Aldea Dos Vientos v. Calatlantic Grp., Inc.
| Decision Date | 06 February 2020 |
| Docket Number | 2d Civil No. B291731 |
| Citation | 44 Cal.App.5th 1073,258 Cal.Rptr.3d 285 |
| Court | California Court of Appeals Court of Appeals |
| Parties | ALDEA DOS VIENTOS, Plaintiff and Appellant, v. CALATLANTIC GROUP, INC., Defendant and Respondent. |
Strom & Associates, Robb M. Strom ; Benedon & Serlin, Gerald M. Serlin and Judith E. Posner for Plaintiff and Appellant.
Plante Lebovic, Brian C. Plante, Gregory M. Golino and Nicole E. Bartz, Santa Ana, for Defendant and Respondent.
It is reputed that condominium projects have three phases—planning, building, and the lawsuit. Obviously, this case is an example of the third phase. We are optimistic there are numerous condominium projects that experience only the first two phases.
A condominium association sued the developer alleging construction defects. The association’s governing documents require arbitration of such disputes and a vote of at least 51 percent of the association’s membership prior to beginning arbitration. The association began arbitration without obtaining a vote of its members. Later, the members overwhelmingly voted to pursue the arbitration. The arbitrator dismissed the arbitration for lack of a membership vote prior to its commencement. The trial court confirmed the award and entered judgment for the developer. We reverse. We disagree with Branches Neighborhood Corp. v. CalAtlantic Group, Inc. (2018) 26 Cal.App.5th 743, 237 Cal.Rptr.3d 411 which holds otherwise.
Aldea Dos Vientos is a condominium project in Thousand Oaks. The project is a common interest development subject to the Davis-Stirling Common Interest Development Act ( Civ. Code, § 4000, et seq., hereafter Davis-Stirling Act).
The project is governed by the Aldea Dos Vientos homeowners association (Association) and recorded covenants, conditions, and restrictions (CC&R’s). CalAtlantic Group, Inc. is the successor to the developer of the project (Developer).
The Association claims it discovered $5.6 million in construction defects in the common areas and individual units. Beginning in November 2012, the Association engaged in discussions with the Developer about the defects. In November 2013, when the discussions were unproductive, the Association brought suit against the Developer. The trial court stayed the litigation on the parties’ stipulation to enter into mediation, and if that failed, arbitration administered by JAMS.
Mediation failed to produce a settlement. Section 7.01A of the CC&R’s requires that all disputes between the Developer and the Association or its members, including construction defect claims, be resolved by arbitration. On June 24, 2016, the Association filed a demand for arbitration. The Developer filed an answer in arbitration for the first time raising section 7.01B of the CC&R’s (hereafter section 7.01B) as a defense. Section 7.01B provides:
The Association admitted that it had not obtained a vote from its members prior to beginning arbitration. The arbitrator stayed the arbitration to allow the Association to petition the trial court to resolve the issue of arbitrability.
In the meantime, the Association obtained the approval of over 99 percent of its members to continue the arbitration, with only one member voting against continuing out of 116 votes.
The Association moved the trial court to rule that the retroactive vote allowed arbitration to proceed. The court denied the motion on the ground that arbitrability was a matter for the arbitrator to decide.
The matter returned to the arbitrator. The arbitrator heard oral argument on motions for summary judgment by the Association and the Developer concerning interpretation of section 7.01B. The Developer filed a motion to dismiss based on the Association’s failure to comply with section 7.01B prior to beginning arbitration. The Association filed a cross-motion on the ground that the ratifying vote of the Association members satisfied section 7.01B. The Association also filed a second demand for arbitration. The arbitrator summarily dismissed the original demand for arbitration.
The Developer moved the trial court to confirm the arbitrator’s award. The court concluded that the dismissal of the arbitration constituted a final determination of the rights of the parties notwithstanding the second demand for arbitration. The court entered judgment in favor of the Developer and against the Association.
The trial court shall vacate an arbitration award if "[t]he arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted." ( Code Civ. Proc., § 1286.2, subd. (a)(4).) Arbitrators exceed their power by issuing an award that violates a party’s unwaivable statutory rights or that contravenes an explicit legislative expression of public policy. ( Richey v. AutoNation, Inc. (2015) 60 Cal.4th 909, 916, 182 Cal.Rptr.3d 644, 341 P.3d 438.) That is particularly true of the rights and policies governing the conduct of the arbitration itself. ( Sargon Enterprises, Inc. v. Browne George Ross LLP (2017) 15 Cal.App.5th 749, 765, 223 Cal.Rptr.3d 588.)
Section 7.01B contravenes explicit legislative expressions of public policy.
The Legislature stated that "housing is of vital statewide importance to the health, safety, and welfare of the residents of this state ...." ( Health & Saf. Code, § 50001.) The Legislature intended housing to be free of substantial construction defects. (See Civ. Code, §§ 896 []; 897 [developer liable for defects not expressly listed]; 941, subd (a) [].) Provisions such as section 7.01B contravene statutory policy by giving the Developer the unilateral power to bar actions for construction defects.
The Davis-Stirling Act prohibits the enforcement of unreasonable provisions in the CC&R’s. ( Civ. Code, § 5975, subd. (a) [].) Here, section 7.01B as interpreted by the arbitrator is not just unreasonable, it is unconscionable. It gives the Developer veto power over the Association’s claims in spite of the members’ vote to proceed with the arbitration.
The Developer relies on Branches Neighborhood Corp. v. CalAtlantic Group, Inc. , supra , 26 Cal.App.5th 743, 237 Cal.Rptr.3d 411 ( Branches ). After the trial court affirmed the arbitrator’s award, the Fourth District of the Court of Appeal, Division Three decided Branches . The facts in Branches are similar to the facts here and involved the same developer and arbitrator.
In Branches , a condominium development’s CC&R’s contained a provision similar to section 7.01B, requiring the condominium association to obtain a vote of at least 51 percent of its members before beginning arbitration against the project’s developer. The association began arbitration without seeking a vote. When the developer sought to dismiss the arbitration, the association obtained a ratifying vote from over 51 percent of its members. Nevertheless, the arbitrator dismissed the arbitration and the trial court entered judgment against the association. The Court of Appeal affirmed. The court rejected the association’s argument that the ratification vote was sufficient, pointing out that the CC&R’s require the vote before arbitration. ( Branches , supra , 26 Cal.App.5th at p. 758, 237 Cal.Rptr.3d 411.) The court also rejected the association’s argument that the arbitrator exceeded his powers by issuing an award that violates a party’s unwaivable statutory rights or that contravenes an explicit legislative expression of public policy.
According to the interpretation of section 7.01B confirmed by Branches , unless the Association has obtained approval by a vote of at least 51 percent of its members prior to beginning arbitration, it has forever forfeited its right to pursue its claims in any forum in spite of an overwhelming ratifying vote. This interpretation directly violates the public policy expressed in Code of Civil Procedure section 1286.2, subdivision (a)(4). It amounts to a trap for the unwary set by the Developer to bar claims against it. The Developer is burdened with no similar hurdle prior to seeking a determination of its rights.
Branches suggests provisions such as section 7.01B are for the benefit of the association’s members. Branches states the membership vote requirement "balance[s] the association’s need to operate efficiently with the rights of its members to be informed and participate in decisions that could impact the association for years, if not decades, to come." ( Branches , supra , 26 Cal.App.5th at p. 758, 237 Cal.Rptr.3d 411.) But the members voted to ratify the Association’s decision to arbitrate. It is an odd benefit that deprives the members of the right to proceed with an arbitration they voted to undertake. The benefit suggested by Branches is better realized by treating covenants such as section 7.01B as between the association and its members only, and not a covenant giving the developer standing to assert the clause as a bar to the rights of the...
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