Pinnacle Museum Tower Association Dictates Result
In Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC, 55 Cal.4th 223 (2012), the California Supreme Court held that arbitration clauses in recorded CC&Rs, requiring that a homeowners association arbitrate construction claims against a developer, are enforceable. See my August 16, 2012 post about Pinnacle. (“Privity, Shmivity, Says The California Supreme Court – A Provision To Arbitrate Construction Disputes In Recorded CC&Rs Will Be Honored If Not Unreasonable”).
In Villa Vicenza Homeowners Association v. Nobel Court Development, LLC, Case No. D054550 (4th Dist. Div. 1 January 17, 2013) (Benke, Acting P.J., author) (unpublished), homeowners brought a derivative action on behalf of a homeowners association against a developer, alleging the developer failed to provide a reserve fund sufficient to repair defects. The developer filed a motion to compel arbitration that the trial court denied, believing that recording CC&Rs is not a valid means of obtaining an arbitration agreement. The Court of Appeal affirmed the denial. Then the developer filed a petition for review, which was granted, and after Pinnacle was decided, the Supreme Court transferred the case back to the Court of Appeal with directions to vacate and reconsider in light of Pinnacle.
Pinnacle was dispositive, unless the arbitration clause in Pinnacle was unconscionable. However, because the arbitrations provision under consideration in Vicenza Homeowners Association were “materially indistinguishable from the arbitration provisions considered in Pinnacle,” the arbitration provision was not unconscionable.
The Court of Appeal vacated its earlier decision affirming the trial court’s order denying arbitration. In other words, the parties will have to arbitrate.
Drafting Tip: The arbitration clause was covered by the Federal Arbitration Act because it involved interstate commerce. The CC&Rs stated: “Because many of the materials and products incorporated into the home are manufactured in other states, the development and conveyance of the Property evidences a transaction involving interstate commerce and the Federal Arbitration Act (9 U.S.C. section 1, et seq.) now in effect as it may be hereafter amended will govern the interpretation and enforcement of the arbitration provisions of this Declaration.” A developer who wants the arbitration clause to be enforceable under the FAA should consider including such language.
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