, Supreme Court Rule 31). (See Arizona’s HB 2371 empowers unlicensed HOA property managers to avoid UPL).  I refer to the State Bar UPL Advisory Opinion, 12-01 and the decision holding AAM, a AACM and CAI member, to have repeatedly violated UPL.  (Supreme Court Board of Legal Document Preparers v. AAM, LDP-NFC-09-L094 and LDP-NFC-10-L026). Rather than seek remedial legislation SB1454 and HB 2371 sought to exempt HOA managers from UPL.

The illusion and appearance that all is well and that no stakeholder or legislator was aware of these actions was successful. 

 

F.         Arizona Capitol Times showing “HOAS” in SB 1454 short title

Finally, the weekly Arizona Capitol Times (ACT) covers goings on at the capitol and produces an online LOLA Report listing the short and long titles of all the bills. Its LOLA shows “HOAS” in the short tile of SB 1454. It states that the info is taken “from Arizona Capitol Reports reporters and records and from state and other databases. Bill-tracking information is updated continuously during legislative sessions.”   But, the official ALIS public access to legislative bill information does not show a short title with “HOAS.”   Who, when, and how was “HOAS” removed from the short title?  And why was it removed?  Surely ACT had no motive to change ALIS to add “HOAS”, and would not dare to do so.

Curiously, the AACM website under Legislative Update shows the same short title as from LOLA, as AACM states that’s where it got the info.  Why wasn’t this called to Ugenti’s attention, or did nobody notice?  Yet, there’s an addendum tacked on to the title, in all caps, “AS SIGNED BY GOVERNOR,” which could only come on June 20th or later with still no correction to reflect the official ALIS version.  Why not?

It has come to my attention that Jeff Sandquist, AACM lobbyist, explained that the state’s position for settling the constitutionality lawsuit was because it wanted to save portions of the bill that it thought was more important.  He seems to be aware that if the court declared the entire bill unconstitutional the initial SB 1454 provisions dealing with Elections would also be invalidated. However, by leaving off “HOAS” in the title the State could argue, if indeed the “plot” was discovered, as it was, that only the second part of Section 13 of the Constitution applied. This would only invalidate the HOA provisions. And so it happened. 

Was this the plan for removing “HOAS”?  Was this the plan for getting Senator Yee’s approval for attaching HB 2371 to her bill, SB 1454?  That her original bill would survive? Recall that Rep. Olson apparently didn’t approve of the Griffin attempt to add HB 2371 to his bill, HB 2518, and it died.

So I argue SB1454 was rushed through in the final hours of the night on the last day of the session, in the midst of attention focused on the budget and Medicare issues. The session ended just before 1:00 AM on the 14th.

“The founders understood that the principal mission of government was to secure people in their natural rights — to protect them against the lawless private thugs as well as of ill-intentioned legislators.” (“Machiavelli and America,” Hadley Arkes, p. 145, The Prince (Yale University Press, 1999)).

The arguments and events presented here make a case for a frustrated Rep. Ugenti who, in an act of desperation, intentionally violated the Arizona Constitution and House Rule 16(D).  The Legislature cannot sit idly by and allow a flagrant violation of the Arizona Constitution to go unpunished. It must send a message that such ardent belief in a bill does not allow for the law to be broken and that the end does not justify the means. 

I have urged the Arizona Speaker of the House and House Ethics Committee to bring disciplinary charges against Rep. Ugenti and to seek her expulsion under House Rule 1. Many questions remain unanswered.

AZ HOA bill SB 1454 and lack of transparency

As you should recall, the SB 1454 complaint was filed as a result of unethical conduct by Rep. Ugenti when she surreptitiously attached an HOA reform bill to a bill with another subject in violation of the Arizona Constitution.

Discussions with the AG’s office continue on 2 important issues. I believe, however, that we are being taken to the brink where we will need to go to court and get an injunction to stop SB 1454 from becoming effective until the court decides the issue, as had happened with SB 1070.  How much will that cost the State?

At the same time that we heard from the AG’s office on August 21st, it came known to us that an Administrative Director at the AZ Supreme Court filed a petition (R13-0041), two days after we filed the complaint, to change Rule 31 of the Supreme Court rules. This rule change would allow HOA managers to represent HOAs in small claims court, which would not be an unauthorized practice of law (UPL). State Certified Legal Document Preparers (paralegals) do not have this right. 

This request for an emergency decision was based on SB 1454 becoming law in September to avoid the legislature encroaching upon the judiciary branch that sets rules and regulations for the courts.  As it stands, if SB 1454 becomes law then we would have a second constitutional issue of a violation of the separation of powers doctrine.

There was no mention of our constitutionality challenge in the petition to change the rules. Upon being informed of the lawsuit the SC asked for a copy of the complaint, apparently not aware of it at all. I guess the petitioner misplaced it.  A decision to hear the petition is expected within 2 days.

Today, another incident of misrepresentation of the facts in regard to SB 1454, a third instance, was discovered in an HOA article by a landlord-tenant attorney writing in the Arizona School of Real Estate and Business Journal.  The school is an ADRE approved education and training facility for real estate agents and property managers.  It provides mandated courses in real estate law, agency law, contract law, and the Commissioner’s Rules (administrative law).  There are no requirements to know anything about HOAs where 23% of the population lives.

The author did not mention the constitutionality challenge either, but admitted to the co-plaintiff that she was aware of the complaint.  While she refers to SB 1454 as “a hotly contested bill,” she failed to mention that it is still being contested in the courts.  Apparently she felt no need to caution her readers that these “laws” may change or even be delayed, like SB 1070, so don’t go making firm plans right away.  The 90 day wait period between bill signing and its effective date was intentionally put into place to allow for such challenges as ours to the newly passed laws.

Are there any men and women of honor in Arizona?    Or, have those who should know better adopted the ethics of Machiavelli who believed: an ethical act is one that advances your goals or your power.

 

References

1.  See SB 1454:  crossing the line for HOAs

2.  See Rule change petition

 

HOA boards cannot escape wrongful acts by their managers

Given the fact that the HOA manager and/or firm acts “in place” or “on behalf of” the board under a contractual relationship that explicitly identifies the manager as an “agent” or “management agent,” the HOA can be held liable for the acts of its manager. (See study of Arizona management contracts).

Under tort law (the common law of wrongful acts) of vicarious liability (the tort doctrine that imposes responsibility upon one person for the failure of another) and respondeat superior, the board cannot ignore, walk away or refuse to take corrective action action against the manager without incurring liabilities.

First, from the HOA’s obligations, under the officers and directors duties to act in good faith and as a prudent man, the board is obligated to act against its manager where state laws and the governing documents have been violated, or when the manager is clearly committing wrongful acts, like making false statements, harassing a homeowner, etc.

Second, let’s look at what the Restatement (3rd) of Agency (2006) has to say about the liabilities of the agent and principal (manager – board). (Of course, one would not expect to see this material covered in any government sponsored seminar, or manager licensing education, like at the Leadership Centre in Phoenix, which is supported by the towns of Chandler, Mesa, Gilbert, Queen Creek, Apache Junction). “Direct liability” refers to suing the party as such. The main points are summarized below:

¶ 7.01 An agent is subject to liability to a third party (homeowner) harmed by the agent’s tortious conduct.

¶ 7.03 (1) A principal is subject to direct liability to a third party harmed by an agent’s conduct when . . .

(a)(ii) the agent’s conduct, if that of the principal, would subject the principal to tort liability; or . . .
(b) the principal is negligent in selecting, supervising, or otherwise controlling the agent;
(2) A principal is subject to vicarious liability to a third party harmed by an agent’s conduct when . . . the agent commits a tort when acting with apparent authority in dealing with a third party on or purportedly on behalf of the principal.

¶ 7.05 (2) When a principal has a special relationship with another person [as the board with a homeowner], the principal owes that person a duty of reasonable care with regard to risks arising out of the relationship, including the risk that agents of the principal will harm the person with whom the principal has such a special relationship.

¶ 7.06 A principal required by contract or otherwise by law to protect another cannot avoid liability by delegating performance of the duty, whether or not the delegate is an agent.