                      NOTICE: NOT FOR OFFICIAL PUBLICATION.
  UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
                  AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.




                                     IN THE
              ARIZONA COURT OF APPEALS
                                 DIVISION ONE


SON SILVER WEST GALLERY, INC., an Arizona corporation; WILLIAM
B. ROBSON and LINDA ROSE ROBSON, husband and wife; RIO CODY
           ROBSON, a single man, Plaintiffs/Appellants,

                                         v.

CITY OF SEDONA, an Arizona municipal corporation; AUDREE JUHLIN,
  in her official capacity as Zoning Administrator of the City of Sedona;
  JOEL GILGOFF, GARY RICH, ROBERT M. GORDON, CHARLOTTE
 HOSSEINI, and MIKE WARD, in their official capacities as Members of
      the City of Sedona Board of Adjustment, Defendants/Appellees.

                              No. 1 CA-CV 17-0761
                                FILED 10-30-2018


            Appeal from the Superior Court in Coconino County
                          No. S0300CV201600306
                   The Honorable Dan R. Slayton, Judge

                AFFIRMED IN PART; VACATED IN PART


                                    COUNSEL

Francis J. Slavin, P.C., Phoenix
By Francis J. Slavin, Daniel J. Slavin
Co-Counsel for Plaintiffs/Appellants

Osborn Maledon, P.A., Phoenix
By Eric M. Fraser, Hayleigh S. Crawford
Co-Counsel for Plaintiffs/Appellants
Sims Murray, Ltd., Phoenix
By Kristin M. Mackin
Co-Counsel for Defendants/Appellees

Sedona City Attorney’s Office, Sedona
By Robert Lee Pickels, Jr.
Co-Counsel for Defendants/Appellees



                      MEMORANDUM DECISION

Judge Lawrence F. Winthrop delivered the decision of the Court, in which
Presiding Judge Jennifer M. Perkins and Judge Kent E. Cattani joined.


W I N T H R O P, Judge:

¶1          This case arises from an appeal before the Sedona Board of
Adjustment (“BOA”) that was challenged on special action to the Coconino
County Superior Court. Two issues are before us on appeal:

   1) Whether Sedona’s Community Development Director acted beyond
      the scope of her authority, as enunciated in Arizona Revised Statute
      (“A.R.S.”) § 9-462.05(B), when she pursued enforcement of zoning
      provisions against Appellants, allegedly without actual knowledge
      of the conditions on the property; and

   2) Whether the BOA exceeded its statutory authority under A.R.S. § 9-
      462.06(G) when it declined to make conclusive determinations on
      two corrective actions, and instead directed the parties to try and
      informally resolve these issues.

¶2             We hold that (1) the Director did not exceed her statutory
authority in pursuing enforcement; and (2) the BOA did not exceed its
statutory authority in the manner it chose to resolve the two disputed
violations. Accordingly, we vacate paragraphs 7 and 10 of the superior
court’s final judgment and reinstate the BOA’s decision regarding
corrective actions D.2 and D.5. We affirm the remainder of the superior
court’s order.




                                      2
                      Son Silver, et al. v. Sedona, et al.
                           Decision of the Court

                 FACTS AND PROCEDURAL HISTORY

¶3            In 1960, a homeowner in the Broken Arrow subdivision of
Sedona opened and operated a small art gallery in her home. In 1964,
Coconino County zoned the subdivision as residential—but because the art
gallery predated the rezoning, the county allowed it to continue operating
as a legal nonconforming use. The Robson family (“Robsons”) purchased
the property in 1981 and renamed it Son Silver West (“SSW”). They
purchased the adjacent lot in 1987, which they used as outdoor retail space.
According to zoning maps in the record, the original property is referred to
as Lot 42, and the adjacent lot purchased in 1987 is Lot 41. After the City of
Sedona incorporated in 1988, the Robsons were able to continue legally
operating the gallery as a nonconforming use.

¶4           In 1989, SSW received from Sedona their first Notice of
Violation (“NOV”)—it would be the first of many. After inspecting the
Robsons’ properties, Sedona’s Director of Community Development (the
“Director”) notified the Robsons that their use of Lot 41 was in violation of
Sedona’s Land Development Code. In response, the Robsons applied for
and received a conditional use permit (“CUP”) in 1992, retroactively
authorizing the gallery’s expansion from Lot 42 to Lot 41. Over the next
few years, the Robsons obtained from Sedona minor adjustments to the
1992 CUP, along with various permits that allowed them to further develop
Lots 42 and 41. In 1994, Sedona adopted a new Land Development Code,
which—in practical terms relevant to this case—precluded SSW from
expanding the CUP beyond what existed and was approved in 1992, and
limited the CUP’s application to Lots 42 and 41.

¶5             Between 1990 and 2014, the Robsons purchased three
additional properties surrounding SSW—two houses and one vacant lot
(collectively, the “non-CUP Properties”). SSW concedes the CUP does not
extend to these properties. During those same years, Sedona discovered
and acted on multiple violations on SSW’s properties. Some of these
violations were brought back into compliance, and others were resolved by
SSW obtaining “after-the-fact” permits. Notably, each resolution was
reached through cooperation between SSW and Sedona, and no pre-2014
violations ever progressed beyond the issuance of an NOV.

¶6            In 2014, the Director received complaints regarding the non-
CUP Properties. The Director met with the Robsons and inspected these
properties in September; the following month, she issued NOVs regarding
only the non-CUP Properties. The Robsons requested and were granted
stays on the NOVs so they could apply for comprehensive zoning changes


                                       3
                      Son Silver, et al. v. Sedona, et al.
                           Decision of the Court

that would allow for commercial use of the non-CUP Properties. In May of
2015, they submitted a “Community Plan Amendment” and a rezoning
application for the SSW properties, then later submitted a revised
application. After informal consultation with Sedona representatives, the
Robsons ultimately decided to withdraw the application.

¶7             Following withdrawal of the application, the Director took
two actions: she renewed the 2014 NOVs on the non-CUP Properties, and,
based upon information provided by the Robsons during the rezoning
application process, issued two new NOVs alleging CUP violations on Lots
42 and 41. The 2015 NOVs stated that “[a]s a result of [the Robsons’
proposed but now-withdrawn Community Plan Amendment and
rezoning] application, additional violations were identified based on the
information provided as part of the application review and consideration
process.” The Director noted that the Robsons had denied Sedona’s
requests to inspect existing conditions of all the SSW properties, and that
city staff had not directly verified actual conditions on Lots 42 and 41.

¶8            SSW appealed the Director’s corrective actions to Sedona’s
BOA. In their appeal memo to the BOA, SSW presented twenty-three
issues, arguing that their right to continue operating in violation of the Land
Development Code and the CUP had been approved by the prior Director
in 2011, that such rights were “vested,” and that the new Director was
“equitably estopped” from pursuing such violations. SSW and Sedona
appeared before the BOA on June 3, 2016. After a roughly five-hour
hearing, the BOA issued its decision, largely upholding the Director’s
actions. However, the BOA directed the parties to attempt in good faith to
resolve two of the actions—D.2 and D.5—informally.

¶9            SSW appealed via special action to the superior court, alleging
that the BOA failed to address their arguments regarding vested rights and
equitable estoppel, and the BOA exceeded its authority by directing the
parties to work out actions D.2 and D.5 between themselves. After an
extensive hearing, the superior court largely upheld the BOA’s decision.
The court found, however, that (1) the BOA decided action D.2 in favor of
Sedona and affirmed; and (2) the BOA failed to decide action D.5.
Accordingly, action D.5 was not ripe for special action review, but instead
was subject to further review by the BOA “if necessary.”

¶10           SSW’s motion for a new trial and/or to alter or amend the
superior court’s final judgment was denied. SSW timely appealed. We have
jurisdiction pursuant to A.R.S. § 12-2101(A)(1) and (A)(5)(a).




                                       4
                      Son Silver, et al. v. Sedona, et al.
                           Decision of the Court

                                 ANALYSIS

       I.     Whether the Director Acted Outside the Scope of Her Authority
              Under A.R.S. § 9-462.05(B)

¶11           On appeal, SSW abandoned its legal theories of vested rights
and equitable estoppel. Instead, it argues that Sedona acted outside the
scope of its statutory authority by pursuing enforcement against the
Robsons for conditions on Lots 42 and 41 without city staff first physically
verifying the current conditions on the property. SSW contends that such
inspection as a pre-condition to enforcement is implied in the statutory
language. SSW did not raise this argument before the BOA.1

¶12            “Failure to raise an issue at an administrative hearing that the
administrative tribunal is competent to hear waives that issue.” Neal v.
Kingman, 169 Ariz. 133, 136 (1991) (finding that a vested rights issue was
waived where it was not raised before the board of adjustment) (citing
Rouse v. Scottsdale Unified Sch. Dist., 156 Ariz. 369, 371 (App. 1987) (“the
implication of waiver is appropriate” where an appellant attempts to raise
a substantive issue for the first time after appearing before an
administrative tribunal that was competent to hear it)). Here, SSW
appealed the corrective actions of the Director to the BOA; we have no
doubt that the BOA has the jurisdiction and authority to hear and determine
whether Sedona complied with A.R.S. § 9-462.05(B). Therefore, failure to
raise the issue before the BOA would constitute waiver.

¶13            SSW argues in the alternative that this court has the discretion
to consider a new legal argument as long as it is based on facts contained in
the administrative record. Assuming so without deciding that to be the
case, we conclude A.R.S. § 9-462.05(B) merely addresses the sufficiency of
the evidence required to sustain the Director’s action. In that regard, we
note that the BOA has authority under A.R.S. § 9-462.06(A), (B), (C), (F), and
(G) to conduct a public hearing, take evidence, and reach its own decision
upon de novo review of the issues. See, e.g., Lane v. City of Phoenix, 169 Ariz.
37, 41 (App. 1989) (“The court of appeals considered the provisions of § 9-
462.06 relating to the powers and duties of a board of adjustment, and . . .


1       Both the applicability of A.R.S. § 9-462.05(B) and the argument that
the Director acted outside the statute’s scope were available to SSW from
the moment the Director served the 2015 NOVs. Although SSW filed a 66-
page appeal brief with the BOA, it did not contain any legal theory or
argument regarding Sedona’s alleged lack of compliance with the statute,
or its authority to proceed with the subject enforcement action.


                                       5
                      Son Silver, et al. v. Sedona, et al.
                           Decision of the Court

inferred a statutory intent to give the board de novo review.”); Murphy v.
Town of Chino Valley, 163 Ariz. 571, 575 (App. 1989) (stating the trial court
erred “concluding that the board was without authority to conduct an
evidentiary hearing . . . [because] the board has authority . . . to conduct a
public hearing and take evidence.”); Arkules v. Bd. of Adjustment, 151 Ariz.
438, 440 (App. 1986) (“The Board of Adjustment, though structured much
like an administrative agency, acts in a quasi-judicial capacity.”).

¶14             We review decisions of a board to determine whether it
“acted arbitrarily, capriciously or abused its discretion,” see Austin Shea
(Ariz.) 7th St. & Van Buren, L.L.C. v. City of Phoenix, 213 Ariz. 385, 390, ¶ 19
(App. 2006), and will not overturn if there is any evidence to support the
board’s decision, Blake v. City of Phoenix, 157 Ariz. 93, 96 (App. 1988).

¶15            We have closely reviewed the evidence and arguments
presented to the BOA, including the testimony and statements of the parties
and by members of the public. Here, the BOA had a lengthy city staff report
that detailed the extensive history of these properties, including ownership,
expansion, past violations, and negotiated resolutions. It also heard
evidence from the Director detailing the most recent negotiations between
Sedona and the Robsons and their legal representatives relative to the now-
withdrawn Community Plan Amendment and rezoning application, which
reflected both existing and proposed expanded retail activities.2 In addition
to this evidence, the BOA also heard from adjoining landowners concerning
the SSW retail activities on Lots 42 and 41. Although Mrs. Robson testified
that the “footprint” on these lots had not changed since 2011,3 the other
evidence submitted more than adequately supported the BOA’s ultimate
conclusion that the current retail uses in and around the buildings on Lots
42 and 41 are in violation of the 1992 CUP. On this record, we see no

2       At oral argument, counsel for SSW argued that the “new” site map
reflecting both existing and proposed retail uses, as submitted with the
now-withdrawn redevelopment application, was not presented to or
considered by the BOA. The transcript of the BOA hearing belies that
assertion.

3      Sedona contended at oral argument—and the record reflects—that
at no time has SSW presented any proof or argued that Lots 42 and 41 are
actually in compliance with the 1992 CUP. We agree and note that, as is
indicated by Mrs. Robson’s testimony and SSW’s now-abandoned
arguments regarding vested rights and equitable estoppel, SSW has
contended only that they are in compliance with what was allegedly
informally approved by former Director O’Brien in 2011.


                                       6
                      Son Silver, et al. v. Sedona, et al.
                           Decision of the Court

evidence that the Director exceeded her statutory authority, or that the BOA
acted arbitrarily or capriciously, or abused its administrative discretion in
sustaining the subject NOVs. In short, the evidence before the BOA was
more than sufficient to support its findings in satisfaction of § 9-462.05(B).

       II.    Whether the BOA Exceeded Its Statutory Authority by Directing
              SSW and Sedona to Resolve Corrective Actions D.2 and D.5
              Between Themselves

¶16           SSW next argues that the BOA exceeded its statutory
authority in not conclusively deciding corrective actions D.2 and D.5.
“When the state grants zoning power to a city, the power must be exercised
within the limits and in the manner prescribed in the grant and not
otherwise.” City of Scottsdale v. Scottsdale Associated Merchs., Inc., 120 Ariz.
4, 5 (1978). It is not disputed that municipal zoning authority is derived
from the state. Id. (citation omitted). Where an administrative board acts
outside the scope of that statutory authority, the decision is invalid as a
matter of law. Pawn 1st, LLC v. City of Phoenix, 242 Ariz. 547, 551-52, ¶ 11
(2017).

¶17           We review matters of statutory interpretation de novo, and
“presume the validity of the Board’s determination unless it is against the
weight of the evidence, unreasonable, erroneous, or illegal as a matter of
law.” Id. at 551, ¶ 9 (quotations and citation omitted).

¶18         The BOA derives its authority from A.R.S. § 9-462.06(G),
which provides in relevant part that the BOA shall:

       1. Hear and decide appeals in which it is alleged there is an
          error in an order, requirement or decision made by the
          zoning administrator in the enforcement of a zoning
          ordinance adopted pursuant to this article.
                                      ...
       3. Reverse or affirm, in whole or in part, or modify the order,
          requirement or decision of the zoning administrator
          appealed from, and make the order, requirement, decision or
          determination as necessary.

Section 9-462.06(G) (emphasis added). SSW argues that the statutory
language requires the BOA to decide appeals in one of three ways: by
reversing, affirming, or modifying the Director’s order. We agree.

¶19            We disagree with SSW, however, that the BOA failed to
satisfy this requirement when they issued orders regarding actions D.2 and


                                       7
                      Son Silver, et al. v. Sedona, et al.
                           Decision of the Court

D.5. These actions from the Director order SSW to: (D.2) “[r]emove all
enclosed building retail areas in excess of the approved 2,250 square feet”
and return certain buildings to storage sheds; and (D.5) “update outdoor
lighting fixtures.” In paragraphs 6 and 7 of their decision on appeal, the
BOA ordered and required:

   6. That the square footage of 2,250 described in Corrective
      Action D.2 relative to violations identified in the November
      10, 2015 Notices of Violation be adjusted by mutual
      agreement between the parties; [and]

   7. That the parties will work in good faith to resolve the lighting
      issue described in Corrective Action D.5 relative to violations
      identified in the November 10, 2015 Notices of Violation . . . .

¶20           We disagree with SSW that these orders represent directives
the BOA is not statutorily authorized to make. Section 9-462.06(G)(3)
clearly allows the BOA to “modify the order, requirement or decision of the
zoning administrator appealed from, and make the order, requirement,
decision or determination as necessary.”

¶21             Our research revealed only one case in Arizona directly
discussing such a board’s authority to modify zoning decisions. In Pawn,
our Supreme Court noted that a “board[’s] authority to modify zoning
decisions is statutorily limited” by A.R.S. § 9-462.06(H), which states that
boards of adjustment “may not: (1) change the uses permitted in a zoning
district; or (2) [g]rant a variance if the special circumstances applicable to
the property are self-imposed by the property owner.” 242 Ariz. at 551,
¶ 11 (quotations and citation omitted).

¶22           Here, the BOA’s orders regarding actions D.2 and D.5
implicate neither of the statutory prohibitions noted in Pawn. The BOA’s
order that the parties work together to resolve these issues—presumably
resulting in SSW achieving compliance, whether by making changes to the
property or obtaining additional permits—seems to us a clear exercise of its
statutory power to modify the Director’s orders and to direct an
appropriate determination of the contested issues.

¶23           Furthermore, in reviewing the transcript of the hearing before
the BOA, we note that SSW did not object during the publicly conducted
deliberative process leading to the BOA’s decisions on actions D.2 and D.5.
During these deliberations, Sedona’s attorney indicated that, as to D.2, there
were certain discrepancies regarding square footage, and intimated



                                       8
                     Son Silver, et al. v. Sedona, et al.
                          Decision of the Court

Sedona’s willingness to “work it out” with SSW. SSW was free to object (as
demonstrated by later interjections during the BOA’s deliberations), but
instead acquiesced to this exchange among the BOA members and Sedona,
and the decision to which it led.

¶24           Perhaps even more telling is the discussion regarding action
D.5, on the issue of bringing SSW’s lighting up to code. A member of the
BOA asked whether “the Robsons [are] interested in working with [Sedona]
to take advantage of [a grant program]4 to bring the lighting up to code?”
Mr. Robson responded, “No, not really opposed to it.” The BOA then stated
they would “leave [D.5] in with the assumption that you guys are going to
work it out.” Again, SSW acquiesced.

¶25            While we do not go so far as to find that SSW waived their
argument against actions D.2 and D.5 by failing to object before the BOA,
we decline their invitation to vacate the BOA’s order that the parties work
together to resolve two discrete issues, particularly where Sedona agreed to
it and SSW at the very least acquiesced. The BOA’s clear authority to
modify the Director’s orders notwithstanding, we do not believe it is the
role of this court to order the BOA to make an “up-or-down” finding when
the parties before it indicate a willingness to cooperate and resolve issues
outside of a formal administrative setting. Furthermore, such an order by
the BOA is consistent with the course of dealings between SSW and Sedona
over decades of interaction.

      III.   Attorneys’ Fees and Costs

¶26           SSW requests their attorneys’ fees and costs under A.R.S.
§§ 12-341, -348(A), and -1840. Sedona similarly requests its attorneys’ fees
and costs under A.R.S. §§ 12-341, -341.01, and -349.

¶27           Because they are not the prevailing party, we deny SSW’s
request. In our discretion, we award reasonable attorneys’ fees and costs to
Sedona pursuant to A.R.S. § 12-341, in an amount to be determined upon
compliance with Arizona Rule of Civil Appellate Procedure 21.



4      Sedona’s attorney informed the BOA that the grant program was no
longer in existence. However, shortly thereafter, the BOA stated the belief
that “in good faith” Sedona should be able to offer funds from the City
Manager’s discretionary account to act as a de facto grant. After this, and
even upon the revelation of the grant program’s discontinuation, SSW
acquiesced to the decision of the BOA.


                                      9
                     Son Silver, et al. v. Sedona, et al.
                          Decision of the Court

                              CONCLUSION

¶28          The Director did not exceed her statutory authority in
pursuing enforcement of violations of the Sedona Land Use Code and the
1992 CUP. We vacate paragraphs 7 and 10 of the superior court’s order of
final judgment and reinstate the BOA’s orders regarding corrective actions
D.2 and D.5. We affirm the remainder of the superior court’s final
judgment.




                         AMY M. WOOD • Clerk of the Court
                          FILED: AA




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