By Glen Hansen
In Pinnacle Museum TowerAssn. v. Pinnacle Market Development (UC), LLC (D055422, July 30, 2010), 2010 Cal.App. LEXIS 1261, the California Court of Appeal for the Fourth Appellate District held that an arbitration provision in a declaration of covenants, conditions and restrictions (CC&R’s) recorded by a condominium project developer did not constitute an “agreement” sufficient to waive the constitutional right to jury trial for construction defect claims brought by the homeowners association against the developer.
In Pinnacle Museum, a developer of a condominium project recorded CC&R’s that formed a homeowners association. The CC&Rs contained a mandatory arbitration procedure for the resolution of construction defect disputes that included the waiver of the right to a jury. When it sold each of the condominium units to the buyers, the developer used a standard purchase and sale agreement that contained a dispute resolution provision that referenced the arbitration provision in the CC&R’s. Under the CC&R’s, each condominium owner must be a member of the association. In this case, the association filed a construction defect action against the developer on its own behalf and as a representative of its members for damage to common areas, property owned by the association, and property owned by individual members. While the trial court found that the CC&R’s provision constituted an agreement to arbitrate entered into by the developer and the association, the trial court nevertheless denied the developer’s motion to compel arbitration because it found the CC&R’s provision was unconscionable. The Court of Appeal affirmed, but for different reasons.
Contrary to the trial court, the Court of Appeal concluded that the arbitration provision in the CC&R’s did not constitute an “agreement” sufficient to waive the constitutional right to jury trial for construction defect claims brought by the association. That is because (a) the association did not exist until the CC&R’s were recorded; (b) only the developer signed the CC&Rs; and (c) there was no evidence that the association agreed to the arbitration provision. On this legal issue, the Court of Appeal in Pinnacle Museum declined to follow a contrary result, also issued by the Fourth Appellate Division, in the case of Villa Milano Homeowners Ass’n v. Il Davorge (2000) 84 Cal.App4th 819. Furthermore, the Court of Appeal also held that, assuming the association was bound by a jury waiver provision contained in the purchase and sale agreements signed by the individual condominium owners; such provision was not enforceable because it was procedurally and substantively unconscionable.
The Court could have potentially reached a different result if the developer had earlier persuaded the association to either expressly accept the arbitration provision in the CC&R’s, or if there had been evidence of conduct by the association from which the necessary agreement to the arbitration provision could be implied.
Glen C. Hansen is a senior associate at Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, LLP at (916) 456-9595.
The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, nor the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.