Berding | Weil Community Association ALERT Newsletter
Legal News and Comments for Community Association Boards and Managers Issue #51 • August 2010
Helping Lambs Slay Lions:
California Courts Refuse to Enforce Binding-Arbitration Clauses in Developer-Drafted CC&Rs.
by Jan A. Kopczynski, Esq. and Gabriel P. Rothman, Esq.
"Do I believe in arbitration? I do. But not in arbitration between the lion and the lamb, in which the lamb is in the morning found inside the lion." — 19th Century Labor Union Organizer and Activist, Samuel Gompers
Those who read our article in the January 2009 ECHO Journal entitled, "Homeowners Associations have a Right to a Jury Trial in Disputes with their Developers," are already familiar with the growing body of law in California where courts have refused to enforce provisions in developer-drafted CC&Rs that deny homeowners and homeowners associations the right to have their disputes with developers heard in court. These types of one-sided provisions, such as binding-arbitration clauses, judicial-reference provisions, and "jury-trial waivers," have been discussed at length by our state appellate courts over the last ten years. To briefly summarize:
In Villa Milano Homeowners Assn. v. Il Davorge, 84 Cal. App. 4th 819 (2000) ("Villa Milano"), the Court of Appeal found that a developer's arbitration clause in a set of CC&Rs was not enforceable by the developer in a case brought by the homeowners association to recover damages for construction defects. The court ruled that the arbitration clause was "unconscionable," and therefore invalid, given that it was not a negotiated term of the CC&Rs and because the developer essentially buried the provision at the end of the 70-page set of governing documents.
In Grafton Partners v. Superior Court, 36 Cal. 4th 944 (2005) ("Grafton"), the Court of Appeal ruled that the right to a jury trial is so fundamental - indeed it is enshrined in the state Constitution - that it cannot be "frittered away or committed to the uncontrolled caprice of every judge or magistrate in the state." The court found that, even in disputes between developers and nonprofit organizations such as homeowners associations, the right to a jury trial is so important that is must be "'zealously guarded" in the face of a "claimed waiver." The claimed waiver in that case was a provision in the CC&Rs that purported to waive the association's right to a jury trial.
And in Treo @ Kettner Homeowners Assn. v. Superior Court, 166 Cal. App. 4th 1055 (2008) ("Treo"), the Court of Appeal refused to enforce a "judicial-reference" provision contained in a homeowners association's set of CC&Rs. A judicial referee is an independent lawyer who is hired by the parties to hear their dispute and, in some instances, has the power to decide the lawsuit outside of court. The homeowners association in that case wanted to have its dispute heard by a jury in a court of law, not by judicial referee. The Treo court found that CC&Rs are not a permissible means of enforcing judicial-reference clauses because neither the association nor the homeowners have actual notice or meaningful reflection to accept or reject such a clause given that clause was drafted by the developer and imposed upon the association before the homeowners took control of the board. The court noted that this problem is particularly concerning with respect to later purchasers who are not original homeowners under the CC&Rs. As successor owners, these homeowners certainly have no opportunity to meaningfully reflect on such a provision and choose to accept or reject it.
Berding|Weil Q&A of the Day
By Gabriel P. Rothman, Esq.
The developer of my condominium complex owns and lives in one of the units and sits on the community association board of directors. For the past couple of years, the common areas in our development have been experiencing water leaks, but the developer has refused to investigate or repair the cause of the leaks. My question is: Can the developer use his position on the board to try to convince the association not to file a lawsuit against him?
A member of a community association's board of directors has a fiduciary duty to act in the best interest of the association and its members at all times. This legal principle applies regardless of whether the board member is also the developer of the defective common areas. In fact, because the developer is also a board member, the developer has an inherent conflict of interest because, at a minimum, the developer is putting its own interest above that of the association by trying to convince the association not to file a lawsuit against the development company. As such, your association should consult with an experienced community association attorney to assist the board in understanding the association's legal rights in this situation and to advise on how to remove the developer from the board if the governing documents so provide.

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