ASSOCIATIONS - STUDY H-851
Law Revision Commission
Judge Charles Egan Goff - Retired
|Charles Egan Goff
MEMORANDUM - July 3, 2001
TO: CALIFORNIA LAW REVISION COMMISSION
RE: HOMEOWNERS' ASSOCIATIONS - STUDY
RECEIVED JUL 12 2001
In 1791 Thomas Paine wrote in Rights of Man: "Defects of every government and constitution, both as to principals and form, must be on a parity, be as open to discussion as the defects of a law, and it is the duty which every man owes to society to point them out...." [Emph. added.]
It's a tribute to California's Legislature and Executive that this body exists to improve their work, even to disagree with it when necessary. So it is especially an honor for this worshipper of Our Constitution to address you.
Briefly I beg you to consider turning Homeowners' Associations from purely for-profit business enterprises into democratic societies, recalling Madison 's statement: "Justice is the end of government. It is the end of civil society. It ever has been and ever will be pursued until it is obtained, or until liberty be lost in the pursuit." (Federalist #52.) This is an ancient law: "Justice and only justice you shall pursue." (Deuteronomy 16:19.)
My concerns and recommendations are six.
I. "NO MAN IS ALLOWED TO BE A JUDGE IN HIS OWN CAUSE."
So said Madison in his famed #10 of The Federalist. This ancient rule is well-known to everyone, probably instinctively. See California statutes, especially CCP 170.1 and 170.3. This foundation of Justice is so universally understood that it rarely needs be stated in appellate opinions. But the U.S. Supreme Court once felt compelled to state it thus: No one "...can be a judge in his own cause or be permitted to try cases where he has an interest in the outcome." In re Murchison (1955) 349 U.S. 133, 156.)
[Contrary: Vyshinski in his Law Of The Soviet State; "There is a firm and indissoluble bond uniting the judiciary and the Office of the State Prosecutor."]
As Madison said in The Federalist (#47), placing all power, executive, legislative, and judicial in the hands of one person or one group of persons is the very definition of tyranny.
The standard homeowner ass'n CC&Rs place all three powers in one board of directors, almost always of less than ten persons. These directors make rules for their respective associations (CC&Rs), interpret and enforce them as they interpret each rule, then decide what penalties to impose on any homeowner they decide is guilty of a violation, then enforce the penalties they have imposed.
If the directors write a rule governing the association and decide to accuse any owner, do you truly think they will not interpret a rule, even a vague one, in a way consistent with the owner's guilt? Or even to permit the owner to argue its vagueness? And if the directors decide the owner is guilty, who is to decide the issue of the penalty? The directors, of course. IS THIS BASIC JUSTICE? Clearly the directors are judges in their own punitive proceedings against any owner. This is exactly like having the State Prosecutor sit as judge at a criminal trial, Soviet style. Yet California courts appear to be heavily prone to enforce such decisions.
The U.S. Supreme Court ruled in a civil proceeding that a fundamental requisite of Due Process of law, which is guaranteed by the U.S. Constitution, is notice to any named defendant and the opportunity to be heard. (Greene v Lindsay (1981) 456 US 444.)
Example: Mrs. Cave's statements to you February 2: The Caves were fined a total of $35,000 for plowing the snow on their own road - they were given no notice of the charges against them, there was no hearing or chance to dispute the charges - just notices to pay. Cave's lot is just west of Donner Summit and close to Highway 80 - incredible amounts of snow, three children to get to and from school, carpenter husband to get to and from work, and a partially disabled Mrs. Cave. The family name is most unfortunately appropriate to that proceeding. It means the end of their membership in that association, too.
II. CURRENT CC&R RULES ARE CERTAINLY NOT DEMOCRATIC
One wealthy and therefore powerful owner in our association once argued that our association was democratic because the directors are elected by the owners.
The above answer to that is: directors in not one association I'm aware of are elected in a way essential to democracy: one person, one vote. NO - they are almost invariably elected by ONE LOT ONE VOTE. Several owners in our association have multiplied their votes by subdividing. In another association with which I'm familiar, the developers and their successor have retained a majority of member votes by the subdivision ploy - lots now range in size from 20 acres to proposed but yet unbuilt condominiums. Plutocracy at its worst.
The point is: developers and subdividers are in business to maximize profit and they have developed a standard form of Homeowners Association to do just that. A business is like a military organization - it must be run from the top or fail. A democracy must be run by the citizens and as Madison said, quoted above, else it is not in truth a democracy. That is why the framers of our Constitution carefully avoided giving the power to start war to the
President as commander in chief - another democratic concept which has been lost or buried in 1984 Newspeak.
III. SUBDIVISIONS RELIEVE GOVERNMENTS, SO ARE QUASI-PUBLIC
One of the oft-mentioned advantages of HOAs is that they relieve state and local governments of expenses for many roads and their maintenance and cleaning, and supervision and other services.
A person who lives in a city or town who violates an ordinance may be punished by a criminal process with due process rights assured. S/he must be given written notice of any violation charged, the statute or ordinance must be clear and published, and the accused may have a lawyer and present a defense and have a jury trial, and cannot be punished unless found guilty beyond a reasonable doubt by a unanimous jury. The judge and the jurors must all be unbiased. California Chief Justice Ronald George has called the jury the linchpin of our democracy. Having tried many jury cases as a lawyer and judge, with and without juries, I say my loudest AMEN to the Chief's words.
But in our HOAs the accusers are the judges in the cases they initiate. That 's not Justice by any definition.
IV. DIRECTORS ARE TRUSTEES OF OWNERS' MONEY AND PROPERTY.
Directors set association assessments, collect them, and punish non-payment. They decide how and for what owners' money will be spent and inevitably which lots benefit most by their decisions. Directors are therefore in the most real sense trustees of owners' money and also their realty.
For example, directors have the power to favor their own properties - using all owners' money - in matters of repair, maintenance, improvement, etc. This is also an aspect of trusteeship, because it directly affects the fair market value of every lot in the association.
In a society in which the bilious phrase "greed is good" has even been the subject of a one-hour TV network program, this provides an opportunity to adherents to "greed is good" materialism to get on the board of directors and increase their lot's (or lots') value - upon sale of which their profit will not be shared with other owners who contributed to the seller's profit.
The association in which we are members, is not, as required of most fiduciaries, required by its CC&Rs to get bids for any service to it. All its service contracts appear to go to one firm, although members are not advised who all contractors have been.
V. THE RIGHT TO FAIR PROCEDURE RESIDES IN EVERY OWNER
"The purpose of the doctrine of Fair Procedure is to protect, in certain situations, against arbitrary decisions by private organizations. As this court has held, this means that, when the right to fair procedure applies, the decisionmaking 'must be both substantially rational and procedurally fair.'" (Potvin v Metropolitan Life etc. (2000) 22 C.4th 1059, 1066.)
"California courts, too, are loathe to enforce contract provisions offensive to public policy." A contract will not be enforced if it violates the common or statutory law. (Ibid. at 1074;: Nahrstedt v Lakeside Village etc. (1994) 8 Cal. 4th 361, 381, citing Shelly v Kramer (1948) 334 US 1.)
Homeowners Associations are precisely the kinds of organizations which are bound to provide that "... the decisionmaking must be both substantively rational and procedurally fair." Such organizations are described in Potvin as those which (1) hold funds for association members; (2) are private organizations affecting the public interest (common law examples: innkeepers and common carriers); or (3) organizations which are quasi-public in character.
Because HOAs are ruled by directors who make and enforce regulations and sit as judges in alleged cases of violations, deciding guilt or innocence and imposing any penalties without noticed hearing or unbiased judges, it cannot be argued that they provide procedural fairness.
HOAs fit the above description of organizations which are required to provide Fair Procedure, which includes decisions which are substantially rational. As Caves' case demonstrates - the standard CC&Rs permit directors at least to claim to be and act as such organizations. All such organizations collect assessments and use them to maintain, to some extent, common areas and roads. They all affect the public interest: I'm reliably advised that about 42 million Americans live in HOAs. They are quasi-public in nature because they perform almost all the functions of a county or city within their own limits: collect taxes (aka "assessments"), make "laws", enforce them, control and spend members' assessments, etc., etc.
But despite the HOAs' duties to provide substantively rational and procedurally fair rules, the Caves' HOA:
(1) Punished the Caves with a total of $35,000 in fines for plowing their own road in a heavily-snowed area. The Caves have three children to take to and from school, Mr. Cave must go to work and back, and Mrs. Cave is partially and painfully disabled, often needing to go to physicians. That cannot possibly be classified as substantively rational. In the humorous phrase of a late-great lawyer: "It was also nuts."
(2) Gave the Caves no notice of any prospective fine nor of their procedure to obtain it, no notice of any specific allegation of wrongdoing, no hearing, no opportunity to present a defense, and a fine which certainly to the Cave family is both cruel and unusual punishment as outrageously excessive. To pay this fine would certainly and in practicality expel the Caves from membership in the association which would doubtless have to take their house to satisfy any judgment. It would also cost them excessively in forced sale and prospective profit from any voluntary sale by the Caves in what is a rapidly growing area with currently fast-rising land prices. Sale of Caves' home and lot would go into the HOA treasury and so would benefit all owners, including directors.
Again, the Cave's example demonstrates: the disaster of one group acting as legislature, executive, and judge in its own cause, "the very definition of tyranny", as Madison warned us.
What is happening to the Caves could happen to any member of almost any homeowners' association as the law now stands. With the Golden Rule in mind, would you want this to happen to you? To your family?
If California's lawmakers will require HOAs to provide Fair Procedures, the benefits to all of California would be at least three-fold: (1) owners would not have to the burden to prove by lawsuit that they have been wrongfully deprived of the Right to Fair Procedure; (2) HOAs would establish and use Fair Procedures, all parties knowing in advance of dispute what those rules are. These benefits would also decrease lawsuits in which, today, it must be decided what actions constitute Fair Procedure on a case by case basis. And (3) All members of all HOAs would finally get the equal protection of the law vis-a-vis their HOA.
Americans want a free enterprise economy. Such an economy must rest in great part on mutual trust of citizen with citizen. The present governmental system of HOAs is built on the business model, not the person-to-person neighborhood model. The result is ever-growing distrust which can only damage the freedom and success remaining in our economy.
As Mrs. Cave told you February 2: Their HOA fined them $500 in 1999 and $34,500 in 2000 for their plowing the snow from their own road. They were given no notice of the charges against them, there was no hearing or chance to dispute the charges -- just notices to pay the fines. Their lot gets incredible amounts of snow. They must use their road for school, work, and medical access.
Most important: California laws, including Supreme Court decisions, appear to give considerable weight to decisions of HOA boards. This appears true despite the fact that procedures effected by many boards manifestly do not provide an accused owner with anything like constitutional due process. Deprivation of the right to notice and hearing, and with directors both prosecutor and judge, defendants like the Caves are deprived of a civil jury trial despite the guarantee thereof by the Seventh Amendment. (Assuming that the matter is civil, not criminal.) Yet California courts enforce these soviet-like decisions and procedures and impliedly approve and reward the deprivation of owners' rights guaranteed by our Constitution.
The too obvious is often unseen: accused owners, like the Caves, are generally assumed to be in the position of civil litigants. But a "fine" of $34,000 (their 2d fine) was for violation of an HOA's "law" and cannot be labelled anything but punitive. No government in the United States could get away with this. If an American government "fined" anyone $34,500 for a law violation, it would have to be in a criminal court with all its protections - but a business organization and even an individual, an HOA, can get away with this kangaroo prosecution and yet California's government tolerates it.
Can one imagine any state prosecuting or fining directors for their acts as directors except in a criminal proceeding? There is manifestly an equal protection issue. Simply put: as it is now, goose and gander don't share the same sauce. Equality is, I assert, part and parcel of an American citizen's inalienable right to liberty.
And what if some CC&Rs were to "sentence" forced labor, lockup time, physical punishment, or exclusion from her/his home for a time? Note: to pay a "fine" of $34,500 would produce physical pain on a workingman who must come up with the money or build another home for his family. This is truly, in fact, forced labor.
Re the jury trial right, see Declaration of Independence which accuses George III of many acts attempting to establish absolute power over the Colonies: "For depriving us, in many cases, of the benefits of trial by jury." And above that: "He has combined with others to subject us to a jurisdiction foreign to our constitution, and unacknowledged by our laws, giving his assent to their acts of pretended legislation." Kangaroo courts are clearly "a jurisdiction foreign to our constitution".
VI. PLEASE DO NOT UNITE EXECUTIVE AND JUDICIAL DUTIES
At the June 29 meeting the Commissioners appeared to approve, tentatively, resorting to some sort of arbitration or mediation group, to be within the executive branch, to hear and decide HOA directors vs. homeowners disputes.
May I respectfully, as a citizen only, ask the Commission to reexamine this position most carefully. "'...there is no liberty if the powers of judging be not separated from the legislative and executive powers.'" (Hamilton, Federalist #78, quoting Montesquieu, Spirit of the Laws.) The nuts and bolts concern in our context is that the members of any executive branch panel could and possibly would, in the minds of citizens, be carefully chosen and to at least some extent controlled by folks who contributed or may contribute to election campaigns. Big money appears to control not only parties and elections. Hamilton refers to "...the influence with which men in office naturally look up to that authority to which they owe their official existence." (Federalist #22.) Until now, except for 1986, contested judicial elections have been uncommon and incumbents rarely voted out. Further, judges do not run as party nominees in California. Point: an executive does represent a political party and needed a lot of money to gain that office. As Rabelais's Judge Bridlegoose said in a hilarious fictional interview: "Pecuniae obediunt Omnia" - everything obeys money.
If an executive body does not do the arbitration/mediation, use of non-governmental firms or persons presents another serious problem: permitting adoption by each HOA or group of them of one or more particular firms or individuals to do all arbitrations and mediations involving that or those particular association(s). Example: such a "rule" was introduced (in one-point type) by a credit card firm which serves many San Francisco attorneys. This means a large volume of work for the chosen arbitrator/mediator, and as Hamilton (again) wrote: "In the general course of human nature a power over a man's subsistence amounts to a power over his will." (Emph. in original.)
In his Republic (original title in Greek: The State, or Justice), Plato considered the question of what is Justice largely as an answer to Thramychus's definition that Justice "means nothing but the interest of the stronger party." Per Adam Smith in Wealth of Nations: "Wealth, as Mr. Hobbes said, is power."
CLOSING THOUGHTS ON JUSTICE
In REX v HADDOCK (A.P. Herbert, Uncommon Law (1935), Case #9) Justice Lugg asked in his opinion "Is Magna Carta law?" He referred in part to Chapter 29 of that Charter: " 'To no man will we sell, to no man deny, to no man delay, justice or right.'" (Italics in original.) Justice Lugg observed: "All that can be said is that much justice is sold at quite reasonable prices, and that there are still many citizens who can afford to buy the more expensive brands."
If the scalawag King John could make that promise in writing to his barons, California's government should be well able to provide Justice to all of its inhabitants, homeowners included. If it cannot or does not provide Justice, that government has failed in its foremost duty: to provide Justice to all of its citizens. Therefore nothing is "practical" if it compromises Justice. Hamilton (again) warned against a government that does not perform its obligations for economic reasons and says, in effect: "Thus far the ends of public happiness will be promoted by supplying the wants of government and all beyond this is unworthy of our care or anxiety." (Federalist #30.) Result: that government will fail.
May I again thank the Commission for its great patience and attention to this matter and, I'm certain, to all legislative matters presented to it.
Charles Egan Goff
August 3, 2001
CALIFORNIA LAW REVISION COMMISSION
RE: Homeowners Associations - Study H-851
May the Commissioners kindly forgive my adding to the prolix memo of July 3, 2001. My apology for missing a point possibly too obvious for a trial lawyer or judge to mention it. The short statement of the point is the truism: "Out of the facts comes the law." Point: legislatures and appellate courts make legal rules. But just what rules of law apply to a specific dispute depends upon what the finder of the true facts, jury or judge, determines them to be in that particular case.
Therefore the most important decisions in 95+% of cases are: what are the true facts.
Oliver Wendell Holmes said it most succinctly in The Common Law: "Every right is a consequence attached by the law to one or more facts which the law defines,.... When a group of facts thus singled out by the law exists in the case of a given person, he is said to be entitled to the corresponding right;...." (Chapter V.)
Because no man may be judge in his own case, to place any value on the fact (or, of course, law) decision of HOA directors makes them "judges" in any case in which they decide what the true facts are.
Any trial lawyer or judge will tell you exactly that. They'll also add: human nature being what it is (as far back as Genesis 6:13) some fact-presenters, witnesses, and fact-deciders will urge facts or find to be true facts because those facts are favorable to themselves. To permit this to happen in any case is injustice.
Lamden v La Jolla Shores (etc.) (1999) 87 Cal. Rptr.2d 237 observes "... the relationship between the individual owners and the managing association is complex..." A more accurate term comes from WWII: FUBAR. In Lamden the California Supreme Court held a decision by HOA directors deserved "deferential review", a 1984 Newspeak term which seems from Dickens's Bureau of Circumlocution. The decision in fact adopted the decision of the directors. The Court rested upon association directors' (in general) relative competence to make detailed economic decisions better than the courts' (p. 251) and refers to their "reasonable investigation, in good faith and regard for the best interests of the community association and its members". (p. 247)
WHO DECIDES these facts: (1) Was the investigation truly reasonable? (2) Was it and the directors' decisionmaking procedure done in good faith? (3) Was the decision in the best interest of the community? and (p. 238) (4) Did the directors exercise disinterested discretion?
The Lamden court also referred to directors' "presumed expertise". (p. 251.) Who decides that fact question? (A former director of our ass'n said he didn 't think any of the other directors had even read the CC&Rs!) The last line of the opinion refers as one reason for "deference" the "conservation of scarce judicial resources"!! Is JUSTICE now too expensive for the citizens of California? If so it is certainly not "the end of [California's] government."
Francis T. v Village Green Owners Ass'n (1986) 42 Cal. 3d 490, seems inconsistent in that it ruled a condo owner injured as a result of directors ' decision re lighting should appropriately go to a court for resolution.
Lamden distinguished Francis T. by pointing out that no physical injury was involved. Mrs. Lamden's complaint: termite damage from a poor maintenance decision by directors, no injury. Question: When directors make a decision which might cause either physical or only money damage, how do they know at that time what will be the result of their decision? What if Lamden's condo caved in upon her after termite damage? What if Francis T.'s faulty lighting forced her to pay for its improvement but she was never attacked or injured?
Point: If the true facts determine what law must be applied to resolve a dispute, to give directors "deference" (i.e. to adopt their factual decision(s)) is precisely to let them be the judges of their disputes with homeowners. That's simply basic Injustice.
Thank you and congratulations on your great patience.