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Villa Vicenza Homeowners Association v. Nobel Court Development

May 27, 2010

VILLA VICENZA HOMEOWNERS ASSOCIATION, CROSS-COMPLAINANT AND RESPONDENT,
v.
NOBEL COURT DEVELOPMENT, LLC, CROSS-DEFENDANT AND APPELLANT.



APPEAL from an order of the Superior Court of San Diego County, Ronald Styn, Judge. Affirmed. (Super. Ct. No. GIC871604).

The opinion of the court was delivered by: Benke, Acting P. J.

CERTIFIED FOR PUBLICATION

In this case the developer of a condominium project recorded a declaration of covenants, conditions and restrictions (CC&R's) which required a homeowners association arbitrate any construction defect claim the association might have against the developer. As we explain more fully below, we find CC&R's are not an effective means of obtaining an agreement to arbitrate a homeowners association's construction defect claims against a developer.

Although both federal and state law favor the enforcement of arbitration agreements, neither federal nor state law countenance imposition of arbitration where no agreement to waive judicial remedies exists. Admittedly, in other circumstances our cases and Civil Code section 1354 treat CC&R's as equitable servitudes which bind homeowners and homeowners associations with respect to claims they may have against each other. This treatment of CC&R's is not based on any determination the parties bound by them are in privity of contract with either their co-owners or a homeowners association. Rather, CC&R's are made binding in disputes between homeowners or between homeowners and a homeowners association because of their shared and continuing interest in the equitable and efficient operation of common interest developments. Here, the recorded CC&R's, standing alone, are not a contract between the developer and the homeowners association, which only came into existence after the CC&R's were recorded. Thus here there has been no showing the association entered into a binding arbitration agreement. Accordingly, the trial court did not err in denying the developers' motion to compel arbitration.

FACTUAL AND PROCEDURAL BACKGROUND

Nobel Court Development, LLC (Nobel), purchased the 418 apartments, common areas, and common facilities which make up the Villa Vicenza project in 2004 and converted the apartments to condominiums in 2005. In the course of making the property a condominium project, Nobel recorded CC&R's under which the Villa Vicenza Homeowners Association (the Association) came into existence upon the sale of the first condominium. By deed Nobel also transferred ownership of the common areas and common facilities to the Association. No consideration was provided by the Association to Nobel and the Association did not execute any documents in favor of Nobel in connection with the deed transferring the common areas and common facilities to the Association. In pertinent part, the CC&R's require both condominium owners and the Association arbitrate any claims they have against the developer.

Because following the first sale Nobel controlled the board of directors of the Association and because the initial condominium buyers noticed defects in common areas and common facilities and did not believe Nobel had provided a reserve fund sufficient to repair the defects, the condominium owners brought a derivative action on behalf of the Association against Nobel.*fn1 Later, an independent litigation committee of the Association was appointed and filed a cross-complaint against Nobel. The committee alleged claims for breach of implied warranty, strict liability, negligence and as the third-party beneficiary of express and implied warranties Nobel made to individual homeowners. Following unsuccessful efforts to mediate the Association's claims, Nobel filed a motion to compel arbitration under the provisions of the CC&R's. The trial court denied the motion with respect to the bulk of the Association's claims, but compelled arbitration of the express warranty claims. Nobel filed a timely notice of appeal. (Code Civ. Proc., § 1294, subd. (a).)

DISCUSSION

I.

Because the trial court did not consider any disputed extrinsic evidence or otherwise resolve any disputed factual issues, we review its order on Nobel's motion to compel arbitration de novo. (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284.)

II.

Both the Federal Arbitration Act (9 U.S. Code § 1 et seq. (FAA)) and its California counterpart, the California Arbitration Act (Code Civ. Proc., § 1280 et seq. (CAA)), make arbitration agreements enforceable and indeed favor them. (See Moses H. Cone Memorial Hosp. v. Mercury Const. (1983) 460 U.S. 1, 24 [103 S.Ct. 927]; Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1074-1075.) However, under both the FAA and the CAA, the question of whether a party has in fact entered into an arbitration agreement is determined by reference to state-law principles governing the formation of contracts. (See First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 942 [115 S.Ct. 1920], and Marsch v. Williams (1994) 23 Cal.App.4th 250, 254-255.)

Here, we do not believe the CC&R's Nobel recorded represent a binding agreement on the part of the Association to arbitrate its construction defect claims against Nobel. In reaching this conclusion we consider our recent holding in Treo at Kettner Homeowners Assn. v. Superior Court (2008) 166 Cal.App.4th 1055, 1066-1067 (Treo), and the provisions of Civil Code section 1354. Although as we explain the holding in Treo is not directly applicable to the arbitration provisions of the ...


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