Verano
Condominium Homeowners Assn. v. La Cima Development, LLC
Filed 1/25/13 Verano Condominium
Homeowners Assn. v. La Cima Development, LLC CA4/1
Opinion
following transfer from Supreme Court
TO BE PUBLISHED IN OFFICIAL REPORTS
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 This opinion has not been
certified for publication or ordered published for purposes of rule 8.1115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
VERANO CONDOMINIUM HOMEOWNERS
ASSOCIATION,
Plaintiff
and Respondent,
v.
LA CIMA DEVELOPMENT, LLC,
Defendant
and Appellant.
D058217
(Super. Ct. No. 37-2010-
00090423-CU-CD-CTL)
APPEAL from an order of the Superior Court of
County, Luis R. Vargas, Judge.
Reversed.
In
this case a condominium developer seeks to compel arbitration of construction
defect claims brought against it by a homeowners association on behalf of the
association itself and its members. The
developer relies on arbitration provisions in a declaration of covenants,
conditions and restrictions (CC&R's) the developer recorded prior to
establishment of the association and on separate purchase agreements which also
contained arbitration provisions.
In Pinnacle
Museum Tower Assn. v. Pinnacle 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. (Id.
at p. 246.) The Supreme Court
further held that the arbitration clause
was not unconscionable. (
In
light of Pinnacle the arbitration
clause in this case was valid and enforceable against the homeowner's
association as well as individual homeowners.
Accordingly the trial court erred in denying the developer's motion to
compel arbitration of the homeowners association's construction defect
claims. We reverse the trial court's
order and remand for further proceedings.
FACTUAL
AND PROCEDURAL BACKGROUND
Defendant
La Cima Development, LLC (La Cima), purchased a 77-building, 521-unit
apartment complex in December 2004 and converted the apartments to
condominiums, and named the complex Verano.
In the course of conversion, La Cima drafted and recorded
CC&R's under which plaintiff Verano Condominium Homeowners Association (the
Association), a California mutual benefit corporation, came into existence upon
the sale of the first condominium.
La Cima also transferred ownership of the development's common
areas and recreational facilities to
the Association to hold in its own right.
No consideration was provided by the Association to La Cima, and
the Association did not execute any documents in favor of La Cima in
connection with the transfer of common areas and facilities. The Association's members include all owners
of Verano condominiums.
In
pertinent part, the CC&R's contain arbitration clauses which require both
individual condominium owners and the Association to resolve any claims they
have against La Cima through binding arbitration in accordance with the
Federal Arbitration Act (FAA) (9 U.S.C. § 1 et. seq.) and California
Arbitration Act (CAA) (Code Civ. Proc., § 1280 et. seq.). Specifically, the arbitration clauses state
that by accepting a deed to any portion of the property, the Association and
any owner agree to waive their rights to jury trial and have any dispute
settled by binding arbitration.
In
addition to the CC&R's, La Cima required individual condominium
purchasers to sign purchase agreements containing similar arbitration
clauses. The agreements stated that all
disputes with La Cima would be resolved through arbitration, and that
owners waived their right to jury trial with respect to any claim they might
have against La Cima.
Following
their purchase of units, several owners became aware of construction defects
both in their own units and in common areas.
Under enforcement rights provided by the CC&R's and by statute, the
Association sued La Cima as real party in interest with respect to defects
to Verano's common areas. The
Association also sued La Cima as a class representative on behalf of its
member owners for defects which caused damage to individual units.
La Cima
moved in superior court to compel arbitration of all the claims asserted by the
Association. The trial court denied the
motion, finding no agreement to arbitrate between La Cima and the
Association existed under the terms of the CC&R's, that the FAA did not
apply as La Cima had failed to meet its burden to show development and
sale of Verano impacted interstate commerce, and that, in any event, the
arbitration agreements in both the CC&R's and purchase agreements were
unenforceable due to unconscionability.
On appeal, we affirmed in part
and reversed in part. La Cima filed
a petition for review, which was granted.
After its opinion in Pinnacle
was filed, the Supreme Court transferred the cause to us with directions to
vacate our decision and reconsider in light of Pinnacle.
DISCUSSION
I
As
the trial court did not consider any disputed extrinsic evidence or resolve any
disputed factual issues, we review its order denying La Cima's motion to
compel arbitration de novo. (
(2007) 149 Cal.App.4th 1276, 1284.)
II
The
FAA constitutes a federal statutory scheme
for the arbitration of disputes that arise under maritime transactions or
involve interstate commerce. (See
9 U.S.C. §§ 1-16.) The FAA,
properly invoked in an arbitration agreement, preempts any conflicting state
law. (Perry v. Thomas (1987) 482 U.S. 483, 492, fn. 9 [170
S. Ct. 2520]; Shepard v. Edward
Mackay Enterprises Inc. (2007) 148 Cal.App.4th 1092, 1097-1099.)
We
agree with La Cima that the arbitration provisions set forth in the Verano
CC&Rs are covered by the FAA. An
agreement to arbitrate is covered by the FAA when the underlying transaction
"in fact . . . involved
interstate commerce." (
Dobson (1995) 513 U.S. 265, 277-278 [115 S. Ct. 834].) Here, La Cima's development project was
clearly intimately enmeshed with interstate commerce. Verano was a large housing development with
hundreds of units sold by a Delaware
company. The construction and conversion
of those units into saleable condominiums was performed by contractors
headquartered across the United
States. Moreover, the financing necessary for both
construction and individual purchases of the condominium units undoubtedly
occurred through federally regulated and chartered financial institutions with
long-recognized substantial effects on interstate commerce. In the aggregate, the economic activity
manifest in the La Cima development project concerned raw materials,
business goods, and retail and commercial finance instruments from all corners
of the nation, representing a "general practice" clearly entwined
with "interstate commerce in a substantial way." (Citizens
Bank v. Alafabco, Inc. (2003) 539 U.S.
52, 56-57 [123 S. Ct.
2037].)
We
also agree with La Cima that an agreement to arbitrate under the FAA would
preclude the application of conflicting state law, including limitations on the
use of arbitration in construction defect cases. (Shepard
v. Edward Mackay Enterprises Inc., supra,
148 Cal.App.4th 1092, 1097-1101.)
Specifically, states are forbidden from treating arbitration provisions
differently than the remainders of the contracts in which they appear. "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,
for that kind of policy would place arbitration clauses on an unequal
'footing,' directly contrary to the Act's language and Congress'
intent." (Allied-Bruce Terminix Companies, Inc. v. Dobson,
the jury waiver provision requirements of the California Constitution, cannot
be used to circumvent the FAA in the face of an otherwise valid arbitration
agreement. (See Pinnacle, supra, 55 Cal.4th at pp. 245-246.)
Thus,
the FAA applies to the arbitration provisions in the Verano CC&Rs.
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], and
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. (Pinnacle,
supra, 55 Cal.4th at 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
Verano CC&Rs constitute a valid agreement to arbitrate within the scope of
the FAA.
IV
We
turn now to the issue of unconscionability.
The "saving clause" of the FAA statute, 9 U.S.C. section
2, permits "agreements to arbitrate to be invalidated by 'generally
applicable contract defenses, such as fraud, duress, or unconscionability,' but
not by defenses that apply only to arbitration or that derive their meaning
from the fact that an agreement to arbitrate is at issue." (AT&T
Mobility LLC v. Concepcion (2011) ____ U.S. ____ [131 S. Ct.
1740, 1746], quoting Doctor's Associates,
Inc. v. Casarotto (1996) 517 U.S. 681, 687 [116 S. Ct. 1652]; 9 U.S.C
§ 2.)
"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." ' " (
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). (
p. 248.) The same is of course true
here; the use of CC&R was required by the Davis-Stirling Act.
The court in Pinnacle also found the arbitration agreement was substantively
reasonable. 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
provision were neutral. (
In sum, the arbitration provisions in the
Verano CC&Rs, which are materially indistinguishable from the arbitration
provisions considered in Pinnacle,
are not unconscionable.
DISPOSITION
Our decision affirming in part
and reversing in part the trial court's order is vacated. The trial court's order is reversed and
remanded for further proceedings consistent with the views herein.
La Cima to recover its
costs of appeal.
BENKE,
Acting P. J.
WE CONCUR:
McDONALD, J.
AARON, J.
