{"id":858,"date":"2012-10-10T15:39:54","date_gmt":"2012-10-10T21:39:54","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=858"},"modified":"2012-10-10T15:39:54","modified_gmt":"2012-10-10T21:39:54","slug":"california-supreme-court-enforces-arbitration-provision-in-construction-defect-case-2","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/california-supreme-court-enforces-arbitration-provision-in-construction-defect-case-2\/","title":{"rendered":"California Supreme Court Enforces Arbitration Provision in Construction Defect Case"},"content":{"rendered":"

Timothy J. Toohey – September 14, 2012<\/p>\n

In our December 2011 Under Construction newsletter, we reported on the tendency of certain California courts to decline to enforce arbitration provisions in construction defect cases. See Arbitration in California Construction Defect Cases After AT&T Mobility v. Concepcion. As we noted, California courts have continued after the U.S. Supreme Court\u2019s decision in AT&T Mobility LLC v. Concepcion to evidence their long-standing hostility to arbitration provisions in consumer contracts, despite Concepcion\u2019s clear message that invalidation of arbitration provisions could not be justified on grounds of unconscionability.<\/p>\n

On August 16, 2012, the California Supreme Court threw its weight behind the enforceability of arbitration provisions by holding that a condominium owners\u2019 association was bound by such a provision in the recorded declaration of covenants, conditions and restrictions (CC&Rs) when it brought a construction defect lawsuit against the condominium developer. Pinnacle Museum Tower Assoc. v. Pinnacle Market Development (US), LLC, et al., No. S186149 (Cal. Aug. 16, 2012).<\/p>\n

The case involved the familiar scenario where a developer (Pinnacle) developed a mixed use residential and commercial common interest property and recorded CC&Rs governing the use and operation of the property pursuant to California\u2019s Davis-Stirling Act, which governs the creation and operation of common interest developments. See California Civil Code \u00a7 1350 et seq. The CC&Rs, among other things, created an owners\u2019 association (Association) responsible for managing and maintaining the property and specified that by accepting a deed for any portion of the property that the Association and each condominium owner would be required to have any construction disputes against developers resolved exclusively through binding arbitration in accordance with the Federal Arbitration Act (FAA) and the California Arbitration Act. The purchase agreements signed by individual owners included references to the CC&Rs generally and the arbitration provision specifically.<\/p>\n

The Association filed a construction defect action against Pinnacle on behalf of itself and its owner-members and Pinnacle moved to compel arbitration. The trial court invalidated the agreement, primarily on the grounds of procedural unconscionability, and the Court of Appeal affirmed, again on the ground of unconscionability.<\/p>\n

The California Supreme Court\u2019s opinion, reversing the Court of Appeal, rested on two primary grounds \u2013 the binding nature of the CC&Rs and the fact that they were not unconscionable as regards to the Association.<\/p>\n

The California Supreme Court found that the CC&Rs should be given binding effect, even if they do not fulfill common law requirements for equitable servitudes or the privity requirements of contracts, because recorded declarations act as contracts. Although the Association did not agree to the contract, the court found that it was bound by the fact that the owners of the condominium units (its exclusive members) had either \u201cexpressly consented or [are] deemed by law to have agreed to the terms in a recorded declaration.\u201d The Association thus \u201cshould not be allowed to frustrate the expectations of the owners (and the developer) by shunning their choice of a speedy and relatively inexpensive means of dispute resolution.\u201d The court also found that its conclusion was bolstered by the policies of the FAA, which would preempt \u201csingling out an arbitration clause as the only term in a recorded declaration that may not be regarded as contractual in nature.\u201d<\/p>\n

The court also rejected the argument that the CC&Rs were unconscionable, finding that the fact that they were drafted and recorded before the sale of any units and without input from the Association was due to the \u201clegislative policy choices embodied in the Davis-Stirling Act.\u201d Although such declarations may be viewed as \u201cadhesive,\u201d the developer\u2019s compliance with the act \u201cprovides a sufficient basis for rejecting an association\u2019s claim of procedural unconscionability.\u201d The court also found that the CC&Rs were not substantively unconscionable because the Association had not met its burden of finding that any aspect of the arbitration provision was \u201coverly harsh or so one-sided that it shocks the conscience.\u201d Indeed, the court found that the provision in question was consistent with the Davis-Sterling Act.<\/p>\n

Although Pinnacle represents a definite \u201cwin\u201d for condominium developers, it is worth reiterating that careful consideration of both the pros and the cons of arbitration is important when parties are involved in construction disputes. Knowledgeable counsel can be helpful when considering this issue.<\/p>\n

via California Supreme Court enforces arbitration provision in construction defect case – Lexology<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Timothy J. Toohey – September 14, 2012 In our December 2011 Under Construction newsletter, we reported on the tendency of certain California courts to decline to enforce arbitration provisions in construction defect cases. See Arbitration in California Construction Defect Cases After AT&T Mobility v. Concepcion. As we noted, California courts have continued after the U.S.… Continue reading California Supreme Court Enforces Arbitration Provision in Construction Defect Case<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[41,4],"tags":[42,19],"class_list":["post-858","post","type-post","status-publish","format-standard","hentry","category-arbitration","category-construction-defects","tag-arbitration-2","tag-construction-defects-2","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nCalifornia Supreme Court Enforces Arbitration Provision in Construction Defect Case - Advise & Consult, Inc.<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/california-supreme-court-enforces-arbitration-provision-in-construction-defect-case-2\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"California Supreme Court Enforces Arbitration Provision in Construction Defect Case - Advise & Consult, Inc.\" \/>\n<meta property=\"og:description\" content=\"Timothy J. 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