Appeals ruling allows HOA to sue developer

A recent California appeals court ruling that received media attention last week does not bode well for homebuilders seeking to avoid lawsuits by prohibiting them in HOA documents.

The lawsuit involves a San Diego homeowners association called Pinnacle Museum Tower Condominiums, which contends the developer, San Diego-based Pinnacle Market Development, had caused damage to common areas jointly owned by the individual unit owners and managed by the HOA.

The HOA initially had attempted to settle the matter with Pinnacle through mediation, according to documents filed with the Court of Appeals of California's 4th District, Division 1.

When that effort failed, the HOA sued Pinnacle, which the developer said violated a mandatory-arbitration clause in the HOA's "covenants, codes and restrictions."

According to court documents, the condo tower's covenants state that all homeowner disputes with the developer must be decided through arbitration and that by signing them, the homeowners had waived their right to seek a jury trial against Pinnacle.

But a lower court rejected the developer's argument, saying that the arbitration clause only applied to individual homeowners and not to the HOA.

The Appeals Court agreed on that point, and on the lower court's ruling that a ban on HOA litigation against the developer was problematic from a contractual standpoint.

As is typical, the Museum Tower HOA did not yet exist when the project's developer wrote the covenants, the court noted.

Therefore, it could not have agreed to the arbitration clause and should not be forced to abide by it, the court said.

by J. Craig Anderson The Arizona Republic September 19, 2010




Appeals ruling allows HOA to sue developer