A court has invalidated another arbitration clause contained in a condo project’s CC&Rs and purchase agreements, as an “unconscionable” violation of the right to a jury trial and as an agreement that was never actually agreed upon. In that case, Pinnacle Museum Tower Association v. Pinnacle Market Development (UC) LLC, the court found that the project’s CC&Rs did not constitute an agreement with the owner’s association to waive a jury trial, and would not enforce the arbitration clause in the condo purchase agreements because they were “unconscionable.” The court suggested that the arbitration clause would be enforceable if approved by the owner’s association after control had passed from the developer to the homeowners.
Since the California Supreme Court ruled in 2005 in the Grafton Partners case that the right to a jury trial was “inviolate,” “fundamental,” and “sacred” under the California Constitution, it has been difficult to get a court’s approval of an arbitration agreement which is signed before a dispute has arisen. The Legislature, on the other hand, has been going the opposite way in construction defects disputes by requiring the elaborate SB 800 dispute resolution procedure before those cases may go to court.
While this may seem to be merely a technical issue of interest only to lawyers, it is actually a big dollar issue in the construction industry. Builders tend to prefer to resolve construction defect claims in the businesslike atmosphere of arbitration rather than the more unpredictable environment of a jury trial. That is why mandatory arbitration clauses are commonly found in purchase agreements and CC&Rs for new homes. Consumer attorneys generally dislike these arbitration requirements, preferring to try their construction defect cases before juries which are more open to emotional appeals and large damage awards.
In the meantime, the construction industry will continue its efforts to find a pre-litigation arbitration agreement that the courts can embrace.
By Jon Goetz
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