Fortin Law Group
Published: November 21, 2018
Covenants, Codes, and Restrictions (“CC&R’s”) usually protect condominium associations and impose restrictions. However, the CC&R’s in Branches Neighborhood Corp. v. CalAtlantic Group, Inc. (2018) 26 Cal.App.5th 743 took the condominium association by surprise and protected the developer.
After discovering construction defects in its condominium complex, the Branches Neighborhood Corporation (“Branches”) filed an arbitration claim against the complex’s developer, CalAtlantic. (Id. at 747). Pre-litigation dispute resolution failed, and Branches filed a demand for arbitration in January, 2016. (Id. at 748). CalAtlantic asserted Branches did not obtain consent from “51% of [its] members prior to initiating” the claim, in violation of its CC&R’s. (Id.). Branches admitted that it did not meet this requirement, but 53% of its members ratified the claim in October, 2016. (Id.).
The arbitrator ruled for CalAtlantic, because Branches violated its CC&R’s. Allowing the ratification vote to constitute prior consent would adversely impact CalAtlantic’s rights as a party to the CC&R’s. (Id. at 749). Branches argued that the arbitration decision should not be confirmed, because “the arbitrator had exceeded his powers by depriving Branches of its statutory rights.” (Id.). The trial court disagreed and confirmed the arbitration decision. (Id. at 750).
On appeal, Branches argued the arbitration award violated Branches’ statutory right to ratify its actions. (Id. at 751-752). Branches strained to find such a statutory right in the Davis-Stirling Common Interest Development Act. (“The Act”) (Id. at 754-755). The appellate court was unconvinced. The Act allows votes for the purpose of appointing to a position to be ratified, but refers to an association’s governing documents, i.e., the CC&R’s, for handling of all other votes. (Id. at 754; Civil Code §§4065; 4070). Further, votes not required by the Act, like the ratification of Branches’ claim, are not governed by the Act. (Id. at 755).
Branches did not cite authority “stating CC&R’s requiring membership approval before the board takes a certain action are unenforceable.” (Id. at 756). Rather, the few cases that Branches cited involve “specific statutory directives or address the conduct of the arbitration,” which do not apply. (Id. at 757).
Public policy did not support ratification, because the CC&R’s and the Act’s notice and voting requirements before initiating a construction defect claim protect the rights of homeowners to be informed and participate in Branches’ decisions. Allowing ratification would ignore the homeowners’ right to consent to decisions beforehand. The Court could not ignore this right merely because it was inconvenient. (Id. at 758).
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