On July 30, 2010, the Court of Appeal based in San Diego issued an opinion in Pinnacle Museum Tower Association v. Pinnacle Market Development (US), LLC. The CC&Rs for this mixed-use development included provisions requiring that construction disputes, if they could not be resolved informally, be decided in arbitration rather than in court. After the property owners association filed a construction defect lawsuit, the trial court refused to compel arbitration because it felt that arbitration was “unconscionable” – i.e., grossly unfair. The Court of Appeal agreed that arbitration would be unconscionable. The Court of Appeal also held that, although CC&Rs are agreements between associations and developers, CC&Rs could not be viewed as agreements to arbitrate. The Court of Appeal “published” its opinion, which made it binding on all trial courts throughout the state.
Richard Schulman prepared the initial request and the reply asking that the Supreme Court take the case (the “petition for review” and the “reply for the petition for review”). The California Supreme Court is not required to take most civil cases – it is only required to take death penalty cases – and only takes cases that raise important, unsettled legal principles or that present conflicts among the various Courts of Appeal. The petition argued that the Court of Appeal’s decision in this case conflicted with both prior case law holding that CC&Rs are agreements and a federal law prohibiting discriminatory treatment of arbitration agreements. The Supreme Court unanimously granted the petition and agreed to take the case on November 10, 2010.
HechtSolberg has now associated in as co-counsel of record and filed the opening brief on the merits with the high court on December 10, 2010. The property owners association has until mid-December to file its opposition brief but may request additional time. HechtSolberg will then have twenty days to file its reply brief. Oral argument is likely to take place late in 2011 with a decision expected a month or two thereafter. All Supreme Court decisions are published.
The Court of Appeal’s opinion raises the basic questions of whether and under what circumstances CC&Rs can ever be used to provide for arbitration between the developer and the property owners or the owners’ association. The Court of Appeal’s opinion was so broad that it effectively barred the use of CC&Rs to provide for arbitration of construction disputes with the developer. Thus, HechtSolberg’s opening brief with the Supreme Court argues that arbitration is a process favored by both state and federal courts. The brief also argues that the lower courts’ finding of unconscionability violated a federal law protecting arbitration agreements; the supposedly “unconscionable” aspects of the arbitration provisions would actually nullify entire sets of CC&Rs.