Pinnacle Museum Tower Ass'n v. Pinnacle Market Development (US), LLC
55 Cal. 4th 223
Cal.2012Background
- Pinnacle developed the Pinnacle Museum Tower Condominium project and drafted the Project CC&Rs, creating the Association to manage common areas.
- The Project CC&Rs included Article XVIII, mandating binding arbitration under FAA/CAA for construction disputes involving Pinnacle.
- Condominium buyers accepted deeds and agreed to waive jury trials via the CC&Rs and a purchase agreement, binding themselves to arbitration.
- The Association sued Pinnacle for construction defects, seeking damages to its property and to owners’ separate interests.
- Trial court and Court of Appeal agreed FAA applies, but concluded the arbitration clause did not bind the Association or was unconscionable; the Supreme Court granted review.
- The Supreme Court holds that the covenant to arbitrate in the recorded declaration binds the Association and is not unconscionable under the Davis-Stirling Act.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Article XVIII binds the Association to arbitration | Association lacks consent because it did not exist when CC&Rs were recorded | Recorded declaration binds associations and owners; consent can be delegated | Yes; Article XVIII binds the Association and arbitration is enforceable |
| Whether FAA preempts state-law unconscionability defenses | Not directly, unconscionability could void the clause | FAA preempts state invalidation of arbitration; central issue is enforceability | FAA applies and preempts conflicting state defenses to arbitration |
| Whether the arbitration clause is procedurally or substantively unconscionable | Clause drafted pre-association, oppressive and one-sided | Davis-Stirling Act supports unilateral drafting; term not unconscionable | Not unconscionable under Armendariz analysis; enforceable under statute |
| Effect of costs clause and consent-to-amendment provision | Costs clause and developer-consent provisions bias against Association | Costs are neutral; consent provision reflects statutory limits on amendments | Not unconscionable; consistent with Davis-Stirling framework |
Key Cases Cited
- Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (1995) (FAA preemption and arbitration framework supporting enforcement)
- Volt Info. Sciences v. Leland Stanford Jr. U., 489 U.S. 468 (1989) (Arbitration policy favors enforcement; preemption of state-law barriers)
- Perry v. Thomas, 482 U.S. 483 (1987) (FAA preempts state policies hindering arbitration)
- Southland Corp. v. Keating, 465 U.S. 1 (1984) (FAA preemption and enforcement of arbitration agreements)
- Ruiz v. Podolsky, 50 Cal.4th 838 (2010) (Heirs bound by agreement to arbitrate in certain contexts; delegation valid)
- Grafton Partners v. Superior Court, 36 Cal.4th 944 (2005) (Distinguishes predispute jury waivers from predispute arbitration agreements; FAA preemption relevance)
- Villa Milano Homeowners Assn. v. II Davorge, 84 Cal.App.4th 819 (2000) (Recorded CC&Rs treated as enforceable contracts or equitable servitudes; policy considerations)
- Treo @ Kettner Homeowners Assn. v. Superior Court, 166 Cal.App.4th 1055 (2008) (Arbitration vs. reference in CC&Rs; Treo limitations discussed)
- Nahrstedt v. Lakeside Village Condominium Assn., 8 Cal.4th 361 (1994) (Declarations as equitable servitudes; reasonableness presumption under Civ. Code §1354)