In a long-awaited decision, the California Supreme Court issued its ruling yesterday in Pinnacle Museum Tower Association v. Pinnacle
Market Development (US), LLC, S186149. The Pinnacle case
involves a condominium homeowners association’s claims against the project
developer for construction defects. The project CC&Rs require such
claims to be submitted to binding arbitration, rather than jury trial.
The Court held that the arbitration provisions for construction defect claims
against the developer are enforceable against the homeowners association,
unless proven unreasonable. The Court’s decision in Pinnacle
reversed the Court of Appeal’s decision from 2010 which found such arbitration
clauses to be invalid.
The Court’s rationale for upholding the CC&Rs
arbitration clause includes:
·
CC&Rs constitute a contract between the
developer and the homeowners association and its members.
·
Under governing law in California for
condominium projects, the Davis-Stirling Act, the homeowners association and
its members have either expressly consented or are deemed by law to have agreed
to the terms of the CC&Rs. Justice Baxter, writing for the Court,
explained that “…the covenants and terms in the recorded declaration…reflect
written promises and agreements that are subject to enforcement against the
Association.”
·
Notwithstanding previous appellate court
decisions to the contrary, the CC&Rs arbitration clause is consistent with
the Davis-Stirling Act and is not unconscionable.
·
The Federal Arbitration Act, the California
Arbitration Act and the Davis-Stirling Act express a strong public policy
favoring arbitration as a speedy and relatively inexpensive means of dispute
resolution.
The Pinnacle decision is a victory for condominium
project developers who desire to resolve such claims through the more
streamlined and, in some cases, less expensive process of arbitration, rather
than a jury trial. Also important is that the Court’s decision provides
some level of certainty concerning the enforceability of arbitration clauses in
CC&Rs for construction defect claims, where trial and appellate courts have
been issuing inconsistent decisions for several years. The Supreme
Court’s ruling in Pinnacle should serve to resolve such inconsistencies,
and provide guidance to developers in drafting CC&Rs for condominium
projects.
We expect that the California Department of Real Estate may
issue updated arbitration guidelines in light of the Pinnacle decision.
Should you have any questions regarding the Pinnacle
decision or alternative dispute resolution provisions in condominium project
CC&Rs, please contact Kevin Rose or Jay Drake.
The issues discussed in
this update are not intended to be legal advice and no attorney-client
relationship is established with the recipient. Readers should consult
with legal counsel before relying on any of the information contained herein.
Reuben & Junius, LLP is a full service real estate law firm. We
specialize in land use, development and entitlement law. We also provide
a wide range of transactional services, including leasing, acquisitions and
sales, formation of limited liability companies and other entities,
lending/workout assistance, subdivision and condominium work. Copyright 2012 Reuben & Junius, LLP. All
rights reserved.
