Supreme Law of the Land: HOA servitudes or the Constitution?

In my Commentary this past September (Year 2 AZ OAH statistics on HOA cases — homeowners still win 43% of the cases!) I wrote,  “What else are the CAI attorneys telling the legislators that has no basis in fact?  When will the legislators, the courts, the media, and the various public interest nonprofits going to wake up and face the reality before them?”

 

 I have observed a recurrent behavior by CAI attorneys who say one thing to state legislators and government officials, and another when before the courts representing their client, the HOA (not the homeowners or any member of a nonprofit membership organization).   Before the courts and administrative tribunals, one easily sees these attorneys defending their client HOA with a win-at-all-costs attitude as they proclaim is their duty to their client HOA, even contradicting statements made to the general public or, as above, to legislative committees.  (Understanding that under the various state Codes of Professional Conduct (Rule 42, E.R. 1.13, in Arizona) the client is the fictitious person, the HOA, not the member-owners).

 

With respect to the fiduciary duties question, CAI, that self-proclaimed national HOA educational organization since 1973, has released several publicly available documents, including its policy statement document, that says:

 

Homeowner Rights & Responsibilities, Community Leaders Have the Responsibility To :

1. Fulfill their fiduciary duties to the community and exercise discretion in a manner they reasonably believe to be in the best interests of the community.

  

GAP Report #20:

Conflicts of Interest, by Tonia C. Sellers, ESQ. and Jay S. Lazega, ESQ. Published by Community Associations Institute. Provides standards for both boards and managers. Highlights areas of activity in which actual or potential conflict may arise and suggests actions to take when a conflict does arise. Covered are fiduciary duty obligations, conduct of the directors, managerial conflicts, ethics policies, board conflicts, and a host of other topics. Also contains sample policies, resolutions, code of ethics, and cases.

 

CAI Public Policies, Community Association Members’ & Community Associations’Rights and Responsibilities, Association Responsible For (p.24)

Diligently ensuring each board member fulfills his or her fiduciary duties.

 

 

It doesn’t take a stretch of the imagination to understand that the “community” is the homeowner-members — the owners of the HOA — and not the fictitious person.  (The Restatement Third, Property: Servitudes, § 6.13, comment “a”, rejects this argument out of hand). But, how can CAI build vibrant, harmonious communities, as it advertises, if just speaking about the fictitious HOA corporation, per se, and not the people?  I cannot find where CAI clarifies that it is equating “community” and “best interests of the community” to the HOA corporation, and not to the homeowner.  The impression, obviously, is that CAI is speaking about the homeowners themselves.

 

A particularly disturbing incident came to my attention regarding the fiduciary duties, if any, that a board member, and the board as a whole, has to the membership.   In an Arizona Superior Court (CV 2008-027251, Maricopa County) filing against the unreasonable interpretation of a quorum covenant by the HOA board, the HOA attorney and member of the CAI College of Community Associations Lawyers, wrote in its Motion to Dismiss,

 

In addition, Arizona law does not recognize a claim for breach of fiduciary duty for Associations (p. 2).  Plaintiffs’ breach of fiduciary claim should be dismissed. Because neither the association nor its Board of Directors owes the Association’s members a fiduciary duty plaintiffs have not stated a claim upon which relief can be granted (p. 4).

 

Why shouldn’t HOA directors, and the HOA, not have a fiduciary duty to the member-owners?  The HOA and directors are not even held accountable under state laws for violations of the law or of their governing documents.  Yet, homeowners have statutes that impose the possible loss of finances and their homes for violations of the governing documents.

 

The CAI attorney then cites the Restatement, sections 6.13 and 6.14, that do not mention the term “fiduciary duty” at all. It mentions other legal concepts such as good faith, prudent person, ordinary care, act reasonably, and deal fairly.  The Restatement also takes the position in favor of the superiority of servitude property law over corporate law (sec. 6.14), and over constitutional law (sec. 3.1, comment “a”) as well.   CAI “Central” apparently agreed with this superiority of servitudes over the Constitution when, in its amicus brief, it warned the NJ Appellate Court (CBTW v. Twin Rivers, 2007) against, “the unwise extension of constitutional rights to the use of private property by members” (p.19).

 

What, then, does CAI stand for when you put aside its promotional propaganda and take a hard look at the actions of its members?  Surely, it does not stand behind the values, principles and beliefs of the American system of government.  And yet, our legislators across the country see no evil, no harm to America, and continue to impose top-down special laws for homeowners associations without constitutional protections for the people, the homeowners.

 

All legislators and government officials, as well as the media, should ask these special interest groups supporting pro-HOA legislation where they stand with respect to,

 

  1. the Constitution as the supreme law of the land, and
  2. that the Restatement Third, Property: Servitudes is dead wrong with its pronouncements that servitude law is the supreme law of the land.
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Published in: on December 6, 2008 at 11:46 am  Comments (4)  

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  1. What is your take on the idea that the HOA general manager and board members are “public servants”? I refer you to the Texas Penal Code for the definition of public servant:

    Sec. 1.07. DEFINITIONS. (a) In this code:

    (41) “Public servant” means a person elected, selected, appointed, employed, or otherwise designated as one of the following, even if he has not yet qualified for office or assumed his duties:

    (C) an arbitrator, referee, or other person who is authorized by law or private written agreement to hear or determine a cause or controversy;

    • Your HOA is a nonprofit corporation, most likely, chartered not under the state laws of municipalities of Texas, but under corporate law. As such, directors and officers have duties and obligations under the corporate nonprofit, membership corporations statutes, not under public government.

      HOA directors are elected to run the HOA and have duties and obligations according to the CC&Rs and bylaws, and that is to the HOA and not to the membership (and so does your HOA attorney — to the HOA and not the members). They are member representatives not in the sense of public servants, but more in the sense of a business. Therefore, they have no obligations to the general membership for the public good, or have any civic duty as publically elected officials do. Their duty and care is to the HOA that simply says, in its most public responsibility, to treat all members alike. They do not have to be fair, just or compassionate, or to abide by the state and federal constitutions.

      In that sense, HOAs are indeed independent principalities unaccountable to the state. All legislation attempting to reform HOAs is a an attempt to restore lost rights and freedoms, and to make the HOA subject to the same laws and principles as provided by the Constitution.

  2. This responds to the question about the fiduciary duty of board members. I believe it is to the Association, but more specifically as defined in the law and governing documents. In the sense that the governing documents define the community, the fiduciary duty is to the community.

    But the duty does not extend to each individual owner/member, who has many varied interests. There is an old case in Michigan that extends the duty to the common benefit of all members. See Thompson v. Walker, 253 Mich. 126, 234 N.W. 144 (1931), Headnote 5, which states:

    “5. CORPORATIONS—TRUSTS-OFFICERS HAVE TRUST RELATION.
    Officers and directors of corporation have its affairs committed to their charge upon trust and confidence that they will be cared for and managed for common benefit of all stockholders.”

    I wouldn’t be surprised if there are similar rulings in other states.

    But the common benefit of all the stockholders (members) is what is defined in the governing documents, statutory law and case law.

    These arguments come into play in matters concerning obligations related to the common benefit that are not explicitly defined in the law and governing documents.
    For example, whether or not the board is obligated to provide full and accurate information with no omissions that could make the disclosure deceptive and/or misleading. I believe the fiduciary duty under the “common benefit” doctrine applies.

    • Thanks Don for your comment.

      In terms of “the eye of the beholder”, how does the average homeowner see his HOA? As a local, private community or as a private business. The current view is to adopt the business perception in which case I can argue that there are distinct differences in class, in duties and in obligations, between management/HOA directors and employees/members. If, on the other hand, HOAs are indeed perceived as harmonious, vibrant communities, then there is a disconnect between the “elected officials” and their role as public servants holding a public trust.

      The question still remains, “What form of local government is permitted under the Constitution, and should legislators permit a circumvention of the Constitutional protections by means of privately contracted governments?


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