Talega Village Center Community association vs. Standard Pacific Corp

Opposition

Cal. Super. - 4th Dist.April 17, 2015

o e 3 y n B W N Y e e B O R B R R B R R N R R D ee e m e m e m a pe c e ~~ O N L h BR W N ee D Y N i n BR W N ) = Oo David M. Peters, Esq. (SBN 131788) PETERS & FREEDMAN, L.L.P. 191 Calle Magdalena, Suite 220 Encinitas, CA 92024 Telephone: (760) 436-3441 Facsimile: (760) 436-3442 Attorneys for Plaintiff, TALEGA VILLAGE CENTER COMMUNITY ASSOCIATION ELECTRONICALLY FILED Superior Court of California, County of Orange 110472016 at 12:43:00 PM Clerk of the Superior Court By Sarah Loose Deputy Clerk SUPERIOR COURT OF CALIFORNIA, COUNTY OF ORANGE CIVIL COMPLEX CENTER TALEGA VILLAGE CENTER ) COMMUNITY ASSOCIATION, a California) non-profit mutual benefit corporation, bringing this action individually and on behalf of all others similarly situated Plaintiff, v. STANDARD PACIFIC CORP,, a California corporation; TALEGA ASSOCIATES, LLC, a California limited liability company; PROFESSIONAL WARRANTY SERVICE CORPORATION; DEMARS & ASSOCIATES, LTD; and DOES 1 through 200, inclusive, Defendants. GASES RKELY- Unfair Competition\pld:Opj to Motion te Compel by PWC » Coverwpd N r ” Mr mr ? “r ma n” m r v t ” “g t” “ ag g “v ag ” egp at” “ va g” “ gg “v eg a” “ se t” “ ve st “v eg t” “ pu gs “v at ” “p tr ” “s oa r CASE NO.: 30-2015-00783278-CU-BT-CXC PLAINTIFF TALEGA VILLAGE CENTER COMMUNITY ASSOCIATION’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF OPPOSITION TO MOTION BY DEFENDANT PROFESSIONAL WARRANTY SERVICE CORPORATION TO COMPEL ARBITRATION [Concurrently filed with Request for Judicial Notice; Evidentiary Objections; Compendium of] Exhibits; and Declaration of David Peters) Hearing: Date: 11/18/2016 Time: 10:30 am. Dept.: CX-105 Action Filed: 4/17/2015 Trial Date: ~~ None Set Judge: Hon. Thierry Patrick Colaw [CLASS ACTION] PLAINTIFF'S MEMORANDUM IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL [8 ] w o o o = a oh 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS L INTRODUCTION . Lee ie e tee creer 1 II. SUMMARY OF FACTS o eet 1 A. The CC&Rs ADR Provisions ................. Eee 2 B. The Recent Ruling by the Courtof Appeals ............................. 3 IIL PWC HAS NOT SHOWN THE EXISTENCE OF AN ARBITRATION AGREEMENT WITH THE ASSOCIATION THAT REQUIRES ARBITRATION WITHPWC. ...... 4 A. PWC Submitted No Evidence That the HBL W Attached as Exhibit H to CC&Rs Was Actually Issued to the Association. ............ cc inennnnn.. 5 B. Based On PWC's Own Exhibits, The Purported HBLW Was Not "In Effect” At the Time This Action Was Filed. ............ iii. 6 C. The ADR Provisions In The CC&Rs Only Apply To "Disputes" With "Declarant" And PWC Is Not The "Declarant." ............ iii iiiiiiinan... 6 IV. EVEN ASSUMING THAT THE HBLW ATTACHED TO THE CC&RS CONSTITUTES AN AGREEMENT BETWEEN PWC AND ASSOCIATION TO ARBITRATE, THE AGREEMENT IS UNENFORCEABLE... .................... 7 A. The Purported Arbitration Agreement is an Illegal Contract. ................ 7 1. The HBLW Arbitration Provisions Violate Section 2791.8 of the California Code of Regulations. ........... citi. 7 2 Section 2791.8 of the California Code of Regulations Is Unwaiveable .. 8 3. The HBLW Constitutes Unreasonable CC&Rs Provisions And, Thus, Are Unenforceable Pursuant to California Civil Code Section 5975. ...... 10 B. There Was Fraud in the Executionof the CC&Rs. ....................... 11 C. The Home Builder's Limited Warranty is Unconscionable ................. 11 1. Procedural Unconscionability Exists ........................... 12 a. The HBLW Is Essentially A Contract of Adhesion .......... 12 b. The HBLW Is Buried Deep Within The CC&Rs ............ 13 c. The HBLW Relies on Documents Affecting the Rights of Association That Are Not Attached tothe CC&Rs .......... 13 pa There is a Large Degree of Substantive Unconscionability ........... 14 V. DISCOVERY OF COMMERCIAL SETTING AND IMPLEMENTATION OF ARBITRATION PROVISIONS ....cons:sssnassissnadassnvansisonsunanssss 15 VI CONCLUSION i i ee ee eee ee eee 15 PLAINTIFF'S MEMORANDUM IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL I = M R R R R N R R R R ) ee e t e m e m Re b b me e d GO ~~ h n B W N = O W RN ER W N = OD TABLE OF AUTHORITIES Cases Adajar v. RWR Homes, Inc. (2008) 160 Cal. App. 4" 563, 571 oie a 6 Armendariz v. Foundation Health Psychcare Services, Inc. E2000) 24 Cal Ath 88. [19d wen. :essnni:onumscimnanmrss noes: sanuws ss rue 12,14 Bettlieheim v. Hagstrom Food Stores, Inc.) (1952) 113 Cal. App.2d 873 oii 8 Bruni v. Didion (2008) 160 Cal. App.dth 1272 14,15 Cebular v. Cooper Arms Homeowners Ass'n (2006) 142 Cal.app4th 106,119 .......... oii 10 Davis v. O'Melveny & Myers (9th Cir. 2007) 485 F.3d 1066, 1072 . o.oo eee eee 12 Doctor's Assocs., Inc. v. Casarotto (1996) 517 U.S. 681,687, 116 S.Ct. 1652, 1655 . o.oo iii ii 12 Duffens v. Valenti (2008) 161 Cal. App.4th434,448-449 . .. i ie 11 Eng. & Arch. Assn. v. Comm. Dev't Dept. (1994) 30 Cal App Ath 68; B53 uci sums ic mmnas ss naeanass posmas ss nansds ids 7 Ferguson v. Corinthian Colleges, Inc. (Oth Cir. 2013) 733 F3d 928, 937 oo iit i i ee ieee 12 Flores v. Transamerica HomeFirst, Inc. (2001) 93 Cal. App.4th 846, 853... ii eee 13 Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490,499 fn. 6... iii ee 10 Granite Rock Co. v. International Broth. of Teamsters (2010) U.S. 130 S.Ct. 2847, 2856 «oot tite eee teeta 4 Harper v. Ultimo (2003) 113 Cal. App.4th 1402, 1406... oii ieee 14 Kinney v. United Health Care Services, Inc. (1999) ("Kinney") 70 Cal. App.4th 1322, 1329 ...... iii 12 Lenigan v. City of Los Angeles EI) P99 Cal Appi ITO 5.5 amass nmaossinnmersos AEEEg sis nEEELs 85 bo 9 Loughrin v. Sup. Ct. (Barr) 10 (1993) 15 Cal APPAth 1188 ove ii PLAINTIFF'S MEMORANDUM IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL i W 0 0 0 3 o v L h 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Mission Viejo Emergency Medical Associates v. Beta Healthcare Group {ZO Ty 157 Cal. Appdih 1146, 1152 : cssawss sonnmsns si: innunss : nnnmes cuppa ¢ £5 14 Moorpark Homeowner's Assn. v. VRT Corp. (1998) 63 Cal. App.4th 1396, 1406-1407 ..... cov iiiiiiii ie iaen 10 Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal. ath 361, 380-381 «oo ov ote eee eee eee eee 4,10 Neal v. State Farm Ins. Cos. (1961) 188 Cal. App.22 690, 695 . iit ea 5 Perry v. Thomas (1987) 482 U.S. 483, 492, 107 S.Ct. 2520,2527,fn.9 .... o.oo iiniinnn, 12 Pinnacle Museum Tower Ass'n v. Pinnacle Market Development (US), LLC ("Pinnacle") (R012) 55 Cal MH 223, 236 «sume ss anmmu s 65 5mumnas i 3 5054 § 5 6 HEE 4,7,8,9,11,12,13,14 Record v. Indemnity Ins. Co. of North America (19517 103 Cal. Eppa A849: ; suse: ssaumaciianonns: sous eis aoa itis LOEBES 1; 9 Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.d4th 394, 413-414 ...... iin iniiinnenennanen 4,7,11 Samaniego v. Empire Today, LLC (2012) 205 Cal. App.4th 1138, 1146... eee 14 Sanchez v. Valencia Holding, LLC (2015) 61 Cal.dth 899 oa 10 Taylor v. J.B. Hill Co. (1948) 31 Cal.2d 373,374 o.oo 5 Terry v. Bender (1956) 143 Cal. App.2d 198, 214 cea 9 Thaler v. Household Finance Corp. (2000) 80 Cal. App.4th 1093, 1102; and 14859 ..... oii 10 Thompson v. Toll Dublin, LLC (2008) 165 Cal. App. 4th 1360, 1372 ieee 13 United Steelworkers of America v. Warrior & Gulf Navigation Co. (1960) 363 11.8. 374,582, BOB. Ct. 1347, 1883 so i cs vunns ss ummus ss umonmn sss nuns 4 Villa De Las Palmas Homeowners Assn. v. Terifaj (2004) 33 Cal. 4th 73, 88... oi a 10 Western Surgical Supply Co. v. Affleck (1952) 110 Cal. App.2d 388, 242 a 9 Wm. R. Clarke Corp. v. Safeco Ins. Co. (1997) 15 Cal 4th 882,885, fn. 1. ..... oi 4,5 iii PLAINTIFF'S MEMORANDUM IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL Ga No 9 0 = a O n 10 11 12 13 14 15 16 17 18 19 20 21 fini 23 24 25 26 27 28 Statutes Business & Professions Code § 11000, Seq. .....v.vuitirit iene. 7,8 California Civil Code Procedure § 1102.1 «ss cuss is nsamssnnvsnmrsssnaannssssmmnsss us 10 California Code of Civil Procedure § 1281.2. ... iii iii iii enn a California Code of Civil Procedure § 1354... o 10 California Civil Code Procedure § 1654 ........ cc iii iii iii 5 California Civil Code Procedure §1670.5(a) .........viuir rire 12,15 California Civil Code Procedure § 3513 iii iii 9 California Code of Civil Procedure § 4000, et seq., formerly Civ. Code § 1350, etseq. ....... 7 California Code of Civil Procedure § 5975 «oi ssus sss wmmssswnsmamassanums rs amuses 10 California Code of Regulations § 2791.8 .................... Cee 7,8,9,11 Califor Evidence Code § 600BY : « « conmu sss nmmwis amma ss nnnmnmsg sss ones sss noms 13 Corporation Code § 7210. ... aaa 5 DU SC. 2 ote ee 12 GLIBC Bd si vss sma ss 1 momma s 15 buBEs #5 PREF 55 SANE §§ ERDNEES EI MEE (22 PHAGE 8 § 7 Other Dayvis-Stirling Common Interest Development Act... iii, 7 iv PLAINTIFF'S MEMORANDUM IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL bo D 0 1 O N hh p W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFF'S OPPOSITION TO MOTION TO COMPEL. I. INTRODUCTION. Defendant Professional Warranty Service Corp. (“PWC”) mischaracterizes this case as one involving a "simple" agreement to arbitrate as if it were contained in a contract between two individuals. This characterization avoids the substance of the arbitration language and the fact that it arises out of recorded CC&Rs which derive their legal effect from the state statutory and regulatory scheme governing residential subdivisions and common interest developments. PWC’s motion is based on the Home Builder’s Limited Warranty (hereinafier “HBLW?) attached as Exhibit H to Plaintiff Talega Village Center Community Association’s (“Association”) CC&Rs (aka Declaration). As discussed in more detail herein below, PWC fails to establish that the HBLW was “actually issued” to the Association and “in effect” at the time this lawsuit was filed. Even if PWC could establish that the HBLW was “actually issued” and “in effect,” the motion to compel must be denied because the HBL W is illegal as a matter of law, was the result in fraud in the inception, and is unconscionable. Therefore, the subject arbitration provisions are invalid and unenforceable. PWC’s memorandum in support of its motion contains a number of inaccuracies. These inaccuracies are addressed throughout this opposition, and by way of the Association’s concurrently filed Objections to Evidence. For all of the reasons stated herein, PWC’s motion to compel must be denied. IL SUMMARY OF FACTS. Talega Village Center is a condominium development consisting of residential Units, Association Property and Common Areas (“Project”).[See §§ 1.1.7, 1.1.14, 1.1.60 of certified CC&Rs attached as Exhibit “1" to concurrently filed Compendium of Exhibits (“COE”). Defendant Standard Pacific Corp. (“SPC”) was the Declarant and developer of the Project. (Preamble and § 1.1.20 to CC&Rs at Ex. “1" to COE.) Association is a non-profit mutual benefit corporation, created to govern the Project subject to the CC&Rs. (See Association’s Request for Judicial Notice (“RIN”) at 4:3-7; Ex. “9" to COE; 1 PLAINTIFF'S MEMORANDUM IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL Ga [ = 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 and Preamble & § 1.1.5 to CC&Rs at Ex. “1" to COE.) At the time the CC&Rs were recorded, the Association was entirely controlled by SPC. (RTN at 3:15-4:2; and the “Declarant” identified in Preamble to CC&Rs at Ex. *“1" to COE.) Construction and subdivision were incomplete, and no escrows on SPC’s sale of the condominium units had closed. (Id) On April 17, 2015, the Association filed the instant action against SPC, PWC and others for their alleged wrongful scheme and conspiracy designed to deprive and divest homeowners and their associations of consumer protections afforded them under the law by using form CC&Rs in multiple communities throughout California, including a limited warranty attached to the CC&Rs, to deceptively force homeowners and their associations to resolve disputes that they may have with SPC through an undisclosed binding, biased, and non-neutral arbitration forum.(See FAC at 7 18-42.) A. The CC&Rs ADR Provisions. The arbitration provisions are set forth in various sections and exhibits to the CC&Rs. Section 12.4.1 of the CC&Rs states: Any Dispute, as defined in Exhibit G, entitled “Alternative Dispute Resolution Provisions” (hereinafter “ADR Provisions”), shall be governed by and resolved in accordance with the ADR Provisions. (Ex. “4" to COE.) Exhibit G to the CC&RS, entitled “Alternative Dispute Resolution Provisions,” states in part: ARBITRATION OF DISPUTES. WITHRESPECT TO ALL DISPUTES, DECLARANT, OWNERS AND THE ASSOCIATION SHALL COMPLY WITH THE DISPUTE RESOLUTION AND ARBITRATION PROCEDURES AND PROVISIONS SPECIFIED IN THE HOME WARRANTY OR THE ASSOCIATION PROPERTY WARRANTY, WHICHEVER IS APPLICABLE . . .. The Association acknowledges and agrees that the Home Warranty and the Association Property Warranty forms to be issued have been made available to the Association for review. . . . Ex. “1" to COE (Emphasis added to text bolded and underlined).] Under Exhibit G of the CC&Rs, there are three alternative dispute resolution methods, including arbitration vis-a-vis the home warranty, arbitration through JAMS or other mutually acceptable arbitration forum, and judicial reference. (See Exhibit G to CC&Rs at Ex. “4" to COE.) Arbitration vis-a-vis the home warranty is the initial method of resolving disputes. PWC’s motion to compel specifically requests enforcement of the arbitration provisions in the HBLW. Sections 12.5 and 12.6 of the CC&Rs defines Home Warranty and Association Property 2 PLAINTIFF'S MEMORANDUM IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL w e Bs W e NI N o o O h 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Warranty. (Ex. “4" to COE.) Specifically, with respect to the Association Property Warranty, Section 12.6 states in part: The form Home Builder's Limited Warranty attached to this Declaration as Exhibit H contains provisions which apply to both Condominiums and Association Property. Those provisions of the Home Builder's Limited Warranty that pertain to Association Property shall be referred to as a “Association Property Warranty.” The Association shall have an Association Property Warranty substantially in the form attached to this Declaration as Exhibit H. . . . Declarant’s election to provide and be subject to the Association Property Warranty is in consideration of Declarant’s and Association’s agreement to the ADR Provisions (including the waiver of jury trial) . . . . the ADR Provisions shall control with respect to every Dispute with Declarant related to or arising out of the Association Property. THE ASSOCIATION PROPERTY WARRANTY, WHENISSUED, SHALL BE THEONLY WARRANTY... This Section applies to a particular Dispute only to the extent a Home Warranty is actually issued and in effect at he time of that particular Dispute with respect to the particular Association Property at issue. (Emphasis added to text both bolded underlined.) The Home Warranty is defined in a similar way in Section 12.5. In other words, both the Home Warranty and Association Property Warranty are set forth in Exhibit H to the CC&Rs. Exhibit H to the CC&Rs is a 13 page document, and at the top of each page appears the word “SAMPLE.” (See Exhibit H to CC&Rs at Ex. “5" to COE.) The first page of the HBLW states, “Enclosed with this LIMITED WARRANTY is a Limited Warranty Validation Form. The Limited Warranty Validation Form provides the dates on which the warranty coverage period begins and expires.” However, there is no executed validation form attached to-the CC&Rs. The HBLW provides that SPC has contracted with PWC for PWC to administer the Home Builder’s Limited Warranty on behalf of SPC (pp. 3, 10, and 12 of Ex. “5” to COE); provides for binding arbitration conducted by an arbitration service selected by PWC (p. 9 of Ex. “5" to COE); provides that PWC will arrange the arbitration proceeding (p. 9 of Ex. “5" to COE); and provides that PWC will mediate disputes regarding the arbitrator’s award (p. 9 of Ex. “5” to COE). B. The Recent Ruling by the Court of Appeals. PWC misstates the recent opinion of the Court of Appeals regarding the Association’s Petition for Writ of Mandate/Prohibition. The Court of Appeal vacated, in whole, the trial court’s order compelling arbitration, finding that “[t]here is no evidence in the record that [the Home Builder’s Limited Warranty] ever issued. Accordingly, the trial court erred by enforcing the arbitration 3 PLAINTIFF'S MEMORANDUM IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL a W2 o o =~ C h Lh Oo 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 provision.” (See p. 2 of Opinion at Ex. “6" to COE; and RIN at 2:16-21.) The Court of Appeal further held: “The issue, therefore, is not whether the arbitration provisions in the CC&Rs are generally enforceable, but only whether the primary method of arbitration is - i.e., the home warranty. We conclude itis not.” (Opinion at p. 8 of Ex. “6" to COE.) The Court of Appeal went on to explain: “We conclude the home warranty is not enforceable because a condition precedent - issuance - has not occurred. The CC&Rs are quite clear on their face that the home warranty does not apply unless it has issued: ‘This section applies to a particular Dispute only to the extent a home warranty is actually issued and in effect at the time of that particular Dispute ....”"" (Opinion at p. 9 of Ex. “6" to COE.) III. PWCHASNOT SHOWN THE EXISTENCE OF AN ARBITRATION AGREEMENT WITH THE ASSOCIATION THAT REQUIRES ARBITRATION WITH PWC. “Arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” (United TT of America v. Warrior & Gulf] Navigation Co. (1960) 363 U.S. 574, 582, 80 S.Ct. 1347, 1353; Granite Rock Co. v. International Broth. of Teamsters (2010) U.S. 130 S.Ct. 2847, 2856.) The moving party has the burden of proving the existence of an agreement to arbitrate. (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal .4th 394,413-414; Pinnacle Museum Tower Ass'n v. Pinnacle Market Development (US), LLC (“Pinnacle”) (2012) 55 Cal. 4th 223, 236.) PWC proffered no admissible evidence that the HBLW attached as Exhibit H to the CC&Rs was actually issued to the Association, nor evidence that the HBLW was in effect at the time this lawsuit was filed. Based on the CC&Rs, the HBLW attached to the CC&Rs is a “SAMPLE,” not an actual warranty or agreement. The CC&Rs contemplate and even leave open the option of whether the HBLW would ever be issued to Association. [§12.6, Art. XII of CC&Rs at Ex. “3" to COE (“This Section applies to a particular Dispute only to the extent an Association Property Warranty is actually issued and in effect...”).] Courts interpret CC&Rs as they would a contract. (Nahrstedr v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361, 380-381.) In contract law, a ‘condition precedent’ is ‘either an act of a party that must be performed or an uncertain event that must happen before the contractual right accrues or the contractual duty arises.” (Wm. R. Clarke Corp. v. Safeco Ins. Co. (1997) 15 4 PLAINTIFF’S MEMORANDUM IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL a v e 1 O N W h 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Cal.4th 882, 885, fn. 1.) Uncertainty in a contract is interpreted most strongly against the drafter and questions of doubtful interpretation are construed in favor of the other party. (See Civ. Code § 1654; Taylor v. J.B. Hill Co. (1948) 31 Cal.2d 373, 374; Neal v. State Farm Ins. Cos. (1961) 188 Cal. App.22 690, 695.) Here, the HBLW is not enforceable because two condition precedents have not occurred, i.e., PWC has not established actual issuance of the HBLW to the Association nor has it established that the HBLW was in effect at the time the instant action was filed. A. PWC Submitted No Evidence That the HBLW Attached as Exhibit H to CC&Rs Was Actually Issued to the Association, In support of its motion, PWC filed a declaration from an employee at its principal office in Virginia who clearly has no personal knowledge as to what was actually said or given to the Association or its members during the sale of Talega condominiums. Attached to the declaration are several exhibits. Absent from the declaration and exhibits is any evidence that the HBLW was actually issued to the Association, including with respect to common area and Association Property. The Association is a separate legal entity, which acts through its Board of Directors. (See RIN at 4:3- 7; Ex. “9" to COE; § 4.1 of CC&Rs at Ex. “1" to COE; Corp. Code § 7210.) No individual member has the power to bind the Association. (Jd) A home buyer who is not even a member of the Association until close of escrow on the purchase of a condominium unit at the Project, has no power to bind the Association. (See CC&Rs at §§ 4.4.1 and 1.1.46 defining “Membership” and “Owner.”) Filed concurrently with this Opposition are the Association’s Evidentiary Objections to PWC’s declaration and exhibits, but two exhibits are worth mentioning here. PWC’s second exhibit is a collection of purported “Home Buyer Acknowledgments” related to specific “Sales Contracts,” not the CC&Rs. None of the acknowledgments are on behalf of the Association or with respect to any common area or Association Property. PWC ’s third exhibit is a collection of purported individual validation forms. These forms were created and printed by PWC in June 2016 - See each form at the top right, whereat the “Warranty Issuance Date” is “6/3/2016.” According to the “Warranty Periods” in the forms, the warranties were no longer “in effect” when the instant action was filed. 5 PLAINTIFF'S MEMORANDUM IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL O 0 0 3 N t h 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Absent evidence that the HBL W was actually issued to and accepted by the Association, there is insufficient evidence of an agreement to arbitrate the Association’s claims against PWC. Adajar v. RWR Homes, Inc. (2008) 160 Cal. App. 4" 563, 571, is directly on point. Adajar was a construction defect case. The defendant builder moved to compel arbitration based on arbitration agreements in warranty booklets issued by a third party (and purchased for plaintiffs by defendant). The defendant offered a declaration describing the warranties and attached copies of the forms signed by plaintiffs acknowledging that they had read a sample copy of the warranty booklet and agreed to the arbitration clause “contained therein;” but defendant did not attach copies of the warranty booklets containing the actual arbitration agreements that plaintiffs received. The court held that defendant failed to meet its burden of proof 'in establishing the existence of an agreement to arbitrate. The incorporation of the arbitration agreement in the acknowledgments was insufficient to establish the existence of an arbitration agreement. Here, similar to the builder in Adgjar, PWC failed to present any actual warranty issued to and binding the Association. | B. Based On PWC’s Own Exhibits, The Purported HBLW Was Not “In Effect” At the Time This Action Was Filed. Even assuming, arguendo, that the forms submitted as exhibits by PWC establish the HBLW was “actually issued” to the Association, per Sections 12.5 and 12.6 of the CC&Rs, the arbitration provisions of the HBLW do not apply unless the HBLW is “in effect at the time of that particular Dispute.” The particular dispute is the instant action, which again was filed in April 2015. Based on the validation forms submitted by PWC, none of the warranties were “in effect” as of the date this lawsuit was filed. Therefore, pursuant to the specific terms of the CC&Rs, the HBLW arbitration provisions, do not apply. C. The ADR Provisions In The CC&Rs Only Apply To “Disputes” With “Declarant” And PWC Is Not The “Declarant.” Per Exhibit G of the CC&Rs, the ADR Provisions apply only to “Disputes” with “Declarant.” PWC has not shown that it qualifies as the “Declarant.” PWC is not an officer, director, etc. of SPC, and during the pre-motion meet and confer process with Association PWC specifically denied that is an agent of SPC. (See 6 on p. 4 of Ex. “2" to COE; Declaration of David Peters, 14.) Thus, 6 PLAINTIFF'S MEMORANDUM IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL W N O 0 0 ~~ O v a 10 1 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Association’s claims against PWC do not fall within the parameters of the ADR Provisions, and the arbitration provisions do not apply to the Association’s claims against PWC. IV. EVEN ASSUMING THAT THE HBLW ATTACHED TO THE CC&RS CONSTITUTES AN AGREEMENT BETWEEN PWC AND ASSOCIATION TO ARBITRATE, THE AGREEMENT IS UNENFORCEABLE. A. The Purported Arbitration Agreement is an Illegal Contract. Whether an arbitration provision in CC&Rs constitutes a valid agreement to arbitrate depends on compliance with state regulatory law governing use of CC&Rs. The court, not the arbitrator, decides the issue. [See 9 U.S.C. § 4 ("If the making of the arbitration agreement . . . be in issue, the court shall proceed summarily to the trial thereof" (emphasis added)); see also C.C.P. § 1281.2.] To be enforceable, CC&Rs arbitration provisions must comply with California law governing CC&Rs, including the Davis-Stirling Common Interest Development Act ("Davis-Stirling Act") (Civ. Code § 4000, et seq., formerly Civ. Code § 1350, et seq.), the Subdivided Lands Law (Bus. & Professions Code § 11000, et seq.), and various state regulatory laws (e.g., Cal. Code Regs., tit. 10, § 2791.8). (See Pinnacle Museum Tower Association v. Pinnacle Market Development (US) (“Pinnacle”), LLC, et al. (2012) 55 Cal.4th 223, 236-239.) There can be no agreement or assent to be bound by the HBLW attached to the CC&Rs because the provisions violate state law governing use of ADR provisions in the CC&Rs, including § 2791.8 of the California Code of Regulations. "Where ... a party's apparent assent to a written contract is negated ..., there is simply no arbitration agreement to be enforced.” [Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 416; see also Eng. & Arch. Assn. v. Comm. Dev’t Dept. (1994) 30 Cal. App.4th 644, 653 ("There is no public policy favoring arbitration of disputes which the parties have not agreed to arbitrate™).] Our Supreme Court in Pinnacle recognized the requirement that CC&Rs must comply with state regulatory law governing use of ADR provisions in CC&Rs: Pursuant to state regulatory law, a declaration may also include provisions for binding or nonbinding arbitration of disputes between a developer and an owners association, so long as the designated process for arbitration satisfies certain regulatory requirements [i.e., compliance with Cal. Code Regs., tit. 10, § 2791.8]. [Pinnacle at 237, (emphasis added). ] 1. The HBLW Arbitration Provisions Violate Section 2791.8 of the California Code of Regulations. 7 PLAINTIFF'S MEMORANDUM IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL wn Bb WwW = E E 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Section 2791.8 of Title 10 of the California Code of Regulations requires ADR provisions within CC&Rs and purchase agreements to contain certain "minimum" requirements, including: (a)(2) For a neutral or impartial person(s) to administer and preside over the claim or dispute resolution process. . . (a)(3) ...The person(s) appointed, selected, designated or assigned to preside may be challenged for bias. (a)(6) For the claim or dispute resolution process to be conducted in accordance with rules and procedures that are reasonable and fair to the parties. . . (a)(8) For the person(s) presiding at the claim or dispute resolution process to be authorized to provide all recognized remedies available in law or equity for any cause of action that is the basis of the proceeding or hearing.... (Emphasis added.) (Cal. Code Regs., Title 10, § 2791.8, subd. (a)(2), (a)(6) and (a)(8); Ex. *7" to COE.) The HBLW violates Section 2791.8 and the related Business & Professions Code sections cited above. First, the HBLW designates a non-neutral, non-impartial person to administer the claim and dispute resolution process, i.e., PWC, which is at risk of liability i Association if PWC loses the arbitration and who is contracted with SPC to administer the warranty on SPC’s behalf (see pp. 3, 9, 10, 12 of HBLW at Ex. “5" to COE). PWC describes its service administering these warranties as a "risk management tool for builders." (See Ex. “10" to COE; and Peters Decl., § 15.) Second, the HBLW restricts the arbitrator's authority to provide all available remedies to Association. (See pp. 2-7, 9, and 10 of HBLW at Ex. “5" to COE.) Third, the HBLW gives defendants the option of choosing the Association's remedy. (See pp. 3-4 and 10 of HBLW at Ex. “5” to COE.) The obvious purpose of Section 2791.8 is to ensure that homeowners associations, like Association, are given a fair and neutral forum to resolve disputes with developers and related parties, and have available to them all rights and remedies under the law. In Pinnacle, the court placed a great deal of significance on compliance with Section 2791.8 and other statutory requirements. (See Pinnacle, supra, at 237, 241, 242 and fn7, 244, 247, 248.) 2. Section 2791.8 of the California Code of Regulations Is Unwaiveable. "Waiver" is the intentional relinquishment of a known right after knowledge of the facts. (Bettleheim v. Hagstrom Food Stores, Inc. (1952) 113 Cal.App.2d 873.) Here, there is no indication 8 PLAINTIFF'S MEMORANDUM IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL 5 M 9 1 O h A 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 that Association intentionally relinquished the protections of Section 2791.8 after knowledge of the facts. There is no mention of Section 2791.8 in the CC&Rs or HBLW. [Record v. Indemnity Ins. Co. of North America (1951) 103 Cal. App.2d 434 (The primary essentials of a waiver are knowledge and intent, and before one may be deemed to have waived a right granted by statute he must be shown to have knowledge of right and an intent to waive or forego it).] Civil Code Section 3513 provides that a law established for a public reason cannot be contravened by private agreement, and pursuant to case law may not be waived by an official or governmental body. [Terry v. Bender (1956) 143 Cal.App.2d 198, 214; see also Western Surgical Supply Co. v. Affleck (1952) 110 Cal. App.2d 388, 242 (an official has no power to waive or consent to a violation of penal provisions in health and safety code or in business and professions code).] Clearly the "minimum" protections required by Section 2791.8 were established to protect the interests of the public by ensuring a fair and neutral ADR process and for ensuring that builders do not unfairly use their ability to unilaterally impose CC&Rs as a means to strip homeowners associations and their members of their rights and remedies. [See Pinnacle at 242 ("one of the primary objectives of the Department of Real Estate is the protection of the public interest with regard to offerings of subdivided lands" (emphasis added).)] According to the rule making records of the Department of Real Estate (“DRE”) (now Bureau of Real Estate), the purpose of Section 2791.8 (which was initially proposed as part of Section 2792.21) was, in part to “..set forth minimum standards for the operation of an arbitration program,” “....allow for the use of timely and fair procedures” and “...provide guidance and minimum performance standards for those subdividers who wish to use alternative dispute resolution.” (See RIN at 2:26-3:14; COE, Ex. “8.”) The DRE records reflect that Section 2791.8 is intended to apply to common interest subdivisions and standard subdivisions. (/d.) If a builder could simply waive the "minimum" protections of Section 2791.8 by excluding them from the CC&Rs, Section 2791.8 would become meaningless and undermine the law. [Lenigan v. City of Los Angeles (2011) 199 Cal. App.4th 1020 rev. denied (statutory benefit may not be waived where waiver seriously undermines any public purpose the statute was designed to serve). ] 117 9 PLAINTIFF'S MEMORANDUM IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL W N E 0 0 = ) O N hn 10 1 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The case of Loughrin v. Sup. Ct. (Barr) (1993) 15 Cal. App.4th 1188 is distinguishable. Loughrin, which was overruled by Civil Code Section 1102.1, involved waiver of disclosures required by Civil Code Section 1102 in a private “as is” transaction between an individual buyer and seller, not the subdivision and sale of land by a builder to the general public. 3. The HBLW Constitutes Unreasonable CC&Rs Provisions And, Thus, Are Unenforceable Pursuant to California Civil Code Section 5975. Under the Davis-Stirling Act, a condominium declaration is enforceable unless unreasonable. [Civ. Code § 5975 (formerly Civ. Code § 1354).] The California Supreme Court has interpreted section 1354, subdivision (a) [now section 5975] to mean that CC&Rs are enforceable unless the party challenging it establishes the equitable servitude is "unreasonable" because it is, wholly arbitrary, violates a fundamental public policy, or imposes a burden on the use of affected land that far outweighs any benefit. (Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal .4th 361, 379-380; accord Villa De Las Palmas Homeowners Assn. v. Terifaj (2004) 33 Cal.4th 73, 88.) Case law provides that CC&Rs which conflict with or violate state law are unreasonable. A declarant, such as SPC, can neither rely on nor enforce CC&Rs that violate state law. (See Cebular v. Cooper Arms Homeowners Ass'n (2006) 142 Cal.app.4th 106, 119.) "If there [is] a conflict between the law and a declaration of covenants, conditions, and restriction, the statutory and common law prevail." (/d. citing Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 499 fn. 6; Thaler v. Household Finance Corp. (2000) 80 Cal.App.4th 1093, 1102; and [4859 Moorpark Homeowner's Assn. v. VRT Corp. (1998) 63 Cal.App.4th 1396, 1406-1407.) The HBLW, including the arbitration provisions, are in direct conflict with state regulatory law governing CC&Rs and condominium purchase agreements, and therefore by definition are unenforceable. (Civ. Code § 5975.) Pursuant to Sanchez v. Valencia Holding, LLC (2015) 61 Cal.4th 899, a case involving an arbitration provision in a car lease restricting arbitration of classwide claims relied on by PWC, the Supreme Court stated, in part: An evaluation of unconscionability is highly dependent on context. . . . The doctrine often requires inquiry into the "commercial setting, purpose and effect" of the contract or contract provision. . . .[U]nconscionability must "be 10 PLAINTIFF'S MEMORANDUM IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL a w W o o e o ~ F O n Lh 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 considered 'in the light of the general commercial background and the commercial needs of the particular trade or case™ (citation omitted). (Emphasis added.) The commercial context and needs of the Talega CC&Rs and condominium purchase agreements required that the arbitration provisions included - "minimum" protections. (Cal. Code Regs., tit. 10, § 2791.8.) They did not. Compelling arbitration pursuant to the HBLW will only embolden PWC and others, to ignore state regulatory law to the detriment of the public. B. There Was Fraud in the Execution of the CC&Rs. The Association’s claim against PWC and the other defendants is in essence a claim that there was fraud in the execution of the HBLW arbitration provisions. (See FAC 9 18-42.) Claims of fraud in the execution of an agreement are not arbitrable under either state or federal law. [Rosenthal, supra, 14 Cal.4th at 416 (“If the entire contract is void ab initio because of fraud, the parties have not agreed to arbitrate any controversy; under that circumstance, Prima Paint does not require a court to order arbitration”); Duffens v. Valenti (2008) 161 Cal. App.4th 434, 448-449 (claims that a party has employed fraud in inducing consent to the arbitration agreement is, under federal or state law, to be decided by the court).] “Fraud in the inception” covers situations in which a party's apparent assent to a written contract is negated by deception as to the true nature and effect of the documents signed. (Rosenthal, supra, 14 Cal.4th at 416.) Among other examples of fraud in the inducement alleged in the FAC, the ADR Provisions to the CC&Rs state that they were reviewed by "INDEPENDENT LEGAL COUNSEL" of the Association. This statement, among others, is a misrepresentation. The reference to such areview by a still unidentified "INDEPENDENT LEGAL COUNSEL" is, to say the least, implausible, since at the time the CC&Rs were drafted there was no association and no homeowners, just the builder and the builder's attorneys! If other legal counsel in fact reviewed these documents, that legal counsel could only have been retained by the builder and/or a builder-affiliated entity. Cs The Home Builder’s Limited Warranty is Unconscionable. The HBLW arbitration provision goes far beyond those contemplated and held to be enforceable under Pinnacle. The FAA provides that arbitration provisions may be denied enforcement “upon such grounds 11 PLAINTIFF'S MEMORANDUM IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL OW O e 1 S n Wh BR W R ms B M N O O R O R N O R R N N NN mm e m m m e m e d mt p m pe co ~~ ) N h BR W N = D Y ® t RB W N ee Oo as exist at law or in equity for the revocation of any contract.” (9 U.S.C. § 2.) “(S)tate law, whether of legislative or judicial origin, is applicable if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally.” (Perry v. Thomas (1987) 482 U.S. 483, 492, 107 S.Ct. 2520, 2527, fn. 9.) Thus, state law contract defenses, such as unconscionability, may be applied to invalidate arbitration agreements. (Doctor's Assocs., Inc. v. Casarotio (1996) 517 U.S. 681, 687,116 8.Ct. 1652, 1655.) Under federal law, whether an arbitration provision is unconscionable is for the court, rather than the arbitrator to decide. (Davis v. O'Melveny & Myers (Sth Cir. 2007) 485 F.3d 1066, 1072 overruled on other grounds in Ferguson v. Corinthian Colleges, Inc. (9th Cir. 2013) 733 F3d 928, 937.) The same is true under California law. (Civ. Code §1670.5(a); Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114.) Procedural and substantive unconscionability need not be present in the same degree.(Pinnacle, supra, at 247; Armendariz, supra, 24 Cal.4th at 114.) Essentially a sliding scale is invoked. (Id) The more substantively oppressive a contract, the less evidence of procedural unconscionability is required, and vice versa. (/d.) The preprinted HBLW buried within the CC&Rs is, to great degrees, both procedurally and substantively unconscionable. 1. Procedural Unconscionability Exists. Procedural unconscionability concerns "the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power." (Pinnacle, supra, at 246; see also Kinney v. United Health Care Services, Inc.(1999) ("Kinney") 70 Cal. App.4th 1322, 1329.) Oppression occurs from an inequality of bargaining power where a contract involves lack of real negotiation or a meaningful choice on the part of the weaker party. (Pinnacle, supra, at 247; Kinney, supra, 70 Cal.App.4th at 1329). Surprise comes into play when "the terms to which the party supposedly agreed [are] hidden in a prolix printed form drafted by the party seeking to enforce them." (Kinney, supra, 70 Cal. App.4th at 1329-1330.) a. The HBLW Is Essentially A Contract of Adhesion. A finding of a contract of adhesion is basically a finding of procedural unconscionability. 12 PLAINTIFF'S MEMORANDUM IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL 0 wW 2 O e J O h L h 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (Flores v. Transamerica HomeFirst, Inc. (2001) 93 Cal. App.4th 846, 853.) Here, the HBLW attached to the CC&Rs are a boilerplate form document that SPC and PWC created and have used in "multiple" developments, including the Talega project. (FAC, § 24.) The CC&Rs, which are 137 pages in length, were recorded prior to the close of escrow for any condominium at the project and were not changed or amended. (COE, Ex. “1;” and RIN at 2:1 54:2) Buried within the exhibits to the CC&Rs is the HBLW. At the time the CC&Rs were recorded, Association was totally controlled by SPC. As such, the CC&Rs were non-negotiable and unilaterally imposed on Association and condominiums buyers. (See Thompson v. Toll Dublin, LLC (2008) 165 Cal. App.4th 1360, 1372; Evid. Code § 600(b).) b. The HBLW Is Buried Deep Within The CC&Rs. The HBLW is buried in the CC&Rs, which does not alert the reader to the specifics of the arbitration provisions in the HBLW or the fact that such provision seeks to severely limit rights and remedies. (See copy of CC&Rs at Ex. “1" to COE, where the HBLW is at the 121* page.) Unlike the CC&Rs in Pinnacle, the HBL W attached to the CC&Rs does not appear in its own separate article under a bold, capitalized and underlined caption, and the recitals at the front of the CC&Rs do not provide any notice in bold and capital letters that a specific article, section or exhibit of the CC&Rs refers to mandatory arbitration procedures or the waiver of important rights. (Pinnacle, supra, at 247, fn. 12.) c. The HBL'W Relies on Documents Affecting the Rights of Association That Are Not Attached to the CC&Rs. There is further surprise and oppression in that the HBLW relies on documents that are not even attached to or included in the CC&Rs. This is critical because the HBLW purports to limit the warranty period and liability at arbitration according to the dates and amounts “shown on the Limited Warranty Validation Form," which is not even attached to the CC&Rs! (See pp. 2,3, and 13 of HBLW at Ex. “5” to COE.) In addition, the HBLW provides that the "rules and procedures of the designated arbitration organization" must be followed, yet the CC&Rs do not attach copies of any arbitration rules or procedures, which forces Association to guess as to the full import of the rules. This is another form 13 PLAINTIFF'S MEMORANDUM IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL o e 3 O N bh 10 11 12 13 14 15 16 17 18 19 20 21 99 23 24 25 26 27 28 of procedural unconscionability. [Samaniego v. Empire Today, LLC (2012) 205 Cal. App.4th 1138, 1146; Harper v. Ultimo (2003) 113 Cal. App.4th 1402, 1406 (provision requiring matter to be settled by BBB Arbitration rules, which were not attached, was procedurally unconscionable).] 2. There is a Large Degree of Substantive Unconscionability. Substantive unconscionability concerns the fairness of an agreement’s actual terms and whether they are overly harsh, one-sided, or oppressive. (Pinnacle, supra, at 246; Armendariz, supra, at 114; and Mission Viejo Emergency Medical Associates v. Beta Healthcare Group (2011) 197 Cal.App.4th 1146, 1159.) The HBLW provisions are oppressive, unduly harsh, and one-sided, in that they attempt to: - Limit the amount defendants’ liability set by a “Limited Warranty Validation Form?” that is not even attached to the CC&Rs (See underlined text on pp. 2,3, and 13 of HBLW at Ex. “5” to COE); - Limit remedies and give defendants the ability to choose the remedy (See underlined text on pp. 2, 3, 4 and 10 of Ex. “5” to COE); - Eliminate statutory rights and remedies available to Association (See underlined text on pp. 2, 5-7 and 10 of Ex. “5” to COE), - Give PWC, the sole right to administer the HBLW, choose the arbitration forum, and mediate post-arbitration disputes (See underlined text at top of p. 3, middle and bottom of p. 9, and middle of p. 10 of Ex. “5” to COE); - Reduce the amount of time within which Association may file a claim (See § Ill on p. 3 and § VILA. on p. 7 of Ex. “5” to COE); - Eliminate Association’s right to pursue non-warranty claims (See underlined text in the last paragraph on p. 2 and § VIII on p. 8 of Ex. “5” to COE); - Limit the ability of Association to discover important documents and information in support of its claims (See underlined text, middle of p. 9 of Ex. “5" to COE.) - Eliminate the ability of Association to be made whole and to recover from other persons and organizations by requiring that it give such rights to the defendants (See underlined text in § D on p. 11 of Ex. “5” to COE); - Force cooperation by Association with the defendants’ investigation of its claims yet places no similar obligation on the defendants (See underlined text in § VILB on pp. 7-8 of Ex. “5” to COE), None of the above provisions existed in the Pinnacle arbitration agreement. The reality is that the HBLW attempts to artfully eliminate all claims except those under the warranty. Similar to the instant case, in Bruni v. Didion (2008) 160 Cal. App.4th 1272, the builder tried to circumvent the 14 PLAINTIFF'S MEMORANDUM IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL W w e 1 hn t h ph 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 plaintiffs’ substantive rights and relieve the builder of all liability except for liability under the warranty, The Bruni court held that the arbitration provision was unforeseeably broad and not within the reasonable expectations of a consumer. (Id. at 1295.) Citing to the Bruni opinion, PWC argues that the warranty disclaimers and limitations are irrelevant. The Bruni opinion expressly provides for the opposite. Bruni, supra, 160 Cal. App. 4th at 1294 (emphasis added), states: | . . . we do not consider the other provisions of the Warranty, except insofar as they may bear on the scope or effect of the arbitration provision. Bruni further went into an exhaustive analysis of warranty provisions in determining that the arbitration provision was unenforceable (Jd. at 1294-1295). Based on Bruni, even if some of the HBLW provisions cited above are not strictly arbitration provisions, they are relevant to the determination of whether the arbitration provisions are unenforceable. V. DISCOVERY OF COMMERCIAL SETTING AND IMPLEMENTATION OF ARBITRATION PROVISIONS. Pursuant to Civil Code Section 1670.5, the Association requests leave to discover and present evidence as to the commercial setting, purpose and effect of the HBLW, including the nature and extent of the relationship between the defendants. To date, the Association has not had an opportunity to conduct such discovery. (See Peters Decl., at 1] 6-14.) VI. CONCLUSION. Based on all of the foregoing, PWC’s motion to compel arbitration should be denied. Dated: November 3, 2016 Respectfully submitted, David*M. Peters, Esq. Attorneys for Plaintiff, TALEGA VILLAGE CENTER COMMUNITY ASSOCIATION G:A25\2553\K EL\- Unfair Competition\pld\Memo ISO Opp to Motion to Compel by PWC. wpd 15 PLAINTIFF'S MEMORANDUM IN SUPPORT OF OPPOSITION TO MOTION TO COMPEL