Villa
Vicensa HOA v. Nobel
Court
Development
Filed 1/17/13 Villa Vicensa HOA v. Nobel Court Development
CA4/1
Opinion
following transfer from Supreme Court
California Rules of Court, rule
8.1115(a), prohibits courts and parties from citing or relying on opinions not
certified for publication or ordered published, except as specified by rule
8.1115(b). This opinion has not been
certified for publication or ordered published for purposes of rule 8.1115
COURT
OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION
ONE
STATE
OF CALIFORNIA
VILLA VICENZA
HOMEOWNERS ASSOCIATION,
Defendant, Cross-Complainant
and Respondent,
v.
NOBEL
COURT DEVELOPMENT, LLC,
Defendant, Cross-Defendant
and Appellant.
D054550
(Super. Ct. No. gic871604)
APPEAL from an order of the Superior
Court
of
San
Diego County, Ronald L. Styn, Judge. Reversed.
In
this case the developer of a condominium project recorded a declaration of
covenants, conditions and restrictions (CC&R's), which required that a
homeowners association arbitrate any construction defect claim the association
might have against the developer. In
Market Development (US), LLC (2012) 55 Cal.4th 223 (Pinnacle) the California Supreme Court held that such arbitration
clauses are enforceable against a homeowners' association notwithstanding the
fact the association did not come into existence until after CC&Rs were
recorded and the association's consent to arbitrate was not express but
occurred by operation of law. (
unconscionable. (Id. at p. 250.)
In
light of Pinnacle the arbitration
clause in this case was valid and enforceable.
Accordingly the trial court erred in denying the developer's
homeowners association's construction defect claims. We reverse the trial court's order and remand
for further proceedings.
FACTUAL
AND PROCEDURAL BACKGROUND
Nobel Court Development, LLC (Nobel), purchased the 418
apartments, common areas, and common facilities which make up the Villa Vicenza
project in 2004 and converted the apartments to condominiums in 2005. In the course of making the property a
condominium project, Nobel recorded CC&R's under which the Villa Vicenza
Homeowners Association (the Association) came into existence upon the sale of
the first condominium. By deed, Nobel
also transferred ownership of the common areas and common facilities to the
Association. No consideration was
provided by the Association to Nobel and the Association did not execute any
documents in favor of Nobel in connection with the deed transferring the common
areas and common facilities to the Association.
In pertinent part, the CC&R's require that both condominium owners
and the Association arbitrate any claims they have against the developer.
Because following the first sale Nobel controlled the
board of directors of the Association and because the initial condominium
buyers noticed defects in common areas and common facilities and did not
believe Nobel had provided a reserve fund sufficient to repair the defects, the
condominium owners brought a derivative action on behalf of the Association
against Nobel.
title="">[1] Later, an independent litigation committee of
the Association was appointed and filed a cross-complaint against Nobel. The committee alleged claims for breach of
implied warranty, strict liability, negligence and as the third-party
beneficiary of express and implied warranties Nobel made to individual homeowners.
Following
unsuccessful efforts to mediate the Association's claims, Nobel filed a motion
to compel arbitration under the provisions of the CC&R's. The trial court denied the motion with
respect to the bulk of the Association's claims, but compelled arbitration of
the Association's express warranty claims.
The trial court found that recording CC&Rs is not a valid means of
obtaining an arbitration agreement.
On
appeal, we affirmed. Nobel filed a
petition for review, which was granted.
After its opinion in Pinnacle
was filed, the California Supreme Court transferred the cause to us with
directions to vacate our decision and reconsider in light of
DISCUSSION
I
Because the trial court did not consider any disputed
extrinsic evidence or otherwise resolve any disputed factual issues, we review
its order on Nobel's motion to compel arbitration de novo. (Giuliano
v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284.)
II
Both the Federal Arbitration Act (FAA) (9 U.S.
Code § 1 et seq.) and its California
counterpart, the California Arbitration
Act (CAA) (Code Civ. Proc., § 1280 et seq.), make arbitration
agreements enforceable and indeed favor them.
(See Moses H. Cone Memorial
Hosp. v. Mercury Const. (1983) 460 U.S. 1, 24 [103 S.Ct. 927];
Cal.4th 1066, 1074-1075.) As Nobel
points out, where an arbitration agreement is covered by the FAA, the FAA
preempts any conflicting state law. (
(2007) 148 Cal.App.4th 1092, 1097-1099.)
Thus Nobel argues neither any California statutory limitations on
arbitration nor the jury waiver provisions set forth in article 1, section 16
of the California Constitution, which we
relied on in Treo @ Kettner Homeowners Assn
v. Superior Court (2008) 166 Cal.App.4th 1055, 1066-1067 (
its right to compel arbitration under the FAA.
We agree with Nobel that any arbitration agreement
between it and the Association would be covered by the FAA and that where the
FAA applies, state laws may not be used to treat arbitration agreements
differently than other types of agreements.
A. FAA Applies
Nobel
notes that by their terms the CC&R's state:
"Because many of the materials and products incorporated into the
home are manufactured in other states, the development and conveyance of the
Property evidences a transaction involving interstate commerce and the Federal
Arbitration Act (9 U.S.C. § 1, et seq.) now in effect and as it may be
hereafter amended will govern the interpretation and enforcement of the
arbitration provisions of this Declaration." The facts set forth in the CC&R's are
hardly matters subject to serious dispute.
Nobel's condominium project was a substantial multi-family housing
development composed of literally hundreds of dwelling units, the construction
of which no doubt necessitated myriad contacts with and impacts on interstate
commerce. Moreover, it can hardly be a
matter of controversy that interstate commerce was involved in financing the
purchase of hundreds of individual condominiums from Nobel. Thus, the connection between the project and
interstate commerce is manifest here and more than sufficient to support
application of the FAA.
In this regard the United States Supreme Court's opinion
in Citizens Bank v. Alafabco, Inc.
(2003) 539 U.S.
52, 55-58 [123 S.Ct. 2037], is controlling.
In Citizens Bank v. Alafabco, Inc.,
an Alabama
borrower entered into a series of debt-restructuring agreements with an Alabama
bank. Each of the restructuring
agreements contained arbitration provisions.
Because the borrower believed the bank had reneged on an agreement to
provide the borrower with working capital, the borrower sued the bank, which
then moved to compel arbitration.
In finding a connection with interstate commerce
sufficient to support application of the FAA, the court found application of
the FAA was not "defeated because the individual debt-restructuring
transactions, taken alone, did not have a 'substantial effect on interstate
commerce.' [Citation.] Congress Commerce Clause power 'may be
exercised in individual cases without showing any specific effect upon
interstate commerce' if in the aggregate the economic activity in question
would represent 'a general practice . . . subject to
federal control.' [Citations.] Only that general practice need bear on
interstate commerce in a substantial way.
[Citations.]" (
539 U.S. at pp. 56-57.)
The court found the debt-restructuring agreements not
only involved interstate commerce because of the borrower's substantial
interstate business, but also because the restructured debt was secured by all
of the debtor's business assets, "including its inventory of goods
assembled from out-of-state parts and raw materials. If the Commerce Clause gives Congress the
power to regulate local business establishments purchasing substantial
quantities of goods that have moved in interstate commerce,
304-305, 85 S.Ct. 377, 132 L.Ed.2d 290 (1964), it necessarily reaches
substantial commercial loan transactions secured by such goods." (Citizens
Bank v. Alafabco, Inc., supra, 539 U.S. at p. 57.) The court further found that "were there
any residual doubt about the magnitude of the impact on interstate commerce
caused by the particular economic transactions in which the parties were
engaged, that doubt would dissipate upon consideration of the 'general
practice' those transactions represent.
[Citation.] No elaborate explanation
is needed to make evident the broad impact of commercial lending on the
national economy or Congress' power to regulate that activity pursuant to the
Commerce Clause." (
Similarly, here it can hardly be disputed Congress has the
power to regulate the sale and financing of a large residential
development. The financing alone,
implicates the use of federally regulated and chartered financial institutions
with well-recognized impacts on interstate commerce, and thus supports application
of the FAA under Citizens Bank v.
Alfabaco, Inc.
B.
FAA Preemption
Application
of the FAA to the transfer of property to the Association prevents us from
enforcing restrictions on the use of arbitration in construction defect cases
which the Legislature enacted as Code of Civil Procedure section 1298
et seq. (See Shepard v. Edward Mackay Enterprises, Inc., supra, 148 Cal.App.4th at pp. 1097-1101.) "States may regulate contracts,
including arbitration clauses, under general contract law principles and they
may invalidate an arbitration clause 'upon such grounds as exist at law or in
equity for the revocation of any
contract.' [Citation.] What States may not do is decide that a
contract is fair enough to enforce all its basic terms (price, service,
credit), but not fair enough to enforce its arbitration clause. The Act makes any such state policy
unlawful . . . ."
(Allied-Bruce Terminix Companies,
Inc. v. Dobson (1995) 513 U.S. 265, 281 [115 S.Ct. 834]; see also
___ U.S. ___, 131 S.Ct. 1740, 1746-1748.)
The
FAA also prevents us from relying on the jury waiver provisions of article 1,
section 16 of the California Constitution to invalidate an arbitration
agreement. In Treo we held these provisions of our Constitution require that any
waiver of the right to a jury trial must provide actual notice of the waiver
and meaningful reflection. (
p. 1066.) Those provisions of our
Constitution would improperly discriminate against arbitration because they
would not necessarily invalidate other portions of an agreement which, although
lacking actual notice and meaningful reflection, do not purport to waive the
right to a jury. (See
pp. 245-246.)
III
State law does govern the question of whether an
agreement to arbitrate has been made.
(See First Options of Chicago,
Inc. v. Kaplan (1995) 514 U.S. 938, 942 [115 S.Ct. 1920] &
250, 254-255.) On this issue the holding
in Pinnacle is dispositive.
As here, in Pinnacle
the developer of a condominium project recorded CC&Rs which required
that a homeowners association arbitrate any construction defect claims against
the developer. When the homeowners
association in fact filed a construction defect lawsuit against the developer,
the developer moved to arbitrate the association's claims and the trial court
denied the developer's motion on the grounds the clause was
unconscionable. We affirmed. We found that recording the CC&Rs did not
bind the Association and that, in any event, the arbitration provision was
unconscionable. On review, the Supreme
Court reversed.
In
particular, the Supreme Court found recording CC&R's is a valid means of
creating an agreement to arbitrate and the fact the association did not come
into existence until after the CC&Rs were recorded did not invalidate the
association's consent. (
pp. 237-238.) The court
stated: "Once the first buyer
manifests acceptance of the [CC&Rs] by purchasing a unit, the common
interest development is created (Civ. Code, § 1352), and all such terms
become 'enforceable equitable servitudes, unless unreasonable' and 'inure to the benefit of and bind all
owners of separate interests in the development.' (Civ. Code, § 1354, subd. (a); see
Bus. & Prof. Code, § 11018.5, subd. (c).) For this reason, we have described recorded
declarations as 'the primary means of achieving the stability and
predictability so essential to the success of a shared ownership housing
development.' [Citation.] Having a single set of recorded covenants and
restrictions that applies to an entire common interest development protects the
intent, expectations, and wishes of those buying into the development and the
community as a whole by ensuring that promises concerning the character and
operation of the development are kept.
[Citations.]" (
pp. 237-238.)
"One
important feature contributing to the stability and success of condominium developments
is that actual notice is not required for enforcement of a recorded
declaration's terms against subsequent purchasers. [Citation.]
Rather, the recording of a declaration with the county recorder
'provides sufficient notice to permit the enforcement' of the covenants and
restrictions contained therein [citations], and condominium purchasers are
'deemed to agree' to them.
[Citations.]" (
pp. 237-238.)
In
light of Pinnacle it is clear the
arbitration provisions set forth in the Villa Vicenza CC&Rs constitute
a valid agreement to arbitrate within the scope of the FAA.
IV
With
respect to the Association's alternative contention the
are unconscionable as a matter of law, the holding in Pinnacle is again dispositive.
"Unconscionability
consists of both procedural and substantive elements. The procedural element addresses the
circumstances of contract negotiation and formation, focusing on oppression or
surprise due to unequal bargaining power.
[Citations.] Substantive
unconscionability pertains to the fairness of an agreement's actual terms and
to assessments of whether they are overly harsh or one-sided. [Citations.]
A contract term is not substantively unconscionable when it merely gives
one side a greater benefit; rather, the term must be 'so one-sided as to
"shock the conscience." ' " (Pinnacle,
supra, 55 Cal.4th at p. 246.)
In
Pinnacle, the Supreme Court found
that use of CC&R's as a means of creating an agreement to arbitrate was not
procedurally unfair because the procedure adopted by the developer was in fact
prescribed by the Legislature in the Davis-Stirling Common Interest Development
Act (Civ. Code, § 1350 et seq.; the Davis-Stirling Act). (Pinnacle,
supra, 55 Cal.4th at p. 248.)
The same is of course true here.
The
court in Pinnacle also found the
arbitration agreement was substantively reasonable. Like the Association here, the homeowners'
association in Pinnacle argued the
arbitration provisions set forth in the CC&Rs were substantively
unconscionable because they required that construction disputes be arbitrated
but imposed no arbitration requirement on other claims the developer might have
and because the arbitration required each party to bear its owns attorney fees
and costs. The Supreme Court rejected
both of these contentions. (
pp. 248-249.) The court found there
was nothing unfair in restricting arbitration to construction claims and that
the costs provision were neutral. (
In
sum, the arbitration provisions in the CC&Rs Nobel recorded, which are
materially indistinguishable from the arbitration provisions considered in
DISPOSITION
Our
decision affirming the trial court's order is vacated. The trial court's order is reversed and
remanded for further proceedings consistent with the views herein.
Nobel
to recover its costs of appeal.
BENKE, Acting
P. J.
WE CONCUR:
NARES, J.
McINTYRE, J.
name="_ftn1" title="">[1] The individual
condominium buyers also brought claims on their own behalf and by way of a
prior order, which is not the subject of this appeal, the trial court ordered
those individual claims be arbitrated.
name="_ftn2" title="">[2] The Association also
argues the CC&Rs are unfair because they require that the Association use
the proceeds of any construction defect litigation to first repair defects or
replenish reserves and only then to pay the costs of such litigation. While the association may have valid reasons
to challenge the validity of this provision if either Nobel or any other
litigant attempted to enforce it, this provision is not related to Nobel's
right to arbitrate.
