This alert applies to any company that develops, constructs or sells residential housing in California.

California Court of Appeal issued another decision invalidating an alternative dispute resolution provision in CC&Rs

On November 8, the California Court of Appeal issued another decision invalidating an alternative dispute resolution provision in Covenants, Conditions and Restrictions (CC&Rs). Despite recent instruction from the United States Supreme Court in AT&T Mobility v. Concepcion, and a multitude of other cases evidencing judicial and legislative support for Alternative Dispute Resolution (ADR) provisions, this decision shows that California courts may be unwilling to enforce such clauses in CC&Rs under almost all circumstances.

The case, Promenade at Playa Vista Homeowners Association v. Western Pacific Housing, Inc., et al., involves a construction defect lawsuit over a condominium project in Playa Vista, California. Unit sales began in 2004, and the homeowners association (HOA) filed suit in October 2009. As is necessarily the case, the developer recorded the CC&Rs prior to the sale of any units. Contrary to the approach taken by other courts addressing this issue, in Promenade, the court did not analyze the terms as a contract. Instead, the court analyzed the CC&Rs only as equitable servitudes enforceable by homeowners associations or persons with actual ownership of property that is subject to the restrictions. Finding that a developer who had already sold all of the units did not fall into either of these categories, the court affirmed the trial court’s decision to deny the developer’s motion to compel arbitration.

Promenade is instructive because it demonstrates a continued tension between California courts’ current attitudes and the deference traditionally shown to ADR provisions by legislatures as well as federal and state courts. The California Supreme Court is currently considering the issue in Pinnacle Museum Tower Association v. Pinnacle Market Development (US), LLC, et al. Allen Matkins has petitioned the Court for review of this issue on behalf of the developer in Villa Vicenza Homeowners Ass'n v. Nobel Court Development, LLC, et al. Review was granted and held pending resolution in the Pinnacle matter. Similarly, Allen Matkins represents the developer in Verano Condominium Homeowners Association v. La Cima Development, LLC, et al., which is pending in the Court of Appeal and presents similar issues. Significantly, the Court of Appeal has requested further briefing in the Verano matter in the wake of the Concepcion decision.

Allen Matkins will continue to monitor the status of these cases and update its clients on the latest developments in this active area of law. If you are interested in learning more about the cases mentioned above or have questions, please contact Valentine Hoy, Matthew Marino, or Timothy Hutter.