And Now There Is A Split Between The 4th District, Div. 3, And The 2nd District, Div. 2.
In Branches Neighborhood Corp. v. CalAtlantic Group, Inc., 26 Cal.App.5th 743 (2018), a homeowner's association began a construction defects arbitration with a developer without first getting a vote of 51% of its membership, despite association documents requiring such approval. When the developer sought to dismiss the arbitration, the association obtained a ratifying vote. The arbitrator dismissed the arbitration based on the failure to get the required vote before initiating the arbitration, the trial court entered judgment against the association, and the Court of Appeal, 4th District, Div. 3, affirmed.
Now Aldea Dos Vientos v. CalAtlantic Group, Inc., No. B291731 (2nd Dist., Div. 6 2/6/20) (Gilbert, Yegan, Tangeman) holds otherwise. Note: (1) the facts of the two cases are essentially the same; (2) the developer defendant is the same; (3) the 51% voting requirement is in the governing documents of the HOA in both cases; (4) the arbitrator in both cases dismissed the arbitration; (5) the trial court in both cases affirmed judgment in favor of the developer; (6) the law firm representing the developer is the same in both cases. The differences are the outcome (affirmance in the earlier case, reversal in the later case), the legal arguments, and the courts.
In the later case, Justice Gilbert explains that the arbitrator exceeded his power, a basis for vacating an award under Cal. Code Civ. Proc., section 1286.2. "Arbitrators exceed their power by issuing an award that violates a party's unwaivable statutory rights or that contravenes an explicit legislative expression of public policy."
First, provisions that require a 51% vote before initiating arbitration or litigation "contravene statutory policy by giving the Developer the unilateral power to bar actions for construction defects", contrary to housing policy. The developer here argued that the majority voting requirement of an early vote was for the good of the homeowner. However, Justice Gilbert sees the voting requirement as an issue between the HOA and its members, one that was taken care of by ratification, and not one that the Developer could take advantage of after ratification had occurred.
Second, Civ. Code section 5975(a) provides that "unreasonable" equitable servitudes shall not be enforced. Justice Gilbert views as unreasonable a covenant that "gives the Developer veto power over the Association's claims in spite of the members' vote to proceed with the arbitration." The provision, if not interpreted to allow for ratification, "amounts to a trap for the unwary set by the Developer to bar claims against it. The Developer is burdened with no similar hurdle prior to seeking a determination of its rights."
Third, Senate Bill No. 326, signed by the Governor on August 30, 2019, "bars the use of provisions such as section 7.01B [the 51% member voting requirement to initiate legal action] as a defense for developers against claims of condominum associations."
The judgment is reversed.
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