Category: Opinion

Posts by GKS

HOA adudication at OAH: a rebirth of constitutionality, abuse, and legislation

It seems that with the “rebirth” of Arizona administrative agency adjudication of HOA disputes in 2011, CAI and other the pro-HOA supporters want to stifle this due process protections that has leveled the litigation playing. Although not the answer to all issues, with its 42% win ratio favoring Pro Per homeowners, it is a very good start. In continued attempts to deny homeowners a fair and just hearing, the first OAH case in 2011 reveals a challenge to the constitutionality of the new statute, feeble as it may be. To better understand the issues at hand, let’s review the activity took place in two arenas in 2008: the courts and at the legislature.

1. Courts. After several prior years attempts to obtain a just hearing process in HOAs, a hard fought battle resulted in the passing of HB 2824 in 2006 that established OAH adjudication of HOA disputes. After a full year of complaints in 2007, 2008 started with several constitutional challenges to the new laws. Starting early in 2008 with Waugaman and the OAH appeal to the superior court, the new statute was found unconstitutional. At the close of the year the Merrit OAH case broadened the court ruling to apply to all HOAs. At the same time of Waugaman, Gelb filed an OAH Petition that resulted in an appellate court affirmation of the superior court ruling in 2010, making the ruling precedent.

2. Legislation. While the CAI attorneys attempted to end OAH adjudication, legislation was introduced in 2008 to stop the abuse of process at OAH, whereby the HOA attorneys were trying to make OAH just like a civil court proceeding with the formality of the rules of court. The two prominent bills, HB 2724 and SB 1162, were defeated, but they caused panic in CAI and with HOA attorneys. Among other things, these bills sought:

HB 2724

“notwithstanding any provision of the declaration, an amendment to the declaration is void and unenforceable against any unit owner who entered the association before the adoption of the amendment unless the amendment was approved by unanimous consent of all unit owners . . . .”

the association shall enforce that provision of the condominium documents against all other unit owners who can reasonably and readily be determined to be in violation. . . . the association bears the burden of proving that the association enforces that provision uniformly. . . . Any provision in the condominium documents that is not uniformly enforced pursuant to this section is deemed unenforceable for purposes of any pending enforcement action.

Except as expressly prescribed in this chapter, the requirements of this chapter including any rights conferred by this chapter shall not be modified by agreement or otherwise waived. A person shall not use any device to evade the limitations or PROHIBITIONS of this chapter.

SB 1162 (two separate issues presented)

A. Amendments. “An amendment to the condominium documents does not apply to any court or administrative action filed before the amendment is adopted.”

B. Attorney fees – penalties.

the administrative law judge shall not award attorney fees or costs and a court shall not award attorney fees or costs in any appeal from an administrative order unless the administrative law judge or court makes a finding that the attorney or party did any of the following:

1. Brought or defended a claim without substantial justification.

2. Brought or defended a claim solely or primarily for delay or harassment.

3. Unreasonably expanded or delayed the proceeding.

4. Engaged in abuse of discovery.

If the administrative law judge or court makes a finding pursuant to subsection C of this section, the administrative law judge or court may allocate the payment of attorney fees among the offending attorneys and parties . . . [This was designed to punish the abusers, the HOA attorney and HOA, as the homeowner was overwhelmingly a Pro Per.]

“without substantial justification” means that the claim or defense constitutes harassment, is groundless and is not made in good faith.

Please bear in mind that, “Good faith, a state of mind consisting in ((1) honesty in belief or purpose, (2) faithfulness to one’s duty or obligation . . . (4) absence of intent to defraud or to seek unconscionable advantage.” (Black’s Law Dictionary).

Are we seeing a second attempt at abuse of process in OAH adjudication? Today, the first Petition was challenged with a feeble constitutionality challenge. Of the first 3 Petitions filed, 2 resulted in the quick use of a civil court permitted Motion to Dismiss being filed with one Petition having already been dismissed. In the newest Petition, filed just last week, the HOA has not yet responded. As I have previously written, the other Petition appears to be proceeding with a pre-hearing conference, where I suspect a discussion of the Motion to Dismiss will occur. The OAH records are not clear. From the OAH stated purpose of pre-hearing conferences and topics for such a hearing (A.R.S. § 41-1092.05(F)), it seems the question of OAH jurisdiction will be raised a a legal matter – “Clarify or limit procedural, legal or factual issues.”


If this is indeed the case, using motions to dismiss to over-power the homeowner and to avoid any audiotape record of the hearing — an invaluable resource not readily available in trial court proceedings — I strongly urge that legislation be introduced as indicated above to put a stop to this abuse. Legislation to stop “ex post facto” amendments, which is a violation of Constitutional restrictions, must be proposed and sponsored in January.

If, on the other hand, the Petitions did not conform to the statutes for OAH adjudication, then all those looking to file a Petition must read the OAH letter from its Director addressing homeowners in HOA proceedings — Homeowner Petitions Against An Association. A must read for all.

HOA email ‘meetings’ – intent of the law — bad faith

Calif. attorney Beth Grimm advises against email meetings as new law goes into effect. In contrast, in Arizona, following CAI Scott Carpenter’s advice to HOAs on “how to adjust to the new laws” (see AZ CAI’s reaction to the “new era of regulation” of HOAs), I’m aware of another CAI attorney making use of “written consent” to bypass the intent of the Arizona law.

And let’s not forget the HOA directors who hide behind “upon advice of their attorney” to get around the laws. They forget, and the HOA attorneys apparently don’t advise them accordingly — especially at those town sponsored seminars — that under ARS 10-3830(C), “A director is not acting in good faith if the director has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection B unwarranted.” “B” refers to reliance on other experts like CPAs and attorneys.

While a legal mechanism, is the avoidance of the intent of the law in this email instance a violation of good faith to the members? I think so! Good faith – “honesty and integrity, or an honest intent to act without taking an unfair advantage over another person.”

In this instance, can the director play “dumb” and say, “I didn’t know the law” and get away with it? Hell no!

See Grim blog, EMAIL “MEETINGS” – MORE ON THE TOPIC

Legal-academic aristocrat – advocate exchange on HOA bad faith conduct

I am responding to Mr. Berding’s undated blog entry, First Thing We Do, Let’s Ban All the Bloggers! , a no-name identification of the author of the blog, namely yours-truly. Why is Mr. Berding afraid of mentioning my name? After all, I’m not an attorney. He chose to copy my Commentary rather than to provide a link to my blog, with all those other commentaries.

Ok, it does appear that Mr. Berding is quite perturbed about my statements and quotes from a D & O insurance article that uses the phrases “bad faith,” “criminal intent,” and “fraudulent acts.” He’s upset that I emphasized these words in my Commentary (WordPress Blog). Yet, Berding misleads the readers of his own blog by referring to my Commentary as, “suppose this is a blog.”

Yes, the ugly truth does hurt, Mr. Berding, doesn’t it? And I suppose posting on those blogs, like yours, those CAI blogs, and the Adams Kessler blogs does make them right and important, but forget about those advocate written blogs. Spoken as a true legal-academic aristocrat making Philosopher-King (educated elite setting forth what is good government to the rulers) pronouncements.

Mr. Berding then invokes the legalistic argument of allegations and no proof, as if this were the time and place for legal confrontation. His attitude reminds me of the slogan commonly found on court buildings and other judicial buildings, “Equal Justice Under the Law.” This slogan contains a hidden premise, or assumption, that the law is just and fair. Suppose it isn’t, as advocates maintain? Then the slogan is reduced to a meaningless and empty statement. And those with power derived from these unjust laws just love to argue, “It’s the law! It’s the law! We have done nothing wrong!” And that’s were ethical and moral questions of good faith – honesty and integrity, or an honest intent to act without taking an unfair advantage over another person – come into play.

Our public policy permits the law to inflict financial damages, and the possible loss of all one’s equity in his home, for violating the CC&Rs, yet gives only a “ slap on the wrist” to violations by the HOA board. It permits “after an opportunity to be heard” to satisfy the due process requirement for hearings on violations, there being no explicit statement, as found in the public arena: “by an independent tribunal with the right to present evidence, demand proof and to confront witnesses.” It is absent from the CC&R contractual agreement. And where state legislatures maintain a hands-off posture, providing no oversight accountability or effective enforcement against board violations in a “see no evil, hear no evil and speak no evil” banana republic posture. And justifies this pro-HOA support with, “Well, that’s what the homeowner agreed to. Now he’s just trying to get out of a contract.” What kind of society do HOAs create?

I’m sure he would be shocked, as were the editors at KPHO, the Phoenix CBS-TV affiliate, when they conducted a poll on the PTSD HOA Syndrome (click on image), and found out that 68% of the respondents agreed it existed. Or that an overwhelming 91% respondents in a Truth in HOAs Disclosure Poll said NO to signing an agreement to accept, beforehand, the conditions as set forth in the poll — misrepresentation, fraud, no meeting of the minds, etc. No, after all, his philosophy accepts the belief that “the king can do no wrong.”

As to his CAI remark, all he had to do is to attend these seminars and discover for himself the lack of homeowner protection material presented at these seminars. For example, important info for homeowners can be found in my latest Commentary (HOA boards cannot escape wrongful acts by their managers), information regarding the relationship between the HOA and the management firm. It is is an agency relationship that carries with it immense protections for the homeowner against both the management firm and the HOA board. It’s not on the agenda.

As to misleading and out-of-context statements about the D & O article, Mr. Berding misses my point, which is that the board can be sued and here are the grounds for suing. Also not found in an educational CAI, town sponsored seminar. He discredits my work as “emotional,” “lacking objectivity,” and that I “don’t contribute much that is useful to their chosen subject.” So sayeth the Philosopher-King, or is it the “weavers” from The Emperor’s New Clothes?

Come down from the clouds Mr. Berding, and see what is happening around you. I challenge you to answer the following 4 questions that were posed in March 2006 to Mr. Durso, then Editor of CAI’s Common Ground,

I ask the legislators, the public interest organizations and policy makers to consider the following questions:

1. Is it proper for the state to create, permit, encourage, support or defend a form of local government of a community of people, whether that form of government is established as a municipal corporation or as a private organization that is not compatible with our American system of government?

2. Is it proper for the state to permit the existence of private quasi-governments with contractual “constitutions” that regulate and control the behavior of citizens without the same due process and equal protection clauses of the 14th Amendment; that do not conform to the state’s municipal charter or incorporation requirements; or do not provide for the same compliance with the state’s Constitution, statutes or administrative code as required by public local government entities?

3. When did “whatever the people privately contract” dominate the protections of the US Constitution? The New Jersey Appeals Court didn’t think so. Does “constructive notice”, the “nailing to the wall”, the medieval method of notice, measure up to the requisite level of notice and informed consent to permit the loss of Constitutional protections?

4. Please state what, if any, are the government’s interests in supporting HOAs that deny the people their constitutional rights?

I await your reply, or a reply from any of the legal-academic aristocrats.

HOA boards cannot escape wrongful acts by their managers

Given the fact that the HOA manager and/or firm acts “in place” or “on behalf of” the board under a contractual relationship that explicitly identifies the manager as an “agent” or “management agent,” the HOA can be held liable for the acts of its manager. (See study of Arizona management contracts).

Under tort law (the common law of wrongful acts) of vicarious liability (the tort doctrine that imposes responsibility upon one person for the failure of another) and respondeat superior, the board cannot ignore, walk away or refuse to take corrective action action against the manager without incurring liabilities.

First, from the HOA’s obligations, under the officers and directors duties to act in good faith and as a prudent man, the board is obligated to act against its manager where state laws and the governing documents have been violated, or when the manager is clearly committing wrongful acts, like making false statements, harassing a homeowner, etc.

Second, let’s look at what the Restatement (3rd) of Agency (2006) has to say about the liabilities of the agent and principal (manager – board). (Of course, one would not expect to see this material covered in any government sponsored seminar, or manager licensing education, like at the Leadership Centre in Phoenix, which is supported by the towns of Chandler, Mesa, Gilbert, Queen Creek, Apache Junction). “Direct liability” refers to suing the party as such. The main points are summarized below:

¶ 7.01 An agent is subject to liability to a third party (homeowner) harmed by the agent’s tortious conduct.

¶ 7.03 (1) A principal is subject to direct liability to a third party harmed by an agent’s conduct when . . .

(a)(ii) the agent’s conduct, if that of the principal, would subject the principal to tort liability; or . . .
(b) the principal is negligent in selecting, supervising, or otherwise controlling the agent;
(2) A principal is subject to vicarious liability to a third party harmed by an agent’s conduct when . . . the agent commits a tort when acting with apparent authority in dealing with a third party on or purportedly on behalf of the principal.

¶ 7.05 (2) When a principal has a special relationship with another person [as the board with a homeowner], the principal owes that person a duty of reasonable care with regard to risks arising out of the relationship, including the risk that agents of the principal will harm the person with whom the principal has such a special relationship.

¶ 7.06 A principal required by contract or otherwise by law to protect another cannot avoid liability by delegating performance of the duty, whether or not the delegate is an agent.

study of Arizona management contracts

I’ve collected 5 actual management contracts from management firms who are members of the AZ Assn of Community Managers, AACM. All are for HOAs in the Phoenix Metro area. As one management agent told me a long time ago, “What are you doing George? We got a good thing going here!”

 

In general, here’s what they have in common

 

Monthly fees:

$2,000 – $4,000 per month — ($12, 000 – $48,000 plus all those transaction fees summarized below).

Per transaction fees:

numerous and detailed, above the basic monthly fee.

Agency relationship:

4 out of the 5 explicitly acknowledge an agency relationship with the HOA – fiduciary, loyalty, best interests.  One contract specified that it was an independent contractor, but this does not remove the agency relationship.

 “acting under orders”:

All contracts are full of wording that the agent acts under the supervision and direction of the HOA board and its policies.  This serves to negate any “independency” and place the liability on the HOA board. The board can be held responsible for the misdeeds of its agent under respondeat superior. (Never heard of it, did you? That’s because CAI wants it a secret.)

 what does the monthly fee cover?

I couldn’t figure this out after looking at all those transaction fees that are extra. I concluded that it must cover such items as

  • waiting for the phone to ring,
  • responding sometime to homeowners, touring the grounds on an inspection tour (except nighttime inspections which are extra),
  • seeking violators and or physical damage,
  • and dealing with the clerical duties pertaining to meetings and attending a few of them.

Transaction fees:

  • Paper, envelopes, stamps, check, faxes, etc charges;
  • letters including dunning letters, billing reports;
  • transfer fees, disclosure fees, computer and bookkeeping fees;
  • education, newsletters, website;
  • senior staff, computer staff, agent staff.

 

POINTS TO REMEMBER

Your management firm has a legal, binding contract with your HOA, in which it admits that it is an agent of the HOA and to acting under the “orders” of the board. An agency relationship is a fiducciary relaionship with the HOA.  The contract, corporation law, and the CC&Rs require to board to oversee the acts and actions of the management firm, and to take action when there’s wrong-doing by the management firm.  The HOA can be sued under respondeat superior for any wrongful acts by the management firm.

The principal may authorize  the agent to perform a variety of tasks or may restrict the agent to specific functions, but regardless of the amount, or scope, of authority given to the agent, the agent represents the principal and is subject to the principal’s  control. More important, the principal is liable for the consequences of acts that the agent has been directed to perform.