The Two Americas: Constitutional America and HOA-Land

On this Memorial Day, May 30, 2016, America is fighting battles in a number of countries where our sons and daughter and our brothers and sisters have paid the ultimate price defending the United States of America, and the democratic values and beliefs of justice and equality for which it stands.

Yet, we have those in America firmly believing that the Constitution protects free speech, but not when private contracts are involved. And they support private agreements called Declaration of Covenants, Conditions and Restrictions (CC&Rs) that cross over the line between purely property restrictions to establishing unregulated and authoritarian private governments. Florida attorney Ryan Poliakoff (brother of the late CAI activist attorney Gary Poliakoff) is one of them. These HOAs (an all-inclusive term) operate outside our constitutional system of government.

In his May 28th column on Florida Today, he asks and answers the title question, “Did you sign away your free speech with HOA?[1]  with a firm YES.   Why and for what system of government are our troops fighting and dying for?  For the America of our Founding Fathers or for the misguided special interests who have a financial interest in HOA-Land, and who act and function as an oppressive oligarchy. (It is estimated that 20% – 23% of Americans live under HOA private governments). In our case, it means rule by the few special interests who lobby nationwide for pro-HOA legislation to protect the status quo.

I’m shocked at Mr. Poliakoff’s biased and simplified explanation and justification for HOA private governments; after all, he is a lawyer and dares speak of The Bill of Rights. He writes,

Private entities have no obligation to respect your right to say whatever you want, no matter how offensive it may be. . . . So if the rights and obligations of a mandatory membership community are contractual, and not municipal, shouldn’t they be allowed to restrict speech?

The most blatant misrepresentation of the facts occurs when he argues (emphasis added),

Personally, I agree with the majority position. I see no reason that persons who voluntarily bind themselves by, knowingly, buying property subject to restrictions should not be bound by those restrictions (unless the state passes laws that expressly limit the association’s power, such as the condominium laws that protect owners’ right to assemble, or the federal laws that guarantee every person the right to fly an American flag.)

Otherwise, I view deed-restricted communities as guided and governed by contracts, and I believe they should be treated, generally, the same as any private contract between individuals.

I vehemently object to these misleading statements by an attorney!  Apparently he has failed to read, or refuses to rebut, arguments that I raise with respect to 1) alleged agreement to a contract,[2] 2) HOAs as de facto governments hiding behind the privacy of the questionable CC&Rs contract,[3] and 3) the application of US Supreme Court criteria for a bona fide surrender/waiver of constitutional rights, including due process and the equal protection of the laws, which the HOA legal scheme fails miserably.

Furthermore, he should well know that the alleged contract is not between individuals or other HOA members, but between the HOA and the individual owner. Yet, he admits, by implication, that all HOA reform legislation is an attempt to restore lost rights, rights that belong to all Americans.

Mr. Poliakoff also informs his readers that he co-authored the 2009 book, New Neighborhoods[4] that contains the very same attitude and view towards independent HOA principalities as professed in this article.  In my Amazon book review I wrote (emphasis added),

Ellen Hirsch de Haan, former CAI president, acknowledges that the biggest problem for the successful operations of these associations “is the lack of education among the consumers who are buying homes and units . . . . And the authors inform their readers that, “These neighborhoods could not operate without . . . the owners, who give up certain traditional homeowner rights for the good of the community.” “This is good”.

“The Poliakoff’s continue, informing their readers that “out of anarchy came utopia“, and quote an appellate court dicta that “each owner must give up a certain degree of freedom of choice which he might otherwise enjoy living in a separate, privately owned property.” The authors define the purpose of this book as, explaining “the workings of these communities — these New Neighborhoods — . . . and to let purchasers know just what they are getting into.”

I believe that Mr. Polikoff has failed miserably to fully educate the legislators, the media and the home buyers in both his book and in his recent article, both of which present the special interest “party line” and not the facts, the whole facts, and nothing but the facts.

This is not new or unique to Mr. Poliakoff.  CAI has recently released a series of white papers, which I collectively refer to as the CAI Manifesto.[5]    Kelly Richardson, national CAI Trustee and Realtor wrote about socialistic housing and submitting to the will of the community because, allegedly, that buyers had openly agreed to the surrender of their rights.

That’s the root of so many of the HOA horror stories we’ve all heard, as owners normally do not realize that their submission to the will of their new community is accomplished by the automatic application of covenants running with the residence. . . . The most caustic critics of HOAs in general are actually opposed to the concept of joint ownership. This is a completely unrealistic position . . .[6]

 

 

The positions taken in support of HOA-Land, as evidenced above, constitute a political movement — as any other recognized movement — that consists of separate and disparate collection of private governments not subject to the constitution because of a “verboten,” hands-off attitude, and have created 2 Americas.   The divide is just a  dangerous as a country divided over political philosophy as witnessed in our current political campaign.  It must not be allowed to continue regardless of what party or person will sit in the White House.

References

[1] Did you sign away your free speech with HOA, FloridaToday (USA Today), Ryan Poliakoff , May 28, 2016.

[2] Consent to be governed, No. 4 of HOA Common Sense: rejecting private government.

[3] HOA Governments in fact, No. 9, Id. See also, CC&Rs are a devise for de facto HOA governments to escape constitutional government.

[4] New Neighborhoods—The Consumer’s Guide to Condominium, Co-Op and HOA Living.

[5]  CAI manifesto: CAI’s plan for HOA-Land in America;  See also, Deborah Goonan’s  critique in “HOA laws and Free Speech, Right to Know”.

[6] Realtor magazine publishes HOA socialism by CAI Trustee, quoting A Note of Caution About HOAs, RealtorMag, Official Magazine of the National Association of Realtors, February 2015.

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.”