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Gelb v. Department of Fire, Building and Life Safety - 10/28/2010

Arizona Court of Appeals Division One Holds That the Administrative Hearing Process for Resolving Disputes Between Homeowners and Homeowners’ Associations Violates the Separation of Powers Provision of the Arizona Constitution.


The legislature created the Department of Fire, Building and Life Safety (“DFBLS”) in 1986 “to combine the functions of the office of manufactured housing and the office of the fire marshal into one department,” which is charged with maintaining and enforcing standards for manufactured homes, mobile homes, and factory-built buildings, and maintaining and enforcing the state fire code.  In 2006, the legislature established an administrative hearing process for resolving disputes between homeowners and homeowners’ associations (“HOAs”).  Under the administrative process, a homeowner or HOA may file a petition for a hearing with the DFBLS, which may refer the petition to the Office of Administrative Hearings (“OAH”) for a hearing before an administrative law judge (“ALJ”).  The process provides for a right of appeal to the superior court from the ALJ’s decision.

In 2007, a dispute arose between Chris Gelb and her HOA, Sedona Casa Contenta HOA.  Gelb filed a petition with the DFBLS, which referred the case to the OAH.  The ALJ found in favor of the HOA, and Gelb filed a complaint for review of that decision in the superior court.  The HOA moved to dismiss the complaint, arguing that the administrative process violates Arizona Constitution Article III, the separation of powers provision.  The superior court rejected this claim, but eventually ruled for the HOA on the merits.  Gelb then sought review in the Court of Appeals.

The Court of Appeals affirmed the superior court’s decision, but not on the merits.  Instead, the Court agreed with the HOA that the administrative process is unconstitutional because it violates the separation of powers provision.  In reaching its decision, the Court relied on two previous opinions that have construed the separation of powers provision – Cactus Wren Partners v. Ariz. Dep’t of Bldg. & Fire Safety, 177 Ariz. 559, 869 P.2d 1212 (App. 1993), and J.W. Hancock Enters., Inc. v. Ariz. State Registrar of Contractors, 142 Ariz. 400, 690 P.2d 119 (App. 1984) – which set forth four non-exclusive factors for conducting the analysis.

The first factor asks what the “essential nature” of the power is, and the Court had no trouble concluding that the administrative process is judicial in nature.  The second factor looks at the degree of administrative control, which the Court concluded supports the constitutionality of the process because the judicial branch retains the ultimate power to review the ALJ’s decision.

The third and fourth factors, however, both require consideration of the power’s nexus to the agency’s primary regulatory role.  Specifically, the third factor looks at the legislature’s objective in creating the agency.  Relying on the legislative history for DFBLS, the Court concluded that that agency has no authority to regulate planned communities.  As for the fourth factor, which examines the practical result of mingling the roles, the Court stated that placing the administrative process with DFBLS “arguably ‘threatens the core functions of the courts,’” again because that agency has no authority over and no expertise in planned communities.

Finally, the Court noted that DFBLS had taken a number of actions consistent with the conclusion that its responsibilities have no nexus with the administrative process:  it declined to participate in the appellate proceedings and took no position on the constitutionality of the administrative process; it did not appeal two earlier cases that had found the process unconstitutional; and it completely discontinued processing claims under the administrative process in January 2009.

PRACTICE NOTE:  Gelb argued that the constitutionality of the process was not properly before the Court of Appeals because the HOA had not cross-appealed on that issue.  The Court rejected this argument because, under ARCAP 13(b)(3), a cross-appeal is required only if the appellee seeks “to enlarge the rights of the appellee or to lessen the rights of the appellant.”  The Court’s conclusion that the process is unconstitutional did not enlarge to HOA’s rights nor lessen Gelb’s rights, and thus a cross-appeal was not required.

Judge Thumma authored the court’s opinion; Judges Winthrop and Irvine concurred.

Posted by: Kathy O'Meara 

Posted On: 11/4/2010