Mandatory Membership: Lessons from Shamrock v. Wagon Wheel 10 years later
Homeowners associations are non-profit corporations dependent on homeowner volunteers who often dedicate substantial time and energy to the task of ensuring that their communities operate smoothly and beneficially for their neighbors and themselves. The obligations of volunteer leaders can sometimes feel overwhelming, and it is easy to just rely on the way things may have been done for years, and in some cases even decades! However, this faith in the status quo can lead to difficult problems and legal disputes.
In the 2003 case of Shamrock v. Wagon Wheel Park Homeowners Association, the Arizona Court of Appeals determined that the Association could not enforce the provisions of its governing documents against a portion of the homeowners in the community because the CC&Rs did not impose mandatory membership on those homeowners. Mr. Shamrock and a group of homeowners contested their alleged membership in the Association based on the fact that versions of the CC&Rs that had existed for approximately forty years, and which were in effect when the Plaintiffs purchased their property, did not include a provision making them mandatory members in the Association. The Association argued that the Plaintiffs were, nevertheless, still mandatory members because both the Association’s Articles of Incorporation and the Bylaws provided for mandatory membership for all property owners and each were in the public records at the time of the Plaintiffs’ purchase of their lots.
As non-profit corporations, homeowners associations are governed, in part, by the Arizona Non-Profit Corporations Act. A.R.S. §10-3601(B) in this Act provides that “[n]o person shall be admitted as a member without that person’s consent,” which can be express or implied. The Court of Appeals followed the precedent of prior case law in Arizona that requires provisions imposing mandatory membership on owners of property located within a neighborhood or community development to be embodied in recorded CC&Rs. Such restrictions would then constitute a contract between the property owners and the Association. The Court found that neither version of the CC&Rs in effect prior to the Plaintiffs’ purchase of their lots contained a provision imposing mandatory membership. In 2001, while the lawsuit was in progress, the CC&Rs were amended by a majority of the property owners to require membership in the Association, but because this amendment had no retroactive effect, it could not be used against the Plaintiffs for any purpose prior to the amendment.
Furthermore, the Court rejected the Association’s argument that the Association’s recorded Articles of Incorporation and Bylaws constituted amendments to the CC&Rs, and therefore, could bind the Plaintiffs to mandatory membership in the Association. The Court also found no evidence that the Plaintiffs were “voluntary” members of the Association. Although the Court did not specifically address whether or not a property owner’s consent to membership in the Association could be “implied” from his knowledge of the Association’s existence and participation in the Association’s governance (i.e. voting in elections, paying assessments, etc.), the ruling indicates that Wagon Wheel would pose a substantial legal obstacle for any Association attempting to make such an argument.
Therefore, the lessons from Wagon Wheel, although now nearly ten years old, should not be forgotten. Association members and volunteer leaders should take the time to review the Association’s governing documents to ensure both a working understanding of their provisions as well as their effect. Although many governing documents can appear identical, even small differences or omissions can have substantial effect on the rights and obligations of the members. If you have any questions about the governing documents for your community, you should consult an attorney with experience in the area of real estate and community associations.
Written by: Michael Shupe