But Arbitration Provision Between Developer and Direct, Original Purchasers, Suffices To Compel Arbitration of Those Purchasers' Claims
Covenants, conditions and restrictions (CC&Rs) containing an arbitration provision often raise gnarly questions about enforceability. Is the provision enforceable, and if so, what group will be bound to arbitrate? Those issues were presented in the next case. Verano Condominium Homeowners Association v. La Cima Development, LLC, Case No. D058217 (4th Dist. Div. 1 May 8, 2012) (Benke, Acting P.J., author) (unpublished).
Defendant and Appellant, La Cima, converted apartments to condominiums. As part of the condominium conversion, La Cima drafted and recorded CC&Rs that included an arbitration provision. The arbitration provision required individual condo owners and the homeowner's association (Verano) to resolve claims against La Cima through binding arbitration under the Federal Arbitration Act (FAA). La Cima transferred ownership of common areas to the homeowners' association (Verano). Also, La Cima required individual condo purchasers to sign purchase agreements containing similar arbitration clauses.
Verano sued La Cima alleging defects to Verano's common areas, and also sued as a class representative for association members. La Cima moved to compel arbitration. The trial court denied the motion. La Cima appealed.
The Court of Appeal analyzed three classes of claims.
First, there are claims Verano raised on its own behalf against La Cima. Those were not subject to a valid agreement to arbitrate. Why? Essentially, because there was no binding contract between Verano and La Cima – property was transferred to La Cima, but no consideration was provided by Verano. Under the Davis-Sterling Act, Verano had to take the common areas subject to the CC&Rs.
Second, Verano sued as a class representative for owners who did not directly purchase from La Cima. Here too, applying contract principles, there was no binding contract between La Cima and owners who did not purchase from La Cima. Also, there was no privity of estate, because La Cima no longer had any interest in the property. Again, the claims were not arbitrable.
Third, there were original purchasers bound by an arbitration provision in their contracts with La Cima. Their claims were arbitrable. Also, the Court of Appeal had no trouble concluding that, because ""La Cima's development project was clearly intimately enmeshed with interstate commerce," the arbitration agreement would be covered by the FAA.
Accordingly, the trial court's order was reversed and remanded with instructions to segregate the third class of claims – claims by the original purchasers – and grant La Cima's motion to compel arbitration of those claims only.