CC&Rs – Page 22 – HOA Constitutional Government

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.

AZ independent HOA tribunal again under constitutional attack

The Arizona independent tribunal, Office of Administrative Hearings (OAH), must really be hurting not only the CAI lawyers, but all lawyers, too. OAH does not pay attorney fees and HOAs cannot expect to get fees from the homeowner. They have to pay from the total of assessments collected. And with a national law firm at its side, it will be paying big, very big.

In the opening rounds of this second period of adjudication, the first ending with 42% of the cases won by the homeowner, a national law firm undertook the defense of an HOA on the issue of an amendment to the CC&Rs. The amendment forced a homeowner to stop building her home, which she was legally entitled to under under her existing CC&Rs. In Wozniak v. North Slopes POA, OAH No. 11F-H1112001-BFS, filed July 22nd, the attorney seeks dismissal of the case based on 2 black and white claims: the homeowner failed to indicate what law or governing document provision was violated, and that North Slopes was, by definition, not a planned community and, therefore, not subject to OAH adjudication – the HOA does not own any property in the subdivision.

BUT, this did not stop Karen Karr of the national firm of Lewis Brisbois Bisgaard & Smith from an opening barrage against the constitutionality of the old statute — old news and moot – and the claims that the new statute is also unconstitutional. She is a labor management attorney. Obviously, the ALJ would dismiss the Petition based on the “black and white” laws and need not entertain the constitutionality question (as an earlier OAH case appealed to the superior court bypassed the constitutionality question). So why the fuss? Headlines? Coaching from you know who lobbyist firm who got scathed by its initial foray into the constitutionality issue, and seeks others to do its work? The one who promised to attack the new statutes? Could that be Carpenter Hazlewood?

The attorney spends 1 1/2 pages (of 7) on reciting history, not applicable to the new statute, and fails to state the fact that the AZ Supreme Court did not allow the appellate case of Gelb to serve as precedent when it declined to hear an appeal. In another 1/2 page, unsupported allegations are made as to the constitutionality of the new statute – no case law, no constitutional law, no administrative agency law. Why on earth bring constitutionality up in such a feeble manner?

My guess is that we will see another attempt, maybe more, to unseat justice for homeowners in HOAs. I mean, it took Carpenter Hazlewood 4 tries before it won the appellate court, but not precedent, decision in Gelb.

BTW, why DFBLS did not outright reject this Petition is a mystery. Clearly it did not meet the requirements of proper adjudication. (While the new DFBLS Petition form asks for specific statutes alleged to have been violated, it does not ask about specific provisions of the governing documents that are alleged to have been violated). If DFBLS had properly rejected the Petition, it would have had to return the $550 fee.

Furthermore, I can understand the ALJ giving the Petitioner a chance to answer, but this ALJ, who is experienced in HOA matters, does not ask the homeowner to address these jurisdictional issues right-out, but seeks a pre-trial conference and entertains a motion for continuance.

Is there a “plot” to raise OAH expenses on frivolous matters in order to obtain evidence for a fee increase? An increase that was already on the drawing board even before the law became effective in July.

AZ CAI’s reaction to the “new era of regulation” of HOAs

In his Sept. 15th seminar, Best Practices for Meetings in an Era of New Regulation, Arizona CAI attorney Scott Carpenter realizes that HOA abuse can no longer be denied or hidden from advocates and from the internet. He asked HOAs to stop activities that will bring further regulation of HOAs, repeatedly using the phrase, “They know us.”

At the very start of the seminar, Carpenter stated that his purpose was not to get around loopholes in the law, or to get around the law, but to show how to “adjust to the new laws.” He then proceeds to play the same “redefine game” that he cautioned HOA boards to avoid — holding workshops rather than meetings because the statutes say nothing about workshops, or not to hold regularly scheduled committee meetings since they are restricted under the statutes. His recommended “adjustments to the law” read like plain, old “finding loopholes in the law.” For example, his advice included:

law doesn’t require you to meet monthly.”

don’t discuss everything – it may go viral on the web

always use closed meetings

restrict the publication of board videos by homeowners

don’t fear emails, but don’t overuse it — will lead to more regulation

hold non-regular committee meetings

use unanimous consent to avoid meetings — just have all board members sign off on the actions — but with care to avoid more regulation

The above is definitely not in keeping with the intent of the Legislature. Carpenter, as a self-promoted expert in HOA law and experienced lobbyist for CAI, denies knowing the meaning or purpose of these “It is the intent of the Legislature” sections included in several of the new bills. An experienced attorney knows well that statute and contract interpretations and clarifications often involve the court looking into the intent of the drafters. He is letting the HOA boards know how to “get around the laws” and the intent of HOA reform legislation, raising the question of good faith conduct by HOA boards if they pursue these loopholes.

And finally, one last point, Carpenter is feeling the heat of the activities by homeowner rights advocates. He laments,

It is the homeowner advocates who say they are on the homeowners side who gave the feedback, the evil conduct of the bad boys of the management companies [no mention of the attorneys]. They’re the ones who have drafted this type of legislation.

This only creates more “us agin them” hostility. It should be noted that he did not deny that abuse goes on in HOAs.

AZ CAI attorney Carpenter admits CAI is no longer in control

An advocate questioned the sincerity of CAI attorney Carpenter’s repeated use of the phrase, “They know us,” in his Sept. 15th seminar, Best Practices for Meetings in an Era of New Regulation. In response I wrote,

Earlier this year I wrote that the victories of Arizona’s HB 2441 (defeated), CAI soundly thrashed by Arizona Senate, and SB 1148 (passed, overcoming Carpenter’s DFBLS/OAH court victory), New Arizona laws for 2011 session — thanks to the legislators, signaled a major defeat for CAI in the power politics game at the Legislature. The tone of Carpenter’s remarks in the seminar only reinforces my view that a major setback took place at the Legislature for CAI. All as a result of the efforts of advocates, the real homeowner rights advocates, to get involved and expose, challenge and confront the CAI propaganda. It’s working!

I will just mention a few points from the seminar. First, Carpenter laments the new age of regulation, meaning a loss of CAI influence on HOA boards.

Second, his advice on what not to do is given with cautionary remarks that his, and the boards’, statements will go viral on the web (internet), like now. And he realizes that he is helpless to stop it. So he cautions the boards not to play “redefine” games — calling a meeting a “workshop” —which will only result more regulation when a homeowner (Sally was his example) runs to the legislature to stop some HOA evil. He further advised the attendees to shut up and not be recorded for the internet distribution. In fact, he suggested a reasonable rule, in his view, that would restrict a homeowner’s right to publish his taping of the meeting on the internet.

Third, he sought to confuse issues by identifying the management class of HOA members, the directors, as the true advocates because they are fighting for “what the members signed up for.” This serves to confuse the meaning and purpose of the bona fide “homeowner advocate” label.

In short, CAI is reacting to our issues and no longer controls the playing field. Congratulations everybody!

Gross injustice: HOA declarations not a contract, but held binding as a contract

In Epernay CA v. Shaar the Texas appellate court again avoided declaring that a declaration of CC&Rs is a contract, but use the carefully worded, CC&RS “are subject to the general rules of contract construction,” followed by, “In construing contracts. . .” Other courts have declared CC&Rs to be a contract without providing evidence, making the declaration a dicta (ipse dixit made by a judge). Others have referred to cases that, themselves, are also dicta utterances.

The reason for this is that HOA governments under CC&Rs are held to be subject to the laws of equitable servitudes, which simply requires the filing of the CC&Rs with the county in order to be binding on the unsuspecting homeowner. He doesn’t even have to read the CC&Rs or even explicitly consent to agree in general, or to agree with the surrender or waiver of all his rights stated or implied in the CC&Rs. If indeed CC&RS were to be considered a bona fide contract under contract law 101, they would be thrown out the window.

See the responses to the Truth in HOAs poll where 92% said they would not agree to the conditions in HOAs as disclosed in the Disclosure Agreement.

Additionally, if the requirement for the genuine consent with full knowledge, and the absence of misrepresentation, were applied under contract law, the CC&Rs would be thrown out the window.

Why have the courts followed servitude laws over constitutional law with its requirements for the equal application of the law – contract law – and due process protections against special laws for special private organizations? Why have the courts or state legislatures failed to declare HOA governments to be an unconstitutional delegation of legislative powers to private organizations? Or to be state actors under the criteria set forth by the US Supreme Court (and not the ancient and misplaced holding of the “public functions” test)?

If people can get together a draw a contract, call it CC&RS, and operate as private governments not subject to the 14^th Amendment, why do we need constitutional government? That’s secession, isn’t it?

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