Foundation Urges Supreme Court to Review Groundbreaking Property Rights Case Involving Homeowner Associations

mariners coveAtlantic Legal Foundation has filed an amicus brief urging the U.S. Supreme Court to grant certiorari in a potentially groundbreaking property rights case. United States v. Mariners Cove concerns Homeowner Associations and their ability to continue to collect assessment fees from lots that are taken by government agencies exercising eminent domain power.

Homeowner Associations, often referred to as Common Interest Developments (CIDs), are subdivisions in which individual homeowners join together to co-own communal property and to share the costs of maintenance and repair, which are traditionally financed through fees or assessments collected from the owners of the individual lots in the community. The governing board of the CID uses these funds to maintain the CIDs communally owned spaces and to finance infrastructure such as water systems, waste disposal, other utilities, recreational facilities, landscaping, and other services for the community.

Mariners Cove Townhouse Association (MCTA) is a CID in Louisiana. Under MCTAs underlying agreement each of the homeowners in MCTA is required to pay pro rata assessments to help fund such services as maintenance, repair, and the operation of water and sewer systems in Mariners Cove. These assessment obligations run with the land and are assumed by any subsequent purchasers of homes within MCTA. In the wake of Hurricane Katrina, the U.S. Army Corp of Engineers seized 14 of the 58 lots that were a part of the MCTA development to facilitate access to a pumping station. In 2009, the United States officially filed eminent domain proceedings against the 14 lots.

MCTA intervened in the lawsuit, arguing that the Takings Clause of the Fifth Amendment to the U.S. Constitution required the U.S. government to compensate MCTA for the loss of the periodic assessments it was owed by each lot owner. Because MCTAs Declarations required each owner to pay a 1/58 share of the developments expenses through these assessments, the seizure of the 14 lots had severely undermined MCTAs assessment base.

After losing in the District Court, MCTA appealed to the U.S. Court of Appeals for the Fifth Circuit, which held that while MCTAs assessment base was a property interest (a real covenant under Louisiana law), it was not a compensable property interest under the Takings Clause. In reaching its decision, the Fifth Circuit relied on public policy concerns, that holding real covenants such as MCTAs right to assessments compensable would unduly burden the governments ability to exercise its eminent domain power. For the purposes of takings law, the Court held, real covenants were best viewed as akin to contracts and therefore not compensable under the consequential loss rule, which provides that contract damages and lost business profits are not compensable under the Fifth Amendment).

We urged the Supreme Court to grant certiorari and affirm that the Fifth Amendment protects all property interests and that there is no subset of property rights that are not protected from government takings. First, we argued that the very purpose of the Fifth Amendment is to make the taking of private property inconvenient for the government. The Fifth Amendment forces the government to be judicious and circumspect in its use of the eminent domain power; making it easier for the government to seize property would undermine this safeguard. Second, we noted that the Fifth Circuits holdingwhich separated property interests that are compensable from others that are not deemed compensablewas inconsistent with the Supreme Courts takings law jurisprudence. Further, the Supreme Court has held that even intangible (non-physical) forms of property are protected by the Fifth Amendments Takings Clause.

Finally, we highlighted the ways in which this issue is of national importance. Sixty-three million Americans (about 20% of the U.S. population) live in CIDs. CIDs provide many benefits to local communities, such as providing housing arrangements for retirees and lower-income Americans, preserving open space by encouraging cluster development, and providing necessary services at no cost to budget-strapped local governments. If the Fifth Circuits decision were emdomto stand, CIDs would be undermined because they would no longer be assured of a stable assessment base to finance the services they provide. The threat of government seizure of lots within a CID without compensation for assessments would discourage lenders from investing in CIDs because their investments are often secured by the physical amenities and revenue streams produced by periodic assessments.

To view the Foundation’s brief, please click here.