Can the HOA legal scheme survive constitutional due process?

Bob Frank, a Commissioner on the Nevada Commission for Common Interest Communities and Condominium Hotels, asked in the LinkedIn group, Condo Association (and HOA) Network, Should States Pass “Due Process Regulations” Along The lines of The Following Draft?

My comment follows:

Bob, an excellent in depth presentation of HOA due process procedures. Allow me to provide the authority for your proposal. Judge Henry Friendly in his well-regarded article, “Some Kind of Hearing,”[1] generated a list that remains highly influential, as to both content and relative priority (my emphasis):

  • An unbiased tribunal;
  • Notice and grounds for the proposed action;
  • An opportunity to show why the proposed action should not be taken;
  • The right to call witnesses;
  • The right to know opposing evidence;
  • The right to have the decision based only on the evidence presented;
  • The opportunity to be represented by counsel;
  • A record of the proceeding;
  • A statement of reasons;
  • Public attendance; and
  • Availability of judicial review.

 

As you will note, the first listed item above requires “an unbiased tribunal.” What would you add to your proposal to further protect the integrity of your HOA due process procedures? Obviously some sort of code of conduct for those sitting on the “hearing tribunal” is in order. Following are the four Canons taken from the American Bar Association’s Model Code of Judicial Conduct[2].

CANON 1

A judge shall uphold and promote the, independence, integrity, and impartiality of the judiciary, and shall avoid impropriety and the appearance of impropriety.

CANON 2

A judge shall perform the duties of judicial office impartially, competently, and diligently.

CANON 3

A judge shall conduct the judge’s personal and extrajudicial activities to minimize the risk of conflict with the obligations of judicial office.

CANON 4

A judge or candidate for judicial office shall not engage in political or campaign activity that is inconsistent with the integrity, or impartiality of the judiciary.

I would think that third-parties with some legal background would be the way to go, but this would run into the dogmatic “the HOA members shall judge their ‘peers.’” But, then again, is that possible?

You have touched upon one of my 5 HOA substantive reforms arguments, “Fair and Just Hearings,[3] the absence of which is a clear indication of the oppressive and authoritarian nature of the HOA legal scheme.  If it is possible to obtain fair and just hearings, would this move toward democratic reforms cause the HOA legal scheme as it exists today to collapse, or can the real estate package governed by an HOA government survive governed by a true democracy?[4]

References

[1] Judge Henry Friendly, “Friendly, Some Kind of Hearing,” 123 U. PA. L. Rev. 1267, 1279-1295 (1975).

[2] American Bar Association’s Model Code of Judicial Conduct (http://www.americanbar.org/groups/ professional_responsibility/publications/model_code_of_judicial_conduct.html).

[3] See “HOA Common Sense, No. 6, Fair and Just Hearings”.

[4] See “Would the HOA legal scheme collapse under a democratic form of government?

 

Colorado HOA act creates state actors?

I give credit to the Colorado Legislature for stating its intent, its position, on supporting HOAs, which is rarely found in other state statutes.  Section 38-33.3-102 reads (in part):

Legislative declaration

(1) The general assembly hereby finds, determines, and declares, as follows:

(a) That it is in the best interests of the state and its citizens to establish a clear, comprehensive, and uniform framework for the creation and operation of common interest communities;

(b) That the continuation of the economic prosperity of Colorado is dependent upon the strengthening of homeowner associations in common interest communities financially through the setting of budget guidelines, the creation of statutory assessment liens, the granting of six months’ lien priority, the facilitation of borrowing, and more certain powers in the association to sue on behalf of the owners and through enhancing the financial stability of associations by increasing the association’s powers to collect delinquent assessments, late charges, fines, and enforcement costs;

 

Subsections (c) – (e) contain basically the same theme — don’t let the HOA fail by providing the developer with certain financial protections and operating rules on good management.  In a bold, in your face statement the statute contains an annotation, which reads:

There is no support for the proposition that enactment of a legislative scheme governing the operation of homeowners’ association thereby transforms such homeowners’ association into cities or other governmental entities. Woodmoor Improvement Ass’n v. Brenner, 919 P.2d 928 (Colo. App. 1996).

This 1996 authority still holds true today.  State governments regulate people and entities by establishing laws, such as these HOA “acts” under its police powers “to promote the general welfare.”   That has come to mean to protect the health, safety and general welfare of the people.  The issue at hand, which has not been tested in the courts, is: when does and under what circumstances do these HOA acts create HOAs as state actors?[1]

It would seem that just from this Legislative Declaration of purpose there are reasonable grounds to suspect state cooperation (no penalties against HOA violations of state laws or the governing documents), coercion (foreclosure, pay or lose your home, etc.), and support for HOAs, a close nexus with daily operations (closely involved on HOA management) s symbiotic relationship (you help me, I help you), significant encouragement, either overtly or covertly.[2]  But no mention of any protections of due process and the equal protection of the laws as an objective of its involvement in HOA-Land.

Note that subsection 1(a) above speaks not of individual statutes, but of “a clear, comprehensive, and uniform framework” to support HOAs. Therefore, we must look at the overall picture of the HOA act and determine its broad impact on HOAs, and whether the legal scheme or structure establishes state actors.  And in 1(b) above the general assembly makes a case for establishing state actors when it states, “by increasing the association’s powers to collect delinquent assessments, late charges, fines, and enforcement costs.”  The details can be found within the act itself.

Please understand that in the statutes, both in Colorado and in other states, the statutes give the appearance of protecting the homeowner and his rights, but this is an illusion. What does the homeowner do if the board violates the law?  His ultimate recourse is to sue the HOA in civil court, but the statutes and governing documents (and court case history) are protective of the HOA as this Colorado section clearly demonstrates.

Where are the constitutional protections that would remove the HOA member as a second-class citizen?  To bring him back into the American Zone? They are nowhere to be found!  Why?  Because the state believes that the homebuyer has freely and with full knowledge agreed to be bound by the explicit and implied waivers in the governing documents.  But, have they?[3]

It would seem that the Colorado General Assembly has crossed the line and by its HOA statutes created HOAs as state actors.

References

[1] See, in general, HOA Common Sense, No. 9: HOA governments in fact.

[2] See Do state HOA Statutes Establish HOAs as State Actors?

[3] See HOA Common Sense, No. 4: Consent to be governed

AZ amicus brief seeking answers to constitutional HOA questions denied

A constitutionality challenge[1] was made to Arizona’s SB 1482 “HOA Omnibus Bill” (ominous bill), the 2014 version of SB 1454 from last year.[2]   Although the law has become effective this past July 24th, the case is still active.  Yours truly filed an amicus curiae brief in superior court on behalf of the Pro Se plaintive, Dave Russell, to which the Arizona Attorney General, lawyer for the State of Arizona, found objectionable. The judge denied my motion to file the brief.

The AG objected under a too one-sided against Arizona argument (complete objection).

Defendant, State of Arizona, opposes George K. Starapoli’s Motion for Leave to File Amicus

Brief in this matter for the following reasons:

  1. There is no authority to file an Amicus Brief in this matter in the superior court.

  1. It would be prejudicial to the State to allow the brief to be filed at this time. The State has responded to the Plaintiffs Motion for Expedited Preliminary Injunction, and that Motion could be considered based on the documents already filed by the parties. To allow the brief to be filed would prolong the process, require additional response, and potentially confuse the issues.

 

I did not refer to the Injunction, but the complaint itself, so what gives??  What does “potentially confuse the issues” mean?  Too much for the AG or judge to handle???

On the 28th, the judge ruled (complete minute entry),

 

On July 11, 2014, George Staropoli filed a “Motion for Leave to File an Amicus Curiae Brief in Support of the Plaintiff”. The Court has reviewed this motion and considered the circumstances. Under the circumstances,

IT IS ORDERED denying the above-identified motion.

What does “under the circumstances mean?????    Was it too confusing for the court to handle????

 

I was informed that a leading public interest nonprofit that has argued before the Arizona Supreme Court has had its amicus briefs to the Superior Court also denied.  I expected as much, but I had hoped for a dissertation as to why the denial beyond “under the circumstances.”

 

The issues that I raised in my amicus brief were:

 

  • Is a bill allowing HOA managers to represent HOAs while prohibiting the homeowner to engage an unlicensed and untrained third-party to speak for them in small claims court an unconstitutional special law in violation of the equal protection of the law under the US and Arizona Constitutions? (SB 1482, Section 7).

 

  • Do the renter documentation requirements and restrictions constitute an unconstitutional interference with private agreements as it creates more harm to the homeowners than the benefits of an unstated government interest?  (SB1482, Sections 11 and 15).

 

The court must still decide on the injunction to not enforce the bill (or the part dealing with HOA managers in small claims court), which it cannot do because Rule 31 of the Arizona Supreme Court forbids non-lawyers from representing anyone in court, including small claims court.  And the Constitution says the SC controls its procedures and not the legislature!  So, folks, what’s the fuss all about?

 

What this incident has demonstrated is the use of the law by the AG and an eagerly cooperative court.  Was my brief so harmful to the State of Arizona’s case that the truth must be hidden?  Or was my brief valid because the overwhelming facts and background presented made a strong case for the tyranny of the legislature that resulted in an unconstitutional law, a law which was motivated by domineering HOA stakeholders, the special interests?

What my little exercise has demonstrated is the silence on the part of our government.  Why?  Because like an HOA they don’t have too!  A law is constitutional because the ‘sovereign,’ the legislature, has spoken and can do no wrong.   Like an HOA, the state well knows it cannot make a valid and compelling justification for the bill in question, SB 1482.  Any such attempt would demonstrate to all that the State of Arizona was defending the indefensible.  So, mum’s the word.

How does a citizen successfully argue his case when the State’s defense is, “Because I can!”

 

 

References

[1] See the complaint, Russell v. State of Arizona, CV2014-093-052 (Maricopa County Superior Court).

[2] See in general: A lesson in HOA reforms and power politics in AZ; AZ legislature fails to remove invalid statutes from its ARS web page.

Illinois appellate court awards punitive damages for reckless indifference by condo

Note:  This case is based on Illinois laws and case history precedent with respect to punitive damages and the business judgment rule.  (Normally, punitive damages are not awarded for breach of contract claims, but this case was a breach of fiduciary claim). I believe other states have similar laws and case history that would make this opinion valid in the respective states.  However, the decision is not for publication or use as binding precedent.

It reflects a common sense approach to justice under the law and not a decision to uphold the view that the HOA can do nothing wrong; and that the HOA always acts in the best interest of the HOA’s obligation to all the members.

Plaintiff must ask for punitive damages.

 

The issue:  Over a 2-year period, condo ignored homeowner’s repeated requests for assistance in addressing water damage, forcing homeowner to incur expenses to make repairs and to hire an attorney to seek condo reimbursement.  Punitive damages against the condo were sought.

The Laws:  Condo board’s breach of fiduciary duty;   punitive damages award for willful or evil motive or reckless indifference to rights of others; business judgment rule.

Decision:   Affirmed trial court decision against condo for breach of fiduciary duty to homeowner, and the award of punitive damages amounting to $22,000 above the damages of $5,497.

Discussion by the Court: 

“The purpose of punitive damages is not compensation, but punishment of the offender and deterrence of the wrongdoer and others. Punitive damages may be awarded ‘where the defendant’s conduct is willful or outrageous due to evil motive or a reckless indifference to the rights of others.’ “The parties agree that a trial court may award punitive damages in a breach of fiduciary duty case.

“[The trial court] found the Association ‘acted with reckless indifference to the rights and needs of [plaintiff] who was forced to use her own funds to repair an apartment and then hire a lawyer to help her recover her reasonable cost.’”

[Business judgment rule opinion].

“We note here that the Association urges us to find an abuse of discretion [judge overstepped his authority] because the award conflicts with its business judgment. ‘Under the business judgment rule [. . .] absent evidence of bad faith, fraud, illegality, or gross overreaching, courts are not at liberty to interfere with the exercise of business judgment by corporate directors.’

“The rule protects directors who have been careful and diligent in performing their duties from being subjected to liability for honest mistakes of judgment. . . . That is not what occurred in this case, where the Association was neither diligent nor careful in performing its duties, but instead chose to ignore the plight of  [plaintiff].”

Comment:  Punitive damages are the only realistic method whereby homeowner’s can impose a meaningful detriment to continued board abuse, as state laws do not punish the HOA board for violations of state laws or the governing documents.

 

Case:   Shuh v. Plaza Des Plaines Condominium Assn, No. 1-13-1999 (IL App. 1st  Dist. July 24, 201) (Thanks to HOA Member Services, “This website is designed to provide people with all the information they need to understand and enhance their experience of working with or living in a common interest development that is governed by a homeowners association.”)

 

 

Would the HOA legal scheme collapse under a democratic form of government?

The HOA legal scheme as a nonprofit form of government chartered under corporation laws cannot be held in the same light as a democratic public government chartered under municipal corporation laws.

We use the term HOA quite loosely as I have in many of my posts.  However, the HOA is 1) the legal governing body of a 2) planned unit development or condominium, which is a real estate ‘package’ of amenities, landscaping, etc.  It is a de facto – it exists and functions – government, but unrecognized by the state as is Cuba.

Can we get rid of the ‘package’?  I don’t think so for reasons that I’ve stated  — too big.  Can we get rid of the oppressive authoritarian governing body known as the ‘association,’ home or property owners associations, etc.? Definitely yes!  Or can we?

Questions for study and thought!  

 1.    Will the ‘package’ collapse if we remove the oppressive authoritarian governing body and substitute a more democratic regime?

2.    Why didn’t the promoters of the current HOA scheme (in their seminal publication, The Homes Association Handbook) present the HOA as a municipal corporation rather than a nonprofit corporation?

In regard to question 2, is it because the promoters knew that the HOA would be subject to the Constitution and restricted by state laws?

A hint is given, even in the Handbook, with the discussion of ‘free riders’ and the need for mandatory membership and compulsory dues.  (A ‘free rider’ is one who benefits from the efforts and money of others as in the case of unions, as would be the case with voluntary HOA memberships.)  The other hint is how does one maintain property values, that huge appeal to the masses, without strict enforcement of many specific rules and regulations? If people were free to do as they please, what is the value of the HOA?

Apparently, local ordinances did not satisfy the promoters of the HOA scheme because they were too broad and didn’t represent the membership, but somehow top-down, take-it–or-leave-it CC&Rs do.  And to be sure, make it an adhesion contract that favors the HOA and prevents the practical and effective voice of the people. Apparently our system of government failed to satisfy the promoters, and their need for a better form of government was sought – one better suited to the goals of the promoters.  A fascist form of government (or if that offends you, a corporate oligarchy where the objective of the state is to satisfy not the people, but the government) did the trick quite well.

The answers will illuminate the fundamental problem with HOA reform and the resistance to substantive reforms.

 

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