Berding | Weil Community Association ALERT Newsletter
Legal News and Comments for Community Association Boards and Managers Issue #64 • March 2011
CC&R Provisions Mandating Binding
Arbitration of Construction Defect Claims
Ruled Unenforceable
by James O. Devereaux, Esq.
On January 11, 2011, the California Court of Appeal in Sacramento ruled that:
“CC&Rs are not an effective means of obtaining an agreement to arbitrate a homeowners association's construction defect claims against a developer.”
In Villa Vicenza Homeowners Association v. Nobel Court Development, LLC, the court explained that neither federal nor state law countenance imposition of arbitration where no agreement to waive judicial remedies exists. No monetary or other consideration was provided by the Association to Nobel, the developer, nor did the Association affirmatively approve the terms of the Declaration of CC&Rs or execute any documents in favor of Nobel in connection with the deed transferring common areas to the Association.
In reaching its conclusion, the court drew on the 2008 opinion of the Fourth District Court of Appeal in San Diego in Treo @ Kettner Homeowners Association v. Superior Court which held that a CC&R provision requiring submission of construction defect claims to judicial reference procedures was unenforceable.
The appellate courts in both Villa Vicenza and Treo @ Kettner relied on the Supreme Court's 2005 decision in Grafton Partners v. Superior Court in which the Court considered the circumstances in which parties may agree in a contract to waive a jury trial. The Supreme Court held that a pre-dispute agreement between parties to waive a trial by jury in any dispute that may arise between them and have the dispute decided by a judge without a jury is unenforceable. In Grafton Partners the Court noted that the right to a jury trial is an inviolate right guaranteed by the California Constitution and is considered so fundamental and important that it must be zealously guarded in the face of a claimed waiver.
Earlier appellate decisions invalidating mandatory binding arbitration clauses in contracts and association declarations of CC&Rs have done so based on findings that the provisions in question are unconscionable, applying judicially-developed principles of procedural and substantive unconsionability which focus on oppression or surprise resulting from the unequal bargaining power of the parties, or overly harsh or one-sided effects of the arbitration provision. (e.g., Thompson v. Toll Dublin, LLC, a 2008 decision of the First District Court of Appeal in San Francisco in which the successful homeowners were represented by Berding & Weil partner, Scott Barton; Baker v. Osborne Development Corp., a 2008 decision by the appellate district court in San Diego). Significantly, neither Villa Vicenza nor Treo @ Kettner considered principles of unconscionability in concluding that the provisions before those courts were unenforceable. Rather, both based their determinations of unenforceability on the considerations articulated by the Supreme Court in Grafton Partners concerning the circumstances in which the constitutionally protected right to a trial by jury may be waived. In Treo @ Kettner Homeowners Association v. Superior Court the Court of Appeal unequivocally stated with reference to Section 638 of the California Code of Civil Procedure that provides for submission of a particular dispute to judicial reference by means of a written contract between the parties to the dispute:

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