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The California Supreme Court Makes a Surprising Move in Upholding Condominium Arbitration Clause

Tuesday, December, 25, 2012


 

According to a recent decision made by the California State Supreme Court, an arbitration clause that is included in a declaration of covenants, conditions and restrictions for a condominium may be binding for the homeowners’ association, even in cases when the association did not exist when the covenants, conditions and restrictions were first recorded. 


This decision was made in the process of overturning the decision of the Court of Appeal in Pinnacle Museum Tower Association v. Pinnacle Market Development (US), LLC, et al., S186149 (Cal.  Aug. 16, 2012).  In the Court of Appeal case, developers and legal experts were surprised to see a reverse of the trend of lower court decisions that had determined arbitration clauses as unenforceable by the developer if the homeowners’ association was a newer entity that was established after the covenants, conditions and restrictions had already been written. 


This ruling was a 6-1 decision that overturned an earlier Court of Appeal decision determining that the Pinnacle Museum Tower Association, an association representing owners of units within the San Diego condominium complex, was not bound to arbitration to settle claims against the developer, Pinnacle Market Development (US).  As explanation for the overturned ruling, Justice Marvin Baxter stated that “even though the association did not exist as an entity independent of the developer when the declaration was drafted and recorded, it is settled under the statutory and decisional law pertaining to common interest developments that the covenants and terms in the recorded declaration reflect written promises and agreements that are subject to enforcement against the association.”


This decision was fresh on the heels of a lawsuit filed by the Pinnacle Museum Tower Association against Pinnacle Market Development for alleged damages caused during construction.  In that lawsuit, Pinnacle Market Development attempted to compel arbitration by citing the arbitration clause contained within the covenants, conditions and restrictions; however, San Diego Superior Court Judge Ronald L. Styn stated that the motion was unconscionable and promptly denied it.  In that decision, the San Diego Superior Court determined that the Pinnacle Museum Tower Association did indeed have a constitutional right to a trial by jury and that the original covenants, conditions and restrictions containing the arbitration clause that had been signed by the individual unit owners were unconscionable.