Will AZ Supreme Court address broad HOA issues of constitutionality?

As we approach an October 5th decision to decide to hear the Tarter v. Bendt defamation case[i] that raises free speech and limited- purpose public figure issues, I am hoping that the Court will address the real-world widespread misinformation regarding conditions and the legal status of homeowner associations statutes. This investigation by the Court is essential for a just and fair decision in the defamation lawsuit by an HOA president and attorney. Questions of failing to act in good faith and an abuse of the law by the plaintiff attorney with respect to filing a strategic lawsuit against public participation (SLAPP) was raised in my amicus brief.

This is not an ordinary defamation lawsuit but one involving the actions and conduct by the plaintiff in his capacity as the HOA president  and in the context of matters of HOA governance. In the recent Nevada Supreme Court opinion in Kosor,[ii] the Court held that “HOAs as public forums and the president as a limited-purpose public figure” and further held that an HOA “is a quasi-government entity ‘paralleling in almost every case the powers, duties, and responsibilities of a municipal government.’”

The decision by the Arizona Court will have widespread repercussions and consequences not only for Arizona, but for HOAs  nationwide affecting  statutes in every state. The legitimacy of a democratic country rests on just and fair laws for the people, as Professor Randy Barnett wrote,

A constitution that lacks adequate procedures to ensure the justice of valid laws is illegitimate even if it was consented to by a majority …. A law may be ‘valid’ because it was produced in accordance with all the procedures required by a particular lawmaking system, [the HOA amendment procedure, for example] but be ‘illegitimate’ because these procedures were inadequate to provide assurances that a law is just.[iii]

Since the context of the lawsuit relates to the legal status  and constitutionality of the HOA model of government, and to the statutes and CC&Rs “constitution” creating private contractual governments, did Bendt receive justice with a $500,000 award for the HOA president’s “pain and suffering? As applied to HOA statutes and Acts, will this Court heed US Supreme Court Justice Sotomayor’s dissent on the failure to uphold the Constitution?[iv]

“Presented with an application to enjoin a flagrantly unconstitutional law engineered to prohibit women from exercising their constitutional rights and evade judicial scrutiny . . . . Because the Court’s failure to act rewards tactics designed to avoid judicial review . . . . 

“To circumvent it [the Constitution], the [Texas] Legislature took the extraordinary step of enlisting private citizens to do what the State could not . . . .  It cannot be the case that a State can evade federal judicial scrutiny by outsourcing the enforcement of unconstitutional laws to its citizenry . . . .”

This case must be remanded to the trial court for consideration of the impact of HOA bias on the decision against Bendt.

Notes


[i] See HOA limited-purpose public directors and officers; The continuing saga of Bendt and public speech in HOAs; Pro Se Bendt amicus brief accepted by AZ Supreme Court.

[ii]  Kosor v. Olympia Companies, NV No, 75669 (Dec. 31, 2020).

[iii]  Randy Barnett, Restoring the Lost Constitution, Princeton Univ. Press, (2004).

[iv]  Whole Woman’s v. Austion Reeve Jackson, 594 U. S. ____ (2021) Sotomayor R, J., dissenting, Supreme Court of the United States, No. 21A24 [September 1, 2021]. (Abortion case).

NJ HOA constitutionality bill – fair elections

I am pleased to see that 2 legislators (Assemblyman Bob Andrzejczak and Bruce Land) in the NJ Assembly understand HOA constitutional issues and have sponsored a bill, A-3163, accordingly. Herald.com (Cape May County NJ) reports,

“Homeowner’s Associations must operate under similar rules and procedures as other governing bodies,” Andrzejczak said.  “A resident’s interest and right to approve and elect board members must be preserved. And setting clearer, more fair and unified set of rules for board elections and a clarifying a resident’s ability to recall will help to do just that.”

Bruce Land adds,

“Homeowners living in developments are still consumers and must be protected under the law,” said Land. “Ensuring their right to fair elections and protecting their right to choose board members, who will make decisions on their behalf, is a measure of consumer protection that they simply deserve as property owners.”

Homeowner rights advocates in other states must follow this lead and fight for similar HOA constitutional reforms. Six major issues to be pursued can be found in HOA Common Sense: rejecting private government.

Consent to be governed, No. 4

Democratic elections, No. 5

Fair and just hearings, No. 6

HOA Boards can do no wrong, No. 7

Draconian punishment and intimidation, No. 8

HOA Governments in fact, No. 9

In general, on the question of the validity and legitimacy of HOA governing documents and pro-HOA state laws, read:  CC&Rs are a devise for de facto HOA governments to escape constitutional government.

The continuing saga of Brown vs Terravita HOA. Can CC&Rs amendments violate state law?

Summary

The AZ appellate court is deciding whether or not to permit an attorney fees award resulting from an ALJ decision not involving a contract. The law says no, but Terravita’s HOA attorneys think differently and managed to get a CC&Rs amendment passed that permits just such a violation of state law.  Brown, the homeowner/plaintiff, had filed a complaint against state statutes and not against the CC&Rs. Furthermore, the amendment does not represent a majority or supermajority vote, but a minority vote based on a 2010 “minority control” CC&Rs amendment.  In other words, Terravita has become an oligarchy in fact.  Will this influence the court’s decision?

Case history

Terravita is a1300 resident, more or less, HOA in Scottsdale, AZ, with country club and golf included.  William Brown is a long-time resident who has been active in challenging the Terravita board for some time, winning cases.  In fact, Terravita’s insurance company has specifically set a $75,000 deductible for suits filed by Brown, just for him alone. Can you guess why?[1]

The ongoing case from 2012, filed with the OAH was decided against Brown on a question of failing to hold an evidentiary hearing for Brown’s position (regarding evidence that an executive meeting was not an executive meeting and Brown was entitled to the records). The ALJ felt the hearing was not necessary and granted summary judgment against Brown.

 The Court’s Order upheld the Administrative Law Judge’s grant of summary judgment in favor of Terravita. Thus, Terravita is entitled to its attorneys’ fees and costs as the prevailing party under A.R.S. §§ 12-341.01 and 12-341 as well as under the Amended and Restated Declaration of Covenants, Conditions, and Restrictions for Terravita, as amended . . . .[2]

The HOA filed for attorney fees for the OAH hearing and for appellate costs. Uncertain that, in this ongoing case, Terravita will prevail under 12-341.01 and case history, which supports nonpayment of attorney fees in ALJ cases, Ekmark (The law firm of Ekmark & Ekmark) first argues that Brown is none other than “Bad, bad [Bill] Brown, meanest guy in the whole damned town”[3] (my words).  The application for fees, in my view, character assassinates and libels Brown using Uyleman v. D.S. Rentco to defend its claim for a discretionary fee award. Brown is described as:

This lawsuit was both unfounded and trifling. It was nothing more than an attempt to harass and burden the Terravita community . . . Plaintiff proceeded to waste the resources of the Court and Terravita by appealing this meritless case. . . . The burden of defending these spurious claims should not fall on innocent homeowners. Rather, it should fall on the Plaintiff who filed this action and appeal with no legal basis and with no reason other than to harass Terravita.

Is this a case of the pot calling the kettle black?

In my view, this argument is a weak one designed to attack Brown. The second, but questionable, argument advanced by Terravita relates to the 2013 amended CC&Rs that permit such attorney fees in contradiction to state law.  (It raises questions of, who’s in charge?  The state? The municipality? The HOA? The HOA lawyers? Who??)  But in order to do so, Ekmark must claim that the OAH issue pertained contract and fees are payable under ARS  12-341.01.

Brown filed for a review and a superior court appeal of the decision, and then filed the ongoing appeal in the appellate court against the attorney fee award, CA-CV2014-000455.  He counters with, “The claim for attorneys’ fees under TCA’ s amended and restated declaration, in addition to defying credulity, is a misplaced transparent ex post facto attempt to trump well-settled Arizona law.”[4]

Brown presents his argument that the case is not a contract case but a violation of state law, having filed the OAH petition as a violation of state law, not of the CC&Rs.  (This is the question that should be before the courts, not one advanced after the fact by the attorneys in order to claim fees.) Apparently Brown’s wording was intentional, anticipating the HOA’s recourse to the 2013 amended CC&Rs.

Can CC&Rs covenants violate the Constitution or state law?

Under The Restatement (3rd) Servitudes, section 3.1,[5] the answer to the above question is NO!  As I wrote in 2005,[6]

When did “whatever the people privately contract” dominate the protections of the U.S. Constitution?

At the heart of the matter is the continued replacement of democratic local government, governments subject to the U.S. Constitution and 14th Amendment prohibitions, with contractual, authoritarian private governments that are not subject to the prohibitions of the 14th Amendment.

Can you and I contract to not pay income taxes?  Heavens no! But, can the HOA contract via amendments or rules to lower speed limits on public streets within its community? The courts would probably uphold the HOA’s position under 1) a validly adopted amendment, 2) members agreed to be bound by the governing documents, and 3) if the amendment is more restrictive than state law or ordinance.

What gives? Why the difference?  I’ve seen court decisions based on the business judgment rule,   (the board knows best), the amendment is in the best interests of the entire membership, and it’s the voice of the majority of the members.  But, this is not the case with Terravita and the attorney fees amendment.

Let’s go back to the 2010 Terravita amendment that was approved by the members allowing amendments to be passed by a minority of the membership,[7] contravening prevailing doctrine that supermajority approval was necessary for amending constitutions or charter.

Think for a moment.  If a minority can control the amendment process, it can control the HOA by enacting amendments that further strengthen the powers of the incumbent board.  Given the fact that the rogue boards are dominated by their HOA attorneys, minority control solidifies the political machines as the power elite.[8]

Consequently, as best as can be determined, the Terravita attorney fee amendment of 2013 passed with only 38% of the membership, although the board announced a misleading 90% approval. Based on Terravita’s email that 571 ballots were received, 90% would mean just 514 members approved the amendments or 38% overall membership approval.  Not even a majority!

OMG, the minority can speak for the majority, binding all of them to the amendments. So much for the board speaks for the majority of members. So much for HOAs being democratic.  Members who do not vote cannot be considered as approving the amendments.  Another democratic principal fallen by the wayside.

All brought to you under the advice and supervision of Ekmark, a CAI CCAL attorney.

Fortunately, a year later an Arizona bill, HB 2441, with similar provisions was put forth by another CAI CCAL member, Scott Carpenter, and failed. Carpenter characterized the bill as, “This change would enable community association to change their documents without onerous approval requirements that count a failure to participate as a ‘no’ vote.”[9]  In other words, create an oligarchy like Terravita with control by the few, and guided by attorneys, the HOA philosopher-kings.

In conclusion, how will the Arizona appellate court decide this case against Terravita?  For the survival of the defective  HOA regardless of the harm to the principals of our system of government, or will the court stand up and be counted, saying enough is enough?

References

[1] It would seem that the insurance company was going to pull its E & O insurance, but settled for this arrangement.

[2] Terravita’s application for attorneys’ fees  for (Ekmark & Ekmark)

[3] Jim Croce lyrics from Bad, Bad Leroy Brown:

“And it’s bad, bad Leroy Brown The baddest man in the whole damned town Badder than old King Kong And meaner than a junkyard dog.”

[4] See Brown’s 22 page opening brief, 1 CA-CV2014-000455, 9-16-2015. In addition, the amendment to § 17.08 only grants attorney fees to the HOA if it wins; the homeowner gets nothing.

[5] “A servitude . . . is valid unless it is illegal or unconstitutional or violates public policy [being]  a servitude that is arbitrary, spiteful, or capricious.”

[6] HOA reforms needed to guarantee U.S. Constitutional protections.

[7] Section 17.02 of the 2-10-2010 amended CC&Rs: “This Declaration may be amended by the affirmative vote or written consent, or any combination thereof, of the Owners holding not less than two-thirds (2/3) of the votes cast, provided that the total vote equals or exceeds Quorum.” A quorum being 1/3 of the membership.  Thus 1/3 of 2/3 = 307 affirmative votes out of 1380 members.

[8] See Beware the folly of eliminating supermajority voting for amending the HOA CC&Rs; HOA democracy at work: dysfunctional adoption of amendments by minority vote.

[9] Carpenter Hazlewood Delgado & Wood blog of Jan. 18, 2011, written by Scott Carpenter, “HB2441 – CC&R Amendments.”