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Arbitration Language May Be On Solid Ground

By Howard C. Stross
September 15, 2012

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The California Supreme Court in Pinnacle Museum Tower Association v. Pinnacle Market Development (US), LLC ruled that the arbitration provisions in a document called “Covenants, Conditions and Restrictions” (CC&Rs) are enforceable. The California Supremes have thus settled an area of law that was in limbo for several years, because of lower courts’ conflicting rulings.

Why is this important in Florida?

Several states, including Florida, have enacted laws that are similar to the uniform laws known as the Common Interest Ownership Act.

  • The California decision discussed below shows that the use of arbitration is becoming a favored method of settling disputes.
  • The arbitration language in a CC&R needs to be drafted to satisfy the “reasonable” requirement, briefly discussed below, so that arbitration has a viable chance of held as enforceable in Florida.
  • The decision adds an element of confidence that a construction defect dispute may be resolved through arbitration, if the CC&R document calls for using that method of dispute resolution.

In the Pinnacle case, the real estate involved was what is usually referred to as “mixed-use”, meaning in that case that the real estate is used for both residential and commercial condominiums. In Pinnacle, an owners’ association was established to maintain the common areas of the development.

  • The association filed a construction defect lawsuit against the developer of the real estate.
  • The developer requested the trial court to order arbitration.
  • The association argued that its authority for asking the court to do so was based on certain sections of the CC&Rs that required construction disputes with the developer to be resolved through arbitration.

Both the trial court and the court of appeals had ruled that the arbitration provision was not enforceable against the owners’ association because, among other things, it was unconscionable.

In reversing the lower courts, the California Supremes said that the covenants in the CC&Rs, including the requirement to arbitrate disputes, will be “honored and enforced unless proven unreasonable.” The court also stated that the arbitration provision was not unconscionable.

In reaching its decision, the California Supreme Court focused on the following:

(i) The language used in the actual arbitration provisions in the CC&Rs

(ii) the Federal Arbitration Act, which shows federal policy that favors arbitration as a way of efficiently resolving disputes

and (iii) the law that allows for the formation of the type of project in California does allow a developer to use arbitration when embodied in CC&Rs, so long as the provisions are considered to be reasonable.

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