Category: Opinion

Posts by GKS

Calif. HOA laws and community service districts

November 18, 2010

                                                                                                                                   email letter

Mr. Brian Hebert

Executive Secretary

California Law Review Commission
4000 Middlefield Road, Room D-1
Palo Alto, California 94303-4739

                                                                                       re: Study H-855

                                                                                       Memo 2010-8

                                                                                       CID Law

Dear Mr. Hebert:

 I am quite disappointed with the Commission’s continued effort to replace the Davis-Stirling using a carbon copy with revisions dealing with the minutia of CID operations.  And still refusing to recognize CIDs as de facto governments, much as Cuba is an unrecognized but de facto government.  Furthermore, CLRC has seen fit to retain the placement of these special laws for the governance of communities under the Civil Code. 

 It appears that the special interest agenda, promoted by the national lobbying trade organization, Community Associations Institute (CAI), still dominates the Commission’s thinking.  Is the Commission aware of CAI’s repudiation of the US Constitution when it wrote in its amicus brief to the NJ appellate court in Twin Rivers that, “In the context of community associations, the unwise extension of constitutional rights to the use of private property by members . . . ” ? Committee For A Better Twin Rivers v. Twin Rivers Homeowners Association (TRHA), Docket No. C-121-00, 2004.

Davis-Stirling and the Commission’s proposed rewrite continue to reflect the State’s exercise of “coercive power”, and “significant encouragement, either overt or covert”  with regard to CIDs.  The CID Laws portray the CID  in a “symbiotic relationship” with the state, “entwined with governmental policies,” and the state government is “entwined in [the CID’s] management or control.”  Such conditions give easy rise to declaring the CID as a state actor.  (See the summary of state action criteria as set forth by the US Supreme Court in Brentwood Academy v. Tennessee Secondary School Athletic Ass’n, 531 U.S. 288, 2001).

I cannot understand why the Commission continues to permit agreements by private parties to create local, private governments that are authoritarian and that deny homeowners their rights and freedoms to which they would otherwise be entitled.  These “declarations” and CC&Rs are just that – devises to circumvent the application of constitutional protections and prohibitions with respect to local communities.  The unsuspecting public is bound to these so-called agreements by virtue of taking hold on their deed sight unseen, without ever having to read, understand or sign these CC&Rs.  The filing of these CC&Rs alone are necessary and sufficient to bind the homeowner, under servitude laws, and not contract law; where the legal-academic aristocrats offer advice that if a conflict exists between servitude law and constitutional law, servitudes law should prevail. (See Restatement Third, Property: Servitudes, § 3.1, comment h).

 It is even more disturbing when existing California law, and similar laws in other states, permit the ability to attain the advertised benefits to the greater community of California and to the local CID community under municipality laws.  In general, they are the special taxing district laws, and in California they are the District and Community Service District Codes (see Government Code, Title 6, §§ 58000 and 61000 et seq. below for the relevant excerpts).  If town hall democracy, local autonomy and the “voice of the community” are indeed the objectives of good government, then the District Code  will meet these objectives, where the replacement of Davis-Stirling is nothing more than a top-down imposition on the local community of special laws for private organizations.  The CID would be subject to the 14th Amendment as are all other public entities, and the laws of the land would indeed be equal for all people.

 I outline the simple method for accomplishing the transformation of CIDs to taxing districts in Chapter 2 of
Understanding the New America of HOA-Lands  (attached for your edification and convenience).  Chapter 3  explores ideal HOA constitutions and Chapter 4 is a lengthy discussion of the two forms of American political government:  HOAs and public entities.


 The Commission should cease and desist its current efforts to further promote the establishment of the second form of American political government, the CID, and return to supporting the principles of democratic government under the US and California Constitutions.

 

Respectfully,

George K. Staropoli

President

Citizens for Constitutional Local Government

 

References

California  Government Code Title 6,  Districts, Division 1, General, § 58000 et seq., and in particular Division 3, Community Service Districts, § 61000 et seq. as relevant.

 

§ 61001.

(a) The Legislature finds and declares all of the following:

(1) The differences among California’s communities reflect the broad diversity of the state’s population, geography, natural resources, history, and economy.

 

(b) The Legislature finds and declares that for many communities,community services districts may be any of the following:

(1) A permanent form of governance that can provide locally adequate levels of public facilities and services.

(3) A form of governance that can serve as an alternative to the incorporation of a new city.

 

(c) In enacting this division, it is the intent of the Legislature: (1) To continue a broad statutory authority for a class of limited-purpose special districts to provide a wide variety of public facilities and services.

(3) That residents, property owners, and public officials use the powers and procedures provided by the Community Services District Law to meet the diversity of the local conditions, circumstances, and resources.

 

Appellate court holds HOA board to fiduciary obligations of good faith and negligence

The California appellate court in Telford[i] has taken a long sought defense in favor of homeowners against the negligence and bad faith dealings by the board, stating that the homeowners’ association is not relieved “from liability for breach of its fiduciary duties because it occupied ‘a particularly elevated position of trust’ due to its quasi-governmental status and ‘the many interests it monitors and services it performs.‘” (Emphasis added). The court added that:  “because a homeowners’ association stands in a fiduciary relationship with the member homeowners,” a failure to monitor the project was a breach of its fiduciary duties to the memebrs in general. (Understand that the board does not have a fiduciary duty to any one specific member).

This single opinion strikes at one defect in the HOA legal scheme that was necessary for the widespread adoption and mass marketing of HOAs, the “free ride.” No longer will HOA boards get a free ride under the business judgment rule, but will now be held to act responsibly under its quasi-governmental legal status. The “free ride” laws and rulings were necessary to get uninformed, untrained and, in many cases, conscripted members, to join the board without any accountability. Now, this holding places a real-life awakening to the propaganda and myth that the HOA has no downside.

In this case, plaintiff Telford filed suit against the board on the basis of an approved construction project by a neighbor, charging a loss of quiet enjoyment, emotional stress, public and private nuisance, and negligence in enforcing compliance with the governing documents. (It is important to note that this was not a claim of contractual violations). Telford also charged that the approval “was not only negligent, but unreasonable, arbitrary and in bad faith” as its approval was based on friendships between the board and the member. Here, we are not only concerned with those broad powers and obligations granted to the board, but the application of the business judgment rule [BJR] that governs the broad, discretionary powers granted to the board. The Court repeated the precise ruling in Lamden (often neglected in CAI attorney citations): “deference is accorded only if the association has acted ‘upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members.’” BJR is not a grant of unlimited powers to the board.

Furthermore, with respect to a breach of fiduciary duty, the Court stated that a “breach of fiduciary duty is a tort.” And as I mentioned elsewhere, a tort is a common law wrongful act that allows for punitive damages against the board and/or individual director. A tort provides a strng counter-measure against the one-sided financial damages that HOA boards are entitled under state laws and the governing documents.

A second very important opinion that is addressed in Telford is the HOA board’s defense that there is an exculpatory clause in the governing documents; that is, a clause that grants the board immunity from liability as a result of its actions. The Court held, however, that this type of clause was against public policy and therefore invalid:

The law has traditionally viewed with disfavor attempts to secure insulation from one’s own negligence or wilful misconduct[.] “Furthermore, it is the express statutory policy of this state that `[a]ll contracts which have for their object, directly or indirectly, to exempt anyone from the responsibility for his own fraud or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.’”

Punitive damages are monetary compensation awarded to an injured party that goes beyond that which is necessary to compensate the individual for losses, and that is intended to punish the wrongdoer.

Punitive damages can serve to “police” the HOA board in view of the fact that state laws and the governing documents do not contain penalties, and serve to protect boards from accountability.  See Public Policy, Tort Law and Planned Communities[ii].
 
 

 

 

Reference 

i Telford v. Sagewood HOA, No. E048483, Cal. App. 4th Dist., Nov. 16, 2010.

ii  http://pvtgov.org/pvtgov/downloads/policy-torts.pdf

Understanding deference to HOA boards and overturning bad precedents

A recent California case, Affan v. Portofino Cove HOA, highlights several important aspects of legal precedent and the judicial deference doctrine that all advocates must understand. First, in California, as applied to maintenance decisions only, the court in Lamden v. La Jolla made a reasonable clarification of the business judgment rule and established the “judicial deference” doctrine.

This court ruled:

It is important to note the narrow scope of the Lamden rule. It is a rule of deference to the reasoned decisionmaking of homeowners association boards concerning ordinary maintenance. It does not create a blanket immunity for all the decisions and actions of a homeowners association. The Supreme Court’s precise articulation of the rule makes clear that the rule of deference applies only when a homeowner sues an association over a maintenance decision that meets the enumerated criteria.

The Lamden opinion made clear, however, that the rule applies only in limited circumstances. The court described those specific circumstances as follows: “Where a duly constituted community association board, upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions to select among means for discharging an obligation to maintain and repair a development’s common areas, courts should defer to the board’s authority and presumed expertise.”

You must understand the ruling, the courts reasoning, and the criteria that make for a valid defense by the HOA, such as, “duly constituted board”, “reasonable investigation”, “in good faith and in the best interests of the community”, “exercises its discretion . . . within . . . its authority”. And the Court added, “The judicial deference doctrine does not shield an association from liability for ignoring problems; instead, it protects the Association’s good faith decisions to maintain and repair common areas.” (emphasis added).

The court in Affan also removed the managers from protection under this defense since they are not an HOA.

Second, the Affan court clearly found fault with the trial court’s conclusion made without substantial evidence, like a dicta (opinions by authority without any foundation being supplied, as found in too many decisions favoring HOAs). “The trial court never decided, based on the evidence . . . . Instead, the court simply concluded as a matter of law, ‘based upon Lamden,’ that defendants were not liable for negligence . . . “ The court overruled the trial court and required a decision based on evidence.

Third, the Affan court illustrates out how the Lamden court overruled the business judgment rule and established the ‘judicial deference” rule, rejecting precedent in the name of justice and fairness. Unjust and unfair precedents favoring the HOA can be and must be overturned!

Independent tribunal adjudication of HOA disputes in AZ held unconstitutional

An Arizona appellate court declared that the independent tribunal adjudication of HOA disputes by the Off. of Admin. Hearings was unconstitutional. After four attempts, the Arizona CAI law firm of Carpenter Hazlewood Delgado & Wood had finally obtained its long sought victory. (See Gelb v. Casa Contenta HOA, CA-CV 09-0744, Ariz. App. Div. 1, Oct. 28, 2010).

If you followed my time line in the Merrit case (2008), Carpenter was desperately seeking to get OAH declared unconstitutional.  It started with Brown v, Terravita, but no decision was made.  Next followed Waugaman where Judge Downie decided it was unconstitutional, but applied the decision only to the HOA at issue.  Along came Merrit v. Phoenix Townhouses and a decision was quickly made to take the case up on the constitutionality question, wherein Carpenter sought the Downie ruling to be applied to ALL HOAs.  However, Merrit got out of the HOA before the appeal was made, making it a moot question without a concrete issue. However, the decision was not challenged except by me, and I was snubbed and denied any further filings in the case. (See The State of Arizona will not protect buyers of HOA homes! for the case study and court filings.)

At the same time as Merrit, perhaps Carpenter realizing this serious problem of standing to sue, raises the constitutionality question in Gelb at the superior court trial level (see ¶ 6) – just in case.  This was in Aug 2008, at the time Merrit was going on.  There was really nothing new in the Gelb decision as it reads from both Cactus Wren and Hancock, like with Downie in Waugaman, except the slap at the legislature trying to get around the courts that was made by Downie is missing.

 Question:    The HOA had won at the Office of Administrative Hearings.  Gelb was contesting the decision.  Why on earth would the HOA’s attorney challenge the constitutionality of the decision, which upon a win, would invalidate the OAH decision in favor of his client, the HOA????  Who was Carpenter working for????

FL attorney ridicules HOA Syndrome and homeowner sufferings

 
Shame on Ryan Poliakoff, a Florida attorney, and HOA activist and supporter.
  
He ridicules the suffering, and emotional and physical stress caused by unconscionable CC&R adhesion contracts, defended by the Poliakoffs and other CAI attorneys, and supported by pro-HOA statutes.  (Photo from Poliakoff article).

“So, let’s get this straight.  A kooky psychology professor famous for “cinematherapy,” a chiropractor and a politically-aware anti-HOA lawyer walk into a bar…

“In any event, if any of the maladies in the links above seem familiar to you, maybe you too are suffering from the dreaded HOA Syndrome.  I recommend you call your doctor.  But don’t get upset with me if she can’t stop laughing.  Maybe this post should be under comedy, after all.”

Note the failure to address statements made before various state legislative committees, among them Arizona, California, Texas and Florida’s own Rep. Robaina Hearings.  He should also read the comments to my Commentary,   
Psychologist defines the HOA Syndrome caused by oppressive HOAs

Shame on Poliakoff and those legislators who also see no evil, hear no evil and speak no evil — those who are active participants in the Unspoken Alliance of No negatives About HOAs.

 
Shame on Ryan Poliakoff!   He should be disbarred!