USSC rules in favor of property rights — how will this affect HOAs?

By Deborah Goonan, Independent American Communities

debgoonan@icloud.com

Two June US Supreme Court decision in Knick vs. Township of Scott, Et.Al., and Manhattan Community Access Corp. Et al. Vs. Halleck Et al., shed light on Constitutional protections for land and homeowners.

This post examines both in light of HOA issues.

Knick Case overview

The USSC overturned a 34-year-old legal precedent, that, as the majority ruled, unfairly prevented American property owners from bringing “Takings” claims in federal court. A separate USSC ruling clarifies what makes a private entity a state actor.

As previously explained here on IAC, the case involved Rosemary Knick, the owner of a home on 90 acres of land in Scott Township, Lackawanna County, Pennsylvania.

In 2012, Township officials enacted an unusual Ordinance requiring all cemeteries to be open to the public during daytime hours. Knick’s property contains a few century-old headstones of family ancestors. She didn’t appreciate the idea of strangers entering her private property to visit what has always been a private family memorial.

Knick complained that the Township’s new Ordinance converted part of her private property to public property, thus “taking” away her private property rights and reducing her property values.

After suing the Township in state court, Knick filed a Fifth Amendment takings claim in Federal Court. But the federal court and appeals court blocked Knick’s claims, on the grounds that a Plaintiff must “exhaust all state remedies” before filing in federal court.

The Fifth Amendment protects the right of property owners to receive “just compensation” when land or private property is “taken” for public use. The courts have consistently ruled that property can be robbed of its highest and best value when local ordinances and zoning requirements restrict or alter allowable uses of one’s land or home.


U.S. Constitution, 5th Amendment says: (emphasis added)

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

Source: Constitution of United States of America 1789 (rev. 1992)


Overturning the  “Catch-22” ruling

Not deterred by lower federal court rulings, Knick’s attorneys appealed her cause to the US Supreme Court.

And that was no small task.

Since the 1985 ruling in Williamson County Regional Planning Commission v. Hamilton Bank of Johnson City property owners and real estate developers have been forced to bring their Takings Claims in state court, before they could file a claim in Federal Court.

Attorney David Breemer of Pacific Legal Foundation, who represented Knick, successfully argued that forcing plaintiffs to exhaust legal remedies in state court effectively blocks their access to federal review of Constitutionality claims.

So state and local governments have been free to abuse their power to enact and enforce laws that deprive property owners of their rights. Even worse, there has been no incentive to compensate owners for loss in property value as a result of unreasonable local and state restrictions on use of their property.

But advocates for property rights combined forces to restore Fifth Amendment protections.

No less than 16 Amicus (Friend of the Court) briefs were filed on behalf of Knick, from organizations including American Farm Bureau Federation, Institute for Justice, National Association of Home Builders, and AARP. No doubt, growing public support for protection of property rights helped sway five Conservative Justices to overturn the 1985 legal Williamson County precedent.

Of the majority decision, US Supreme Court Chief Justice Roberts wrote:

Contrary to Williamson County, a property owner has a claim for a violation of the Takings Clause as soon as a government takes his property for public use without paying for it…

The Clause provides: ‘[N]or shall private property be taken for public use, without just compensation.’ It does not say: ‘Nor shall private property be taken for public use, without an available procedure that will result in compensation.’

…because the violation is complete at the time of the taking, pursuit of a remedy in federal court need not await any subsequent state action. Takings claims against local governments should be handled the same as other claims under the Bill of Rights. Williamson County erred in holding otherwise.

Impact on homeowner rights in HOAs

In many ways, enforcement of restrictions and covenants by homeowners, condominium, and cooperative associations parallels local government enforcement of zoning restrictions and ordinances.

Like some government officials, HOA board members are apt to abuse their power with unreasonable restrictions, limiting the rights of property owners to use their home or business as they see fit.

For example, HOAs “take” property, diminishing its value, by enforcing revised rental restrictions; preventing an owner from operating a home-based business; or restricting parking on the property or even the public street in front of the property.

Of course, attorneys working for the HOA-industry will insist that HOAs have the right to do all of these things, either by statute or by contract.

Homeowner rights advocate George Staropoli stresses the importance of the Knick decision. He points out:

In order to make use of this opinion owners must adhere to the requirements for a “takings” clause challenge.  That means, since the HOA is not a municipal government, that a state court must uphold the “taking” or deprivation of the owner’s property or property rights without compensation by the HOA.  HOAs do this all the time with their Rules & Regs and bylaws that restrict or mandate changes to owner property.

But the impact of the Knick decision is even more far-reaching when combined with another important USSC ruling last month.

Case law books court legal appeal (Pixabay.com free image)

 

When is a private entity a state actor?

In Manhattan Comunity Access Copr. Et al. v. Halleck Et al.the USSC held that “Manhattan Neighborhood Network (MNN) is not a state actor subject to the First Amendment.”

In its decision, written by Justice Kavanaugh, the 5-4 majority ruled that MNN, a private corporation, did not stand in the shoes of a governmental entity, because it did not exercise “powers traditionally exclusively re- served to the State.”

The relevant points are summarized by Kavanaugh:

It is sometimes said that the bigger the government, the smaller the individual. Consistent with the text of the Constitution, the state-action doctrine enforces a critical boundary between the government and the individual, and thereby protects a robust sphere of individual liberty. Expanding the state-action doctrine beyond its traditional boundaries would expand governmental control while restricting individual liberty and private enterprise. We decline to do so in this case.
MNN is a private entity that operates public access channels on a cable system. Operating public access channels on a cable system is not a traditional, exclusive public function. A private entity such as MNN who opens its property for speech by others is not transformed by that fact alone into a state actor. Under the text of the Constitution and our precedents, MNN is not a state actor subject to the First Amendment. We reverse in relevant part the judgment of the Second Circuit, and we remand the case for further proceedings consistent with this opinion.
It is so ordered.

The USSC denied the claims of producers (Halleck Et al.) that MNN violated its First Amendment rights by removing a film critical of MNN. As a private entity, MNN has the right to choose the programming it wishes to air, despite the fact that MNN is operating a public access channel.

So…what does this have to do with HOAs?

At first glance, the Manhattan Community Access ruling appears to bolster the HOA-industry’s stance that HOAs are private entities that need not operate under Constitutional constraints.

But the devil in the details of this USSC opinion.

In it, USSC answered the question of when a private entity can qualify as a state actor. Note my emphasis in the quotation below:

Under this Court’s cases, a private entity can qualify as a state actor in a few limited circumstances— including, for example, (i) when the private entity per- forms a traditional, exclusive public function, …; (ii) when the government compels the private entity to take a particular action, … or (iii) when the government acts jointly with the private entity...

Let’s consider common interest communities and HOA-villes across America, in light of the USSC opinion.

Obviously, the supervisory board of both community development districts and special disricts are state actors, because they are chartered as limited purpose governments. In the case of a CDD, the government acts jointly with the private entity (a developer) to establish the District which remains under political control of a developer for the first 6 to 10 years of its existence.

But what about HOAs? They are not chartered as governmental entities. They are private organizations, mostly corporations.

However, since the government compels a private entity (a developer) to take a particular action (set up a designated HOA to provide maintenance and services that would otherwise be public services), does that not make the HOA a state actor?

And consider the following:

to qualify as a traditional, exclusive public function within the meaning of our state-action precedents, the government must have traditionally and exclusively performed the function. See Rendell-Baker v. Kohn, 457 U. S. 830, 842 (1982); Jackson, 419 U. S., at 352–353; Evans v. Newton, 382 U. S. 296, 300 (1966).
The Court has stressed that “very few” functions fall into that category. Flagg Bros., Inc. v. Brooks, 436 U. S. 149, 158 (1978). Under the Court’s cases, those functions include, for example, running elections and operating a company town. See Terry v. Adams, 345 U. S. 461, 468– 470 (1953) (elections); Marsh v. Alabama, 326 U. S. 501, 505–509 (1946) (company town); Smith v. Allwright, 321 U. S. 649, 662–666 (1944) (elections); Nixon v. Condon, 286 U. S. 73, 84–89 (1932) (elections).1

There exist thousands of large-scale HOAs, which operate akin to a company town. Think Celebration or The Villages in Florida.

But even small HOAs — fewer than 20 homes or condos — perform certain “exclusive public functions” that government “traditionally and exclusively performed.” For example, HOAs of all types and sizes are responsible for maintaining their own roads, policing community parking and traffic violations, managing storm water drainage systems, or running their own elections.

And don’t forget code enforcement and management of non-profit housing complexes — many of which serve residents through the use of government grants, tax breaks, and rent subsidies.

In fact, HOAs are commonly mandated into existence by local governments. And state laws empower HOAs to perform these once exclusively public functions.

As you can see, the lines between public and private functions of HOAs are blurred.

 

HOA ‘private’ powers and privileges

With regard to First Amendment rights, Kavanaugh writes,

when a private entity provides a forum for speech, the private entity is not ordinarily constrained by the First Amendment because the private entity is not a state actor. The private entity may thus exercise editorial discretion over the speech and speakers in the forum.

Therefore, the USSC majority decision affirms that, if an HOA is indeed a private entity, then its official website, NextDoor, or Facebook Page may exercise editorial discretion over speech. And HOAs do so all the time.

Kavanaugh Et al. Would argue that none of these social media platforms is to be legally regarded as a public forum. Rather, they are mere extensions of the private HOA corporation’s internet presence.

 

Dissenting opinion in Manhattan Access Corp.

By contrast, Justice Sotomayor provides the opposing point of view, maintaining that MNN is, indeed, a state actor. The four Justice minority argues that a government cannot contract away its Constitutional constraints, merely by delegating its duties to  a private entity.

JUSTICE SOTOMAYOR, with whom JUSTICE GINSBURG, JUSTICE BREYER, and JUSTICE KAGAN join, dissenting.
The Court tells a very reasonable story about a case that is not before us. I write to address the one that is.
This is a case about an organization appointed by the government to administer a constitutional public forum. (It is not, as the Court suggests, about a private property owner that simply opened up its property to others.) New York City (the City) secured a property interest in public- access television channels when it granted a cable fran- chise to a cable company. State regulations require those public-access channels to be made open to the public on terms that render them a public forum. The City contracted out the administration of that forum to a private organization, petitioner Manhattan Community Access Corporation (MNN). By accepting that agency relation- ship, MNN stepped into the City’s shoes and thus qualifies as a state actor, subject to the First Amendment like any other.

See also:

…The [public access] channels are clearly a public forum: The City has a property interest in them, and New York regulations require that access to those channels be kept open to all. And because the City (1) had a duty to provide that public forum once it granted a cable franchise and (2) had a duty to abide by the First Amendment once it provided that forum, those obligations did not evaporate when the City delegated the administra- tion of that forum to a private entity. Just as the City would have been subject to the First Amendment had it chosen to run the forum itself, MNN assumed the same responsibility when it accepted the delegation.

 

Now, read the following Justice Sotomayor conclusion, keeping in mind that states enable local governments to designate land uses.

Local governments generally require developers to form HOA-governed common interest communities. At the very least, local governments rarely approve a development plan without the mandatory membership HOAs to pay for its own community services.

The developer builds, and the HOA funds, infrastructure that would otherwise be provided by the local government. In some cases, roads, water and sewer utilities may be dedicated to local government following construction.

But it appears that Justice Sotomayor would agree that the local government delegates its duties to an HOA — whether controlled by a developer or homeowners. It logically follows that, when these duties are delegated,  that does not erase the government’s responsibility to ensure the Constitutional rights of Americans are upheld by the HOA.

See my emphasis added below:

If New York’s public-access channels are a public forum, it follows that New York cannot evade the First Amend- ment by contracting out administration of that forum to a private agent. When MNN took on the responsibility of administering the forum, it stood in the City’s shoes and became a state actor for purposes of 42 U. S. C. §1983.

This conclusion follows from the Court’s decision in West v. Atkins, 487 U. S. 42 (1988). The Court in West unani- mously held that a doctor hired to provide medical care to state prisoners was a state actor for purposes of §1983. Id., at 54; see also id., at 58 (Scalia, J., concurring in part and concurring in judgment). Each State must provide medical care to prisoners, the Court explained, id., at 54, and when a State hires a private doctor to do that job, the doctor becomes a state actor, “‘clothed with the authority of state law,’” id., at 55. If a doctor hired by the State abuses his role, the harm is “caused, in the sense relevant for state-action inquiry,” by the State’s having incarcer- ated the prisoner and put his medical care in that doctor’s hands. Ibid.
The fact that the doctor was a private contractor, the Court emphasized, made no difference. Ibid. It was “the physician’s function within the state system,” not his private-contractor status, that determined whether his conduct could “fairly be attributed to the State.” Id., at 55–56. Once the State imprisoned the plaintiff, it owed him duties under the Eighth Amendment; once the State delegated those duties to a private doctor, the doctor became a state actor. See ibid.; see also id., at 56–57. If the rule were any different, a State would “‘be free to contract out all services which it is constitutionally obli- gated to provide and leave its citizens with no means for vindication of those rights, whose protection has been delegated to ‘private’ actors, when they have been denied.’” Id., at 56, n. 14.
West resolves this case. Although the settings are different, the legal features are the same: When a government (1) makes a choice that triggers constitutional obligations, and then (2) contracts out those constitutional responsibilities to a private entity, that entity—in agree-ing to take on the job—becomes a state actor for purposes of §1983.8

 

Read why Sotomayor believes MNN is not a private entity:

MNN is not a private entity that ventured into the marketplace and found itself subject to government regulation. It was asked to do a job by the government and compensated accordingly. If it does not want to do that job anymore, it can stop (subject, like any other entity, to its contractual obligations). But as long as MNN continues to wield the power it was given by the government, it stands in the government’s shoes and must abide by the First Amend- ment like any other government actor.

 

Substitute “HOA” for “MNN” in the above statement. Homeowner advocates now have a clearer roadmap for holding HOAs, and the HOA-industry, accountable to some 70 million US residents.

Both USSC decisions — Knick and Manhattan Community Access — were held by slim 5-4 majorities. Ironically, the majority opinion in Knick is more helpful to homeowners in the HOA context. Conversely, the minority option in Manhattan Community Access shows future promise for HOA housing consumers.

Note that the opinions of both conservative and liberal Justices provide a platform for HOA justice.

I believe it’s just a matter of time before the majority of HOAs are classified as state actors, and homeowners across the U.S. begin to file “Takings” claims in federal court.

Given the tumultuous political climate in this country, USSC decisions will continue to evolve and change.

However, I fully expect state and federal legislative proposals by the HOA-industry to preserve Constitutional loopholes, and the special legal state of HOAs as private entities enabled with powers of government.

It’s up to housing advocates to support efforts to reverse course and close these loopholes once and for all.  ♦

 

References:

Supreme Court Overturns Precedent In Property Rights Case — A Sign Of Things To Come?
Nina Totenberg, NPR | June 22, 20197:00 AM ET

Supreme Court Ends “Catch-22” That Blocked Property Owners From Suing The Government
Nick Sibilla Senior Contributor
PolicyI cover criminal justice, entrepreneurship, and offbeat lawsuits.

USSC sides in favor of homeowner unconstitutional ‘takings’ and may apply to HOAs
By George Staropoli | HOA Constitutional Government | July 14, 2019

Case references:

KNICK v. TOWNSHIP OF SCOTT, PENNSYLVANIA, ET AL.

MANHATTAN COMMUNITY ACCESS CORP. ET AL. v. HALLECK ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT