Category: Opinion

After failing to obtain the AZ SC’s order in Turtle Rock[1] on its web pages, I did  a Google search and found what appears to be a docket document dated July 3rd.[2] It contained the following order:

IT IS ORDERED  as follows:

1. The Order granting review is vacated;
2. The Petition for Review is denied;
3. the Court of Appeals Opinion shall be depublished.

Scott Bales [Chief Justice]

Additional information provided is the mysterious comment (my emphasis), “* It appears to the Court that the grant of review in this case was improvident.”  Furthermore, it listed CAI as having filed an amicus curiae some 6 weeks after the petition was filed.  That explains CAI’s awareness of the SC order.

The statement of “improvident” caught my attention and I knew there was something not quite right. A Supreme Court saying, in effect, that it was fooled and made a mistake?  Admitting that I’m not a lawyer, but having read hundreds of HOA cases,  never heard of it!  And the obvious question is: How did they conclude that a mistake was made?

To make sure we understood what happened, here’s Black’s Law dictionary’s definition of “improvident”:

A judgment, decree, rule, Injunction, etc., when given or rendered without adequate consideration by the court, or without proper information as to all the circumstances affecting it, or based upon a mistaken assumption or misleading information or advice, is sometimes said to have been “improvidently” given or issued. (2^nd Ed.).

Of or relating to a judgment arrived at by using misleading information or a mistaken assumption.(7th Ed.).

The only possible candidate for providing additional information to the AZSC had to come from the CAI amicus brief.  Further confusing is the docket entries of May 17 and July 3 regarding partial settlement briefs from both parties (Fisher was a Pro Se).  Since the appellate decision still stands, and Fisher won that decision, was she content and had no interest in the possibility of being overturned by the SC and so settled?  I wonder.  Many unanswered questions.

If the case was settled, why the need to depublish the appellate decision unless the settlement agreement so specified that to the SC.  If so, then we have an instance whereby the parties dictate to the judicial system to unjustifiably seal the case. This preposterous! Outrageous!

I am at a loss to understand why the SC would act in such a manner that would serve to hide violations of due process of law by HOAs. It seems to affirm the public policy, and legal doctrine, that HOAs are private contracts not subject to the 14^th Amendment. And so what!

Don’t expect the Justices to come forth and explain themselves. Never will happen!  Still, I would email the Clerk of the SC urging  that the SC explain in detail why such action was taken, in apparent contraction of legal doctrine to make court decisions public.

While Rule 111 does not mandate a justification for its action, unlike in the case of a lower court sealing a decision, how did the SC justify such a decision in spite of its “substantial public importance.”

You can email Janet Johnson at  scclerk@courts.az.gov.

References

[1] Turtle Rock v. Fisher, 406 P.3d 824 (Ariz. App. Div. 1. (2017)). See AZ Supreme Court prohibits publication of decision on HOA notice of fines.

[2] https://apps.supremecourt.az.gov/aacc/appella/ASC/CV/CV170339.pdf.

A depublication order in the Turtle Rock appeal[i] of an appellate  decision was issued by the AZ Supreme Court on July 3rd, which held that the HOA must provide proper notice by publishing its list of fines in order for the fine to be valid. The appellate court held that the HOA did not publish a list of fines to satisfy the legal notice requirements.[ii]  These fines can then be challenged as unreasonable, as in the case of the Turtle Rock case where a $25 per day fine was found unreasonable.

This issue was a matter of general public importance and should be made public in accordance with the Rules of the Arizona Supreme Court. However, this order for depublication by the SC was a very harsh treatment of the appellate decision and is tantamount to sealing the decision from the public.

Having read several hundred opinions, both federal and state  across the country, this is the first time I ever saw a depublication order.  Under AZ Rules of Supreme Court,[iii] the SC can issue an opinion which is then publicized in the law journals and serves as precedent; it can issue a memorandum order that restricts the publication of the decision,[iv] making it non-binding precedent – judges do not have to follow the decision; it can essentially hide the decision from the public with a “depublication” order.

Yet, somehow, a CAI member firm, Carpenter Hazlewood, apparently has knowledge of this SC order and has published it to its followers.[v]  Carpenter Hazlewood was not an attorney of record in the appellate case, who were other CAI member law firms of Goodman Law and J. Roger Wood formerly of Carpenter Hazlewood. But, there is no access on the SC’s web pages to the SC’s order of July 3^rd by the public at large.

CAI tells its subscribers that Turtle Rock is no longer law, but “Although the Turtle Rock case cannot be cited in a future fine case as ‘precedent’, a judge could decide a similar future case and reach the same conclusion.”  Yet, homeowner rights advocates and the public in general are left in the dark.  Without knowledge of the appellate decision due to depublication, the homeowner is prevented from adopting a similar line of argument — a sorely needed winning argument in the name of justice — to use it as its complaint in a future legal action.

This decision by the SC could be seen as a restriction on my free speech rights, and that of the public in general, with respect to neutral public political content.  It, as in the case of ADRE and its listing of CAI as a resource,  is not content neutral but biased toward the HOA.

References

[i] Turtle Rock v. Fisher, Ariz. CV-17-0339-PR (2018).

[ii] Turtle Rock v. Fisher, 406 P.3d 824 (Ariz. App. Div. 1. (2017)).

[iii] AZ Rules of the Supreme Court, Rule 111.

^[iv] See the Arizona Supreme Court memorandum order in Gelb v. DFBLS, CV 10-0371-PR (2011).

[v] See email of July 11, 2018 by attorney Chad Miesen, “Final Word on Turtle Rock.”

Looking at the latest release of CAI’s “Community Matters,” the 2018 version is substantially the same as the 2005 version.  In this propaganda brochure you will not find the following words:

• Government
• Bill of Rights
• Constitution
• Just
• Justice
• Waiver or surrender of rights

You will find the word “fair,” but only in reference to paying your fair share of the assessments.

The reader is told that “it is essential . . . that buyers . . . agree to comply with CC&Rs” when they buy into an HOA controlled property.  But don’t explain how this agreement took place. A buyer would reasonably say he didn’t sign any CC&Rs so there’s no agreement under contract law 101.  What took place was the acceptance of a deed that said the property was subject to CC&RS, and by the very fact that the buyer took hold of the deed he was implicitly having agreed to be bound.  How about that?

The defense argues that it is binding under the real estate law of equitable servitudes – was the buyer ever told this – and he was given fair notice to read and object to the CC&Rs.  Objecting to the CC&Rs was tantamount to NO DEAL!  Is this buying under pressure? Take it or leave it, making the CC&RS an adhesion contract?

But no need to let the buyer know these things; he’s in love with the property as his new home.

This document goes on to channel the reader’s mindset about the CC&Rs into physical things as “landscaping, maintenance, satellite dishes, clothes lines” etc. and away from serious matters of governmental powers that make him a second-class citizen without constitutional protections.

This document does warn the potential buyer that ”Some people bristle when faced with rules that must be enforced to maintain established community standards.”  Well, most people know and live with rules called state laws and ordinances.  However,  their reasonable expectations of enforcement never entertain just how draconian the HOA enforcement can be, rivaling the most authoritarian of governments.  The adhesion contract CC&Rs, and state laws, do not protect them under the equal application of the law requirement of the 14^th Amendment, because the HOA is a private contract.

There is no separation of powers doctrine that would include a judiciary to protect citizens as in the public domain.

Their laughable solution is to blame the homeowner for not getting involved and make sure things run right.  The adhesion CC&Rs and the flawed legal structure of the HOA are never the culprit, nor is the Board that functions without any oversight body to protect the homeowners.  “Issues often arise because of unrealistic expectations, misinformation and misunderstanding,” CAI acknowledges.   Guess who is the primary cause for all this misunderstanding?  You got it!  The one and only HOA expert on HOAs, CAI.

And yet, state legislators hear no evil, see no evil and speak no evil of HOAs.

One more attack on the validity of the OAH powers to handle HOA complaints bit the dust.  Three former attempts by Carpenter Hazelwood (CAI  member attorneys) to declare OAH unconstitutional resulted in a memorandum order from the AZ Supreme Court that declared the appellate ruling not admissible as precedent.[i]  Today, the appellate court in Whitmer (Pro Se)[ii] set the law straight as can be, although it seems that the HOA attorney and CAI member, Augustus Shaw, couldn’t seem to understand the law.

The case dealt with the explicit law, granting a homeowner the right to seek a court contempt order against the HOA for not obeying an ALJ  decision.  Without such a provision, OAH decisions would be meaningless, as I made clear back in 2005 when the original version of the law was put into effect. ARS 32-2199.02(B) reads,

“The order issued by the administrative law judge is enforceable through contempt of court proceedings and is subject to judicial review as prescribed by § 41-1092.08.”  How plain can that be?

Somehow in a confusing, twist of words, the HOA attorney makes a suspect argument that ARS 32-2199.02(B) states that “the proper venue for a contempt of court hearing is the administrative Courts.”[iii]

The Superior Court in its appeal of the ALJ decision said it had no jurisdiction to hear contempt pleadings.  Can you believe that?!!  This appellate court decision said that the superior court was wrong and it must hear Whitmer’s pleading for a contempt order against the HOA.

 What this important, but unnecessary decision, clears the way for is that an HOA’s failure to obey an ALJ order at OAH  is subject to contempt of court.   This is the homeowner’s act to get compliance, and if the contempt order is violated, then either fines or jail time for the violator.

 No wonder CAI fought a desperate battle!

 

References

[i] “The Court in addition to its regular fashion of terse announcements, DENIED or ACCEPTED, added an order under its powers to do so, AZ Supreme Court Rule 111(g), that the Gelb decision was not to be published. Not being published means that it is not binding authority, or precedent.” Gelb v. DFBLS, CV 10-0371-PR (2011).

[ii] Whitmer v. Hilton Casitas HOA, CA-CV 17-0543 (2018).

[iii] Whitmer v. Hilton Casitas HOA, CV2016-055080.

 

I am talking about federal tax exemption status for HOAs under 501(c)4. HOAs do not qualify for educational nonprofits, (c)3, or recreational services under (c)7. Of the 342,000 HOAs (CAI data) less than 1,300 have a (c)4 exemption as a social welfare organization. In general, a social welfare organization must provide social benefits to the community at large, or general public.

Now, getting tax free revenues is applaudable as almost all homeowners would agree. After all, they are being double-taxed at the state and local level. But, like on the national scene, the tax break goes not to the individual homeowner, but to the HOA corporation. The dream, the fantasy, of the homeowners is that these savings would trickle down to its members as lowered assessments. I wouldn’t hold my breath. There is no mandate in any of the rulings that might apply to an HOA to pass on the tax breaks to its members. Is it a good thing? Could be, providing . . . .

On the other side of the coin comes the constitutional and ethical question as to why should HOAs get a tax break in the first place? They operate and function outside our constitutional system of government that denies citizens individual property rights and fundamental rights as enjoyed by those not living in an HOA.

The CC&Rs do no mention social welfare as its purpose, but confines itself to maintaining property values and enforcing the CC&Rs as it main purpose. Some going as far as saying either, “for the members” or “for the community.” It’s a serious contradiction in purpose to say “private” and to say “including the general public” in one breath. It’s an oxymoron.

In 1989, a ruling by the Federal Circuit court hold that a WV HOA was not entitled to tax benefits, stating,

“When a group of citizens elects . . . to separate themselves from society and to establish an entity that solely advances their own private interests [an HOA], no potential for general social advancement [benefit] is implicated. Wholly private activity, however meritorious, confers no such benefit which would render a compensatory exemption [tax break] appropriate”[2].

That says it all!

There have been several rulings over the years trying to qualifying the broad, vague wording of the IRS rules, which is the love of CAI lawyers – parsing sentences and redefining traditional meanings of words. Gary Porter[1] — a California CPA and active HOA tax specialist is a CAI member and past national president of CAI (1998-99) — was the leading proponent of this “word game” that held that HOAs were quasi-governments and, as such, constituted a community as defined by the IRS. His views were heard by the IRS and cited in the Sun City Grand, Surprise AZ application in support of a tax exemption.

In short, the heart of an HOA is thrown out the window — its private, contractual nature for its members – and replaced by a social welfare organization for the benefit of the surrounding community. Since the beginning of HOA time, this has been the fundamental legal basis for HOA governments.

However, in spite of the Circuit Court ruling, in 2015 it seems that the IRS bought this argument. It determined that SCG could be both, a private organization and a “surrounding community” at the same time.

Now, how about all the other HOAs? Not a word was made public about this achievement in the 3 years since 2015. I wonder why?

Notes
1. “IRC Section 501(c)(4) and Gated Associations,” Gary A. Porter, CPA (July 2, 2018).
2. Flat Top Lakes Assn v. United States of America, 868 F. 2nd 108 (4th Cir. 1989).