Tag: New Jersey

CC&Rs and waivers of constitutional rights in HOA-Land

This June 13th extremely important NJ Supreme Court opinion in Mazdabrook deals with the fundamental constitutional question that the homeowner had waived his rights when he agreed to the CC&Rs  covenants, which are broadly stated, vague, or implied. I have repeatedly argued that homeowners do not!  This opinion will have national impact as other states will follow suit.

Mazdabrook involved  the right of a homeowner to place political signs on his  private property.  The NJ Supreme court said there was no waiver of free speech rights.

Moreover, Khan did not waive his constitutional right to free speech. To be valid, waivers must be knowing, intelligent, and voluntary, and a waiver of constitutional rights in any context must, at the very least, be clear. Khan was not asked to waive his free speech rights; he was asked — by different rules in three documents — to waive the right to post signs before getting Board approval, without any idea about what standards would govern the approval process. That cannot constitute a knowing, intelligent, voluntary waiver of constitutional rights. . . . . Instead, the exercise of those rights can be subject to reasonable time, place, and manner restrictions. Finally, covenants that unreasonably restrict speech may be declared unenforceable as a matter of public policy.  (P. 5).

In other words, that  waiver must meet specific requirements, including an explicit statement of a waiver rather than an broad interpretation or implied waiver as is the current status of CC&Rs.  However, understand that rights can be waived if these requirements are met.

Waiver is the “intentional relinquishment or abandonment of a known right or privilege.” Although rights may be waived, courts “indulge every reasonable presumption against waiver of fundamental constitutional rights.” To be valid, waivers must be knowing, intelligent, and voluntary.

The NJ Supreme Court seemed to have educated itself about the spread of CC&Rs with its boiler-plate wording that imply or are interpreted as a waiver, and takes a slap at comment h under § 3.1, Validity of Covenants (Restatement (Third) Property: Servitudes), that argued for the doctrine of equitable servitudes (covenants) to be held superior to the Constitution.

 The proliferation of residential communities with standard agreements that restrict free speech would violate the fundamental free speech values espoused in our Constitution — the “highest source of public policy” in New Jersey. (P.11).

Validity of CC&Rs to bind

Not addressed and unanswered in this opinion is the fundamental question, by extension of what constitutes a waiver, is the question of the validity of the CC&Rs. Is the doctrine of constructive notice sufficient for the CC&Rs to be held as a binding contract?   If the  CC&Rs are held as invalid, then the question of the waivers of rights becomes moot.

How can the simple notice to the county clerk bind anybody to anything, and be considered a waiver of any right or an agreement to be bound in general?  Especially when it is required that, “To be valid, waivers must be knowing, intelligent, and voluntary.”  There is not even a warning in bold, capitalized, large font stating, at purchase time, that the “Taking this deed alone binds you to the CC&Rs sight unseen, without having to read, sign or agree to it.”

Background information.  This case made references to the Twin Rivers free speech case of 2007, the controlling NJ Schmidt case (as did Twin Rivers), and was also based on violations of the NJ Constitution.  Once again, ACLU and The Rutgers Constitutional Law Clinic, Frank Askin Director, filed an amicus curiae brief.  NJ CAI filed an amicus in opposition.  Both were allowed to present oral arguments on the question of  waivers of constitutional rights under HOA CC&Rs.  It is legal, but not binding precedent outside of NJ.

See HOA member Declaration of US and State citizenship.

CAI continues to ignore the Constitution for the HOA constitution

CAI continues its stand against HOAs being held to the US and state constitutions.  This is a second case, the first being CBTR v. Twin Rivers, 929 A.2d 1060 (2007). Sort of an argument for secession to an independent principality status where all residents would be regarded as “expats” (expatriates).

In the Twin Rivers case, the CAI amicus brief to the NJ appellate court warned about “the unwise extension of constitutional rights to the use of private property by members [in HOAs].”

Here’s what CAI had to say in this more recent NJ case, 4 years later. Note that it’s a “putative” brief. Aside for being paid by a party, not indicated here, a putative amicus brief can bring up arguments not raised by the parties for the “edification” of the court. This appears to be CAI – NJ’s position.

Excerpts from the “Putative Amicus Curiae Brief” by CAI – NJ to NJ Supreme Court, July 27, 2011

Whatever rights common interest association members have to express themselves regarding association issues arise not from the State Constitution but rather from statute, from contractual provisions of the association’s governing documents, from the fiduciary duty owed by the association trustees, and from concepts of fundamental fairness.

The ability of members to communicate with each other thus may be said to be an implied covenant in the By-Laws, a fiduciary obligation of the organization, and/or due to fundamental fairness to enable members to participate in community affairs and governance.

A governing board’s regulations are enforceable only if they satisfy the business judgment rule, that is, they are authorized by statute or the governing documents and the board’s action is not fraudulent, self-dealing or unconscionable. [citing Twin Rivers].

Because the unit owners have other statutory, contractual and legal remedies to protect them from overreaching by the Association, there is no need to apply the constitutional free speech clause. For that reason as well, the appellate majority opinion should be reversed.

Mazdabrook Commons v. Kahn, No. 67,094, (NJ 2011) (Not yet decided).

In other words, who needs the Constitution? We have our top-down, business profiteer’s CC&Rs private contract, and laws that mimic and are almost identical to the CC&Rs. Who needs the NJ Constitution, too.

See Twin Rivers and NJ HOA free speech rights, redux.

Twin Rivers and NJ HOA free speech rights, redux

Here we go again! Once again revisiting the question of free speech rights to display signs in a New Jersey HOA. In Mazdabrook v. Khan the appellate court revisited Twin Rivers and the underlying “test case’, State v. Schmidt, but with a different outcome in favor of free speech. I find it very interesting how our judicial system analyzes and bisects broad legal principles into 1001 “and, if or buts” micro-segments. How is the average person to know what is legal and what is not? Must he go to an attorney, who may or may not know but will take you to court to find out?

In Mazdabrook the homeowner placed campaign signs for his election as major of the town, not a for sale sign, but the HOA had governing documents permitting only for sale signs and no others. The court said No, No, No, that’s content-based restriction on commercial advertising and a constitutional violation of free speech rights and a total ban on other signs. In contrast to Twin Rivers, the HOA sign restriction to allow a sign in every window and one outside sign no more than three feet from the house was held not to be an unreasonable burden on the owner’s free speech rights. It cited the Restatement of Property “suggestion” that a covenant is not valid if it “not mentioning the obvious that a covenant is also invalid if it were unconstitutional.”

See, as to another question of reasonableness, the NJ Esposito case, In NJ, HOA boards do not have to be reasonable, and go figure how our judicial system works. See also the link to the Paula Franzese and Steven Siegel critique of the Twin Rivers decision in Rutgers Journal articles on HOAs and Twin Rivers case.

OF SPECIAL INTEREST and importance is the dissenting opinion of a judge who addressed such questions as: the waiver of one’s rights when simply taking possession of his deed, the implied consent to be governed, and a surprising reference to the waiver of ex post facto rights. Where did he get that from??? I wonder?

I’ve been told that the appellate decision has been appealed to the very same NJ Supreme Court, but oral arguments have not yet been heard. Also, the Rutgers Constitutional Law Clinic under Frank Askin, the party that represented the homeowners in Twin Rivers, has filed an amicus curiae brief for ACLU, and will be allowed to make an oral argument.

Cases

Mazdabrook v. Khan (N.J. Super. A.D., 2010, unpublished).

CBTR v. Twin Rivers, 929 A.2d 1060 (2007).

State v. Schmidt, 423 A.2d 615 (1980).

In NJ, HOA boards do not have to be reasonable

Nor in any other state that stands by the Business Judgment Rule (BJR) doctrine.

 

Re: Esposito v. Riviera at Freehold HOA, No. A-6001-09T1, (NJ Supr.Ct App. Div. April 2011).

 

This appellate court decision reflects what’s wrong with our judicial system with its doctrine of binding precedents, stare decisis, that is used to uphold earlier decisions even if they may be obviously unjust by anyone’s standard. It perpetuates injustice and judicial bias, as we see with HOA decisions. In Esposito, the court cited the protections for homeowners based on the Twin Rivers NJ Supreme Court opinion,

 

The protections for common interest residents were described by the Court in [Twin Rivers]. The Court noted that (emphasis added):

 

First, the business judgment rule protects common interest community residents from arbitrary decision-making. . . . Pursuant to the business judgment rule, a homeowners’ association’s rules and regulations will be invalidated (1) if they are not authorized by statute or by the bylaws or master deed, or (2) if the association’s actions are “fraudulent, self-dealing or unconscionable.” Our Appellate Division has uniformly invoked the business judgment rule in cases involving homeowners’ associations.

 

[It should be noted that this ipse dixit (a dictum in the courts) that homeowners were protected by the business judgment rule was an “offering” to mollify homeowners who just had their constitutional protections to free speech rejected by the NJ Supreme Court.]

 

Note the BJR absence of reasonableness in board decision making as found in the Restatement (Third) of Property: Servitudes, § 3.1(2) – (4), and elsewhere. However, the homeowners were well aware of reasonableness as a criteria for valid decisions and argued the “material adverse effect” standard that includes reasonableness as a criteria instead of the BJR. Unfortunately, the Court quickly perceived that this standard only applied to condominiums as indicated in the court decision (Billig v. Buckingham Condominium Association I, Inc., 287 N.J.Super. 551 (App. Div. 1996)).

 

The Court decided that, emphasis added,

 

The trial judge held that since the Association was not a condominium association, the Condominium Act did not apply, and he refused to extend the “reasonableness” and “material adverse effect” standard in Billig to this matter. After a careful review of the record and weighing of the evidence, we see no reason to disturb the judgment requiring replacement of the door. We reach this decision based on the finding of facts by the trial court, which are adequately supported by the evidence, and essentially for the legal conclusions expressed in [the trial judge’s] comprehensive and thoughtful opinion.

What about justice? Why is reasonableness required for justice to be served in condos but not in HOAs? HOAs are sui generis, a combination of nonprofit and governmental functions. They are not just another run-of-the-mill nonprofit with ease of entry and access, and without liens or foreclosure penalties. Don’t they deserve a heightened degree of homeowner protection as provided under the “material adverse effect” and Restatement doctrines? Are we a nation of laws to serve justice or a nation of men to decide as they please?

 

[As to the nature of this complaint, the homeowner replaced his “colonial” style door with a “gothic” style door, which I am told are quite different. Esposito claimed that the property manger gave him a verbal OK, which he relied on, but submittted a change approval after the fact. The ACC, as we all could anticipate, denied the after-the-fact request. And so the suit progressed. Why, it can be reasonbly asked without fears of lost income, didn’t the board or ACC simply say it was quite unreasonable to replace a colonial with a gothic? You don’t need a King Solomon to nake this rational, reasonable, decision. Well, maybe so if you accept McKenzie’s view that incompetent people are conscripted to run HOAs and who affect the individual homeowner’s finances. Was it undue lawyer influence based on the fear of lost fees?]

 

Returnng to the argument at hand, judicial bias against HOAs, as I wrote previously in Judicial precedent and HOA bias,

The researchers found that the doctrine of stare decisis, itself, falls victim to the preferences of the judges. “Stare decisis is the rule of law that imports the aura of legitimacy on the judicial process by holding future decisions to be bound by prior decisions that serve as “precedent.” The doctrine of stare decisis ‘permits society to presume that bedrock principles are founded in the law rather than in the proclivities of individuals, and thereby contributes to the integrity of our constitutional system of government. Vasquez v. Hillery, 474 US 254 (1986).’

 

In HOAs in America, I quoted William B. Allen’scomments on Machiavelli’s The Prince, which helps illuminate my argument. In his commentary Allen wrote that “the role of morals in politics is mainly to cultivate illusions,” and that “politics is merely appearance and morality is merely pretense.” And speaking of justice, the necessary ingredient for the claim to the legitimacy of government and to be obeyed in conscience, Allen offers Machiavelli’s advice, “Because the [right] to rule is rather the appearance of justice rather than justice itself, the appearance of injustice defeats every [right] to rule.”

HOAs in the punishment business

I have argued that the HOA is in the punishment and intimidation business, especially with respect to foreclosure “damages”  and fines under failed due process procedures —  the kangaroo courts.  Here’s a recent NJ case that addresses penalties as a punishment.  In this instance, the HOA had a covenant that granted it the right to access a flat 20% charge as liquidated damages rather than attempting to determine just what were the actual damages incurred by the HOA.

Let me clarify.  When seeking damages, the damaged party must submit to the court the actual damages it incurred.  For example, what are the damages to the HOA if your grass height violated the arbitrary rule for well kept lawns?  Or you painted an unapproved house color?  Anybody?  Well, that gets down to simply attorney fees and court costs of which the HOA sees nada.  That’s why there are no actual damages to the HOA itself submitted by the HOA.  So, are these actions by the HOA really a punishment rather than a recovering  of damages inflicted on it by the homeowner?  Hell yes!

The NJ opinion contained,

As we have previously noted, the 20% payment was not “interest.” It constituted a liquidated damages provision established in the By-laws of the Association in lieu of an assessment of counsel fees in instances in which legal action on the Association’s behalf was required.

A clause is a liquidated damages provision if the actual damages from a breach are difficult to measure and the stipulated amount of damages is “a reasonable forecast of the provable injury resulting from [the] breach.  Such clauses are deemed “presumptively reasonable” and therefore enforceable, and “the party challenging [a stipulated damages provision] should bear the burden of proving its unreasonableness.”  Because the harm is necessarily incapable of accurate estimate, “`reasonableness’ emerges as the standard for deciding the validity of stipulated damages clauses.  The amount fixed is unreasonable if it serves not as a pre-estimate of probable actual damages, but rather as “punishment,” grossly disproportionate to the actual harm sustained.

We are certain that if counsel submitted an accounting of the time required to prepare for and conduct the two-day trial held in this matter, the resultant counsel fees would have been substantially higher. However, as the result of the By-laws, the Association has waived the right to that higher award.

Mazdabrook Commons HOA v. Khan, No. A-6106-08T3, (N.J. App.,  Sep. 1, 2010).

That about says it all when a $200,000 home is lost for a $2,000 fine, plus $3,000 in attorney fees.  The homeowner loses everything after building up his equity over 10 -30 years.  This ratio of 40 times the $5,000 is far in excess of the 10 times standard set by the US Supreme Court for punitive damages in product liability cases.  And yet, the HOA had not been damaged as it had not lost a penny of its own! 

It’s called punishment, pure and simple!  How else can an authoritarian regime like an HOA obtain obedience and acceptance of its rules and regulations (“laws”)?

Note that the attorney has no say in the matter, because unlike its erroneous attitude — you owe me $nnn in fees  — in all those dunning letters, it is not a party in the issue, but just a hired hand of the HOA.  So, why are HOAs being so nice to attorneys?  They undoubtedly agree with the attorney that how else can they coerce compliance except through  punishment?  And if lawyers refuse employment because the fees are so low, no coercion.

And, while we are at it,  doesn’t a flat fee of even 20% sound nice?   The above $2,000 foreclosure amount would cost only an extra $400 and not $3,000 to the attorney.  Now that sounds like a leveling of the playing field without HOA attorney fee churning — we need to make a living — obstructing  justice.