Thursday, October 23, 2014

Overmyer v. Frick--new theory for HOA rights?

The Democratic candidate for the US House of Representatives from the 11th District in Pennsylvania is a civil rights attorney named Andy Ostrowski.  He has a theory that HOAs violate a principle he sees in the US Supreme Court case of Overmyer v. Frick, which is linked above.  The issue in the case involved an Ohio law that allowed people--usually debtors trying to get one more chance from their creditor--to give up all their due process rights and confess judgment in advance, if they defaulted one more time.  This was legal under an old doctrine called "cognovit."  The Supreme Court ruled that  cognovit notes were not unconstitutional, provided that the waivers of due process were adequate.  Ostowski thinks that maybe HOAs and condos require inadequate notice and the agreements are unconstitutional.  Interesting theory, but I think it is far-fetched. The problem is that the court ultimately ruled in favor of cognovit.

Here is Ostrowski's statement of how he thinks this applies:

And here is the court's explanation for upholding the cognovit provision. You be the judge.

"Even if, for present purposes, we assume that the standard for waiver in a corporate-property-right case of this kind is the same standard applicable to waiver in a criminal proceeding, that is, that it be voluntary, knowing, and intelligently made, Brady v. United States, [405 U.S. 174, 186]   397 U.S. 742, 748 (1970); Miranda v. Arizona, 384 U.S., at 444 , or "an intentional relinquishment or abandonment of a known right or privilege," Johnson v. Zerbst, 304 U.S. 458, 464 (1938); Fay v. Noia, 372 U.S., at 439 , and even if, as the Court has said in the civil area, "[w]e do not presume acquiescence in the loss of fundamental rights," Ohio Bell Tel. Co. v. Public Utilities Comm'n, 301 U.S. 292, 307 (1937), that standard was fully satisfied here.
"Overmyer is a corporation. Its corporate structure is complicated. Its activities are widespread. As its counsel in the Ohio post-judgment proceeding stated, it has built many warehouses in many States and has been party to "tens of thousands of contracts with many contractors." This is not a case of unequal bargaining power or overreaching. The Overmyer-Frick agreement, from the start, was not a contract of adhesion. There was no refusal on Frick's part to deal with Overmyer unless Overmyer agreed to a cognovit. The initial contract between the two corporations contained no confession-of-judgment clause. When, later, the first installment note from Overmyer came into being, it, too, contained no provision of that kind. It was only after Frick's work was completed and accepted by Overmyer, and when Overmyer again became delinquent in its payments on the matured claim and asked for further relief, that the second note containing the clause was executed.
"Overmyer does not contend here that it or its counsel was not aware of the significance of the note and of the cognovit provision. Indeed, it could not do so in the light of the facts. Frick had suggested the provision in October 1966, but the first note, readjusting the progress payments, was executed without it. It appeared in the second note delivered by Overmyer's own counsel in return for substantial benefits and consideration to Overmyer. Particularly important, it would seem, was the [405 U.S. 174, 187]   release of Frick's mechanic's liens, but there were, in addition, the monetary relief as to amount, time, and interest rate.
"Overmyer may not have been able to predict with accuracy just how or when Frick would proceed under the confession clause if further default by Overmyer occurred, as it did, but this inability does not in itself militate against effective waiver. See Brady v. United States, 397 U.S., at 757 ; McMann v. Richardson, 397 U.S. 759, 772 -773 (1970).
"We therefore hold that Overmyer, in its execution and delivery to Frick of the second installment note containing the cognovit provision, voluntarily, intelligently, and knowingly waived the rights it otherwise possessed to prejudgment notice and hearing, and that it did so with full awareness of the legal consequences.
Insurance Co. v. Morse, 20 Wall. 445 (1874), affords no comfort to the petitioners. That case concerned the constitutional validity of a state statute that required a foreign insurance company, desiring to qualify in the State, to agree not to remove any suit against it to a federal court. The Court quite naturally struck down the statute, for it thwarted the authority vested by Congress in the federal courts and violated the Privileges and Immunities Clause."

No comments: