2.24 Political Petitions

• Jurisdiction: Arizona

A.R.S. Sec. 33-1808(G) prohibits planned community associations, despite what may be in the planned community governing documents, from prohibiting the circulation of political petitions, including candidate nomination petitions or petitions in support or opposition to any initiative, referendum or recall or other political issue on property dedicated to the public within the planned community. For many planned community associations, this would be the streets. This statute does not give petition gatherers permission to trespass on private property within the planned community. Despite the statutory limitation on "prohibiting" the circulation of petitions, the planned community association may "reasonably regulate" the circulation of the petitions. If a planned community restricts vehicular or pedestrian access to the planned community, the association is not required to comply with the statutory prohibition. Finally, nothing in A.R.S. Sec. 33-1808(G) requires the planned community to make its common areas available for the circulation of petitions to anyone who is not an owner or resident of the community.

3 NONPROFIT CORPORATIONS

Sec. 3.0 Introduction

For condominiums^[243] and planned communities^[244] that are incor-porated as nonprofit corporations, there are many issues that arise under the Arizona Nonprofit Corporation Act, contained in A.R.S. Sec.10-3101 through 10-11702. The Arizona Nonprofit Corporation Act took effect on January 1, 1999 and replaced the former Arizona Nonprofit Corporation Act found at A.R.S. Sec. 10-2301 et seq. There is a difference between a nonprofit corporation and a charitable organization that is "tax exempt" under Sec. 501(c)(3) of the Internal Revenue Code. Community associations are not typically tax exempt under Sec. 501(c) of the Internal Revenue Code.

For the most part, the Arizona Nonprofit Corporation Act is permissive. It generally allows nonprofit corporations to control the details and manner of governance of the corporation. Much of the Arizona Nonprofit Corporation Act contains provisions that apply only if the articles of incorporation or bylaws are silent on the issue.

The greatest challenge is that, theoretically, the Arizona Nonprofit Corporation Act could apply to every nonprofit corporation differently. Therefore, careful attention must be given to determine whether and how specific provisions of the Arizona Nonprofit Corporation Act apply to a particular nonprofit corporation.

Sec. 3.1 General Powers of Nonprofit Corporations

A.R.S. Sec. 10-3302 sets forth the general powers of nonprofit corporations. Provisions in the articles of incorporation can limit all of the "general powers" in A.R.S. Sec. 10-3302. Unless limited in the articles of incorporation, a nonprofit corporation in Arizona has (1) perpetual duration, and (2) has the same powers as an individual to do all things necessary or convenient to carry out its affairs. A.R.S. Sec. 10-3302 includes a list of 20 powers that nonprofit corporations possess. The powers germane to community associations include the power to:

1. Sue and be sued, complain and defend in its corporate name;

2. Purchase, receive, lease or otherwise acquire and own, hold, improve, use and otherwise deal with real or personal property or any interest in property wherever located;^[245]

3. Sell, convey, mortgage, pledge, lease, exchange and otherwise dispose of all or any part of its property;^[246]

4. Make contracts and borrow money and the power to secure its obligations by mortgage or other encumbrance of its property or income;^[247]

5. Impose dues, assessments, admission and transfer fees on its members;^[248]

6. Do any other act not inconsistent with law that furthers the activities and affairs of the corporation.

Sec. 3.2 Challenging a Corporate Act

A.R.S. Sec. 10-3304 states that, except by the methods set forth in A.R.S. Sec.10-3304(B), the validity of corporate action shall not be challenged on the ground that the corporation lacks or lacked power to act. The exclusive method of challenging the validity of a corporate act on the ground that the corporation lacks or lacked the power to act is set forth in A.R.S. Sec. 10-3304(B)(2). Any member of a condominium or planned community can challenge the validity of corporate action on the basis that the corporation lacks or lacked the power to act if the member seeks to "to enjoin the act." If a member of a planned community or condominium association sues to challenge the validity of a corporate action without seeking to "enjoin the act" as required in A.R.S. Sec. 10-3304(B)(2), the validity of a corporate act cannot be challenged in a condominium or planned community if the basis of the challenge is that the corporation lacks or lacked the power to act.

Sec. 3.3 Members and Membership

The Arizona Nonprofit Corporation Act contains provisions about members and membership in the corporation. Although an association does not have to be incorporated, the "owner/member" concept works well. A.R.S. Sec. 10-3601 states that the articles of incorporation or bylaws may establish criteria or procedures for admission of members and continuation of membership. In addition to the similar requirement in the declaration, community association articles of incorporation or bylaws state that any owner of a lot or parcel or unit in the community association is a mandatory member of the nonprofit corporation.

A.R.S. Sec. 10-3601 further states that no person can be admitted as a member of the nonprofit corporation without that person's consent. Consent may be express or implied. In the case of a community association, the consent is implied by virtue of the ownership of a lot or unit in the community and the constructive notice of mandatory membership because of recorded declarations.

Sec. 3.3.1 Equality of Membership Rights

A.R.S. Sec. 10-3610 states that all members of a nonprofit corporation have the same rights and obligations with respect to all matters unless the articles of incorporation or bylaws otherwise provide. The articles of incorporation or bylaws may establish classes of membership with different rights or obligations. For example, community associations are often set up for the builder or developer to have weighted voting in the initial stages of the development. It is also possible for distinctions to exist between members in a community association. For instance, it would be legally permissible for a community association to provide weighted voting for owners of single-family residences and the owners of townhouse units in the same planned community.

Sec. 3.3.2 Member Liability to Third Parties

A.R.S. Sec. 10-3612 states that a member of a nonprofit corporation is not personally liable for the acts, debts, liabilities or obligations of the corporation. For example, if a nonprofit corporation with 10 members has $1,000,000 in liabilities and has only $10,000 in assets, the creditors of that corporation cannot pursue the members of the nonprofit corporation personally for the $990,000 shortfall, unless it is done in compliance with A.R.S. Sec. 10-3614.^[249]

Sec. 3.3.3 Creditor's Action Against Members

A.R.S. Sec. 10-3614 addresses the procedure and limitations placed on a nonprofit corporation's creditor before the creditor can pursue a member. Limited circumstances exist in which a creditor of a nonprofit corporation can reach a member and then for limited purposes.

First, a creditor cannot attempt to collect a debt of the corporation from a member unless (1) final judgment in favor of the creditor has been rendered against the corporation; and (2) execution has been returned unsatisfied in whole or in part.

Second, if a judgment creditor of the corporation has met both criteria set forth above, it can initiate proceedings to collect from the corporation's members. When the creditor begins its proceeding, any and all creditors of the corporation, regardless of whether their claims have been reduced to a judgment, can intervene and attempt to be paid.

Third, only the amounts due to the corporation from the member(s), i.e. unpaid assessments (special and regular), interest, penalties, fees, etc. can be reached by the creditors. Importantly, if a member has already paid to the corporation the amount sought by the creditor in the proceeding, the member is immune from further proceedings. Additionally, the member cannot be responsible for any costs incurred by the creditor in a legal proceeding initiated to reach the member's obligation to the corporation.

The statutory provision essentially allows a creditor of the nonprofit corporation to only obtain monies owed to the corporation. Thus, A.R.S. Sec. 10-3612, which states that a member is not personally responsible for the corporation's debts, still holds true.

This provision is in conflict with A.R.S. Sec. 33-1257 regarding judgments against condominiums addressed herein at Sec. 1.52. A.R.S. Sec.33-1257 states that anyone who holds a judgment against the condominium has a direct lien against each of the units for the amount of the judgment. Pursuant to A.R.S. Sec. 33-1257, the holder of a judgment against a condominium can foreclose on each of the units without first attempting to collect on the judgment as required by the Arizona Nonprofit Corporation Act. The best way to harmonize A.R.S. Sec. 33-1257 and A.R.S. Sec. 10-3614 is for the holder of a judgment to first attempt collection and execution against the condominium association and then, if unsuccessful, consider foreclosing the judgment lien against each of the units.

Sec. 3.3.4 Member's Liability for Assessments

A.R.S. Sec. 10-3613 creates the possibility that members of nonprofit corporations may become liable for dues, assessments or fees. It requires an express or implied agreement by the member before there can be liability for dues, assessments or fees. If, at the time the homebuyer becomes a member, there is a provision of the articles of incorporation, the...