Promenade At Playa Vista Homeowners Ass'n v. Western Pac. Hous. Inc.

• Decision Date: 08 November 2011
• Docket Number: No. B225086.,B225086.
• Citation: 2011 Daily Journal D.A.R. 16366,133 Cal.Rptr.3d 41,11 Cal. Daily Op. Serv. 13705
• Court: California Court of Appeals Court of Appeals
• Parties: PROMENADE AT PLAYA VISTA HOMEOWNERS ASSOCIATION, Plaintiff and Respondent,v.WESTERN PACIFIC HOUSING, INC., et al., Defendants and Appellants.

133 Cal.Rptr.3d 41

11 Cal. Daily Op. Serv. 13,705

2011 Daily Journal D.A.R. 16,366

PROMENADE AT PLAYA VISTA HOMEOWNERS ASSOCIATION, Plaintiff and Respondent,

v.WESTERN PACIFIC HOUSING, INC., et al., Defendants and Appellants.

No. B225086.

Court of Appeal, Second District, Division 1, California.

Nov. 8, 2011.

Background: Condominium homeowners association brought construction defect action against developers, which brought a motion to compel binding arbitration pursuant to an arbitration provision in the declaration of covenants, conditions, and restrictions (CC&Rs). The Superior Court, Los Angeles County, No. BC424950, Emilie H. Elias, J., denied the motion, and developers appealed.

Holding: The Court of Appeal, Mallano, P.J., held that developers lacked standing to enforce CC&Rs.

Affirmed.

Wood, Smith, Henning & Berman, Stephen J. Henning, Sheila E. Fix, Los Angeles, Tracy M. Lewis, Glendale, and Robert G. Amundson, Newport Beach, for Defendants and Appellants.

Fenton Grant Mayfield Kaneda & Litt, Daniel H. Clifford, Joseph Kaneda and Bruce Mayfield for Plaintiff and Respondent.

MALLANO, P.J.

This appeal presents the question of whether, in response to a construction defect action brought by a condominium homeowners association, the developer can compel binding arbitration of the litigation pursuant to an arbitration provision in the declaration of covenants, conditions, and restrictions (CC & R's). The answer is no.¹

We reach this conclusion because the developer does not rely on a contract with the homeowners association to compel arbitration but instead on the arbitration provision in the CC & R's. Yet, under California law, the provisions in the CC & R's are equitable servitudes and can be enforced only by the homeowners association, the owner of a condominium, or both. Developers are not among those permitted to enforce CC & R's.

IBACKGROUND

The facts and allegations in this appeal are taken from the pleadings, the exhibits submitted in connection with the motion to compel arbitration, and the standard procedure for creating a common interest development.

Defendants Western Pacific Housing, Inc., and Playa Capital Company, LLC (Developers), constructed, marketed, and sold a 90–unit condominium complex located on West Pacific Promenade in Playa Vista, California. Before the homeowners association (Association) came into existence or a single unit was sold, the Developers drafted and recorded the CC & R's. Only the Developers signed that document.

The CC & R's contained a mandatory arbitration provision, requiring that any disputes between the Developers, on the one hand, and the Association or a condominium owner, on the other hand, be submitted to binding arbitration. According to its terms, the provision could not be amended without the consent of the Developers. The CC & R's made the Federal Arbitration Act (FAA) (9 U.S.C. §§ 1–16) applicable in interpreting and enforcing the arbitration provision.

Sales of the units began in 2004. In addition to the CC & R's, each “Purchase Agreement and Escrow Instructions” contained a mandatory arbitration provision, requiring that postclosing disputes between the Developers and the buyer be submitted to binding arbitration. The purchase agreements, unlike the CC & R's, were signed by both the Developers and the buyer.

Initially, the members of the Association's board of directors were appointed by the Developers. Ultimately, the Developers sold all the units and no longer had any ownership interest in the complex. The owners replaced the initial board members with individuals of their own choosing.

On October 29, 2009, the Association filed this action against the Developers, alleging construction defects in the roofs, stucco, windows, and doors, and the structural, electrical, plumbing, and mechanical components and systems. The Developers responded with a motion to compel arbitration, relying on the arbitration provision in the CC & R's and the individual purchase agreements.

The Association filed opposition, contending the CC & R's were not subject to arbitration because they were equitable servitudes, not a contract, and, alternatively, if they were a contract, enforcement was barred because the contract was unconscionable. The Association also pointed out that 30 of the original buyers had sold their units, and the arbitration provision in their purchase agreements with the Developers did not apply to the subsequent purchasers.

The motion was heard on April 12, 2010. By order of the same date, the trial court denied the motion to compel. The Developers appealed.

IIDISCUSSION

[1] We review the trial court's decision independently because it involves interpreting the CC & R's and applicable statutes. (See P & D Consultants, Inc. v. City of Carlsbad (2010) 190 Cal.App.4th 1332, 1340, 119 Cal.Rptr.3d 253; Redding Medical Center v. Bonta' (2004) 115 Cal.App.4th 1031, 1037, 9 Cal.Rptr.3d 759.)

On appeal, the parties focus primarily on whether the CC & R's are unconscionable. In their opening brief, the Developers state they no longer rely on the arbitration provision in the purchase agreements with the original buyers to compel arbitration. Rather, the Developers base their alleged right to arbitrate solely on the arbitration provision in the CC & R's, arguing that the original purchase agreements constitute evidence that procedural unconscionability is lacking—an issue not relevant to our analysis because we view the CC & R's as equitable servitudes, not as a contract to arbitrate.

For its part, the Association again argues that the Developers cannot enforce the CC & R's because that document consists of equitable servitudes; it is not a contract and is therefore not enforceable by the Developers, who have no ownership interest in the condominium complex. We agree with the Association and affirm.

Under the FAA, “[a] written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. § 2, italics added.) But this case involves equitable servitudes, not a contract, making the FAA inapplicable.

As our Supreme Court has explained at length: “To divide a plot of land into interests severable by blocks or planes, the attorney for the land developer must prepare a declaration that must be recorded prior to the sale of any unit in the county where the land is located.... The declaration, which is the operative document for the creation of any common interest development, is a collection of covenants, conditions and servitudes that govern the project.... Typically, the declaration describes the real property and any structures on the property, delineates the common areas within the project as well as the individually held lots or units, and sets forth restrictions pertaining to the use of the property....

“Use restrictions are an inherent part of any common interest development and are crucial to the stable, planned environment of any shared ownership arrangement.... The viability of shared ownership of improved real property rests on the existence of extensive reciprocal servitudes, together with the ability of each co-owner to prevent the property's partition....

“The restrictions on the use of property in any common interest development may limit activities conducted in the common areas as well as in the confines of the home itself.... Commonly, use restrictions preclude alteration of building exteriors, limit the number of persons that can occupy each unit, and place limitations on—or prohibit altogether—the keeping of pets....

“Restrictions on property use are not the only characteristic of common interest ownership. Ordinarily, such ownership also entails mandatory membership in an owners association, which, through an elected board of directors, is empowered to enforce any use restrictions contained in the project's declaration or master deed and to enact new rules governing the use and occupancy of property within the project.” ( Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361, 372–373, 33 Cal.Rptr.2d 63, 878 P.2d 1275, citations & fn. omitted.)

The court continued: “One significant factor in the continued popularity of the common interest form of property ownership is the ability of homeowners to enforce restrictive CC & R's against other owners (including future purchasers) of project units.... Generally, however, such enforcement is possible only if the restriction that is sought to be enforced meets the requirements of equitable servitudes or of covenants running with the land....

“Restrictive covenants will run with the land, and thus bind successive owners, if the deed or other instrument containing the restrictive covenant particularly describes the lands to be benefited and burdened by the restriction and expressly provides that successors in interest of the covenantor's land will be bound for the benefit of the covenantee's land. Moreover, restrictions must relate to use, repair, maintenance, or improvement of the property, or to payment of taxes or assessments, and the instrument containing the restrictions must be recorded....

“Restrictions that do not meet the requirements of covenants running with the land may be enforceable as equitable servitudes provided the person bound by the restrictions had notice of their existence.” ( Nahrstedt v. Lakeside Village Condominium Assn., supra, 8 Cal.4th at p. 375, 33 Cal.Rptr.2d 63, 878 P.2d 1275, italics added.)

“Under the law of equitable servitudes, courts may enforce a promise about the use of land even though the person who made the promise has transferred the land to another.... The underlying idea is that a landowner's promise to refrain from particular conduct pertaining to land creates...