A quick one from the Arizona Supreme Court that isn't so much a true takings case, but more like "takings adjacent." In our view, it well illustrates the way that takings arguments can shape how statutes are interpreted, even if there isn't a taking.
The case -- Cao v. PFP Dorsey Investments, LLC, No. CV-22-0228-PR (Mar. 22, 2024) -- was shaping up to be more in our area of operations because the Arizona Supreme Court granted review to decide this question (and others):
Either on its face or as applied in this case, does A.R.S. § 33-1228 authorize the taking of private property for private use in violation of Article 2, § 17 of the Arizona Constitution?
Seemed promising. The statute says that when property organized as a condominium regime decides to wind up and abandon the condominium format, the condo association shall sell "all the common elements and units of the condominium."
Here, the condo association did not sell every unit in the condominium (which meant including for sale the units the condo association already owned) but under the purported authority of the above-noted statute, forced the holdout owners individual units who declined to voluntarily sell to the condo association to sell. One of the unit owners' claims was that Arizona's condo wind-up statute is unconstitutional if it allows a condo association to forcibly acquire individual units. That, in the owners' view, would authorize a private-benefit taking in violation of the Arizona and the U.S. Constitutions.
The Arizona Supreme Court concluded that the statute does not work a taking, but did so only because it avoided the issue: at the same time the court held the statute wasn't a taking, it also held that the statute requires sale of all units. Since that does not implicate a private-to-private transfer, the taking problem disappeared. That's not a bad result (and in our view is very consistent with the law of partition), because the most pressing problem with the way the condo association interpreted the statue allowed it to claim that it permitted individual units to be sold piecemeal without also selling off every other unit. A sale of the entire condo would seem to avoid the private-benefit vibe.
In the court's view, the case turned more on freedom of contract (the owners of the forcibly-acquired units had voluntarily agreed via their condo docs to be bound by the statute), than on a private-benefit taking:
The Xias contend that the Association could not have involuntarily sold their unit absent § 33-1228(C), which therefore renders the statute unconstitutional on its face or as applied to them.¶19 We have no cause to resolve the constitutionality of § 33-1228(C) in other instances because the Association’s power to forcibly sell the Dorsey Place units in this case emanated not from that statute but from contract—specifically, the Declaration that all unit owners signed and to which their property interests were subject. “[P]arties are generally free to contract on whatever terms they choose.” Zambrano v. M & RC II LLC, 254 Ariz. 53, 56 ¶ 1 (2022). Among the terms to which they generally may agree is a waiver of constitutional rights. See State ex rel. Polk v. Hancock, 237 Ariz. 125, 128–29 (2015); CSA 13-101 Loop, LLC v. Loop 101, LLC, 236 Ariz. 410, 411 ¶ 6 (2014).
Slip op. at 7-8. In short, because the plaintiffs had agreed to the requirement to sell, they really didn't have standing to assert a constitutional challenge to the statute itself.
The court held that if the individual unit owners didn't want to be subject to the statute or the sale provision, they could have contracted around it. Slip op. at 9 ("In other words, condominium owners were free to contract around most of the Condominium Act’s provisions. The Dorsey Place Declaration emphatically did not.... In short, the Condominium Act did not effect a taking of the Xias’ property."). We're not sure that's a realistic view of the situation -- these are not exactly adhesion contracts, but the opportunity to negotiate different terms do not seem all that present -- but there it is. Read pages 9-14 of the slip opinion for the statutory-construction rationale the court applied.
We filed this amicus brief which argued that the condo association's reading of the statute did effect an unconstitutional taking, but also that the statute cannot be read in a way to facilitate an unconstitutional taking. Thus, the only way to interpret the term requiring sale of "all the common elements and units" means all of the common elements, and all of the units. In short, the term "all" modifies both the term "common elements," and "units." We argued the statutory construction rule of constitutional avoidance was best applied here, and compelled a reading of the statute to avoid the private-benefit takings problem embedded therein.
How will other courts faced with this growing issue respond? See, e.g, this situation: "Their Retirement Plan Did Not Include Being Forced to Sell Their Condo" (New York Times, Feb. 24, 2023) (about a similar situation in Florida).
Stay tuned.
Cao v. PFP Dorsey Investments, LLC, No. CV-22-0228-PR (Ariz. Mar. 22, 2024)
