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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

PATRICK LEONARD SHUDAK, Plaintiff/Appellant,

v.

ARIZONA CORPORATION COMMISSION, Defendant/Appellee.

No. 1 CA-CV 15-0544

Appeal from the Superior Court in Maricopa County

No. LC2014-000492-001

The Honorable Crane McClennen, Judge (Retired)

AFFIRMED

COUNSEL

Greenberg Traurig, LLP, Phoenix

By Brian J. Schulman, Nedda R. Gales

Counsel for Plaintiff/Appellant

Arizona Corporation Commission, Phoenix

By Ryan J. Millecam

Counsel for Defendant/Appellee
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2

MEMORANDUM DECISION

Judge Samuel A. Thumma delivered the decision of the Court, in which 

Presiding Judge Patricia K. Norris and Judge Margaret H. Downie joined.

T H U M M A, Judge:

¶1 Patrick Shudak appeals from the superior court’s decision 

affirming the Arizona Corporation Commission’s (ACC) decision that 

Shudak violated the Arizona Securities Act and ordering him to pay 

restitution and administrative penalties. Because Shudak has shown no 

reversible error, the decision is affirmed.

FACTS1 AND PROCEDRAL HISTORY

¶2 From January 2008 until July 2009, Shudak offered, sold and 

transferred membership units in Parker Skylar & Associates, LLC (PSA) to

various offerees in Arizona and elsewhere. Neither Shudak nor PSA were

registered securities salespersons or dealers, see Arizona Revised Statute

(A.R.S.) section 44-1941 (2016),

2 and the membership units transferred were 

unregistered, see A.R.S. §§ 44-1871, -1891. Promotional materials Shudak 

provided stated the funds invested would be used to purchase and develop 

real property. Shudak’s representations, and documents he provided, to 

investors indicated funds invested in PSA would be used solely for that 

purpose. Notwithstanding these representations, Shudak transferred 

money invested in PSA to his personal account, to personal accounts 

belonging to others (including his girlfriend) and to accounts of various 

other businesses owned by or associated with Shudak.

¶3 Apart from these affirmative representations, Shudak did not 

disclose to investors that multiple creditors were suing him in various cases 

and that judgments had been entered against him. Shudak also failed to 

 

1 This court views the facts in the light most favorable to sustaining the 

ACC’s decision. Shorey v. Ariz. Corp. Comm’n, 238 Ariz. 253, 255 ¶1 n.2 (App. 

2015) (citing cases); Hirsch v. Ariz. Corp. Comm’n, 237 Ariz. 456, 458 ¶ 1 n.2 

(App. 2015) (citing cases).

2 Absent material revisions after the relevant dates, statutes and rules cited 

refer to the current version unless otherwise indicated.
SHUDAK v. AZCC

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3

disclose to investors that he had added his girlfriend (who was a codefendant in some of the creditor lawsuits) as a co-signatory on PSA’s 

accounts, despite the fact that PSA’s operating agreement authorized the 

PSA manager (Shudak, at all times relevant here) as the sole signatory.

¶4 In mid-2008, Shudak secured a loan for PSA and, in return, 

granted the lender a security interest in all of PSA’s assets and transferred a 

20 percent interest in PSA to the lender. Almost immediately, the lender 

perfected its security interest. At the time of the loan, only three investors 

had invested. Shudak, however, did not inform those three investors, or 

any of the subsequent investors, about the loan, transfer or security interest. 

¶5 By July 2009, Shudak had assigned 132.5 percent of the PSA 

membership units to various individuals or entities. Shudak did not, 

however, inform the investors of this oversubscription. And 

notwithstanding this oversubscription, Shudak then induced another 

individual to make an investment in exchange for a security interest in 50

percent of PSA.

¶6 By December 2009, investors had become concerned when 

Shudak stopped returning phone calls and failed to respond to requests for 

information. Given concerns Shudak had taken perhaps as much as 

$1,000,000 in investor funds, at the request of investors, on December 15, 

2009, Shudak resigned as PSA manager and relinquished his PSA 

membership units. In April 2010, Shudak filed for bankruptcy. 

¶7 After Shudak ended his affiliation with PSA, investors tried 

to salvage the project. However, in April 2013, the lender who received the 

security interest in all of PSA’s assets in mid-2008 sued PSA, investors and 

others. In May 2013, a balloon payment came due on the seller’s note for 

the real property. When the investors were unable to sell the real property 

to satisfy the balloon payment, it became subject to foreclosure. The record 

provided does not describe the ultimate disposition of the property.
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¶8 In September 2012, the ACC Securities Division (Division) 

filed a 14-page notice of opportunity for hearing (Notice) against Shudak

and PSA,3 alleging violations of the Arizona Securities Act (ASA), A.R.S. §§ 

44-1801 to -2126. PSA did not appear or respond, a default was taken 

against it and PSA is not a party to this appeal. Shudak, however, filed a 

request for hearing.

¶9 After motion practice and other proceedings, a three-day 

evidentiary hearing was held in June 2013 before administrative law judge 

(ALJ) Marc E. Stern. ALJ Stern received exhibits and testimony from three 

PSA investors, Division Certified Public Accountant Andrea McDermittFields and Division investigator Dulance Morin. Shudak was represented 

by counsel, but elected not to attend the hearing, did not testify and called 

no witnesses to testify on his behalf, although he had the opportunity to do 

so. The parties then were allowed to file post-hearing briefs. 

¶10 Approximately a year later, noting a backlog of cases, the 

ACC’s Chief ALJ appointed ALJ Belinda A. Martin to preside over the case.

ALJ Martin wrote a 50-page recommended opinion and order (ROO). ALJ 

Martin reviewed the record from the evidentiary hearing, “consulted with 

ALJ Stern during her review of the record, [and] consulted with him if she 

had any questions” during that review and the writing of the ROO. 

¶11 After setting forth detailed factual findings, the ROO 

concludes the PSA membership units were securities under A.R.S. § 44-

1801(26); Shudak “acted as a dealer and/or a salesman of securities” in 

connection with the PSA offerings under A.R.S. § 44-1801(22); Shudak failed 

to show that the securities were exempt from regulation under A.R.S. § 44-

2003; the securities, which were not registered or exempt, were offered and 

sold in violation of A.R.S. § 44-1841; Shudak offered and sold unregistered 

securities within and from Arizona in violation of A.R.S. § 44-1842; Shudak 

(along with PSA) committed fraud in the offer and sale of unregistered 

securities, including making untrue statements and omitting material facts, 

in violation of A.R.S. § 44-1991; and Shudak controlled PSA within the 

meaning of A.R.S. § 44-1999 and was jointly and severally liable with PSA 

for violations of A.R.S. § 44-1991. The ROO recommended that the ACC 

 

3 The notice also named as an additional respondent Promise Land 

Properties, LLC (PLP), another Shudak entity. The ACC concluded PLP 

violated the ASA, representing grounds for a cease and desist order, and 

imposed restitution and an administrative penalty against PLP. PLP, 

however, is not a party to this appeal.
SHUDAK v. AZCC

Decision of the Court

5

order Shudak to cease and desist from any future violations of the ASA, 

that his actions constituted multiple violations of the ASA and were 

grounds for restitution and administrative penalties and recommended 

that the ACC order Shudak to pay $1,996,500 in restitution (subject to any 

offset Shudak could show) and pay an administrative penalty of $150,000. 

¶12 Shudak filed timely exceptions to the ROO. After an open 

meeting before the ACC, the ACC rejected Shudak’s exceptions and 

unanimously adopted the ROO as written. After the ACC issued the 

opinion and order (Decision) in September 2014, Shudak unsuccessfully 

sought rehearing. 

¶13 Shudak then timely challenged the Decision in superior court. 

[Id.] After full briefing and oral argument, the superior court affirmed the 

Decision. This court has jurisdiction over Shudak’s timely appeal of the 

superior court’s decision pursuant to A.R.S. §§ 12-913,4 -2101(A)(1) and -

120.21(A)(1).

DISCUSSION

I. Standard Of Review.

¶14 In substance, Shudak presses three arguments: (1) no 

substantial evidence supports the Decision; (2) the restitution and 

administrative penalty imposed were “arbitrary and capricious, and 

contrary to law” and (3) the ACC violated Shudak’s due process rights by 

adopting recommendations from an ALJ “who did not preside over” the 

evidentiary hearing, “and, therefore, did not observe witness testimony”

and making findings “based on new fraud charges never litigated by the 

parties or disclosed before the hearing.”

¶15 This court reviews the superior court’s decision to “determine 

whether the underlying administrative decision of the Commission was 

illegal, arbitrary, capricious, or involved an abuse of discretion.” Shorey v. 

Arizona Corp. Comm’n, 238 Ariz. 253, 257 ¶ 11 (App. 2015) (citations and 

internal quotations omitted). For factual challenges, this court’s review is 

limited to whether there is substantial evidence in the record to support the 

finding. Arizona Corp. Comm’n v. Pac. Motor Trucking, 116 Ariz. 465, 467

 

4 Notwithstanding its reference to “the supreme court,” A.R.S. § 12-913 “has 

been construed as also allowing an appeal to the court of appeals, which 

was created after § 12-913 was enacted.” Svendsen v. Arizona Dept. of Transp., 

Motor Vehicle Div., 234 Ariz. 528, 533 ¶ 13 (App. 2014).
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6

(App. 1977). This court independently reviews constitutional and legal 

arguments. Webb v. State ex rel. Arizona Bd. of Med. Examiners, 202 Ariz. 555, 

557 ¶ 7 (App. 2002). With these standards in mind, the court addresses 

Shudak’s arguments in turn.

II. Substantial Evidence Supports The Decision.

A. The Decision Properly Found The Offering Was Not 

Exempt From Registration.

¶16 Shudak argues the investments were part of a private offering 

and, accordingly, exempt from registration under A.R.S. § 44-1844(A)(1). 

Shudak argues the offering was exempt based on four factors: (1) the 

number of offerees; (2) the sophistication of offerees; (3) the size and 

manner of the offering and (4) the relationship of the offerees to the issuer. 

Shudak had the burden of proof to show the offering was exempt. See A.R.S. 

§ 44-2033; see also State v. Baumann, 125 Ariz. 404, 411 (1980) (“there must be 

strict compliance with all the requirements of the exemption statute”). As 

noted above, however, Shudak did not testify and did not offer any 

affirmative testimony on his behalf. On this record, Shudak has not shown 

the ACC erred in determining that Shudak “had the burden of proving the 

applicability of an exemption, which he did not do.” Nor has Shudak shown 

any legal error by the ACC in applying the factors he cites in determining 

the offering was not exempt from registration.

B. The Decision Properly Found Shudak Liable As A Control 

Person Of PSA. 

¶17 Shudak argues the Decision improperly found him liable as a 

control person of PSA because PSA could not have been primarily liable for 

violating A.R.S. § 44-1991. The Decision found PSA “committed fraud in the 

offer and sale of unregistered securities, engaging in transactions, practices, 

or a course of business which involved untrue statements and omissions of 

material facts in violation of A.R.S. § 44-1991.” PSA did not appeal from or 

challenge that finding, which is now final. Given that finding, Shudak 

cannot now argue that PSA could not be primarily liable for violating A.R.S. 

§ 44-1991, meaning his control person argument fails.

C. The Decision Properly Found Shudak Violated The ASA.

¶18 Shudak argues the Decision improperly applied the ASA in 

various ways and erroneously found him in violation of the ASA. This court 

gives “great deference to the agency’s interpretation and application of the 

statute[s]” it administers. E. Vanguard Forex, Ltd. v. Arizona Corp. Comm’n, 
SHUDAK v. AZCC

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206 Ariz. 399, 410 ¶ 35 (App. 2003); see also Baca v. Arizona Dept. of Economic 

Security, 191 Ariz. 43, 46 (App. 1998) (noting an agency’s interpretation of a 

statute or regulation it implements ordinarily is given great weight).

“However, the agency’s interpretation is not infallible, and courts must 

remain the final authority on critical questions of statutory construction.”

U.S. Parking Systems v. City of Phoenix, 160 Ariz. 210, 211 (App. 1989); cf. 

Marco Crane & Rigging v. Arizona Corp. Comm’n, 155 Ariz. 292, 294 (App. 

1987) (judicial deference to ACC interpretation of rate schedules 

appropriate “where the decision is based upon reasonable interpretation”); 

Arizona Water Co. v. Arizona Dept. of Water Res., 208 Ariz. 147, 154 ¶ 30 (2004) 

(“‘[A] court may not substitute its own construction of a statutory provision 

for a reasonable interpretation made by the administrator of an agency.’”)

(citing Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 838 

(1984)).

¶19 The parties refer to “four frauds” claimed by the Division: (1) 

oversubscribing the offering; (2) mishandling and mismanaging investor 

funds; (3) failing to advise investors of the existence of a perfected security 

interest in PSA’s assets; and (4) failing to advise investors of lawsuits and 

default judgments against Shudak and his other businesses. Shudak argues 

the Decision erroneously found that these four frauds were adequately 

supported by the evidence of record. The court addresses Shudak’s 

arguments in turn.

¶20 Shudak argues “the evidence does not support the allegation 

that Shudak sold more than 100% of [PSA’s] membership” units because he 

“only sold 88 membership units” in PSA in exchange for receipt of 

consideration. The record, however, shows that individuals “were being 

handed [PSA] membership units for bringing somebody in,” even where 

they had not paid for those membership units. Although these recipients 

did not pay for these membership units, they were similar to the 

membership units provided to investors who had paid for their

membership units. And “money is not always required as consideration.”

Keg Restaurants Arizona, Inc. v. Jones, 240 Ariz. 64 ¶ 43 (App. 2016). Finally, 

Shudak has not shown he could not be found to have committed fraud by 

distributing more than 100 percent of the membership units in PSA even if 

he received no consideration in return.

¶21 Shudak also argues that “the total number of units sold 

should be reduced even further” because one investor “received money 

back on several occasions.” However, the record is clear that investors, 

including the one who received payments, were assigned an interest in the 

company that would be maintained “through the duration of land sales of 
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8

the entire 1,900-acre parcel.” That one investor received some money back 

is immaterial to the amount of membership interests that were assigned to 

him.

¶22 Turning to mishandling and mismanaging investor funds, 

Shudak argues the Division was required to produce “substantial evidence 

of fraud with respect to each investor.” The Decision clearly found that 

Shudak violated A.R.S. § 44-1991(A) in numerous ways and committed at 

least one act of fraud with each investor. The Decision does not find, and 

the Division does not argue on appeal, that there were four fraud violations 

for every investor. Moreover, Shudak has not shown that the loss causation 

concept his argument implicates applies in this enforcement action. See 

Hirsch v. Arizona Corp. Comm’n, 237 Ariz. 456, 462 ¶ 19 (App. 2015) (rejecting 

argument that “[b]ecause the Commission did not present proof of loss 

causation as to each of the 900 participants, . . . the Commission’s conclusion 

that they violated the ASA and the corresponding imposition of 

administrative penalties were unsupported by evidence and therefore, 

legally erroneous”). Finally, to the extent this argument echoes his 

argument that the Decision was not supported by sufficient evidence, as 

discussed herein, there was ample evidence to support the fraud findings 

in the Decision.

¶23 Shudak argues there was no evidence he mismanaged funds. 

However, the Decision specifically found that Shudak commingled funds 

and added an unauthorized co-signatory contrary to PSA’s Operating 

Agreement, which constituted fraud regardless of how the funds were used 

after they were commingled. Factually, the record amply supports this 

finding. Legally, this court gives great weight to the ACC’s application of 

the ASA. E. Vanguard Forex, Ltd. 206 Ariz. at 410 ¶ 35. As set forth in the 

Decision, the ACC’s interpretation of A.R.S. § 44-1991 as including 

commingling of funds and adding an unauthorized co-signatory is 

certainly reasonable. Cf. Arizona Water Co., 208 Ariz. at 154 ¶ 30 (deferring 

to agency’s reasonable interpretation of statute); Arnold Const. Co., Inc. v. 

Arizona Bd. of Regents, 109 Ariz. 495, 499 (1973) (refusing to accept agency’s 

interpretation of a statute where it would result “in an absurdity which is 

not necessary under the purpose of the act nor required by a reasonable and 

fair construction of the wording of the statute”). Finally, given that the 

fraud finding did not turn on how the funds were used after they were 

commingled, Shudak’s argument that the Division’s “forensic accountant 

did not do any analysis on how the money was used” misses the mark. 

¶24 Shudak argues there was no evidence that he failed to disclose 

that the private lender had perfected its security interest in all of PSA’s 
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assets and that the lender deemed PSA in default of its loan obligations. It 

is true that three investors purchased their membership units before this 

loan was made. It is equally true, however, that written representations 

provided to investors, signed by Shudak, stated investors received the

membership units “free and clear of any liens and encumbrances of any 

kind, character or nature and the Grantor, and its successors and assigns 

will forever warrant and defend the same against all lawful claims and 

demands whatsoever.”

¶25 As to the investors who purchased their membership units

after this loan, Shudak does not argue the evidence demonstrates he 

disclosed the existence of the loan, which had the very real possibility of 

eliminating the value of their investments in PSA. Shudak argues offering 

documents indicated he could borrow money on behalf of PSA, and 

investors represented “they had access to whatever information they 

deemed necessary and that they conducted their own due diligence.”

Shudak has not, however, shown any authority for the proposition that 

such representations mean, as a matter of law, that he could not have acted 

fraudulently for purposes of an enforcement action by failing to disclose to 

investors that he had encumbered PSA and that the lender had a perfected 

security interest in all of PSA’s assets. Again, Shudak has failed to show the 

ACC improperly applied the ASA. See E. Vanguard Forex, Ltd., 206 Ariz. at 

410 ¶ 35. Moreover, Shudak’s duties owed to investors “not only remove[]

the burden of investigation from an investor, but places a heavy burden 

upon [Shudak] not to mislead potential investors in any way.” Trimble v. 

Am. Sav. Life Ins. Co., 152 Ariz. 548, 553 (App. 1986).

¶26 Shudak next argues “[t]here is no evidence” that he 

“represented to investors that he was qualified and had expertise and 

experience to raise capital sufficient” to fund the project or “that he failed 

to disclose to several investors that several of Shudak’s creditors had sued 

him.” To the extent this argument is premised on a requirement of proving 

lack of disclosure to all PSA investors (as opposed to all but three PSA 

investors), it fails for the same reasons set forth above. See supra ¶ 22. The 

record also supports the finding that Shudak represented to some investors 

“that he was capable of soliciting the capital needed to meet these 

obligations.” The record includes a Statement of Financial Affairs in 

Shudak’s bankruptcy, indicating 11 lawsuits were filed against him in 2008 

and 2009. This evidence supports a finding that he knew about at least some 

of this litigation yet failed to disclose it to investors. On this record, Shudak 

has not shown the Decision was factually unsupported in this regard.
SHUDAK v. AZCC

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¶27 Finally, Shudak argues there is no evidence that he induced 

an Arizona couple to purchase a note in exchange for a 50 percent interest 

in PSA. Again, the record reveals otherwise. The record includes testimony 

about the note and documents addressing the note were received at the 

hearing. Shudak presented no controverting evidence. On this record, 

Shudak has not shown the Decision was unsupported by substantial 

evidence in this regard.

D. Shudak’s Other Factual Challenges To The Decision Fail.

¶28 Shudak argues the ROO, which was prepared by ALJ Martin,

“cannot be reconciled with ALJ Stern’s comments at the hearing, let alone 

the evidence.” Before the ACC issued the Decision, ALJ Stern responded to 

a similar argument by stating “things [Shudak claimed] are taken out of 

context or misread and misinterpreted.” By issuing the Decision, the ACC 

accepted that explanation and, on this record, Shudak has not shown it was 

improper for the ACC to do so. 

¶29 Noting Shudak “presented no defense,” ALJ Stern stated that 

“the evidence wasn’t terrible. The evidence was somewhat out of order.”

At that same time, ALJ Stern stated that the Division had the burden of 

proof by a preponderance of the evidence, that the Division met its burden

of proof and that Shudak made a choice to “present[] no defense. So that’s 

the way we awarded this.” By preparing the ROO as it was later entered in 

the Decision, ALJ Martin clearly found the Division had met its burden and 

that Shudak had not successfully presented any defense. In short, Shudak 

has presented no statements by the ALJs that would show a lack of 

evidentiary support for the ROO or the Decision.

¶30 Shudak repeatedly, and relatedly, argues that the record is 

“devoid of evidence” to support various findings in the Decision, pointing 

out he did not testify and was not present at the hearing. As noted above, 

Shudak was given an opportunity to attend the hearing and could have 

testified. Instead, he elected to stay in Hawaii, where he was living at the 

time. The Decision outlines and addresses each of Shudak’s arguments

regarding the sufficiency of the evidence and finds that there was evidence 

supporting the allegations that the Decision sustained. Given the record, 

there is no meaningful benefit in restating here the factually supported and 

adequate findings in the 50-page Decision. Moreover, many of Shudak’s 

arguments turn on reweighing the evidence, something this court will not 

do. Nutek Info. Sys., Inc. v. Arizona Corp. Comm’n, 194 Ariz. 104, 107 ¶ 15 

(App. 1998) (noting this court does “not reweigh the evidence” and “will 

not substitute its judgment for that of the agency on factual questions or 
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matters of agency expertise”). This court has reviewed the record and found 

that it adequately supports the factual findings in the Decision. See Gaveck

v. Arizona State Bd. of Podiatry Examiners, 222 Ariz. 433, 436 ¶ 11 (App. 2009). 

Nothing more is required.

III. The Restitution And Administrative Penalty Imposed Were 

Proper.

¶31 The Decision ordered Shudak to pay $1,996,500 in restitution, 

(subject to any offset Shudak could demonstrate) and pay an administrative 

penalty of $150,000. Shudak argues the restitution award was improper 

because: (1) no violations were proven; (2) his due process rights were 

violated and (3) the restitution amount was not supported by the evidence.

As discussed above, Shudak’s violations of the ASA were proven, and as 

discussed below, Shudak’s due process rights were not violated. Similarly, 

Shudak has not shown the restitution amount was unsupported.

¶32 Restitution “shall include” cash equal to the fair market value 

of the consideration paid at the date such payment was originally made, 

plus interest less the amount of distributions received on the security from 

the purchase date to the date of repayment. See Ariz. Admin. Code R14-4-

308(C)(1). The $1,996,500 in restitution imposed is supported by record 

evidence, including Shudak’s bankruptcy filing, bank records and other 

documentation. Accordingly, Shudak’s lack of evidence argument fails. 

Moreover, the restitution imposed is a net amount, starting with a gross 

amount of $2,142,000 and, after accounting for a lack of supporting 

evidence for certain investments, yielding $1,996,500 plus interest. Finally, 

the Decision expressly provides that Shudak’s restitution obligation is 

subject to any offset he could show, avoiding the potential windfall Shudak 

suggests. On this record, Shudak has not shown the restitution ordered was 

error.

¶33 Shudak argues the administrative penalty of $150,000 was 

excessive because there is no evidence that he “committed 30 different 

violations.” The ACC may impose administrative penalties “in an amount 

not to exceed” $5,000 “for each violation” of the ASA. See A.R.S. § 44-

2036(A). The Decision found Shudak and PSA committed fraud with each 

offer and each sale, which the Division claims totals 90 fraud violations. In 

fact, given the “four frauds” discussed above, and the number of investors

properly implicated by each of those frauds, the maximum penalty 

authorized under A.R.S. § 44-2036 far exceeded $150,000. Accordingly, 

Shudak has shown no error in the administrative penalty imposed by the 

Decision.
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III. Shudak’s Due Process Rights Were Not Violated.

¶34 Shudak argues his due process rights were violated because: 

(1) the ALJ who did not preside over the hearing wrote the ROO and (2) the 

ROO and Decision found fraud based on charges for which he did not have 

advance notice. The court addresses these arguments in turn.

A. Because Credibility Was Not A Basis For The Decision, 

Shudak’s Due Process Rights Were Not Violated By The 

Involvement Of Two ALJs.

¶35 Shudak argues allowing an ALJ who did not preside over the 

hearing to write the ROO, that was ultimately adopted by the ACC as the 

Decision, violated his due process rights. Shudak argues the procedure 

followed did not comply with applicable administrative rules, particularly 

where credibility is at issue. Again, this court owes deference to the ACC 

when it construes the administrative rules applicable here. See Grand 

Canyon Trust v. Arizona Corp. Comm’n, 210 Ariz. 30, 36 ¶ 20 (App. 2005)

(stating this court will defer to ACC’s interpretation of own rules unless 

“that interpretation is clearly erroneous”).

¶36 By rule, the ACC has significant flexibility in determining 

how hearings and recommended decisions should proceed. Among other 

alternatives, a hearing may be held “before . . . one or more” ALJs. A.A.C. 

R14-3-109(A). Again by rule, “[i]n a proceeding heard by a Hearing Officer 

[ALJ], the Hearing Officer [ALJ] shall prepare his recommendation which 

may be in the form of an opinion and order, unless otherwise directed by 

the Commissioners.” A.A.C. R14-3-110(B). And all such rules “shall be 

liberally construed to secure just and speedy determination of all matters 

presented to the Commission,” and may be waived “[i]f good cause 

appears” when they do “not affect the substantial interests of the parties.” 

A.A.C R14-3-101 (B). Here, as noted by the ACC’s Chief ALJ during the 

open meeting, the change in ALJs “was purely a case-management 

decision” given “a backlog of securities cases that didn’t have a ROO 

written.”

¶37 Even if Shudak could show the ACC violated its own rules, 

Shudak would have to show that such a violation prejudiced him and 

violated his due process rights. See Brown v. Arizona Dept. of Real Estate, 181 

Ariz. 320, 324 (App. 1995) (noting agency’s violation of its rules was “hardly 

a model of efficient decision-making,” but that appellant was required to 

show that such a violation caused him to lose a significant legal right rising 

to the level of a due process violation). Thus, notwithstanding Shudak’s 
SHUDAK v. AZCC

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13

argument that the ACC violated applicable rules, given the discretion 

vested in the ACC to administer those rules, Shudak’s argument turns on 

whether he was deprived his due process rights. 

¶38 Contrary to Shudak’s argument, the ROO and Decision did 

not turn on credibility and Shudak’s “substantial interests” were not 

affected by the involvement of two ALJs. ALJ Stern, who presided over the 

evidentiary hearing, expressly stated during the open meeting that there 

“was nothing in that hearing that would give us cause to question the 

credibility of the witnesses.” ALJ Stern added that no competing witnesses 

were offered to challenge credibility. Nor is there any suggestion from the 

ROO that credibility formed the basis for ALJ Martin’s recommendation. In 

oral argument before this court, Shudak asserted that credibility was 

brought into issue at the hearing in the form of cross-examination and 

because there was “conflicting testimony.” It is true that the testimony of 

the investor witnesses differed. However, Shudak is conflating “different”

with “conflicting.” Shudak has not shown that because investors had 

factually different stories about their own circumstances, these immaterial 

differences directly, or even indirectly, contradicted each investor’s 

testimony that Shudak offered and sold them securities.

¶39 Shudak’s counsel cross-examined an investor about why he 

was in the hospital when he met Shudak because “the reasons why he was 

in outpatient goes to the credibility of the witness.” However, ALJ Martin 

allowed the questioning and decided the questioning did not put the 

investor’s credibility at issue. Moreover, the Decision did not turn on one 

investor’s memory of how he met Shudak.

¶40 Finally, notwithstanding Shudak’s arguments, ACC

Commissioners typically do not preside over evidentiary hearings, even 

when credibility is at issue, but are always the final decision-makers. See 

A.R.S. § 41-1092.08(B); cf. Ritland v. Arizona State Bd. Of Med. Examiners, 213 

Ariz. 187, 191 ¶ 12 (App. 2006) (holding “because the Board, and not the 

ALJ, issues the final administrative decision, the Board is not bound by the 

ALJ’s findings of fact, including those related to credibility”). Thus, the 

record does not support Shudak’s assertion that “[w]itness credibility and 

demeanor were critical parts of the Division’s case.”

¶41 In oral argument before this court, Shudak urged a definition 

of credibility from Ohlmaier v. Indus. Comm’n of Arizona, “in the larger 

sense,” as including “anything which throws light on the accuracy, 

truthfulness, and sincerity of the witness.” 161 Ariz. 113, 118 (1989). Even 

accepting this definition, Shudak has not shown that credibility, in either a 
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14

more typical sense or in this “larger sense,” was at issue in the hearing. 

Ohlmaier does state that a single finder of fact “shall hear all conflicting 

evidence which may form the basis of a contested industrial award.” 161 

Ariz. at 115. However, unlike Ohlmaier, in this case, there was no conflicting 

evidence implicating credibility. Indeed, Ohlmaier was careful to state that 

it was not implying that “all testimony must be heard ‘live.’ In some cases 

necessity dictates a different approach.” Id. at 118. 

¶42 In asserting a denial of due process, Shudak relies almost 

exclusively on Adams v. Indus. Comm’n of Arizona, 147 Ariz. 418 (App. 1985). 

In that case, a substituted ALJ, who did not observe testimony, reversed a

workers’ compensation award, noting medical evidence of the claimed 

injury was “so weakened by lack of a credible factual background as to be 

insufficient to support a compensable award.” Id. at 419. Adams held that 

such a decision was error because, unlike this case, the ALJ’s decision 

turned on credibility and “the credibility of the claimant was central to the 

determination.” Id. at 422. Further, Adams qualified that holding by 

recognizing “that where final administrative decisions are made by agency 

boards or commissions, the commissioners themselves need not personally 

observe the witnesses.” Id. at 421 n.1. 

¶43 Adams is distinguishable. Over a three-day hearing, the 

Division called five witnesses, two of whom were Division employees. The 

testimony of each witness was corroborated by documentary evidence. 

Shudak did not call any witnesses nor did he present any evidence 

addressing credibility determinations. Further, ALJ Stern made plain that 

nothing received at the evidentiary hearing gave any “cause to question the 

credibility of the witnesses.” See also Carbo v. United States, 314 F.2d 718 (9th 

Cir. 1963) (holding there was no due process violation where successor 

judge studied the record and concluded “that the corroboration [the 

witnesses] received from other convincing evidence placed the 

government’s case safely beyond demeanor impeachment and that [the 

original judge] himself had not been disturbed by questions of credibility”). 

In addition, the ACC (not the ALJ) entered the Decision. See Adams, 147 

Ariz. at 421 n.1. Because the evidentiary record resulting in the ROO, that 

the ACC then adopted in the Decision, did not turn on credibility, Adams

does not show Shudak’s due process rights were violated.

¶44 The ACC relies on Pine-Strawberry Imp. Ass’n v. Arizona Corp. 

Comm’n, 152 Ariz. 339 (App. 1986), for the proposition that an 

administrative agency may substitute ALJs without violating due process. 

In Pine-Strawberry, the ACC increased water rates and, after a hearing, a 

different hearing officer wrote a proposed order. Id. at 340. On appeal, the
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Decision of the Court

15

court held that, because the second ALJ “had the benefit of the recorded 

testimony,” that process “was sufficient to comply with due process 

requirements.” Id. Although Shudak correctly notes Pine-Strawberry was

not an enforcement case, he has not shown how that distinction means this 

analysis does not apply here. As in Pine-Strawberry, the ACC directed an 

ALJ to prepare an order and credibility was not at issue. Accordingly, PineStrawberry demonstrates Shudak’s due process rights were not violated.

¶45 The ACC was not bound to accept the ROO and could have 

accepted it (as it did here) or accepted it in part or rejected it. As noted in 

Ohlmaier, “members of the commission who do not hear the testimony at 

the evidentiary hearing, but review the transcribed testimony thereof, may 

vote nonetheless and no right has been violated.” 161 Ariz. at 118. Shudak

expressed his concerns to the ACC at the open hearing, and the ACC could 

have refused to adopt the ROO. Instead, the ACC rejected Shudak’s

argument and entered the Decision. Accordingly, Shudak has not shown 

that his due process rights were violated based on the involvement of two 

different ALJs.

B. Because Shudak Had Proper, Timely Notice Of All Charges 

Against Him, His Due Process Rights Were Not Violated.

¶46 Shudak argues his due process rights were violated because 

the ACC issued “a Decision that adopted new fraud charges . . . that were 

neither identified in the Notice nor argued by the parties during the 

hearing.” More specifically, Shudak argues his adding a co-signatory to 

PSA’s bank account and commingling funds did not constitute mishandling 

and mismanaging investor funds. This, Shudak argues, violated his due 

process rights.

¶47 One of the “four frauds” alleged was mishandling and 

mismanaging investor funds. Based on the record, the Decision concluded 

“that commingling investor funds with non-investor funds, and allowing a 

person to have access to investor funds who was not a PSA officer and who 

had a dubious financial background, constitutes misuse and mishandling 

of investor funds” and that such conduct also “constitutes an omission of a 

material fact in violation of the anti-fraud provisions” of the ASA. Clearly, 

Shudak had notice of the allegations that he had mishandled investor funds

and that he had omitted material facts. Thus, the finding that he 

commingled funds and improperly added a co-signatory to PSA’s accounts 

constituted one of the “four frauds” alleged by the Division long before the 

hearing.
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Decision of the Court

16

¶48 The evidence received at the hearing, which was disclosed to 

Shudak before the hearing, supports the finding that Shudak misused 

investor funds and added his girlfriend as a co-signatory to the account. 

Shudak argues that “[n]one of the witnesses were asked about signatories 

on the account or the alleged commingling of funds, because that was not a 

basis for the Division’s securities fraud claim.” The record, however, is to 

the contrary. The Division’s forensic accountant testified about the 

commingling of funds and supporting bank documents that were admitted 

into evidence. In addition, Shudak did not object to bank signature cards,

which contained his girlfriend’s name as a signatory. Shudak cannot now 

assert that the allegations leading to the findings in the Decision were a 

surprise. 

¶49 Shudak had proper notice of the allegations against him and 

an opportunity to be heard. On this record, Shudak has not shown that his 

due process rights were violated. See Mathews v. Eldridge, 424 U.S. 319, 349 

(1976) (defining due process as notice and an opportunity to be heard;

noting due process has been provided where agency’s “procedures not only 

provide the claimant with an effective process for asserting his claim prior 

to any administrative action, but also assure a right to an evidentiary 

hearing, as well as to subsequent judicial review”).

CONCLUSION

¶50 Shudak has not shown the Decision was “illegal, arbitrary, 

capricious, or involved an abuse of discretion.” Shorey, 238 Ariz. at 257 ¶ 11. 

Accordingly, the Decision is affirmed. In addition, because Shudak is not 

the prevailing party, his request for attorneys’ fees on appeal pursuant to 

A.R.S. §§ 12-348(A)(2) and 41-1007, as well as his costs on appeal, is denied.