Tag: US Supreme Court

The unconstitutional delegation of implied rulemaking powers to HOAs

Here I present evidence of the explicit and implicit delegation of rulemaking powers to HOAs, which, if not unconstitutional, would alone establish HOAs as state actors.

In an earlier Commentary[1] I discussed the implied delegation of legislative functions to HOA private governments. Putting the issue in simple terms, I quoted Stephen Wermiel’s comments on a constitutional delegation case before the US Supreme Court,

The dispute before the [Supreme] Court . . . [involves] the even less well-known principle that Congress may not delegate legislative authority to private entities. . . . [T]he Justices must decide if the authority given to Amtrak by federal law is legislative in nature, and whether Amtrak is a private corporation or a public entity.[2]

“Rulemaking” is a term that deals with the grant of legislative powers to state agencies and, in a more restrictive mode, to private entities. It is the authority to adopt rules that have the effect of law, which can be found in the federal and state Administrative Procedures Acts (APA)[3]. The point is that the term “rulemaking” is a state agency process and is not found in the nonprofit corporation law even though these nonprofits have rules.

However, it has been applied to the supposedly nongovernmental, private nonprofit HOA corporation. In Tierra Rancho [4]  the court quoted The Restatement (3rd) Servitudes (the common law legal authority in the absence of statutory law) § 6.13(1)(b) and (c) in paragraph 25, “[the HOA has] the duty to ‘act reasonably in the exercise of its discretionary powers including rulemaking, enforcement, and design-control powers.’”  The HOA rulemaking powers are set forth in detail in § 6.7.

Ҥ 6.7 Power to Adopt Rules Governing Use of Property [my emphasis],

(1)        Except as limited by statute or the governing documents, a common-interest community has an implied power to adopt reasonable rules to

(b)        govern the use of individually owned property to protect the common property.”

Comment “b” to 6.7 (p. 141, second paragraph) goes even further,

Even in the absence of an express grant of authority, an association enjoys an implied power to make rules in furtherance of its power over the common property.  The association has no inherent power to regulate use of individually owned properties, however, except as implied by its responsibility for management of the common property.

And finally, examples of implied delegation of rulemaking powers can be found in state statutes.[5]

It is quite evident that the public policy of every state contains an implied delegation of legislative rulemaking powers to private HOA corporations.

Stephen Wermiel explained the non-delegation doctrine in Amtrak (my emphasis),

“[I]n theory delegation to the private sector can never be constitutional. . . . The Solicitor General argues that there is no unconstitutional delegation to a private entity because government officials retained control . . . . The Association of American Railroads (AAR) argues that the delegation to Amtrak is for actual rule-making authority and that Amtrak is . . . a private entity for purposes of the nondelegation doctrine.”[6]

In regard to the Solicitor General’s argument, we know this is not true with HOA statutes.  As there is no oversight, no enforcement, and no effective penalties against HOAs that violate the law, there is no government control.[7]  Having the homeowner enforce the HOA laws does not constitute government control or oversight.  In regard to AAR’s argument, the above evidence supports an unconstitutional delegation of legislative rulemaking powers to private HOA entities.

No matter how you view the private entity non-delegation doctrine, HOA rulemaking is unconstitutional and the covenants are thereby invalid. (The Restatement, § 3.1, Validity of Servitudes, General Comments.)

 

References

[1] Unconstitutional delegation of power to HOAs.

[2] Stephen Wermiel, SCOTUS for Law Students: Non-delegation doctrine returns after long hiatus.  (SCOTUSblog Dec. 4, 2014)

[3]See federal Administrative Procedure Act (5 U.S.C. Subchapter II, § 551(4) and § 553).

[4] Tierra Ranchos HOA v. Kitchukov, 165 P.3d 173 (Ariz. App. Div. 1 2007).

[5] A sample of implied rulemaking statutes by state.  Arizona: ARS 33-1803(A) and (B) for HOAs; 33-1242(A)(1) for condos. California: Civil Code §§ 4340-4370 (Part 5, Chapter 3, Article 5, Operating Rules). Florida HOAs:  Title XL, § 720 et seq. do not explicitly address rules per se, but speak to enforceable “guidelines” and “standards”; Florida Condos:  Title XL, § 718 et seq. (in particular, § 718.1035, the general statement on “association rules”). Nevada: “NRS 116.31065  Rules.  The rules adopted by an association” (with 5 “musts” imposed on the HOA).

[6] Supra, note 2.

[7] In regard to the delegation of legislative powers to private entities, a review of the fuzzy case history of the Non-delegation doctrine indicates a constitutional requirement for governmental control or oversight of the private entity’s decisions and rules.  See “ A New Private Delegation Doctrine?”.

Unconstitutional delegation of power to HOAs

Article I. Section 1, of the US Constitution states that “All legislative powers herein granted shall be vested in a Congress of the United States” and nowhere in the Constitution is there any mention that Congress can delegate its exclusive law making powers to any other branch of the government or to any other organization.  State constitutions have similar wordings like that of Arizona, “The legislative authority of the state shall be vested in the legislature, consisting of a  . . . .” 

The legislative authority and powers of the state are past down to subdivisions of the state known as cities, towns, counties, taxing districts, etc.  These powers are said to be delegated from above to the subdivision, and it is common sense that if an entity does not have the power then it cannot delegate that power to anyone else.

This delegation of authority is carried out through a state’s municipal corporation and county laws (and to executive agencies by means of enabling acts of authority).  Reading the municipality laws reveals authority for a defined territory, large or small and often referred to as a community, to elect a governing body, establish courts, make laws and ordinances (rules and regulations), enforce laws, have courts, have a police department, establish fines for violations, have a jail, and to assess residents and collect taxes.  All under the approval and oversight of the state legislature.  These subdivisions are also known as state entities, public bodies or arms of the state.

We must first, once again, decide if HOAs are state actors and arms of the state like any other municipality, or are they just private nonprofit corporations. If found to be a state actor, the 14th Amendment applies and no further investigation into the constitutionality the delegation of legislative authority is necessary.

HOAs as state actors

Let’s start anew and compare state constitutions and city/town charters with the duties, powers and functions of the homeowners association governing body widely set forth in its declaration of conditions, covenants and restrictions (CC&Rs). The CC&Rs declares and defines the authority for the HOA to act in certain manners. We can easily see almost identical powers and duties with municipal corporations, far more so than can be found in a business charter, as CAI like to argue, or in a nonprofit charitable organization, or in a professional association, or in a trade association, or in a union charter, or in a for profit property management service business.

Seeking, attaching and using special meanings to common everyday words and concepts to fit a square peg in a round hole, as the pro-HOAs forces have made an art form, flies in the face of reality.  CAI likes to argue that assessments are not like taxes, that fines are not penalties for violations, rules and regs are not ordinances, etc. Dismissing these special definitions, HOA CC&Rs are almost identical to municipal charters of authority, which becomes quite apparent when we strip away these contrived definitions of words and look and the total picture that reveals the entire intent of the CC&Rs.  And that’s to govern the subdivision or community, to regulate and control the people within the subdivision.

In effect, HOAs are de facto political governments.  I choose the description of HOAs as a political entity and not a quasi or mini-government, because it more accurately describes the nature of the governing body – ruling over people in their homes. As I recently wrote,

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.[1]

The argument has been made that HOA governments are equivalent to municipalities with respect to powers, duties and authority and as such are indeed state actors subject to the 14th Amendment’s restrictions.

 

Unconstitutional delegation of legislative powers to HOAs

We must now address the argument that HOAs are not state actors, but private actors or entities not subject to the 14th Amendment.  We need to determine the legitimacy and constitutionality of these private actors, these private corporations formed under a private agreement. This takes us back to the question raised in the beginning of this paper of the constitutional delegation of legislative authority and powers not to agencies, but to private entities.

(The case where it is believed that there was no delegation to HOAs at all will be addressed below.)

This question of delegating legislative powers, or the non-delegation doctrine, has, like constitutional questions, undergone multiple court opinions resulting in a complex web of: what is the law?  To make things short, my layman’s summary comes down to deference to private entities, because they know better about their business or corporation than does the court.  And if the owners have elected a governing body, then that body speaks for the owners. A prime example of this judicial philosophy that should be familiar to most homeowners is the business judgment rule. The board knows best, unless it can be shown that it has acted unreasonably.

Sadly, the courts have shown less and less concern for constitutional intent and values or in protecting individual rights in favor of a money oriented practicality of efficiency of government — one that favors the privatization of legislative authority.  Yes, I know, confusing and unbelievable, but remember the quote from the Forward in The Restatement, “Therefore this Restatement is enabling toward private government.”[2]  Private actors (unlike the executive branch) have virtually no public accountability, and legislatures may be too busy to address their misdeeds by repealing legislation. Checks and balances and government oversight are of little concern as we are quite familiar with their absence in HOA state laws.

I can hear CAI shouting, way over here, that there is no delegation of legislative powers to private HOAs!  Precisely! There are no enabling acts granting HOAs such legislative powers. That makes CC&Rs and HOAs an unconstitutional usurpation of legislative authority.  If municipal corporations, agencies and private entities must have delegated authority to act, no matter how broad or detrimental to individual rights, then how can HOAs not be outside our constitutional system of government?  Even a state’s most liberal adoption of the home rule doctrine requires allegiance to the state and US constitutions. (See HOAs violate local home rule doctrine and are outlaw governments).

Our government cannot look aside and ignore this assault on the foundations of our system of government!  We cannot tolerate everything goes, especially self-anointed political governments.

In defense of this unacceptable attitude by elected officials, it can be argued that even though there may not be explicit delegation there is an implied delegation of legislative powers, based on the nature and intent of the state’s HOA acts and statutes. These state laws permit those functions and powers of a municipal government, as stated in above, that regulate and control the peoples within a subdivision, large or small.

(Some states do have a statement of general government interest to overcome any judicial scrutiny as to constitutionality under the 14th Amendment, which can be challenged. The basis is that the statutes also contain serious harm to others.  In Shelly, “the States have denied petitioners the equal protection of the laws and that, therefore, the action of the state courts cannot stand”[3] and that constitutional rights were denied.)

US Supreme Court to address delegation to private entities

The question of the delegation of legislative powers to private entities is now before the US Supreme Court in DOT v. Association of American Railroads.[4]   Stephen Wermiel writes that “The Solicitor General argues that there is no unconstitutional delegation to a private entity because government officials retained control . . .[5]   We know this is not true with HOA statutes.

Wermiel continues,

The Supreme Court must decide if the delegation of authority to Amtrak is an unconstitutional grant of legislative powers to a private entity. To reach that decision, the Justices must decide if the authority given to Amtrak by federal law is legislative in nature, and whether Amtrak is a private corporation or a public entity.[6]

Either way, whether HOAs are de facto political governments and state entities, or are an unconstitutional delegation of legislative powers, they can only legally function as an arm of the state under the restrictions of the 14th Amendment.

References and authorities

[1] See CC&Rs are a devise for de facto HOA governments to escape constitutional government.

[2] Restatement Third, Property: Servitudes (American Law Institute 2000).  The full statement reads, 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 . . . .”

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

[4] DOT v. Association of American Railroads, No. 12-1080 (SCOTUS).

[5] Stephen Wermiel, SCOTUS for Law Students: Non-delegation doctrine returns after long hiatus.  (SCOTUSblog Dec. 4, 2014)

[6] Id.

Do state HOA Statutes Establish HOAs as State Actors?

Do state laws coerce homeowners and support HOAs? Are UCIOA and other HOA statutes establishing state actors?

The New Jersey Supreme Court appears to headed for a decision soon on constitutional issues for homeowner rights — the Twin Rivers case. Steven Siegel, whose very important paper on constitutionality and private governments is referenced in Note 1, has also co-authored the Twin Rivers AARP amicus curiae brief for the homeowners.

The US Supreme Court has stated criteria for state actors/actions beyond the antiquated “public functions” test based on the 1946 company town model. In my view, many state statutes easily satisfy one or more of these criteria and clearly establish HOAs as state actors.

 

Our cases have identified a host of facts that can bear on the fairness of such an attribution. We have, for example, held that a challenged activity may be state action when it results from the State’s exercise of “coercive power,” Blum, 457 U.S., at 1004, 102 S.Ct. 2777, when the State provides “significant encouragement, either overt or covert,” ibid., or when a private actor operates as a “willful participant in joint activity with the State or its agents,” Lugar, supra, at 941, 102 S.Ct. 2744 (internal quotation marks omitted). We have treated a nominally private entity as a state actor when it is controlled by an “agency of the State,” Pennsylvania v. Board of Directors of City Trusts of Philadelphia, 353 U.S. 230, 231, 77 S.Ct. 806, 1 L.Ed.2d 792 (1957) (per curiam), when it has been delegated a public function by the State, cf., e.g., West v. Atkins, supra, at 56, 108 S.Ct. 2250; Edmonson v. Leesville Concrete Co., 500 U.S. 614, 627-628, 111 S.Ct. 2077, 114 L.Ed.2d 660 (1991), when it is “entwined with governmental policies,” or when government is “entwined in [its] management or control,” Evans v. Newton, 382 U.S. 296, 299, 301, 86 S.Ct. 486, 15 L.Ed.2d 373 (1966). (See note 1).

I believe that many elements of state laws can be shown to create HOAs state actors. Many phrases in law are simple pro-active statements, such as the words “constitute” or “create”, as in “acceptance of the deed constitutes acceptance of the CC&Rs” or “creates a lien on the property as of the date the assessment is due”. In other phrases we run into the issue of state mandates. For example, the word “shall” in statutes is interpreted to mean “must”, and the word “may” does not constitute a command or order, but a just an option. Therefore, it has been argued, a statute is not a legislative mandate if it contains the word “may” rather than “shall”, as many HOA statutes contain.

But, let’s examine this a little more closely. The state has the right under its police powers to regulate our activities, but it must justify its interference as a legitimate government interest. And the tests for “legitimate government interest” become more severe as the state attempts to take away our fundamental rights. For example, the state restriction on our rights must not be one of convenience for them, but of necessity because the state’s objective could not otherwise be accomplished. I have not seen any such justifications in any state HOA Acts or statutes, not even in the various UCIOAs.

If the law is silent on an issue, the legality of the issue is open for a decision. If the law says “shall” or makes what I referred to as a “simple pro-active statement”, then the answer has been given quite clearly. If the statute says “may not”, then it is also quite clear. Now, if it says “may”, isn’t this a legalization of the act and a permission for a person to act in such a manner? While it is not the same as a mandate by the state, isn’t it a legalization of the act? And as such, isn’t the state “sanctioning” the act, which can be viewed as state support for the action, such as fining a homeowner without providing proper due process protections by independent tribunals? Otherwise, if the state disapproved or did not support the action, the statute would have read “may not”. But, it said. “may”.

I argue that all these “mays” are a clear indication of state support, encouragement and coercion in favor of HOAs that deny homeowners their fundamental rights, and make HOAs state actors.

1. Brentwood Academy v. Tennessee Secondary School Athletic Ass’n, 531 U.S. 288 296 (2001). (See generally, Steven Siegel, The Constitution and Private Government: Toward the Recognition of Constitutional Rights in Private Residential Communities Fifty years After Marsh v. Alabama, Wm & Mary Bill of Rights J., Vol. 6, Issue 2 (1998)).