Tag: state actors

CC&Rs are a devise for de facto HOA governments to escape constitutional government

This commentary takes a long look at the validity of HOA covenants and the need for judicial enforcement in order to invoke state action with respect to fundamental rights and freedoms.   It informs the reader that such enforcement depends upon the member’s voluntary agreement to be bound by the declaration, and raises issues of the lack of genuine agreement.  The agreement requirement is not analyzed under contract law, but under HOA law that has been designed to protect the HOA and position the declaration as the supreme law of the HOA community.

Long ago in 1994 Professor McKenzie wrote, “HOAs currently engage in many activities that would be prohibited if they were viewed by the courts as the equivalent of local governments.[i]

Two years after Marsh v. Alabama[ii] — the 1946 Supreme Court opinion setting the misguided “public functions” test for a municipality — the Court specifically dealt with the question of the constitutionality of restrictive covenants.  The issue in Shelly v. Kraemer[iii] was “that judicial enforcement of the restrictive agreements in these cases has violated rights guaranteed to petitioners by the Fourteenth Amendment.”

With respect to restrictive covenant enforcement the Shelly court said:  “That the action of state courts and of judicial officers in their official capacities is to be regarded as action of the State [‘state action’] within the meaning of the Fourteenth Amendment, is a proposition which has long been established by decisions of this Court. . . . The federal guaranty of due process extends to state action through its judicial as well as through its legislative, executive, or administrative branch of government.”   The Court held “that in granting judicial enforcement of the restrictive agreements in these cases, the States have denied petitioners the equal protection of the laws and that, therefore, the action of the state courts cannot stand” (my emphasis).

Unfortunately, the Court chose a narrow view of this issue limiting it to that involving racial discrimination.  A more expansive application of the 14th Amendment can easily be applied to any covenant that violates a member’s rights, freedoms or privileges and immunities as a citizen, but that has not been the case.

The 1976 Florida case, Brock v. Watergate Mobile Home,[iv] directly addressed the question of an HOA declaration and its actions under the Declaration.  It used the Marsh “public functions” test and the additional “close nexus” test (HOA action is closely resembles government action). No state action was found.  The HOA was not like a company town and the state’s involvement, as occurred in the limited context of the case, was not a close nexus.

Please understand that CC&RS and covenants are not automatically invalid or unconstitutional.  It requires a court to declare them so, at the expense of a homeowner lawsuit.  

Also, it is important to note that the court question was not about the validity of a restrictive covenant itself, but the court enforcement of that covenant. (This requires a lawsuit in which the court upholds the covenant and a subsequent lawsuit charging a violation of the 14th Amendment.)  The Shelly court’s view was that as the 14th Amendment applied “only to governmental action, as contrasted to action of private individuals, there was no showing that the covenants, which were simply agreements between private property owners, were invalid.”   Furthermore, “[The 14th] Amendment erects no shield against merely private conduct, however discriminatory or wrongful” (my emphasis).  In Arizona, today, the appellate court is to decide whether a CAI attorney amendment to Terravita’s CC&Rs that directly contradicts state law will be held valid.[v]  Behold the power of private contracts!

In view of the above we can ask, what makes a valid agreement?  Fortunately, a condition was attached to this view, which is never ever mentioned by pro-HOA supporters including those renowned CAI attorneys: “So long as the purposes of those agreements are effectuated by voluntary adherence to their terms.”  Sadly the courts have unquestionably accepted the validity of the CC&Rs as a voluntary agreement and this consent to be bound has become legal doctrine. For example, in Midlake v. Cappuccio the PA appellate court upheld a valid consent to agree by the buyer at time of purchase: “The Cappuccios contractually agreed to abide by the provisions in the Declaration at the time of purchase, thereby relinquishing their freedom of speech concerns regarding placing signs on this property.”[vi]   There have been numerous other cases where the court has upheld a valid consent to agree per se and a waiver/surrender of constitutional rights under said holding.

But, is there a genuine consent to agree?  I have written several commentaries about the lack of a genuine consent to agree as a result of misrepresentation, fraud, half-truths and hidden factors not fully disclosed to homebuyers.[vii]  Certainly not according to contract law 101 with its requirements for full disclosure, a meeting of the minds, and absence of fraud.

Unfortunately, once again, HOA declarations and covenants are seen as a law unto themselves that is based on a cutting and pasting of various laws, including constitutionality law, to provide for the protection and survival of HOAs.  We have pro-HOA statutes in every state and a Restatement of Servitudes[viii] (covenants) that was written to promote and protect HOAs. “Therefore this Restatement is enabling toward private government, so long as there is full disclosure”[ix] (my emphasis).

The Restatement advises judges — and is regarded as precedent — that its collection of laws known as HOA law dominates all others.   Section 6.13, comment a, states: “The question whether a servitude unreasonably burdens a fundamental constitutional right is determined as a matter of property law, and not constitutional law”. Section 3.1, comment h, states: “in the event of a conflict between servitudes law and the law applicable to the association form, servitudes law should control.”

And we have CAI, the national HOA lobbying organization, repeatedly making it clear that the HOA is a city-state, an independent principality, and the decisions of the HOA are the supreme law of the community.[x]  It is easily concluded why CAI has vehemently denied and opposed any reference or declaration that HOAs are de facto governments — mini or quasi-governments — and argue that HOAs remain free from constitutional restrictions on government entities.

HOAs have been institutionalized under this state of affairs, this public policy, and unquestionably accepted as this is the way it is.  Nothing will improve the conditions to which HOA residents are subject unless HOA public policy changes. Public policy today rejects constitutional government for HOAs and allows HOAs to operate outside the law of the land.

The policy makers fail to understand that the terms and conditions of the HOA CC&Rs cross over the line between purely property restrictions to establishing unregulated and authoritarian private governments.

 

References

[i] Evan McKenzie, Privatopia: Homeowners Associations and the Rise of Residential Private Governments, Yale Univ. Press, 1994.

[ii] Marsh v. Alabama, 326 U.S. 501 (1946). The holding was that a company town was no different from a municipal town.

[iii] Shelly v. Kraemer, 334 U.S. 1 (1948).

[iv] Brock v. Watergate Mobile Home, 502 So. 2d 1380 (Fla. 4th Dist. App. 1987). This case was a civil rights violations case based on 42 US 1983 as a result of various acts by the HOA.

[v] Brown v. Terravita, 1 CA-CV 14-455. See Will Arizona allow HOA covenants to dominate state laws? and  Does the Constitution support the will of the HOA no matter what?

[vi] Midlake  v. Cappuccio, 673 A.2d 340 (Pa.Super. 1996) (PA appellate court). .

[vii] See “Consent to be governed, No. 4,” HOA Common Sense: rejecting private government;  Proposed “consent to be governed” statute, the “Truth in HOAs” bill; and court examines consent and surrender of rights in HOA CC&Rs.

[viii] Restatement Third, Property: Servitudes (American Law Institute 2000).

[ix] Id., From the Forward: “Professor Susan French [Reporter (chief editor/contributor) for this Restatement] begins with the assumption . . . that we are willing to pay for private government because we believe it is more efficient than [public] government  . . . . Therefore this Restatement is enabling toward private government, so long as there is full disclosure . . . .”

[x] See CAI: the HOA form of government is independent of the US Constitution;  Misrepresentation: CAI comes with unclean hands and Will the real CAI standup: its contradictory beliefs, pronouncements and goals.

Colorado HOA act creates state actors?

I give credit to the Colorado Legislature for stating its intent, its position, on supporting HOAs, which is rarely found in other state statutes.  Section 38-33.3-102 reads (in part):

Legislative declaration

(1) The general assembly hereby finds, determines, and declares, as follows:

(a) That it is in the best interests of the state and its citizens to establish a clear, comprehensive, and uniform framework for the creation and operation of common interest communities;

(b) That the continuation of the economic prosperity of Colorado is dependent upon the strengthening of homeowner associations in common interest communities financially through the setting of budget guidelines, the creation of statutory assessment liens, the granting of six months’ lien priority, the facilitation of borrowing, and more certain powers in the association to sue on behalf of the owners and through enhancing the financial stability of associations by increasing the association’s powers to collect delinquent assessments, late charges, fines, and enforcement costs;

 

Subsections (c) – (e) contain basically the same theme — don’t let the HOA fail by providing the developer with certain financial protections and operating rules on good management.  In a bold, in your face statement the statute contains an annotation, which reads:

There is no support for the proposition that enactment of a legislative scheme governing the operation of homeowners’ association thereby transforms such homeowners’ association into cities or other governmental entities. Woodmoor Improvement Ass’n v. Brenner, 919 P.2d 928 (Colo. App. 1996).

This 1996 authority still holds true today.  State governments regulate people and entities by establishing laws, such as these HOA “acts” under its police powers “to promote the general welfare.”   That has come to mean to protect the health, safety and general welfare of the people.  The issue at hand, which has not been tested in the courts, is: when does and under what circumstances do these HOA acts create HOAs as state actors?[1]

It would seem that just from this Legislative Declaration of purpose there are reasonable grounds to suspect state cooperation (no penalties against HOA violations of state laws or the governing documents), coercion (foreclosure, pay or lose your home, etc.), and support for HOAs, a close nexus with daily operations (closely involved on HOA management) s symbiotic relationship (you help me, I help you), significant encouragement, either overtly or covertly.[2]  But no mention of any protections of due process and the equal protection of the laws as an objective of its involvement in HOA-Land.

Note that subsection 1(a) above speaks not of individual statutes, but of “a clear, comprehensive, and uniform framework” to support HOAs. Therefore, we must look at the overall picture of the HOA act and determine its broad impact on HOAs, and whether the legal scheme or structure establishes state actors.  And in 1(b) above the general assembly makes a case for establishing state actors when it states, “by increasing the association’s powers to collect delinquent assessments, late charges, fines, and enforcement costs.”  The details can be found within the act itself.

Please understand that in the statutes, both in Colorado and in other states, the statutes give the appearance of protecting the homeowner and his rights, but this is an illusion. What does the homeowner do if the board violates the law?  His ultimate recourse is to sue the HOA in civil court, but the statutes and governing documents (and court case history) are protective of the HOA as this Colorado section clearly demonstrates.

Where are the constitutional protections that would remove the HOA member as a second-class citizen?  To bring him back into the American Zone? They are nowhere to be found!  Why?  Because the state believes that the homebuyer has freely and with full knowledge agreed to be bound by the explicit and implied waivers in the governing documents.  But, have they?[3]

It would seem that the Colorado General Assembly has crossed the line and by its HOA statutes created HOAs as state actors.

References

[1] See, in general, HOA Common Sense, No. 9: HOA governments in fact.

[2] See Do state HOA Statutes Establish HOAs as State Actors?

[3] See HOA Common Sense, No. 4: Consent to be governed

HOA principalities: To bee or not to bee one government under the Constitution

As a result of a conflict over bees and whether local ordinances or HOA CC&Rs governing beekeeping prevail, the Tennessee Attorney General is being asked his opinion on HOAs as public entities.  Rep. Glen Casada has sought a clarification from Tennessee Attorney General Robert Cooper “for an opinion on whether or not the HOA is considered a political subdivision of the state.”  (The AG was appointed by the TN Supreme Court, and is an officer of the court and not the Executive branch).

How shall the AG decide?   Take a very narrow view and simply declare that the HOA is a nonprofit corporation under corporation laws and not a municipal corporation; therefore it not a state entity. If so, how does he address the fact that “if it looks like a duck, quacks like a duck, and walks like a duck, it is a duck?”  “A rose by any other name is a rose.”  A tax by any other name, assessments, is a tax.  A law by any other name, regulations or covenants, is a law.  In fact, British municipal law equates the term law with by-law. “3. British . an ordinance of a municipality or community.”

Let us assume that the AG takes a firm stand and enters into the foray.   The safest approach is to turn to the ancient public functions test of 1946 with respect to a company town and free speech. His decision would deny that the HOA is a public entity, probably, since the HOA doesn’t meet the public functions test. 

This view has always disturbed me when I examine the state’s municipality laws on incorporation of towns and villages. They ain’t got no such tests, yet they are declared public entities if they declare their allegiance to the Constitution and are approved by the state.   I guess it’s OK to use double standards when it comes to HOA governments. 

Are there any other criteria that bear on whether or not an entity is a public entity, or that it is a state actor acting as if it were indeed a state entity?  The law is rather extensive on state actors and state action. In today’s environment with the attitude of “no government interference,” applying state actor designations to HOAs will be a difficult task since it would extend the reaches of “big government.”  But, when dogma prevails over facts we must fight for “truth, justice and the American way.”

US Supreme Court holding in TN state actor case

The US Supreme Court has set several criteria for state actions and state actors, among them: a “close nexus,” a “symbiotic” relationship, “state’s exercise of coercive power”, “entwined with governmental policies”, and “significant encouragement, either overt or covert.”  They are discussed, in of all cases, in Brentwood v. Tennessee Secondary Schools, 531 U.S. 288 (2001).

I hope Attorney General Cooper will uphold the US and Tennessee constitutions, knowing full well that even homeowners living in HOAs are US citizens and citizens of the State of Tennessee, with full rights, privileges and immunities.

Does mandating HOAs using “shall” establish HOAs as state actors?

A common joke of the 1950s related to communist Russia’s 5-Year economic plans. It was a top-down plan that always failed.  The joke went:

In Russia You can buy any shoes you want as long as they are black.   Why is that? Because they only make black shoes.

Jump to 2012 America.

In America you can buy any new home you want so long as it’s in an HOA.  Why is that?  Because they only build new homes with an HOA.

 

A.                Does the use of the word “shall” establish the HOA as a state actor?

1.                  Monroe Township

I begin by an examination of the hard-core Monroe Township, NJ HOA ordinance[i] which states, in part, my emphasis,

“A homeowners’ association shall be established for a multifamily development or a development consisting of 100 dwellings or more. . . . The homeowners’ association shall be established for the purpose of owning and assuming maintenance responsibilities for the common open space and common property designed for or located within a development.”[ii]

Please understand that many states define an HOA as having common areas and amenities. Note the territorial implication of the HOA government, “located within”.)  But, the ordinance doesn’t stop there. It includes, “The organization shall incorporate the following provisions: (1) Membership by all property owners in the project shall be mandatory.” [iii]

Now, the ordinance is very craftily worded to pertain to owning property and “assuming maintenance responsibilities,” and not touching on any aspect or implication of governing.  Except, of course, the town must explain just what “assuming responsibilities” means if not managing or governing.  It could simply mean a hired hand, a contractor, if the word “responsibilities” were omitted.

The intent of the ordnance is clearly stated in subsection (E)(4), which says in part, “The organization shall clearly describe in its bylaws all the rights and obligations of each tenant and owner, including a copy of the covenant . . .  and the fact that every tenant and property owner shall have the right to use all common properties. . . .  These shall be set forth as a condition of approval and shall be submitted prior to the granting of final approval

Doesn’t this wording indicate an awareness that the HOA is concerned with more that performing maintenance functions?  Why would a planning board be concerned with the terms of a private contractual agreement beyond its sole authority in regard to property ownership and maintenance?  There are laws governing property rights and tenancy that surely would not be duplicated in the Declaration.

No, the planning board is fully aware, or else it’s intentionally negligent, of the legal status of HOA through state statutes and commonly used boilerplate declarations.  In other words, the planning board cannot escape its responsibility for requiring HOA governance by saying we don’t look at or approve of the governing documents. Regardless of board’s awareness, the mandate for submitting the HOA governing documents and the required approval by the planning board establishes the HOA as a state actor subject to the 14thAmendment.

 

2.                  Arizona mandates

Gilbert, AZ has a mandated HOA requirement that says, emphasis added,

A homeowners or property owners association shall be created to maintain and operate landscaping, open space, recreation facilities, private streets, utilities, and/or other facilities held in common ownership. The documents creating the association shall provide that this obligation continue in perpetuity. Evidence of compliance with this Article shall be submitted with an application for a final subdivision plat or minor subdivision.[iv]

 

This requirement is not as detailed as that of Monroe Township, but still centers on subdivisions with common areas and property, which defines an HOA in Arizona.  Again, as long as the governing documents cover maintenance, the planning boards ignore the other covenants that affect the homeowner’s equal application of the laws and due process rights. But the fact remains, as with Monroe Township, ignorance of the declaration does not absolve the planning board of its responsibility for establishing HOAs as state actors.

The Chandler, AZ ordinance[v] states,

40-1. – Policy.

It has become common for developers to satisfy certain of the conditions of approval for subdivisions by use of commonly owned property maintained by a Homeowners’ Association (HOA) composed of the property owners within that subdivision. These [subdivision] facilities and amenities become conditions to and a part of the approved subdivision with which the developer must comply. Without these facilities and amenities, the subdivision would not have been approved by the City and the development would not have proceeded.

It is hereby adopted as a policy of the City of Chandler, Arizona, that when Homeowners’ Associations are given such responsibilities pursuant to the zoning and subdivision approvals which allowed such properties to develop . . . .

 

It is a more wishy-washy statement, but the bottom line is that the developer will indeed form an HOA if he wishes to be approved, and not want to oversee the subdivision in perpetuity as required by the ordinance.  Here, the planning board says, No, not me! Him, the developer! His choice in establishing private governments.  This is about the same choice given to a homeowner if he wants to live in a new home, isn’t it?  And again, the planning board adopts a Not my job when it comes to approving the HOA governing documents.

 

B.                 Are the planning boards exceeding their authority by mandating HOA private governments for sub-divisions?

Part A, above, leads to the serious concern of low level divisions of a town or city demanding and establishing private governments without any oversight or accounting.  While delegating such legislative functions to a private entity is unconstitutional, the planning board itself has not been delegated authority to create such private governments over subdivisions within the state.  It has exceeded its authority!

 

For more information, see HOA Case History: state actors or mini/quasi government;

 

Notes

[i]  Monroe Township Zoning Ordinances, § 175-113. Homeowners’ associations. 

[ii] Id., subsection (A).

[iii] Id., subsection (E).

[iv]Gilbert, AZ  Zoning Regulations, Article 4.9: Common Area Ownership and Maintenance, Section 4.903.

[v]Part VI, Chandler, AZ Code of Ordinances, Chapter 40 – HOMEOWNERS’ ASSOCIATION IMPROVEMENTS.

 

HOA Case History: state actors or mini/quasi government

  1. Cohen v. Kite Hill,142 Cal App 3d 642 (1983) (A homeowners association board is in effect “a quasi-government entity paralleling in almost every case the powers, duties, and responsibilities of a municipal government.”)
  2. Gerber v. Long Boat Harbour, 757 F Supp. 1339 (M.D. Fla. 1991) (court enforcement of private agreements in condo declarations is a state action; flag; free speech).
  3. Hudgens v. NLRB 424 US 507 (1976) (functions of a municipality, citing Marsh; shopping center)
  4. Marsh V. Alabama, 326 US 501 (1946) (company town and public functions)
  5. Shelly v. Kraemer 334 US 1 (prohibitive state actions by use of judicial enforcement as state was fully aware of the illegal use of the courts; judicial enforcement harms constitutional rights)
  6. Williamson v. Lee Optical, 348 US 483, (1954) (rational basis for scrutiny)
  7. Damon v. Ocean Hills Journalism Club,  85 Cal. App. 4th 468; (2000) (quasi-government; board meetings public forums similar to government body;defamation)
  8. Laguna Publishing Co. v. Golden Rain Found. of Laguna Hills, 131 Cal. App. 3d 182 (1982) (HOA has attributes that “in many ways approximate a municipality . . . close to a characterization as a company town.”)
  9. Surfside 84 v. Mullen Ct. of Special Appeals of Maryland, No. 495 (September 1984) (state action; procedural due process; lack of notice; CAI Reporter).
  10. Brock v. Watergate 502 So. 2d 1380 (Fla. 4 Dist. App. (1987)( public functiuons test; close nexus criteria; HOA lacks character of a company town)
  11. Committee for a Better Twin Rivers v. Twin Rivers, 929 A.2d 1060 (NJ 2007) (HOA not state actor per NJ Scmidt version of Marsh; Not US but NJ Const. case).
  12. Indian Lake v. Director of Revenue, 813 SW 2d 305 (not civic organization)
  13. Midlake v. Cappuccio, 673 A 2d 340, Pa. Super. (1996) (condo is a pvt organization, not muni govt; not a company town)
  14. Riley v. Stoves, 526 P.2d 747, Ariz. App. Div. 2 (1974) (state action; classification; enforce age restrictions;”court to enforce constitutional commands”; restriction was a permissible government interest).
  15.  S.O.C. v. Mirage Casino-Hotel, 43 P 3rd 243 (Nev. 2001) (state action; public functions; delegating functions to private persons; commericial advertising on private property).
  16. Terre Du Lac Ass'n, Inc. v. Terre Du Lac, Inc., 737 S.W.2d 206 (Mo. App. 1987). (quasi govt) (how a homeowner's association operates as a "quasi-governmental entity," not authority for the concept that an association's "quasi-governmental" actions are state actions;).
  17. Westphal v. Lake Lotawana, 95 SW 3d 144 (Mo. App. 2003) (no support for “close nexus” state action).

Note:

  1. The above cases in bold are color coded. Red is adverse to constitutional protections; Blue is favorable; black in neutral.
  2. There are 3 case against and 4 cases in favor. Two were not dispositive. The “against” cases were all based on a “public functions” test.
  3. The non-bold cases concern related issues not involving an HOA/condo, such as state action, public functions, or mini/quasi governments.

  4. The above findings are not exhaustive and reflect the analysis of some 153 HOA/condo , state action cases on a federal and state level.