The unconstitutional delegation of implied rulemaking powers to HOAs

Here I present evidence of the explicit and implicit delegation of rulemaking powers to HOAs, which, if not unconstitutional, would alone establish HOAs as state actors.

In an earlier Commentary[1] I discussed the implied delegation of legislative functions to HOA private governments. Putting the issue in simple terms, I quoted Stephen Wermiel’s comments on a constitutional delegation case before the US Supreme Court,

The dispute before the [Supreme] Court . . . [involves] the even less well-known principle that Congress may not delegate legislative authority to private entities. . . . [T]he Justices must decide if the authority given to Amtrak by federal law is legislative in nature, and whether Amtrak is a private corporation or a public entity.[2]

“Rulemaking” is a term that deals with the grant of legislative powers to state agencies and, in a more restrictive mode, to private entities. It is the authority to adopt rules that have the effect of law, which can be found in the federal and state Administrative Procedures Acts (APA)[3]. The point is that the term “rulemaking” is a state agency process and is not found in the nonprofit corporation law even though these nonprofits have rules.

However, it has been applied to the supposedly nongovernmental, private nonprofit HOA corporation. In Tierra Rancho [4]  the court quoted The Restatement (3rd) Servitudes (the common law legal authority in the absence of statutory law) § 6.13(1)(b) and (c) in paragraph 25, “[the HOA has] the duty to ‘act reasonably in the exercise of its discretionary powers including rulemaking, enforcement, and design-control powers.’”  The HOA rulemaking powers are set forth in detail in § 6.7.

Ҥ 6.7 Power to Adopt Rules Governing Use of Property [my emphasis],

(1)        Except as limited by statute or the governing documents, a common-interest community has an implied power to adopt reasonable rules to

(b)        govern the use of individually owned property to protect the common property.”

Comment “b” to 6.7 (p. 141, second paragraph) goes even further,

Even in the absence of an express grant of authority, an association enjoys an implied power to make rules in furtherance of its power over the common property.  The association has no inherent power to regulate use of individually owned properties, however, except as implied by its responsibility for management of the common property.

And finally, examples of implied delegation of rulemaking powers can be found in state statutes.[5]

It is quite evident that the public policy of every state contains an implied delegation of legislative rulemaking powers to private HOA corporations.

Stephen Wermiel explained the non-delegation doctrine in Amtrak (my emphasis),

“[I]n theory delegation to the private sector can never be constitutional. . . . The Solicitor General argues that there is no unconstitutional delegation to a private entity because government officials retained control . . . . The Association of American Railroads (AAR) argues that the delegation to Amtrak is for actual rule-making authority and that Amtrak is . . . a private entity for purposes of the nondelegation doctrine.[6]

In regard to the Solicitor General’s argument, we know this is not true with HOA statutes.  As there is no oversight, no enforcement, and no effective penalties against HOAs that violate the law, there is no government control.[7]  Having the homeowner enforce the HOA laws does not constitute government control or oversight.  In regard to AAR’s argument, the above evidence supports an unconstitutional delegation of legislative rulemaking powers to private HOA entities.

No matter how you view the private entity non-delegation doctrine, HOA rulemaking is unconstitutional and the covenants are thereby invalid. (The Restatement, § 3.1, Validity of Servitudes, General Comments.)

 

References

[1] Unconstitutional delegation of power to HOAs.

[2] Stephen Wermiel, SCOTUS for Law Students: Non-delegation doctrine returns after long hiatus.  (SCOTUSblog Dec. 4, 2014)

[3]See federal Administrative Procedure Act (5 U.S.C. Subchapter II, § 551(4) and § 553).

[4] Tierra Ranchos HOA v. Kitchukov, 165 P.3d 173 (Ariz. App. Div. 1 2007).

[5] A sample of implied rulemaking statutes by state.  Arizona: ARS 33-1803(A) and (B) for HOAs; 33-1242(A)(1) for condos. California: Civil Code §§ 4340-4370 (Part 5, Chapter 3, Article 5, Operating Rules). Florida HOAs:  Title XL, § 720 et seq. do not explicitly address rules per se, but speak to enforceable “guidelines” and “standards”; Florida Condos:  Title XL, § 718 et seq. (in particular, § 718.1035, the general statement on “association rules”). Nevada: “NRS 116.31065  Rules.  The rules adopted by an association” (with 5 “musts” imposed on the HOA).

[6] Supra, note 2.

[7] In regard to the delegation of legislative powers to private entities, a review of the fuzzy case history of the Non-delegation doctrine indicates a constitutional requirement for governmental control or oversight of the private entity’s decisions and rules.  See “ A New Private Delegation Doctrine?”.

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Published in: on March 10, 2015 at 7:39 am  Comments (1)  
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