The California Supreme Court today announced its much anticipated decision in a case with far reaching impact on builders, owners’ associations, owners and insurers. The ruling in the case of Pinnacle Museum Tower Association v. Pinnacle Market Development (US) LLC paves the way for construction defect conflicts with the builders of common interest developments in California to be resolved by arbitration rather than trial by jury.
HechtSolberg argued the case successfully before the Court.
The decision upholds the enforceability of arbitration provisions included in Covenants, Conditions and Restrictions (CC&Rs) by developers of common interest development projects – as long as the provisions are fairly drafted to ensure the rights of owners’ associations and individual owners are respected.
The trial court had ruled that including the arbitration provision in the CC&Rs was unconscionable, a term of art for acts that “shock the conscience.” The local Court of Appeal agreed, also holding that the owners’ association could not have consented to arbitration through CC&Rs. The Court of Appeal “published” its opinion, which made it binding on all trial courts throughout the state.
HechtSolberg took the case at that point, after the Court of Appeal had ruled, and persuaded the California Supreme Court to hear the case, then briefed and argued the case before the Court. The HechtSolberg team included Jerry Goldberg, who argued the case before the Court; Susan Daly, a specialist in common interest developments who had drafted the CC&Rs at issue in the case; and Richard Schulman, with the assistance of Amanda Allen, researched and wrote the briefs, including the brief that convinced the Court to hear the case.
The decision allows builders to use CC&Rs to require arbitration of construction defect cases. Arbitration is a faster, less expensive and less risky process than litigating in court. However, the decision is based on an arbitration provision with numerous qualifications and technical requirements. For example, the provision contains several features ensuring that the rights of the owners and the owners’ association would be respected.
Developers and builders who wish to rely on the Pinnacle case should contact Susan Daly for advice on how to structure their common interest developments, including the CC&Rs. Jerry Goldberg, Richard Schulman, and Amanda Allen are available for advice on managing risk and for matters involving arbitration, litigation and appellate proceedings.