HOAs and "taking" your home for economic development

The Supreme Court continues in its activist reconstruction of the US Constitution with its 5 – 4 decision in Kelo v. City of New London, 04-108. In this eminent domain case, the court ruled that the taking of your home for a public purpose and giving the property over for private economic development is permitted. In reading excerpts from the opinion and dissent, you will see the slippery slope arguments with respect to the reconstruction of the Constitution, and a “where does it all end” concern by the dissenting Justices.

In regard to HOAs, we have already been subject to judicial activism when the courts allowed and refused to challlenge the provisions of these CC&Rs that take your private property rights away. These rulings have allowed HOAs to take your property rights for the benefit of a private, restricted group, the HOA, not for public use, but somehow for the public purpose of increased taxation as a result of alleged property value increases.

Excerpts from The Kelo opinion —

Held: The city’s proposed disposition of petitioners’ property qualifies as a “public use” within the meaning of the Takings Clause. Pp. 6–20.

(a) Though the city could not take petitioners’ land simply to confer a private benefit on a particular private party, see, e.g., Midkiff, 467 U.S., at 245, the takings at issue here would be executed pursuant to a carefully considered development plan, which was not adopted “to benefit a particular class of identifiable individuals,” ibid. Moreover, while the city is not planning to open the condemned land—at least not in its entirety—to use by the general public, this “Court long ago rejected any literal requirement that condemned property be put into use for the . . . public.” Id., at 244. Rather, it has embraced the broader and more natural interpretation of public use as “public purpose.” Without exception, the Court has defined that concept broadly, reflecting its longstanding policy of deference to legislative judgments as to what public needs justify the use of the takings power. Berman, 348 U. S. 26; Midkiff, 467 U. S. 229; Ruckelshaus v. Monsanto Co., 467 U. S. 986. Pp. 6–13.

[the remainder of the decison}

(b) The city’s determination that the area at issue was sufficiently distressed to justify a program of economic rejuvenation is entitled to deference. The city has carefully formulated a development plan that it believes will provide appreciable benefits to the community, including, but not limited to, new jobs and increased tax revenue. . . . Because that plan unquestionably serves a public purpose, the takings challenged here satisfy the Fifth Amendment. P. 13.

(c) . . . Promoting economic development is a traditional and long accepted governmental function, and there is no principled way of distinguishing it from the other public purposes the Court has recognized. See, e.g., Berman, 348 U. S., at 24. . . . The Court declines to second-guess the wisdom of the means the city has selected to effectuate its plan. Berman, 348 U. S., at 26. Pp. 13–20.

268 Conn. 1, 843 A. 2d 500, affirmed.

JUSTICE O’CONNOR, with whom THE CHIEF JUSTICE, JUSTICE SCALIA, and JUSTICE THOMAS join, dissenting.

Over two centuries ago, just after the Bill of Rights was ratified, Justice Chase wrote:

“An ACT of the Legislature (for I cannot call it a law) contrary to the great first principles of the social compact, cannot be considered a rightful exercise of legislative authority . . . . A few instances will suffice to explain what I mean. . . . [A] law that takes property from A. and gives it to B: It is against all reason and justice, for a people to entrust a Legislature with SUCH powers; and, therefore, it cannot be presumed that they have done it.” Calder v. Bull, 3 Dall. 386, 388 (1798) (emphasis deleted).

Today the Court abandons this long-held, basic limitation on government power. Under the banner of economic development, all private property is now vulnerable to being taken and transferred to another private owner, so long as it might be upgraded—i.e., given to an owner whowill use it in a way that the legislature deems more beneficial to the public—in the process. To reason, as the Court does, that the incidental public benefits resulting from the subsequent ordinary use of private property render economic development takings “for public use” is to wash out any distinction between private and public use of property—and thereby effectively to delete the words “for public use” from the Takings Clause of the Fifth Amendment.

The Fifth Amendment to the Constitution, made applicable to the States by the Fourteenth Amendment, provides that “private property [shall not] be taken for public use, without just compensation.” When interpreting theConstitution, we begin with the unremarkable presumption that every word in the document has independentmeaning, “that no word was unnecessarily used, or needlessly added.” Wright v. United States, 302 U. S. 583, 588 (1938). In keeping with that presumption, we have read the Fifth Amendment’s language to impose two distinct conditions on the exercise of eminent domain: “the taking must be for a ‘public use’ and ‘just compensation’ must be paid to the owner.” Brown v. Legal Foundation of Wash., 538 U. S. 216, 231–232 (2003).

Accordingly I respectfully dissent.

From Justice Thomas’ dissent:

The deferential standard this Court has adopted for the Public Use Clause is therefore deeply perverse. It encourages “those citizens with disproportionate
influence and power in the political pro- cess, including large corporations and development firms” to victimize the weak. Ante, at 11 (O’CONNOR, J., dissenting).

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View the opinion. View the oral arguments.

HOAS no longer accepted for CAI membership

For several years, we have been informing all interested parties that the CAI business trade organization, a tax exempt 501(c)6 nonprofit organization subject to the requirement of this federal tax exemption, has no business representing homeowners or homeowner associations, since they are consumer groups.

Finally, Community Associations Institute, CAI, has removed the category “homeowner asociation” from its memebrship. Instead, it offers discount membership to individual board members of an HOA, if the HOA signs up a group of board members. However, please be aware that CAI is inducing HOAs, via their board of directors, to sign up their board members in order that the board members qualify for discount memebrship fees. This action, if taken by HOA boards, still presents them with very serious conflict of interest and breach of fiduciary dutes to the membership, the assessment paying homeowners, if assessments are used to fund memberships and not used to maintain the HOA property.

As posted here, attorneys so advising boards as to the legal aspects of funding CAI dues should take a close look at our eEditorial of June 10, 2005, “HOA attorney fiduciary duty to homeowners.”

Excerpt for CAI’s web page:

CAI’s New Membership Structure
We’re Changing

Instead of “associations” being members of CAI, volunteer community leaders and homeowners will hold individual memberships as of July 1. Member benefits, including discounts, will be available only to those who hold individual memberships.

Community association volunteers: Annual dues will be $85, with discounts available when board members are signed up as a group by the association [emphasis added] ($55 for the second member, $45 for each additional member). Each individual member will receive benefits directly from CAI. Individual homeowners who are not part of the group membership will pay $85 in dues.

See CAI Membership web page: Membership

The Institute for Justice and fundamental rights, the courts and the legislatures

[letter to IJ President Chip Mellor]

June 21, 2005

Dear Mr. Mellor,

I read you article in the June 2005 issue of Liberty &Law and found your explanation of what I have observed, that there’s no difference between the goals of liberal and conservatives, quite informative. However, I had hoped that you would have offered your views on which persuasion would most likely do the most to turn this state of affairs around.

On a similar topic, for years I’ve tried to get IJ to come to the rescue of homeowners in homeowners associations who face a taking in a little more round about way, but a taking with government support no less. HOAs are permitted to deprive a homeowner of his liberty and property rights under the much same reasoning of eminent domain: increased property taxes produce increased revenues, and who cares about minority rights. They serve the private interests of developers and the members of the national lobbying group, Community Associations Institute, that finally is dropping the “homeowner association” category, and rightfully so since its a business trade group claiming to have consumer members.

As to the immediate reaction of, “Homeowners voluntarily and with informed consent signed a contact,” or that “by buying they made their economically informed decision without duress”, any Law 101 student can easily drive trucks through the holes in these defenses.

I wait patiently to see the day that IJ undertakes a crusade very analogous to your eminent domain activities, to protect the fundamental rights of homeowners in homeowners associations.

George K. Staropoli

The complete article can be viewed at: Rights

HOA attorney fiduciary duty to homeowners

State supreme courts have court rules or procedures that must be followed for due process protections and the fair and just treatment of the litigators. One such important provision of the Rules of Civil Procedure, R11(b) in the federal rules and R11(a) in Arizona for example, pertains to the statements made by the attorney in the court papers that the attorney signs. It says, in part, from the Arizona rule:

“The signature of an attorney or party constitutes a certificate . . . that to the best of the signer’s knowledge, information and belief formed after reasonable inquiry it [the complaint] is well grounded in fact and is warranted by existing law . . . and that it is not interposed for any improper purpose, such as to harass . . . or needlessly increase the cost of litigation.”

From an article in the Arizona Bar’s June 2005 Arizona Attorney magazine, former Chair of the Disciplinary Commission of the Arizona Supreme Court, David Dodge, cautioned attorneys about being held liable for breach of fiduciary duties to the beneficiaries in a fiduciary relationship. For HOA related matters, it means that the HOA attorney may be held liable for aiding and abetting a breach of fiduciary duties by the HOA board.

For more information, read the paper on Derivative Fiduciary Actions.

We are a nation not of `city-states' nor HOAs, but of States

A little while ago I asked, “Did they [the Founding Fathers] intend to permit private contractual governments that do not explicitly subject themselves to the US Constitution [and amendments, including the 14th Amendment], as they required of the 13 colonies?”

One answer that I found says:

“We are a nation not of `city-states’ but of States.” So said the US Court of Appeals, 630 F.2d, at 717, cited in COMMUNITY COMMUNICATIONS CO., v. BOULDER, 455 U.S. 40 (1982)

Case Background:
“Home Rule” chartered Boulder, CO argues that it’s not subject to federal laws, in particular, the Sherman Anti-trust Act. The USSC said that yes indeed they were. There are issues of authority and powers of municipal corporations, raising the question of regulation and control of privately chartered HOA corporations.

Case Summary:
The powers and rights under the US Constitution that may be granted to state subdivisions is subject to the US Constitution. Our federal system recognizes only the US and the state governments and not any state political subdivision. Municipal corporations (“munis”) are subject to their charters and express authority granted under their charter from the state. Home rule charters grant many powers to the muni, even taking on state legislative powers for their local territory.

Issues relating to private government of planned communities

If these laws restrict de jure governments with their express grants of authority by the state, what rights and restrictions apply to private contractual governments? It cannot logically be NO ACCOUNTABILITY. This is the reason why we see so many state laws that mimic the provisions of the HOA CC&Rs: To legitimatize, under statute, the acts under these private contracts that grant governmental powers to these de facto governments.

A number of important excerpts a provided below. Please read them. Our concern, by analogy, is the constitutionality of these acts by private HOA governments.

Excerpts from Community v. Boulder

These precedents were construed as holding that the Parker exemption reflects the federalism principle that we are a Nation of States, a principle that makes no accommodation for sovereign subdivisions of States.

As this Court stated long ago, all sovereign authority “within the geographical limits of the United States” resides either with

the Government of the United States, or [with] the States of the Union. There exist within the broad domain of sovereignty but these two. There may be cities, counties, and other organized bodies with limited legislative functions, but they are all derived from, or exist in, subordination to one or the other of these.” United States v. Kagama, 118 U.S. 375, 379 (1886).

Respondent city of Boulder is organized as a “home rule” municipality under the Constitution of the State of Colorado. The city is thus entitled to exercise “the full right of self-government in both local and municipal matters,” and with respect to such matters the City Charter and ordinances supersede the laws of the State.