In construction defect cases there is often a dispute within the dispute: should the case be prosecuted in a court of law or proceed under the terms and conditions of an arbitration provision? There are rational reasons for selecting arbitration over a court or jury trial. Many believe that arbitrations are more cost effective than jury trials, for example. However, parties who arbitrate their disputes give up the constitutional right to a jury trial and their appellate rights are generally restricted, among other things.
Real estate developers often prefer arbitration over jury trials for various reasons, not the least of which is the belief that they would fair better in front of an experienced construction law arbitrator than they would in front of 12 jurors who probably have little or no understanding of the construction industry. As a result, developers will often include arbitration provisions in documents called conditions, covenants, and restrictions (referred to as CC&R’s) which are akin to by-laws for corporations. CC&R’s constitute the governing document for members of homeowner associations and tell property owners what they can and cannot do within the development.
In California, the law on the issue of whether or not an arbitration provision in CC&R’s is enforceable is unsettled. Yesterday, the California Supreme Court granted review in the Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US) LLC case. Attorney Kathleen Carpenter of Luce Forward has provided a good summary of the relevant cases and issues which you can read by clicking here. You can read the Pinnacle case and two other cases, the Villa Vicenza case which is pending in the Fourth Appellate District, where the Court granted rehearing after holding that such provisions in CC&R’s are not enforceable, and the Villa Moreno HOA case, the first California case to address the issue (in 2000) by clicking here, here, and here.
If you have a case involving the issue of the enforceability of an arbitration provision in CC&R’s, you may have to wait awhile to get a definitive answer to that question. As Ms. Carpenter notes in her summary, it may take 12 -24 months before the California Supreme Court issues its opinion in the Pinnacle Museum Tower case, and the Fourth Appellate District’s opinion in the Villa Vicenza case is not expected until January 2011. Meanwhile, she notes, it is likely the Supreme Court will grant review and stay other similar cases until it decides Pinnacle Museum Tower.