On the Horizon: California Supreme Court Soon to Decide Fate of Arbitration Provisions in CC&Rs

June 11, 2012

On Tuesday, May 29, 2012, the California Supreme Court heard arguments from both sides in Pinnacle Museum Tower Association v. Pinnacle Market Development, S186149, in which the Court will decide whether a homeowners association is bound by an arbitration provision contained in its declaration of restrictions (“CC&Rs”). Because of the importance of this decision to our home building clients, McKenna Long & Aldridge LLP (“MLA”) attorneys attended the oral arguments. Those present included MLA’s Kathleen Carpenter, who represented the California Building Industry Association as amicus in this matter.

Several justices returned repeatedly to the question of whether an arbitration provision is one of the “any other matters” that may be contained in CC&Rs in accordance with California Civil Code section 1353(b). Justices Kennard and Werdegar focused on equitable servitudes law and the relationship of an arbitration provision to the land. Chief Justice Cantil-Sakayue asked about the impact on CC&R provisions generally should the Court determine that certain CC&R provisions, such as alternative dispute resolution provisions, are not equitable servitudes and therefore not enforceable.

The justices also explored the issue of the manner of the association’s consent to the arbitration provision. Justice Kennard asked “What choice does the association have?” and Justice Baxter noted that individual members of the association, by taking title to their condominiums, consented to the CC&Rs’ arbitration provision.

The Court’s decision is due by the end of August, 2012, and could affect not only the manner in which disputes between homeowners associations and developers are resolved in a vast number of communities throughout California but also the content of governing and sales documents for those developments. Those who wish to resolve construction defect claims through alternative dispute resolution procedures are encouraged to evaluate their existing risk management programs (including SB 800 approaches and warranties) and contact a member of our Common Interest Development group to discuss how the outcome of the Pinnacle case may affect those programs.

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