By Glen C. Hansen

The California Supreme Court is currently reviewing the issue of whether, in response to a construction defect action brought by a condominium homeowners association, the developer can compel binding arbitration of the litigation pursuant to an arbitration provision in the CC&R’s. A split of opinion exists in the court of appeals on that issue. That issue is raised in several cases pending before the court.

In Villa Milano Homeowners Association v. Il Davorge (2000) 84 Cal.App.4th 819, the Court of Appeal for the Fourth Appellate District held that an arbitration clause contained in the CC&R’s of a condominium homeowners association was a sufficient agreement to require that the association’s construction defect claims against the developer be submitted to arbitration. 

In Treo @ Kettner Homeowners Association v. Superior Court (2008) 166 Cal.App.4th 1055, 1066-1067, the same court of appeal agreed with Villa Milano insofar as it held that CC&R’s can reasonably be construed as a contract and provide a means for analyzing a controversy arising under the CC&R’s when the issue involved is the operation or governance of the association or the relationships between owners and between owners and the association. However, the Treo court disagreed with Villa Milano and refused to hold that CC&R’s suffice as a contract when the issue is the waiver of the constitutional right to trial by jury.

 In a 2-1 decision in Pinnacle Museum Tower Assn. v. Pinnacle Market Development (UC), LLC (2010) 187 Cal.App.4th 24, the Fourth Appellate District followed Treo and held that an arbitration provision in CC&R’s did not constitute an agreement sufficient to waive the constitutional right to jury trial for construction defect claims brought by the homeowners association against a condominium project developer. (This author discussed the Pinnacle Museum case http://blog.aklandlaw.com/2010/08/articles/real-estate/arbitration-clause-in-condominium-project-ccrs-unenforceable-in-construction-defects-action-by-homeowners-association-against-developer/ ) The Supreme Court of California granted review of the Court of Appeal’s decision in Pinnacle Market. (2010 Cal. LEXIS 12050 (Nov. 10, 2010).)

In Villa Vicenza Homeowners Association v. Nobel Court Development, LLC (2011) 191 Cal.App.4th 963, the Fourth Appellate District again cited Treo and held that the Legislature did not intend that CC&R’s by themselves could be used as a means of creating any continuing contractual rights between the developer of a common interest development and either a homeowners association or individual homeowners with whom a developer has no contractual relationship, and therefore the trial court did not err in denying a developer’s motion to compel arbitration of the association’s construction defect claim against the developer. The Supreme Court granted review and depublished the court of appeal’s decision, stating: “Further action in this matter is deferred pending consideration and disposition of a related issue in Pinnacle Museum Tower Association v. Pinnacle Market Development, S186149 (see Cal. Rules of Court, rule 8.512(d)(2)), or pending further order of the court.” (2011 Cal. LEXIS 3669 (Cal., Apr. 20, 2011.)

Most recently, in Promenade at Playa Vista Homeowners Association v. Western Pacific Housing, Inc. (Nov. 8, 2011, B225086) ___Cal.App.4th ___, the Court of Appeal for the Second Appellate District addressed the question of whether, in response to a construction defect action brought by a condominium homeowners association, the developer can compel binding arbitration of the litigation pursuant to an arbitration provision in the CC&R’s. The court said “no” because the developer does not rely on a contract with the homeowners association to compel arbitration but instead on the arbitration provision in the CC&R’s, and because, under California law, provisions in the CC&R’s are equitable servitudes that can be enforced only by the homeowners association, the owner of a condominium, or both, but not the developer. The Promenade court noted that the key issue in that case is pending before the Supreme Court in Pinnacle Museum. Thus, it is expected that the Supreme Court will also grant review, depublish and defer further action in Promenade pending resolution of the Pinnacle Museum case, as the Court did earlier in 2011 with the Villa Vicenza decision.

Glen C. Hansen is an attorney 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, or 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.