Supreme Court Upholds Binding Arbitration for Condominium Defect Claims

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



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



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



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.