Why aren’t HOAs held as state actors based on USSC criteria?


Allow me to congratulate Deborah Goonan on her fine article, “USSC rules in favor of property rights — how will this affect HOAs?”[1], on constitutionality as applied to HOA-Land.  I also congratulate her for venturing in into the long standing, highly controversial and muddied waters of state actor legal doctrine.

State actor doctrine is too deep and complex to be fully addressed in a blog. I have followed this is for over 15 years having read most of the cases cited by the USSC.  Consequently, I will state some views that I feel will help her subscribers/readers to better understand a broader picture of this doctrine.

First,  the 2 fairly recent USSC cases, Knick and Manhattan, mentioned in Deborah Goonan’s post well illustrate the loss of homeowner constitutional and fundamental rights resulting from the fact that HOAs are not subject to the Constitution as are all other governmental entities; and that state legislatures have refused to make it so.

Second, the rationale for the public policy lack of vigorous pursuit of state actor doctrine in the case of the well documented and pervasive conduct of HOA boards is a slippery-slope fear factor.  This fear is stated by the USSC in Manhattan as:

Consistent with the text of the Constitution, the state-action doctrine enforces a critical boundary between the government and the individual, and thereby protects a robust sphere of individual liberty. Expanding the state-action doctrine beyond its traditional boundaries would expand governmental control while restricting individual liberty and private enterprise. We decline to do so in this case.

And so, interfering and applying state action to HOAs appears to be avoided to protect your individual freedoms.  I’m somewhat confused. Are you?  Adopting this state policy with respect to HOAs is highly misguided!

Third, although Goonan quotes the USSC use of 3 requirements for state action, the Court did reference the 2001 Brentwood v. Tennessee Secondary School[2] opinion that contained a summary of the criteria the USSC set for determining state action.  Omitting the obvious “exercising exclusive government functions” that requires no further discussion I listed these state actor criteria:

    1. From the State’s exercise of “coercive power,”
    2. when the State provides “significant encouragement, either overt or covert,”
    3. when a private actor operates as a “willful participant in joint activity with the State or its agents
    4. when it is controlled by an “agency of the State,”
    5. when it has been delegated a public function by the State
    6. when it is “entwined with governmental policies,” or
    7. when government is “entwined in [its] management or control.”

In regard to the institutionalization of HOAs, or as I refer to it, HOA-Land, the above tests 1 – 3, and 5 -6 would provide clear and convincing evidence that the policies of state legislatures, as demonstrated by the enacted pro-HOA laws, have created HOAs as state actors who willingly undertake state actions

Fourth, As you can see, there is plenty of “ammunition” to argue that HOAs are state actors.  By the simple use of the word “may” in the statutes raises the highly controversial question of: Are HOAs state actors? “May” is commonly found as “the board may set the time of the annual meeting,” or “may charge . . . .”  The overlooked impact and consequence of this word is to legalize activities and actions that were all-to-fore not legal rights granted to the HOA.  They are now made a legal activity, if your BOD so chooses.[3]

That’s easily “supportive”, “cooperating,” “encouraging,” and “entwined” in both public policy – more taxes from high value properties – and in the “management and control” of the HOA as we see how state laws mimic the governing documents, thereby legalizing them.

Fifth, HOAs have been described as sui generis – one of a kind.[4]  Sui generis presents a view of HOAs as private government principalities supported by your state legislature and is used to justify special laws for a special organization, the HOA. Existing constitutional law is inadequate to support this model of local governance and so, in violation of US and state constitutions,  we see all those HOA/PUD/condo “Acts” in almost every state.  These Acts constitute a parallel supreme law of the land with sharp contrasts to the US Constitution.

 

Finally, state actor doctrine can be a very powerful tool in the hands of HOA reformers, but the public policy of a feared slippery-slope defense must be overcome. It can be overcome IF advocates make a strong case that this public policy as applied to HOA-Land is misguided; and the failure of the courts to apply state actor doctrine harms the people living in HOAs.

In the name of justice, a serious look into this doctrine with regard to HOAs must be undertaken by independent think tank political scientists under the auspices of a Congressional mandate. Like setting up and independent counsel to conduct the investigation into HOA-Land.

 

References

[1] “USSC rules in favor of property rights — how will this affect HOAs?”, Deborah Goonan,  IAC, July 15, 2019. Contains links to the 2 USSC cases.

[2] Brentwood Academy v. Tennessee Secondary School Athletic Ass’n, 531 U.S. 288 (2001). I have made frequent reference to Brentwood in my Commentaries in HOA Constitutional Government.

[3]Are HOA state actors created by statutory use of shall/may?,” George K. Staropoli, HOA Constitutional Government (April 2019).

[4] A non-inclusive list: Tyler P. Berding, “The failure of the HOA to protect against obsolescence”; Steven Seigel, attorney who analyzed Twin Rivers NJ decision, Wm & Mary Bill of Rights Jnl 1998.

Are HOA state actors created by statutory use of shall/may?

The use of the words “shall” and “may” have generally accepted meanings in state laws and statutes.[1]  Their use in bills and laws relating to HOA-Land raises the highly controversial question of: Are HOAs state actors?  Wayne Hyatt — former CAI president – wrote in 1976 that HOAs were mini-governments.[2]  In general, a state actor is an entity that is functioning as “an arm of the state” or “in place of the state.”[3]  Does the use of “shall” that is defined as “mandatory” make the HOA an arm of the state?

In sum, the US Supreme Court criteria for classification of a state actor can be found in Brentwood:[4]

  1.  From the State’s exercise of “coercive power,”
  2. when the State provides “significant encouragement, either overt or covert,”
  3. when a private actor operates as a “willful participant in joint activity with the State or its agents
  4. when it is controlled by an “agency of the State,”
  5. when it has been delegated a public function by the State
  6. when it is “entwined with governmental policies,” or
  7. when government is “entwined in [its] management or control.”

In regard to the institutionalization of HOAs, or as I refer to it, HOA-Land, the above tests 1 – 3, and 5 -6 would provide clear and convincing evidence that the policies of state legislatures, as demonstrated by the enacted pro-HOA laws, have created HOAs as state actors who willingly undertake state actions.  Review your state laws for the use of “shall” and the consequences of that mandate on your individual property rights.

***

The pro-HOA laws enacted by state legislators, aside from other constitutional concerns with respect to the 14th Amendment protections of the equal protection of the law and valid due process, use “may” and “shall” that are permissive and mandatory obligations upon HOAs (and condos).  “May” is commonly found as “the board may set the time of the annual meeting,” or “may charge . . .”  The overlooked impact and consequence of this word is to legalize activities and actions that were all-to-fore not legal rights granted to the HOA.

They are now made a legal activity, if your BOD so chooses.   Prior to a statute using “may” the action or activity had to be granted by the governing documents.  If so, by including it in a statute lends “officialness” to the action, and a very difficult process to declare the statute invalid.  It protects the governing documents if so permitted.

The right granted by the use of “may” to HOA boards (BOD) to fine or monetarily penalize members and filing a lien with the right to foreclose, for example, makes it a legal action not granted to other nonprofit organizations.  Can you imagine PBS or United Fund placing a lien on your failure to not pay your pledge to support their existence? No way!  Why allow HOAs this legal right?  Which of the above criteria does it violate?

***

Now the heart of the matter focuses on the use of “shall” that is a mandatory order to the HOA to act on behalf of the state —  fine those members and collect costs including attorney fees, etc. Not only is it a legal requirement for the HOA to act as ordered, the BOD has no choice, no discretion to do otherwise, nor can the members reject a potential amendment or rule change. So much for democracy at work in HOA-Land!  Which of the above SC criteria does it violate?

It is well beyond the time for those public interest nonprofits touting their support for the Constitution and democratic values to get involved and stop this disgraceful and unconscionable legislation.  Stop the legislation that coerces, encourages, and supports private government, authoritarian HOAs.  Legislation that advances the view that the HOA “constitution” is a better deal than the 232-year-old US Constitution.  Shameful!

***

The American experiment in democracy, as the youthful America was described by Alexis de Tocqueville[5], is being subverted by the HOA legal scheme supported by elected officials and academics parading as the nouveau Philosopher-Kings preaching to the elected government leadership.  In 2009 I commented:

“I explore this failure of the American Experiment and the rise of independent HOA principalities in Establishing the New America of independent HOA principalities (see New America).”

Notes

[1] See “Legislative shall,” paper with quotes from Yale Law Journal and the Arizona bill drafting manual as a specific example.

[2] Read his 1976 statement in To be or not to be a mini or quasi government? Hyatt said ‘yes’. (2015). Wayne Hyatt was a prominent figure in the promotion of HOA-Land as well as an important person in creating CAI in 1973, serving as its second president. I believe he had strong influence in drafting the Del Webb Declarations still in use today.

[3] In general. see arguments for state actors: HOA Case History: state actors or mini/quasi government (2011); Do state HOA Statutes Establish HOAs as State Actors? (2012); Judicial error regarding HOAs as mini-governments and state actors (2015), “This commentary, somewhat technical at times, demonstrates the failure of the courts to address the fundamental issues that HOAs are mini-governments, and that by the collective functions and actions of HOAs there is clear and convincing evidence to make the case that they are indeed state actors. The whole is greater than the sum of its parts.”

[4] Brentwood Academy v. Tennessee Secondary School Athletic Ass’n, 531 U.S. 288 (2001).

[5] Democracy in America, Alexis de Tocqueville (Vol. 1, 1832; Vol. 2 1840). Printed by Alfred A. Knopf (1972).

We don’t want no stinkin’ government protection for HOA members

This California Adams-Davis-Stirling newsletter (“California’s Leader in Community Associations Law”) says it all.  Speaking to a new federal law as of October 2016 (that applies to all states), Code of Fed. Reg. §100.7(a)(1)(iii)),

  1. “The law requires that boards take prompt steps to investigate and end harassment.
  2. This intrusion by the federal government into the affairs of homeowners associations is unprecedented.
  3. The burden the new regulations create will likely outweigh any intended benefits regulators had in mind.
  4. Associations are not cities with paid city council members, police forces, and governmental immunities.
  5. Making boards an arm of the federal government is going to make it harder to recruit and keep volunteers on boards.”

 

Items (1) and (5) make the HOA a state actor due to the mandatory “order” to investigate harassment complaints relating to Fair Housing laws. Item 5 deals with one of the fundamental flaws of the HOA legal scheme — unpaid and untrained volunteers with no local government experience to run HOAs.  What would you expect?  You get what you paid for.  That’s a gold mine for HOA attorneys, who have created these pro-HOA state laws and adhesion contract CC&Rs.

Item (4), while HOA boards have no government immunities they hide behind the business judgment rule that says let the board decide, not the courts, in effect giving immunities.

The author, Adrian Adams, recommends that “Boards should work with legal counsel to adopt anti-harassment rules for their associations.”  “Should” is not “shall” and not mandatory.  It is an “ought to” that requires no compliance and carries no enforcement actions.

The HOA attorneys do not want government interference since it really would interfere with their domination of HOA boards: Seek advice from the people who know best, your HOA attorney.  It is a self-serving recommendation to generate more income for the attorneys, who have repeatedly failed to serve the beneficial interests of the HOA membership.

“We don’t want no stinkin’ government protection for HOA members”!  If not, who then?  You can’t have your cake and eat it!

Since the state legislators have failed to act, it becomes necessary for the Feds to protect the people. See The FEDS must restore law and order in secessionist HOA governments and Getting the Feds involved in HOA reforms.

Judicial error regarding HOAs as mini-governments and state actors

Two cases directly dealing with HOAs as mini or quasi governments by means of state actions tests have come to my attention: Brock v. Watergate and Westphal v. Lake Lotawana.[1] (The question of an HOA being a state actor is not raised, but that a specific act of the HOA is a state action. The questions are fundamentally different.) The decisions were based on the public functions (company town) test and one of the US Supreme Court criteria, the “close nexus” test.[2]

Here the question of an HOA being a municipality is linked to showing a comparison with company towns (established by corporations to provide housing for their employees) under the public functions test, which was held to be a municipality. The Court then makes the giant leap to hold that since the HOA was not a company town, and therefore not a municipality, none of its actions can be considered a state action. The Court’s illogical conclusion is that no act of a private entity can be considered a state action, because the entity is not a municipality! This attitude makes a mockery of state action/actors laws that protect citizens from quasi-governments. (Think about this after reading the excerpt below.)

The 1987 Florida Brock opinion, just 4 years after the court quoted Wayne Hyatt’s opposing view in Cohen Hill (see note 2), held that:

A homeowner’s association lacks the municipal character of a company town. In the case of an association, the homeowners own their property and hold title to the common areas pro rata. Moreover, the services provided by a homeowners association, unlike those provided in a company town, are merely a supplement to, rather than a replacement for, those provided by local government. As such, it cannot be said that the homeowners association in this case acts in a sufficiently public manner so as to subject its activities to a state action analysis. Moreover, the association’s maintenance, assessment, and collection activities are not sufficiently connected to the State to warrant a finding of state action. The state cannot be implicated in the association’s activities solely because the association is subject to State law. We conclude that the association in this case does not stand in the position.

(The Court did not realize that most HOA common areas and facilities are not owned by the members, but by the HOA corporation. The members are third-party beneficiaries. The second sentence above is not accurate.)

In further shocking dicta (unsupported legal authority for statements) in the above quote (see To Be in note 2), the Court declared that HOA services are merely a supplement to local government and that as a supplement its acts are insufficiently municipal in nature. Say what?

Well, I got news for the Court. Applying the “common meaning of the word doctrine” shows that “to supplement” means “to complete, add to, or extend by a supplement” and a “supplement” means “something added to complete a thing, supply a deficiency, or reinforce or extend a whole.”  With this definition the HOA would be a part of local government to complete it or supply a deficiency.  The HOA is a municipality!

Sadly, the narrow focus on individual and separate acts and actions to determine the involvement of the state in the functions and activities of the HOA is misguided.  Rather, it is the collection of the numerous acts of the HOA that should be used to determine whether or not the HOA is an arm of the state and stands in place of the state.  Consider for example, does local government supplement state government?  Does town local government stand in the place of state government?

However, based on the irrational argument used in Brock, as quoted above, the Court ruled that the HOA “does not stand in the position of a government.”

 

In the 2003 Missouri Lake Lotawana opinion, the Court reversed the trial court’s ruling, asking for a declaratory judgment, using the irrational opinion in Brock and held that the plaintiff’s allegations “require state action, and that, here, there is no state action because the Association is not a state agent. . . . the trial court is effectively saying that Mr. Westphal can have no claim because the Association is not a state actor.”

On the other issues the plaintiff directly alleged state action, arguing that,

[T]hat the Association’s conduct is state action because the Association is a quasi-governmental entity.  He maintains that the Association ‘operates as a ‘mini-government’ because it raises money through dues, has an elected governing body, enacts rules and regulations, and enforces such rules through the court system. In support of this argument, Mr. Westphal relies on [Chesus and Terre du Lac].[3]

Referring to the two cases, the Court concluded,

While both cases discuss how a homeowner’s association operates as a “quasi-governmental entity,” neither is authority for the concept that an association’s “quasi-governmental” actions are state actions. Mr. Westphal fails to cite any authority to support his argument that the action of a quasi-governmental entity is state action.

First, the Court selectively only used the term “quasi” and ignored “mini” as in stated Chesus. “Mini,” of course, speaks of a small municipality, yet a municipality. Both cases simply, without further ado, quote the same Wayne Hyatt statements as I quoted in To Be (see note 2) that contain both words.

And the Court is technically correct with regard to a lack of a court finding, but taking such a view makes a mockery of the law and is highly illogical. As argued since “quasi” means “like,” then any action of a quasi-government must be, a quasi-state action. The degree of “quasi” must extend to state actions, too. Stop the “word games”!

“Quasi” must be defined, but not in terms of the public functions test or private entity devise. It must be defined in accordance with our constitutional system of government that cannot allow for outlaw governments to stand alongside constitutional local government.

This commentary, somewhat technical at times, demonstrates the failure of the courts to address the fundamental issues that HOAs are mini-governments, and that by the collective functions and actions of HOAs there is clear and convincing evidence to make the case that they are indeed state actors. The whole is greater than the sum of its parts.

(As a reminder, I am not a lawyer and I simply offer my views on HOA-Land.)

Notes

[1] Brock v. Watergate, 502 So.2d 1380 (Fla. 4 Dist. App. (1987); Westphal v. Lake Lotawana, 95 S.W.3d 144 (Mo. App. 2003).

[2] See in general, To be or not to be a mini or quasi government? Hyatt said ‘yes’; Do state HOA Statutes Establish HOAs as State Actors?

[3] Chesus v. Watts, 967 S.W.2d 97 (MO. APP. 1998);  Terre du Lac Assn v. Terre du Lac, Inc., 737 S.W.2d 206 (MO. App. 1987)

Supreme Court says corporations cannot be used to evade Constitution

The recent non-HOA decision by the US Supreme Court in DOT v. Assn American Railroads[i] has a direct bearing on the constitutionality of the HOA legal scheme.   This case dealt with the legal status of AMTRAK — is it or is it not a government entity — and was there an unconstitutional delegation of legislative authority.  While I have argued that HOAs are de facto private governments based on their powers, authority and functions, I now make the argument that as a de jure (according to the law) private corporation, HOAs have been unconstitutionally delegated legislative powers. “[R]ecognizing that the power to fashion legally binding rules is legislative.”[ii]

Implicit delegations of legislative powers are described in The Restatement Servitudes[iii] and numerous state statutes carry implicit delegations of legislative powers.[iv]

With respect to violations of the Constitution, the Supreme Court decision in DOT  held 1) that private parties cannot draft agreements to circumvent the Constitution by declaring that an entity, specifically a corporation, is a private organization, 2) that such a determination is made by the courts based on the corporation’s functions, powers and authority, and 3) that in order for a private entity’s delegation of legislative authority to be constitutional, there must be control, supervision and accountability to the state.

I have presented my case that, in the absence of explicit enabling acts, there is implicit unconstitutional delegation of legislative power to private HOAs, particularly in regard to legally binding rules, without accountability.

Read the complete paper at Delegation.

[i] Dept. of Transportation v. Assn American Railroads, 135 S.Ct. 1225 (2015)

[ii] Supra 1, p. 17.

[iii] Restatement Third, Property (Servitudes), Susan F. French, Reporter, p. ix (American Law Institute 2000).

[iv] For a sample of implied rulemaking statutes by state, see:  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).