Business judgment rule not right for sui generis HOAs

This examination of the business judgment rule is a supplement to my amicus curiae brief to the AZ Supreme Court (Taylor v. Bendt, CV-21-0049, awaiting decision to hear case) in which I provided guidance in regard to 1) HOAs are sui generis created by rejecting Constitutional protections and instituting and supporting  separate laws for special organizations, 2) HOA-Land has been under the heavy influence and domination of the national lobbying entity, Community Associations Institute (CAI), and 3) as a result of the above a pro-HOA mindset has crept into our judicial system resulting in bad laws setting  bad precedent.

You can read the complete 30 page treatise (15 pages of argument plus apprendices) here .

Private Metropolis: explaining the demise of local public government

My repeated efforts to instill, to inculcate, a necessary broad  understanding  of democratic principles and government — and the part played by the HOA legal model of local government — in the demise of democracy in America[1] has been greatly assisted by the recent publication Private Metropolis.[2] (It was published at the same time as my amicus curiae filing with Arizona Supreme Court in Tarter[3]).

The opening introductory segment encompasses a wide description of special  governmental units. It is loaded with constitutional issues and controversies that says it all quite plainly: “quasi-governments,” “shadow local states,” “the municipality is no longer the privileged seat of governance,” and “special purpose local governments” (including homeowner associations with some 24% of the population as residents), that “became, in effect, shadow governments.” 

My 21 year long-term effort in the trenches  has been to introduce the broad level constitutional issues and democratic philosophy to the average American, who does not know and cannot understand the words of these learned political scientists. I have, for the most part, failed. Private Metropolis gives me additional support and the basis for continued efforts to educate the public at large who suffer the consequences of a  “not my job” attitude.

It is up to the homeowner advocates and HOA boards to embrace this reality and expose the arguments of supportive political scientists to the policy makers in your state, as well as educating the media  on its  continued silence on these issues.

Endnote


[1] See in general, Whither goest local government? Restrictive HOAs or responsible public government (2009); CAI’s early awareness of HOA constitutionality, public mini-government (2021); HOAs are another form of local government (2021).

[2]  Private Metropolis: the Eclipse of Local Democratic Government,  Dennis R. Judd, Evan McKenzie, Alba Alexander, Global and Community Series, Vol. 32, Univ. of Minneapolis Press (June 22, 2021).

[3] Pro Se Bendt amicus brief accepted by AZ Supreme Court.

Why HOA members fail in court – failing to know the enemy

In Nuclear Verdicts, not specifically addressing HOA cases and speaking to defense attorneys, author and defense attorney Tyson sees the failure to succeed  as a failure of the defendant to get angry.  “YOU are the solution to what has been wrong with our legal system.”  In keeping with the mission of a homeowner advocate’s cry of “fightclub,” Tyson’s Nuclear Verdicts’  mission “is about fighting individuals and groups who are attempting to take advantage of our legal system.  There are people every day who make false and exaggerated claims . . . .”   

I have applied his general statements to HOA-Land.  Tyson is quite on the mark with the many instances of HOA attorney conduct in the courtroom.  And on the failure of homeowners to appropriately and strongly respond. “Bad lawyering [on the part of the homeowner’s attorney] is much more common” than the HOA attorney’s “stretching their claims beyond what is real and verifiable.”  The homeowner attorney  “is surprised, or unprepared, or just not as good as the” HOA attorney. Tyson sums it all up with, “So how do you fight injustice? First of all you need to get angry! You need to stop complaining and do something about it.? 

. . . .

I have read dozens of trial and appellate court cases and opinions across the states, and have personally witnessed the conduct of HOA attorneys and board members in court. My research is consistent with Tyson’s position. I offer my own views for those seeking to go to court to take heed of, and to just DO IT!

My conclusions as to why homeowners lost in court fell into several causes, the chief being the failure to know the enemy, as Sun Tzu wrote in the Art of War. Other causes, as I saw them, 1) insufficient evidence and documentation provided to the court, 2) failing to state a claim, in other words, the HOA broke no laws or violated the governing documents but just exercised its discretion as was its right, 3) attorney lack of expertise and knowledge of HOA  case history, and 4) member afraid to argue the case as warranted for one reason or another.

I possess, as well as on other advocate websites including CAI’s pages on it amicus briefs and case history reviews, a wealth of information on knowing the enemy. Failing to provide this information to your attorney that will enhance your chances of success and to lessen his “learning time,” saving you money, can harm the chances of your winning in court.

YOU are the solution to what has been wrong with our legal system.”

I’d like to thank Sonia Bendt for understanding this need to cooperate and work together, and who sent me Tyson’s book realizing it would be very helpful to all homeowners going to court.

Robert F. Tyson, Jr, Nuclear Verdicts: defending justice for all, Law Dog Publishing (2020).

CAI’s early awareness of HOA constitutionality, public mini-government

It appears that CAI has adopted a “see no evil, hear no evil, speak no evil” attitude toward HOA constitutionality and public mini-government issues that are still prevalent today.  And it spread to the policy-makers.

Wayne S. Hyatt’s 1975 Emory Law Journal article, Condominium and Home Owners Associations:  Formation and Development, 2 years after the formation of CAI, presents his highly influential view on HOA constitutionality while recognizing that HOAs are mini-governments.

Wayne Hyatt “the most prominent advocate in CAI” serving as a 1975 “homeowners representative” and a former president (1978-79) (Privatopia, p. 219, 138 respectively). Hyatt  devoted his practice to working with developers of condominiums, master planned communities, resorts . . . to create community governance structures and community stewardship organizations.

While actively practicing law, he was also a member of 1) the American Law Institute (that wrote the pro-HOA Restatement of Servitudes, 2) the College of Community Association Lawyers (CAI affiliate) , the Community Associations Institute (CAI, created in 1973 by the National Association of Home Builders [grant of]  $30,000), and  3) ULI – the Urban Land Institute (sponsor of the 1964 “HOA bible,” The Homes Association Handbook) and served as a ULI Trustee.

He also served as an Advisor 1) to the Restatement of the Law (Third) Property: Servitudes, and 2)  to the Special Committees on a Uniform Condominium Act and a Uniform Planned Community Act of the National Conference of Commissioners on Uniform State Laws (Uniform Law Commission, UCIOA and UCA).  Hyatt received several awards from CAI.

Hyatt developed many of the Dell Webb’s master planned and resort/active adult association CC&Rs over the years.

His 1975 Emory Law Journal article gives readers a good idea of constitutionality and local government concerns that seemed to have evaporated over the years as CAI’s influence increased dramatically.  A few important excerpts:

  • “The California Code provides for an association and affords it the powers and duties of the mini-government.” {T]he [Georgia] legislature has in effect provided a large measure of home rule for what is in essence a category of small municipalities, and each has established a system of officers and directors in the nature of a mayor and council to oversee the exercise of this rule.” (At 988). 
  • “‘Has the state permitted, even by inaction, a private party to exercise such power over matters of a high public interest that to render meaningful’ constitutional rights, private action must be public?”(Footnote 33 at 983). [In simple terms, private government HOAs must be subject to local government protections].
  • “The Declaration is not a contract but, as a covenant running with the land, is effectively a constitution establishing a regime to govern property held and enjoyed in common.  It further sets forth procedures to administer, operate, and maintain the property. . . . the declaration and particularly the by-laws create not only a corporate structure but also a governmental authority that requires and deserves competent, experienced persons . . .” (at 990).
  • “The power of ‘levy’ is a distinctive characteristic of the association and removes it from a mere voluntary neighborhood group. . . . The imposition of penalties, whether fines . . . or a denial of use of facilities enforced by injunction, certainly represents quasi-judicial power to affect an individual’s property rights. . . . The possession and exercise of such power has substantial consequences with clear constitutional implications.  The courts have not yet considered a direct constitutional challenge to an association’s action.” (at 983).
  • “[T]he constitutional issue is most acute in rule enforcement; however the association’s established procedures, declaration, and by-laws should insure compliance with at least rudimentary constitutional principles, and there must be a procedure to protect members’ rights.” (at 984).

Nowhere will you find any equivalent discussion of HOA constitutionality, or HOAs as mini-governments or as a form of local public government. Not in its Manifesto, Community Next 2020 and Beyond (2016);  not in its Public Policies: Private Property Protection, Government regulation of Community Associations, and Rights and Responsibilities For Better Communities (July 15, 2021).

And not in any of its anti-constitution amicus briefs: Twin Rivers NJ appellate (2004), Dublirer NJ Supreme Court (2011);  Surowiecki, WA Supreme Court (2021) (business judgment rule overrides judicial review); Turtle Rock AZ appellate (2017); Foreshee WI appellate (2017).

Elitist large-scale HOAs

Understanding private elitist HOAs as social welfare HOAs

Data on HOA member demographics is scare but I’ve been able to uncover  documents, 11 years apart, that lead one to believe that H-O-As are elitist for the most part.  A CAI  survey showed 79% respondents with incomes over $50,000 and 86% with some college of more.  US Census showed 24.4% and 44.9% respectively. A confirming study on a large-scale H-O-A showed 88.1% with some college or more and 76.4% with income over $45,000.

According to CAI’s LSA (large-scale associations) category of 1,000 or more units, a Nevada CAI survey showed a mere 2.0% were LSAs. This emphasis by CAI on LSAs, a small minority of HOAs across the country, impacts all H-O-As of every size in the state as a result of its intense lobbying efforts, its one size fits all policy.

These surveys are not  consistent with the totality of social welfare HOAs as contained in the IRS databases of 36,532 organizations filing under (c)4. Just 10.8% (3,931) of these organizations met the criteria for “homeowner associations” under the IRS subcategories, a far contrast with the surveys. Analyzing the justification by the IRS for one large-scale H-O-A raised concerns about the (c)4 tax-exempt process.

The absence of any discussion by SCG, a large-scale H-O-A, of it’s social welfare status  and related activities is compelling.  Based on my many years exposure to HOA legalities, I would hazard a guess that the board had advisers and assistance in preparing and filing its application.  SCG has close ties to CAI by virtue of its directors being CAI members, its attorney and CAM being CAI members, and its accounting firm, Mansperger Patterson & McMullin, also being a CAI member.

Read the full research study at elitist H-O-As.