intergulf treo_s ans to petn rev
TRANSCRIPT
Respondent.
INTE.RGULF CONSTRUCTIONCORPORATION, et al.
D052402
(San Diego CountySuperior Court Case No. G1C879718)
Hon. Ronald S. Prager, Judge
Jon H. Epsten, Esq. (SBN 110480)Anne L. Rauch, Esq. (SBN 182990)EPSTEN GRTNNELL & HOWELi., APC9980 Carroll Canyon Road, Second FloorSanDiego,CA 92131(858) 527-0111 /Fax (858) 527-1531
Attorneys for Petitioner TREO @ KETTNERHOMEOWNERS ASSOCIATION
No. S167651
INTHE
SUPREME COURT OF THE STATE OF CALIFORNIA
TREO @ KETTNER HOMEOWNERSASSOCIATION,
Petitioner,
V.
SUPERIOR COURT OF SAN DIEGOCOUNTY.
Real Parties in Interest.
ANSWER TO PETITION FOR REVIEW
No. 5167651
IN THE
SUPREME COURT OF THE STATE OF CALIFORNIA
TREO KEHNER HOMEOWNERS D052402ASSOCIATION,
(San Diego CountyPetitioner, Superior Court Case No. G1C879718)
v. Hon. Ronald S. Prager, Judge
SUPERIOR COURT OF SAN DIEGOCOUNTY,
Respondent.
INTERGULF CONSTRUCTIONCORPORATION, et al.
Real Parties in Interest.
ANSWER TO PETITION FOR REVIEW
Jon H. Epsten, Esq. (SBN 110480)Anne L. Rauch, Esq. (SBN 182990)EPSTEN GRThNELL & HOWELL, APC9980 Carroll Canyon Road, Second FloorSan-Diego, CA 92131--------•-- -••--—---___ -- —
—
(858) 527-0111 /Fax(858) 527-1531
Attorneys for Petitioner TREO @ KETTNERHOMEOWNERS ASSOCIATION
TABLE OF CONTENTS
Page No.
Table of Authorities ii
Introduction 1
I. Reasons For Denying The Petition 5
A. The Court Applied The Well Settled Principles OfGraflon Partners 5
B. The Court Property Analyzed The CC&Rs For A Common InterestDevelopment Under Civil Code 13 54(a) And Supreme Court Precedent... 7
C. The Petition Seeks Legislation, Not Supreme Court Review 10
D. The Decision Is Consistent With Fourth District, Division Three’sDecision in Villa Milano v. Ii Davorge (2000) 84 CalApp4th 819 11
E. The Remaining Cases Cited by Interguif Are DistinguishableAnd Do Not Compel Further Review 12
F. The Issue Is Not “Cleanly Presented” Because Of The UnresolvedAlternative Issue of Unconscionability 14
Conclusion 15
Statement Of Additional Issue 17
Additional Issue for Review 17
Summary of Relevant Facts 17
Legal Argument 19
Certificate of Compliance 22
Table of Authorities
Page(s)FEDERAL CASES
Allapattah Servs., Inc. v. Exxon Corp.(11th Cir.2004) 362 F.3d 739 14
Andrulonis v. US.(2nd Cir. 1994) 26 F.3d 1224 14
Ross v. Moffitt,417 U.S. 600 (1974) 14
White v. Finkbeiner(7th Cir. 1985) 753 F.2d 540 15
STATE CASES
B.C.E. Development, Inc. v. Smith(1989) 215 Cal.App.3d 1142 13
Barrett v. Dawson(1998) 61 Cal.App.4th 1049,1054 13
Citizensfor Covenant Compliance v. Anderson(1995) 12 Cal.4th 345 13
Fourth La Costa Condominium Owners Assn. v. Seith(2008) 159 Cal.App.4th 563-575 13
Frances T. v. Village Green Owners Assn.(1986) 42 Cal.3d 490 13
Franklin v. Marie Antoinette Condominium Owners Assn.(1993) 19 Cal.App.4th 824,828 13
Gatton v. T-Mobile USA, Inc.(2008) 152 Cal.App.4th 571 19,20
Grafton Partners v. Superior Court(2005) 36 Cal.4th 944 passim
11
Harper v. Ultimo(2003) 113 Cal.App.4th 1402 19
McManus v. CIBC World Markets Corp.(2003) 109 CaLApp.4th 76 19
Nahrstedt v. Lakeside Village Condominium Assn(1994)8 Cal.4th 361 7, 13
Pardee Construction Company v. Superior Court(2002) 100 Cal.App.4th 1081 20
Share v. Casiano Bel-Air Homeowners Assn.(1989) 215 Cal.App.3d 515 13
Villa Milano Homeowners Assn. v. Ii Davorge(2000)84 Cal.App.4th 819 4, 11, 12, 19
STATE STATUTES
California Civil Code§895-945 10§1354(a) 7§1375 10,20§1550 9§1556 9
California Code of Civil Procedure§638 passim§1298.7 20
RULES
California Rules of Court, Rule 8.500 16
CONSTITUTIONAL PRovisIoNs
Article I, § 16 of the California Constitution 10
111
OTHER AUTHORITIES
Sproul & Rosenberry, Advising Cal. Comon Interest Communities (Cont.Ed. Bar. 2003) § 4.74-4.76 13
Stewart A. Baker, Symposium on Supreme Court Advocacy: PracticalGuide to Certiorari, 33 Cath. U.L.Rev. 611, 616 (1984) 14
iv
INTRODUCTION
To insulate itself from a jury trial in construction defect litigation,
Petitioner Interguif Construction Corporation (Intergulf), the developer of Treo
Kettner, a condominium project in downtown San Diego, inserted a provision in
the project’s Declaration of Covenants, Conditions and Restrictions (CC&Rs)
entitled “AGREEMENT TO DISPUTE RESOLUTION; WAIVER OF JURY
TRIAL”. (Exh. 60, pp. 1532, 1626-1632; Exh. 67, p. 2547:1-5; Opinion, p. 5.)
This provision, beginning on page 83 of the 86-page CC&Rs, states that all
disputes between Intergulf and the homeowners association Intergulf created to
manage and maintain the building exterior and structural elements of the project
will be decided by a Judicial Referee under California Code of Civil Procedure
section 638.’ (Id.) The Judicial Referee would be empowered under this CC&R
provision to resolve not only all legal and factual disputes, but also to determine
disputed material facts on a motion for summary judgment or adjudication.2
Section 638 provides, in relevant part, as follows:
A referee may be appointed upon the agreement of the parties filedwith the clerk, or judge, or entered in the minutes, or upon themotion of a party to a written contract or lease that provides thatany controversy arising therefrom shall be heard by a referee if thecourt finds a reference agreement exists between the parties.(Emphasis added.)
All further statutory references are to the California Code of CivilProcedure, unless otherwise noted.2 The section also states the Judicial Reference section cannot be deleted oramended by homeowner vote. (Opinion, p. 5.)
I
Before the Association existed as an independent entity, and before any of
the condominium units were sold, Interguif unilaterally drafted, signed, and
recorded the CC&Rs. (Exh. 60, pp. 1532-1634; Opinion p. 14.) The CC&Rs
provide the condominium owners association for the project, Respondent
Treo@Kettner Homeowners Association (“Association”), is automatically bound
to resolve any disputes with Intergulf under the terms of Interguif’ s Judicial
Reference provision. (Exh 60, 1532, 1626-1632; Opinion, p. 5.)
The Association is responsible for the maintenance and repair of the
common areas which generally includes recreational facilities, common grounds,
the bearing walls of the high rise buildings, and equipment between floors and
ceilings, whereas the individual owners are generally responsible for only the unit
interiors and separate interests. (Exh. 34 pp.330, 331, 340, 375.)
In the underlying action, Association sued Intergulf and others alleging
design and construction defects. (Opinion, p. 3.) Intergulf moved the trial court
for an order appointing a Judicial Referee for all purposes including trial, pursuant
to section 638, solely relying upon the CC&Rs as its contract. (Id.)
Interguif represented to the trial court that its motion was based solely on
the CC&Rs, and not any of the purchase contracts for the individual condominium
units. (Exh. 24, 23 5:2 — 236:3.) The Court of Appeal also noted the individual
purchase contracts were not applicable to the proceeding. (Opinion, p.2, fn. 2.) By
the time the legal action was filed, 60% of the members of the Association were
condominium owners who bought their homes on the secondary market, and
2
therefore had no purchase contract with Interguif. [Exh. 26, p 264:12 - 265:3; Exh.
34, pp 430-1056 (vesting deeds) and pp.1058-1076 (vesting deed summary).]
Association opposed Intergulfs motion, arguing the CC&RS did not
constitute a “written contract” for judicial reference between the Association and
Developer as required by section 638 and that even if it was a “written contract,” it
was unconscionable and unenforceable. (Exh. 25-36, 49-63; Opinion, p. 3.)
The Court of Appeal concluded a developer-written provision in the
CC&Rs waiving the Association’s “ inviolate’ constitutional right to trial by jury”
is not a “written contract” between Association and Interguif as the Legislature
contemplated the term in the context of section 638. (Opinion, pp. 11-13.) Citing
this Court’s opinion in Grafton Partners v. Superior Court (2005) 36 Cal.4th 944,
965-966, the Court of Appeal noted the “Legislatures, when providing for the
contractual waiver of that right, are particularly concerned with the formalities of
the process and the actual existence of a mutual agreement to waive the right.”
(Opinion, pp. 13-14.)
In its Petition, Interguif faults the Court of Appeal for a “poverty of
analysis” on the question of whether CC&Rs fall within the ambit of section 638.
(Petition, p. 7.) Interguif rebukes the Court for its conclusion that the relationship
between Association and Intergulf created by the developer’s unilaterally-drafted
CC&Rs “lacks the majesty” of a written contract. (Id.) Citing case law
Because of this conclusion, the Court of Appeal did not need to address thealternative assertion the jury waiver is unconscionable. (Opinion, p. 14.)
3
recognizing some similarities between CC&Rs and contracts in other contexts,
Interguif accuses the Court of “unpredictable, nonanalytical creation of law.” (Id.)
For all of its bluster and sarcasm, Interguif cannot escape the fact that the
Decision in this case is well supported by both statutory and decisional law
applicable to CC&Rs and jury trial waivers. In addition, contrary to Interguif’s
assertion the Court’s Opinion is “inconsistent” with Villa Milano Homeowners
Assn. v. Il Davorge (2000) 84 CaLApp.4th 819 (a case decided years before
Graflon Partners) the Court of Appeal actually agreed with the holding of Villa
Milano that CC&RS for a common interest development lack the requisite mutual
consent by a homeowners association to support an enforceable jury trial waiver in
a construction defect dispute between an association and developer. (Opinion p.
12.) Here, the Court of Appeal reasoned that although certain contractual
principles may be applied to CC&Rs and may provide a means for analyzing a
controversy arising under the CC&Rs “when the issue involved is the operation or
governance of the association or the relationships between owners and between
owners and the association,” CC&Rs are not identified in section 638 as the type
of document which would support a motion to compel Judicial Reference of the
Association’s design and construction defect claims against the developer. (Id.)
Interguif seeks what would amount to a judicial amendment of section 638
so it applies to CC&Rs, in addition to “written contracts and leases.” However,
the Constitution requires any expansion of a statute providing for a jury trial
4
waiver come from the Legislature, not the Judiciary. Interguif’ s Petition should be
directed to the Legislature, not this Court. Review should be denied.
I.
REASONS FOR DENYING THE PETITION
A. The Court Applied the Well Settled Principles of Grafton Partners.
In its Petition, Interguif contends the Association waived its right to a jury
trial by entering into the CC&Rs, and seeks to enforce the waiver under section
638. The Court of Appeal disagreed, based on its thoughtful analysis of this
Court’s decision in Graflon Partners v. Superior Court (2005) 36 Cal.4th 944.
(Opinion, pp. 8-11.)
The Court of Appeal first observed the “primary effect of a general
reference under section 638 is the waiver of the right to jury trial.”4 (Opinion, p.
4.) The Court of Appeal then recognized jury trial waivers must be analyzed
under a special set of rules “anchored in our Constitution and the policy that the
right is a fundamental one and that, while it may be waived, the circumstances and
maimer of its waiver are serious matters requiring actual notice and meaningful
reflection.” (Opinion, p. 13)
“In a judicial reference, a pending court action is sent to a referee forhearing, determination and a report back to the court. A general reference directsthe referee to try all issues in the action. The hearing is conducted under the rulesof evidence applicable to judicial proceedings. In a general reference, the refereeprepares a statement of decision that stands as the decision of the court and isreviewable as if the court had rendered it. The primary effect of such a reference isto require trial by a referee and not by a court or jury.” (Opinion, p. 4.)
5
The Court of Appeal further explained:
In Grafion Partners v. Superior Court (2005) 36 Cal.4th 944,our Supreme Court discussed the constitutional, statutory and policyconsiderations relevant to the waiver of trial by jury in civil cases.Graflon does not deal, as does this case, with jury waivers resultingfrom prelitigation contracts agreeing to general judicial referencespursuant to section 638. It deals rather with prelitigation contractualwaivers ofjury trial in the traditional judicial forum pursuant toCode of Civil Procedure section 631. While not precisely on point,Graflon, nonetheless, discusses the policy considerations thatunderpin any pretrial contractual waiver ofjury trial in civil mattersand is useful in reviewing the issues raised here
The court began by noting that article I, section 16 of theCalifornia Constitution states that trial by jury is” ‘an inviolateright’ “that in civil cases may be” ‘waived by the consent oftheparties expressed as prescribed by statute.’” (Grafton Partners v.Superior Court, supra, 36 Cal.4th at p. 951, fn. 3.) When a party,based on a contract, asserts that a dispute be decided by some entityother than a jury, they must identify a statutory basis allowing suchwaiver and the consent of the opposing party to so proceed
In Grafton the court held that the rules under which theparties to a lawsuit may waive jury trial must be prescribed by theLegislature and that the power to do so may not be delegated to thecourts. (36 Cal.4th at pp. 952-955.) The court noted this restrictionexisted because the right to trial by jury is” ‘too sacred in itscharacter to be frittered away or committed to the uncontrolledcaprice of every judge or magistrate in the State.’” (36 Cal.4th at p.956, quoting Exline v. Smith (1855)5 Cal. 112, 113.) The courtalso noted that the right to trial by jury is “considered sofundamental that [any] ambiguity in the statute permitting suchwaivers must be ‘resolved in favor of according to a litigant ajury trial.’ [Citation.]” (Grafton Partners v. Superior Court, supra,36 Cal.4th at p. 956.) The court noted the right is so important itmust be “zealously guarded’ in the face of a claimed waiver.”(Ibid.) The court observed that doubts in interpreting thewaiver provisions of section 631 had been resolved in favor of alitigant’s right to jury trial. (Id. at pp. 956, 958.)
The court noted that “even those jurisdictions permittingpredispute waiver of the right to jury trial do not uncritically endorse
6
unregulated freedom of contract; rather, they seek to protect theconstitutional right to jury trial with a number of safeguards nottypical of commercial law, including requirements that the partyseeking to enforce the agreement bear the burden of proving that thewaiver clause was entered into knowingly and voluntarily,restrictions on the type of contracts that may contain jury waivers,presumptions against a finding of voluntariness, inquires regardingthe parties’ representation by counsel as well as relative bargainingpower and sophistication, and consideration of font size andplacement of waiver clause within the contract.” (Grafton Partners,supra, 36 Cal.4th at pp. 965-966.) (Opinion, pp. 9-11, bold added.)
Thus, in rendering its opinion, the Court of Appeal faithfully applied the
principles enunciated by this Court in Grafton Partners to analyze Interguif s
claim under section 638, a statute resulting in a waiver of the right to jury trial.
(Opinion, pp. 10-14.)
B. The Court Properly Analyzed the CC&Rs For A Common InterestDevelopment Under Civil Code Section 1354(a) And Supreme CourtPrecedent
Intergulf also criticizes the Court of Appeal of a “poverty of analysis” in
concluding the Treo CC&Rs did not constitute a “written contract” between
association and developer for Judicial Reference. Not so.
Turning first to the statutory authority for CC&Rs and then to Supreme
Court precedent interpreting CC&Rs, the Court of Appeal observed CC&Rs for
common interest developments are defined by Civil Code section 13 54(a) as
“equitable servitudes,” to be enforced “by any owner of a separate interest or by
the association, or by both.” (Opinion pp. 6, 8-11.) Relying upon this Court’s
majority opinion in Nahrstedt v. Lakeside Village Condominium Assn (1994) 8
Cal.4th 361, the Court of Appeal further reasoned the doctrine of equitable
7
servitudes was created to provide for “enforcement of promises restricting land
use when there is no privity of contract between parties seeking to enforce the
promise and the party resisting enforcement.” (Opinion, p. 8.)
In attempting to reconcile the statutory definition of CC&Rs and the law
applicable to equitable servitudes (which arose out of aj of contractual
privity) with Intergulf’s claim the CC&Rs are a “written contract between the
Developer and Association,” as required by section 638, the Court reasoned:
The difficulty here is the manner in which the “contract” betweenIntergulf and Association waiving the right to trial by jury cameabout. As we have noted, an association, with its obligations andrestrictions as defined in the CC&Rs, essentially springs intoexistence when there is a conveyance by the developer of a separateinterest coupled with an interest in the common area or membershipin the association. (Opinion, p. 13.)
The Court also noted the “CC&Rs are 86 pages long. They deal with a
myriad of matters ranging, for example, from the right of owners to the exclusive
use of their balconies to the Association’s governance and operation. Most
provisions are mundane.” (Opinion, p. 5) In addition, “CC&Rs are notorioiusly
lengthy, are adhesive in nature, are written by developers perhaps years before
many owners buy, and often, as here with regard to the waiver of trial by jury,
cannot be modified by the association. Further, the document is not signed by the
parties.” (Opinion, p. 14.) The Court of Appeal concluded CC&Rs are not a
“written contract” between an association and developer, sufficient to support a
claimed waiver ofjury trial under section 638. (Id.)
8
Interguif camouflages its request for a judicial expansion of section 638 by
avoiding the plain language of the statute. Section 638 only applies to (a) written
contracts and leases containing a reference agreement, and (b) only when the
controversy between the parties arises out of that contract or lease.
Because of the unilateral manner in which the Developer drafts, signs, and
records the CC&Rs before the association exists independently, the CC&Rs is
clearly something other than a “contract or lease” between the association and
developer as defined by the Civil Code.5 (Opinion, p. 8, 14.) This becomes
patently clear when one reviews the statutory elements of a contract.6
The Court of Appeal simply applied well settled principles this Court has
afready pronounced in the context ofjury trial waivers. Section 638 does not
expressly apply to CC&Rs. Further review is unnecessary. This Court has
already, in effect, dispensed with the crux of Intergulf’s Petition, as follows: “[a]s
our recitation of California’s Constitutional history reveals, unless the Legislature
Although the Association was incorporated in 2001, Intergulf completelydominated and controlled it until well after all sales and occupancy, into June2003. (Exh. 13, Page 162.)6 California Civil Code 1550 provides: “It is essential to the existence of acontract that there should be: (1) Parties capable of contracting; (2) Their consent;(3) A lawful object; and, (4) A sufficient cause or consideration. California CivilCode section 1556 requires “The consent of the parties to a contract must be: (1)Free; (2) Mutual; and, (3) Communicated by each to the other.” Faced with thequestion of how the CC&Rs meet this statutory definition at oral argument, thetheory proposed by Intergulf was the Developer made an “offer” to theAssociation by recording the CC&Rs, which the Association “accepted” on thedate of its inception (years later) and simultaneously with the issuance of the firstdeed of a unit to a buyer. During oral argument the Court of Appeal referred toIntergulf’s argument as the “Big Bang Theory of Contracts,” and declined theinvitation to revolutionize the theory of contract formation.
9
prescribes a jury waiver method, we cannot enforce it.” Graflon Partners, supra,
36 Cal.4t at 956.
C. The Petition Seeks Legislation, Not Supreme Court Review
Interguif’ s Petition should be directed to the Legislature. It is axiomatic
that authority for a jury trial waiver must come from the Legislature, not the
Judiciary, as a jury trial can only be “waived by the consent of the parties
expressed as prescribed by statute.” California Constitution, Article I, Section 16.
The Legislature has been prolific over the past fifteen years in establishing
mandatory statutory alternative dispute resolution procedures available to
developers and homeowner associations.7 Despite heavy legislation, the
Legislature has yet to expand section 638 to apply to the CC&Rs for a common
interest development.
[E}xcept in the most extreme cases where legislative intent and theunderlying purpose are at odds with the plain language of the statute,an appellate court should exercise judicial restraint, stay its hand,and refrain from rewriting a statute to find an intent not expressed bythe Legislature.” Unzueta v. Ocean View School Dist. (1992) 6Cal.App.4th 1689, 1700, citing Wells Fargo Bank v. Superior Court(1991) 53 Cal.3d 1082, 1098.
This Court should deny review, and defer this issue to the Legislature.
Through the Legislative process, the myriad of due process concerns that would
arise from such a statutory scheme could be thoroughly negotiated and addressed.
See Civil Code section 1375, compelling a pre-litigation notice andmediation process between a developer and homeowner associations. See alsoCivil Code sections 895-945, a comprehensive notice/repair/mediation statutoryscheme applicable to disputes between developers and home buyers under realestate purchase contracts signed after January 1, 2003. Civil Code section 938.
10
D. The Decision Is Consistent With Fourth District, Division Three’sDecision In Villa Milano v. Ii Davorge (2000) 84 cal.App.4th 819.
Interguif s “conflict of law” argument is primarily premised upon Villa
Milano v. IlDavorge (2000) 84 Cal.App.4th 819, an earlier Court of Appeal
opinion also refusing to enforce a mandatory binding alternative dispute resolution
clause (an arbitration clause) the developer included in the CC&Rs for a
development. Although in Villa Milano, the reviewing Court assumed -- without
providing any “analytical framework”8-- the clause in the CC&Rs constituted an
arbitration agreement between the Association and Developer, the Court went on
to hold the “agreement” in the CC&Rs was so devoid of mutual consent that the
clause was unenforceable against the Association. 84 Cal.App.4th819, 828-833.
In its Petition, Interguif boldly ignores the central holding of Villa Milano
that the arbitration clause lacked mutual consent and was unenforceable in an
effort to manufacture a conflict of law that does not exist. The Court of Appeal’s
Decision in this matter is in accord with Villa Milano on this fundamental point.
Each opinion holds a mandatory jury trial waiver included by a developer in an
association’s CC&Rs lacks mutual consent by the association and is
unenforceable. (Villa Milano, supra, 84 Cal.App.4that 828; Opinion, pp.13-14.)
The Villa Milano court conceded “..the cited cases do not provide ananalytical framework for addressing the issue why the homeowners association,which makes no purchase, is also bound contractually. However, neither theAssociation nor Ii Davorge raises this point, so we need not address it at length.....“ 84 Cal.App.4t’819 at 826 (fn. 4).
11
In analyzing Villa Milano, the Court of Appeal aptly noted Villa Milano
preceded Graflon Partners. (Opinion 11.) Neither side in Villa Milano raised the
Constitutional issues that a jury trial waiver implicates, or the standard of review
applicable to a statute providing for jury waivers. More importantly, the Court of
Appeal in this case — in a manner entirely consistent with Villa Milano’s holding
an arbitration clause buried in the CC&Rs lacks mutual consent of the parties --
correctly observed the CC&Rs unilaterally created by the developer lacks the type
of consent required to support a waiver of the Association’s Constitutional right to
a jury trial under section 638. (Opinion 12-14.) Treo and Villa Milano reached the
same conclusion: CC&Rs are not the proper vehicle for a jury trial waiver under
the current statutes. There is no conflict of law on this fundamental point.
E. The Remaining Cases Cited By Interguif Are Distinguishable And DoNot Compel Further Review
The remaining cases Intergulf cites for the proposition the CC&Rs
constitute a “written contract” between the Association and Developer are cases in
which the reviewing courts observed CC&Rs create obligations between owners,
or between the owners and the association, not the association and developer.
The Court of Appeal correctly drew this distinction. (Opinion, 11-12.)
Some of the opinions cited by Intergulf borrow principles from contracts
law to aid in interpreting CC&Rs in owner versus owner, or owner versus
homeowner association, disputes relating to the use or governance of the property,
and some of the opinions discuss the hybrid nature of CC&Rs (part property, part
12
contract). See Citizens for Covenant Compliance v. Anderson (1995) 12 Cal.4th
345, 366 (owner versus owner dispute; CC&Rs are enforceable equitable
servitudes, in absence of privity of contract); Nahrstedt v. Lakeside Village
Condominium Assn. (1994) 8 Cal.4th 361, 380-381 (owner versus association
dispute; CC&Rs enforceable as equitable servitudes in absence of privity of
contract); see also Barrett v. Dawson (1998) 61 Cal.App.4th 1049,1054 (owner
versus owner dispute).9 See also Sproul & Rosenberry, Advising Cal. Comon
Interest Communities (Cont. Ed. Bar. 2003) sections 4.74-4.76 (questioning
whether CC&Rs should always be treated as contracts.) (Opinion, pp. 11-12.)
B.C.E. Development, Inc. v. Smith (1989) 215 Cal.App.3d 1142, also relied on by
Interguif, is a quirky case in which the developer (by the express consent of the
owners, unlike here) continued to control the Architectural Committee long after
sales were completed. B.C.E., supra, does not support Interguif’s Petition. Like
the other cases, the B. C.E. Court did not refer to the CC&Rs as a contract but as an
equitable servitude relating to the use of the property (because there was no
contract). These cases simply illustrate the doctrine of equitable servitudes,
governing the interpretation of CC&Rs, borrows some principles from real
property law, and some principles from contract law. None of these cases stand
for the notion CC&Rs are “written contracts” between a developer and the
See also Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490,512-513; Share v. Casiano Bel-Air Homeowners Assn. (1989) 215 Cal.App.3d515, 522-523; Franklin v. Marie Antoinette Condominium Owners Assn. (1993) 19Cal.App.4th 824,828, 833-834; Fourth La Costa Condominium Owners Assn. v.Seith (2008) 159 Cal.App.4th 563-575, all owner/association disputes..
13
association, as defined by the Civil Code, and as strictly required under section
638. In fact, all the cases Interguif relies on stand for the proposition CC&Rs are a
means to enforce promises regarding the use of the property, in the absence of a
contract. The Court of Appeal was correct to stop at this threshold issue under
section 638.
F. The Issue Is Not “Cleanly Presented” Because Of The UnresolvedAlternative Issue Of Unconscionability.
In Ross v. Moffitt, 417 U.S. 600, 617 (1974), Chief Justice Rehnquist noted
that a grant of review “depends on numerous factors other than the perceived
correctness of the judgment [the Court is] asked to review.” For example, “the
Court prefers to take cases in which the facts are simple and clear and the legal
issue is presented crisply.” Stewart A. Baker, Symposium on Supreme Court
Advocacy: Practical Guide to Certiorari, 33 Cath. U.L.Rev. 611, 616 (1984)
[cited by Allapattah Servs., Inc. v. Exxon Corp. (11th Cir.2004) 362 F.3d 739,
768-7699 (Tjoflat, J., dissenting)].
This case does not present a suitable vehicle for Supreme Court review of
whether CC&Rs are a proper means to enforce a jury trial waiver under section
638. Other issues complicate the ultimate disposition. Andrulonis v. US. (2nd
Cir. 1994) 26 F.3d 1224, 1228-1229 [“relatively unusual and complicated facts”].
As set forth above, the Association’s opposition to Interguif’s motion was two
fold. First, the CC&Rs do not constitute a “written contract” between the
association and developer for judicial reference, as required by section 638.
14
Second and in the alternative, the Association argued if the CC&Rs are deemed a
“written contract” under section 638, then it is unconscionable and unenforceable.
The Court of Appeal agreed the CC&Rs are not a “written contract”
between Interguif and the Association under section 638 and consequently did not
reach the alternative issue of unconscionability. Thus, review by this Court will
not fully or cleanly resolve the dispute between these parties. At the very least,
this Court would either have to remand to the Court of Appeal for further
consideration of the unconscionability issue, or handle it here without benefit of an
intermediate Court of Appeal’s analysis. (See accompanying Statement of
Additional Issue for Review.) See White v. Finkbeiner (7th Cir. 1985) 753 F.2d
540, 546, fn. I [“By allowing issues to percolate up through the various circuits,
the Supreme Court .. . [benefits] from observing the treatment of issues in different
contexts, the alternative resolutions of issues, and even the mistakes of appellate
courts.”]. In sum, these issues are not “cleanly presented” to this Court.
CONCLUSION
The Court of Appeal faithfully applied the principles this Court has already
pronounced, that the Constitution requires any purported jury trial waiver be made
in a manner expressly provided for by statute. Judicial expansion of section 638
beyond its express terms to apply to CC&Rs would be improper, and that is the
bedrock upon which the Decision properly rests. Review of the Court of Appeal’s
decision is not necessary, as there is no conflict of law and the Decision is well
15
supported. Interguif’s Petition does not present any other basis for invoking this
Court’s review under California Rules of Court, Rule 8.500.
Dated: 3.) ‘Z..- K Respectfully submitted,EPSTEN GRINNELL & HOWELL APC
By:
________________
Jon H. Epsten, Esq.Anne L. Rauch, Esq.Attorneys for TREO @ KETTNER
HOMEOWNERS ASSOCIATION
16
STATEMENT OF ADDITIONAL ISSUE
In the event this Court grants review on the issue framed by Interguif’s
Petition, Association requests the Court consider the following additional issue.
This additional issue was included in Association’s Petition for Writ of Mandate
as an alternative argument to its first position that the CC&Rs are not a “written
contract” between the Association and Developer under section 638.
Additional Issue for Review
Is a provision included by a developer in the CC&Rs for a common interest
development, stating that all disputes between the homeowners association and the
developer for construction defects must decided by a Judicial Referee, who can
decide all issues of law and disputed facts (even in the context of a motion for
summary judgment or adjudication) unconscionable and unenforceable by the
developer against the association?
Summary of Relevant Facts
1. Prior to Interguif s sale of any of the units within the Treo @ Kettner
condominium complex located in downtown San Diego, Interguif recorded a
Declaration of Covenants, Conditions and Restrictions (“CC&Rs”) against the
Treo at Kettner condominium project. (Exh. 67, 2547:1-5.) Interguif unilaterally
drafted, executed, and recorded the CC&Rs against the Treo @ Kettner project.
(Exh. 60, Page 1532, 1634.)
17
2. There was no negotiation or expression of mutual consent to the
CC&Rs by and between Interguif and the Association. At the time the CC&Rs
were recorded in 2001 and amended in January 2003, Interguif completely
controlled the Board of Directors for the Association. (Exh. 13, Page 162:15-19.)
3. The CC&Rs include a section purportedly requiring any civil action
which may be brought by the Association against Interguif for construction defects
to go to trial by way of a general judicial reference, thereby waiving (if
enforceable) the Association’s right to a jury trial. (Exh. 60, Pages 1532, 1626-
1632; Exh. 67, Page 2547:1-5.) The Judicial Referee would be empowered to
make all fact determinations not only during trial but also on a motion for
summary judgment or adjudication, thereby eliminating Association’s ability to
cross examine key witnesses on factual disputes. (Id.)
4. Under the CC&Rs, the Association owns certain portions of the
project, and maintains the Common Area of the project, which includes the
Recreational facilities, the structure of the building, the exterior building envelope,
certain common grounds, and other components within the walls and floors of the
building. (Exh. 34, Pages 330, 331, 340, 375.) Owners only maintain their Units,
which are measured (generally speaking) from the interior surfaces of the walls
and floors of the individual condominium units. (Id.)
5. Although Interguif inserted Judicial Reference provisions in the
individual purchase contracts with the purchasers of the individual units, these
provisions related to disputes Owners may have with respect to their separate
18
interests (Exh. 42, Page 1311), as the Owners do not maintain the common areas
of the condominium complex which is the structure of the building. (Exh. 34,
Page 349.) In addition, the Association is an entity separate from the individual
Owners with its own rights, remedies, and obligations for maintenance of the
common areas. (Exh. 34, Page 330 (Section 2.7) and Page 349.)
6. Moreover, almost 60% of the Owners at Treo and Members of the
Association are successor Owners who purchased from someone other than
Intergulj and therefore did not enter into a purchase contract with LNTERGULF
and had no opportunity to negotiate with the developer on any issue including
judicial reference. [Exh. 26, Page 264:12 - 265:3; Exh. 34, Pages 430-1056
(vesting deeds) and Pages 1058-1076 (summary of vesting deeds).]
Legal Argument
The judicial reference provision is adhesive and procedurally
unconscionable because the Association did not expressly consent to it, nor did the
Association have any ability to negotiate that provision. (Villa Milano
Homeowners Association v. Ii Davorge (2000) 84 Cal.App.4th 819, 824.) The
Judicial Reference provisions are both procedurally and substantively
unconscionable. Although both procedural and substantive unconscionability
must be present for a finding of unenforceability, unconscionability entails a
sliding scale analysis. While both must be present, they need not be present in
equal amounts. “There is a sliding scale where the greater the evidence of
procedural unconscionability, the less evidence is needed of substantive
19
unconscionability.” McManus v. CIBC World Markets Corp. (2003) 109
Cal.App.4th 76, 91; Harper v. Ultimo (2003) 113 Cal.App.4th 1402; Gatton v. T
Mobile USA, Inc. (2008) 152 Cal.App.4th 571, 579. As set forth above, the CC&R
provisions for Judicial Reference are the epitome of procedural unconscionability -
- it was burdened on the property, with no possibility of negotiation, amendment,
or choice whatsoever. As such, a lower showing of substantive unconscionability
is required in order to meet the test of unenforceability. Id.
Here, the substantive unconscionability is patent on public policy grounds,
and latent in the practical application of the provision. It is patently
unconscionable because it provides for a waiver of the Constitutionally-protected
right to a jury trial in a manner not expressly provided for by statute, and is
therefore against public policy. As the Fourth District Court of Appeal, Division
One, determined in evaluating the enforceability of a judicial reference provision
in new home purchase contracts in Pardee Construction Company v. Superior
Court (2002) 100 Cal.App.4th 1081, there are a number of statutes which, taken
together, evince a public policy favoring jury trials in construction defect actions.
(See Civil Code section 1375, providing for trial following alternative dispute
resolution process. See also Code of Civil Procedure section 1298.7, rendering
arbitration provisions in new home contracts unenforceable in the construction
defect context.)
The terms of the provision in Treo’s CC&Rs also constitute a forfeiture of
basic principles of fairness in the law and motion leading up to trial, including the
20
provision which purports to permit the Judicial Referee to decide disputed issues
of fact on a motion for summary judgment -- thereby eliminating Association’s
right to cross-examine witnesses on material disputed issues of fact and turning
law and motion practice on its head.
The judicial reference provisions of the CC&Rs compelling the
Association’s claims for design and construction defects against Interguif are
procedurally and substantively unconscionable, and should not be enforced in the
construction defect lawsuit by Association against Interguif, and others,
responsible for the original development, design, and construction of the
Treo@Kettner condominium development.
Dated: ,4)2 V 3 Respectfully submitted,EPSTEN GRINNELL & HOWELL APC
By:
____________________
Jon H. Epsten, Esq.Anne L. Rauch, Esq.Attorneys for TREO @ KETTNERHOMEOWNERS ASSOCIATION
21
CERTIFICATE OF COMPLIANCE RE WORD COUNT AND FORMAT
I, Anne L. Rauch, counsel for Treo @ Kettner Homeowners Association,
certify that the text of this Answer to Petition for Review consists of 4,845 words
in Times New Roman 13-point font, as counted by the Microsoft Word word
processing program used to generate this Answer.
Dated: November 3, 2008 EPSTEN GRINNELL & HOWELL, APC
By:Anne L. Rauch, Esq.Attorneys for TREO@KETTNERHOMEOWNERS ASSOCIATION
22
SUPREME COURT OF THE STATE OF CALIFORNIA FOR COURT USE ONLYTREO@KETTNERHOAV.
SUPERIOR COURT OF THE STATE OF CALIFORNIA,FOR THE COUNTY OF SAN DIEGO
INTERGULF_CONSTRUCTION_CORPORATION,_et al,_Real_Parties_in_InterestJon H. Epsten (SBN 110480) Tel: (858) 527-0111Anne L. Rauch (SBN 182990) Fax: (858) 527-1531EPSTEN GRINNELL & HOWELL, APC9980 Carroll Canyon Road, 2 FloorSan Diego, CA 92131
Attorneys for Case No. Si 67651Petitioner TREO KETTNER (Appellate Case No. D052402)
HOMEOWNERS ASSOCIATION (SDSC #G 1C87971 8)
DECLARATION OF SERVICE
I, the undersigned, declare: that I am, and was at the time of service of the papers herein referred to, over the age of 18 years,and not a party to the action; and I am employed in the County of San Diego, California, within which county the subject serviceoccurred. My business address is 9980 Carroll Canyon Road, 2’’ Floor, San Diego, CA 92131. On November 3,2008, I served thefollowing documents:
ANSWER FOR PETITION FOR REVIEW
X (BY MAIL). On November 3, 2008, I caused such document(s) to be placed in an envelope with postage thereon fullyprepaid to be placed in the United States mail at San Diego, California. I am readily familiar with the practices of EpstenGrinnell & Howell, APC, for collection and processing of correspondence for mailing with the United States Postal Service,
-‘ Federal Express and UPS. Such correspondence is deposited with the United States Postal Service, Federal Express, orUPS the same day in the ordinary course of business. A list of the parties served via First-Class Mail is attached hereto asExhibit “A.”
(BY ELECTRONIC TRANSMISSION). I caused service of such document(s) through the Courtlink system. Upon completionof said transmission of said document(s), a certified receipt is issued to filing party acknowledging receipt by Courtlink’ssystem. Once Courtlink has served all designated recipients, proof of electronic service is returned to the filing party.
D (BY TELECOPIERIFACSIMILE). I caused such document(s) to be telecopied/faxed to the following number(s):
(BY OVERNIGHT MAIL). I caused such documents to be mailed via overnight mail.
I declare under penalty of perjury that the foregoing is true and correct and that this Declaration was executed onNovember 3, 2008, at San Diego, California.
Linda Gage Pomerinke
EXHIBIT “A”
INTERGULF HOLDINGS, KETTNER, LLC% Corporation Trust Company, Authorized Agent1029 Orange StreetWilmington, DE 19801
A&D Fire Protection, Inc.% Mr. Andrew Otero11465 Woodside Avenue, 1st FloorSantee, CA 92071
CM Firestop, Inc.% Gary Richard Bond Esq.501 West Broadway, Suite 1660San Diego, CA 92101Tel: (619)230-8700Fax: (619)232-2544
Dutch Masonry, in pro per% Klaas Renes1360 Seven Oak RoadEscondido, CA 92026Tel: (760)741-2740
Ecco Heating Products, Ltd.Ecco Manufacturing% Giovanna FerrariSEYFARTH SHAW, LLP560 Mission Street, Suite 3100San Francisco, CA 94105Tel: (415)544-1019Fax: (415)397-8549
Kryton International, Inc% Miles AlpersteinMiles Alperstein Law Corporation1450-1075 West Georgia StreetVancouver, BC V6E 3C9Tel: (604)682-0701Fax: (604)682-7359
RA Greene Corporation% Nancy Greene1234 Industrial AvenueEscondido, CA 92029
INTERGULF CONSTRUCTION COMPANY% Joachim Werner, Agent for Service5040 Shoreham Place, #100San Diego, CA 92122
Aztec Sheet Metal, Inc.% Mr. Richard Buxton11222 Woodside Avenue NorthSantee, CA 92071
Carrier Johnson% Kevin V. DeSantis, Esq.Butz Dunn DeSantis & Bingham101 West Broadway, Suite 1700San Diego, CA 92101Tel: (619)233-4777Fax: (619)231-0341
East & West Alum Craft, Ltd.% Lindsay Piccoli7465 Conway AvenueBurnaby, British Columbia Canada V5E 2P7Fax: (604)438-4021
Gordon Spratt & Associates, LimitedSpratt Emanuel Engineering, Ltd.% Mark R. Frederick, Esq.Miller Thompson, LLPScotia Plaza40 King Street West, Suite 5800Toronto, Ontario M5H 3S1Tel: (416)595-8175Fax: (416)595-8695
Paramount Tile, Inc.% Christoper J. Koorstad, Esq.1235 North Harbor Boulevard, Suite 200Fullerton, CA 92832-1349Tel: (714)871-1132Fax: (714)871-5620
Sterling Cooper & Associates% George Steeves, Authorized Agent1777 West 8th AvenueVancouver, BC V6J 1V8Tel: (604)734-9338Fax: (604)737-7102
Suncrest Cabinets, USA, Inc.Suncrest Cabinets, Inc.% Donald G. WalkerAttorney at Law99 Elm AvenueLarkspur, CA 94939Tel: (415)457-1427Fax: (415)479-1177
Valentine S. Hoy, VIII, Esq.Anne M. Epperly, Esq.LUCE FORWARD HAMILTON & SCRIPPS, LLP600 West Broadway, #2600San Diego, CA 92101Tel: (619)236-1414Fax: (619)645-5383
Attorneys for INTERGULF CONSTRUCTIONCORPORATION; INTERGULF DEVELOPMENTS(KETTERN) CORP.; INTERGULF DEVELOPMENTCORPORATION; INTERGULF DEVELOPMENT (USA)CORP.; and INTERGULF DEVELOPMENT GROUP
James R. Lance, Esq.Ethan T. Boyer, Esq.Lauren E. Butz, Esq.Kirby Noonan Lance & Hoge350 Tenth Avenue, Suite 1300San Diego, CA 921 01-8700Tel: (619)231-8666Fax: (619)231-9593
Attorneys forALLEGIS DEVELOPMENT SER WCES, INC
Tamara A. Laskin, Esq.DEMLER ARMSTRONG & ROWLAND, LLP4500 East Pacific Coast HighwayFourth FloorLong Beach, CA 90804-3298Tel: (562)494-3958Fax: (562)494-3958
Attorneys for BRIAN COX MECHANICAL, INC.
Wilkinson Hi Rise, Inc.% Mitchell Stein451 South Irwindale AvenueAzusa,CA 91702
Charles K. Egan, Esq.Lincoln Gustafson & Cercos225 Broadway, Suite 2000San Diego, CA 92101Tel: (619)233-1150Fax: (619)233-6949
Attorneys for ALCALA COMPANY, INC.
Benjamin R. Trachtman, Esq.TRACHTMAN & TRACHTMAN27401 Los Altos, Suite 300Mission Viejo, CA 92691Tel: (949)282-0100Fax: (949)282-0111
Attorneys for BERGELECTRIC CORP.
Michael B. Martin, Esq.GRIMM, VRANJES, MCCORMICK & GRAHAM, LLP550 West “C” Street, Suite 1100P. 0. Box 129012San Diego, CA 92112-9012Tel: (619>231-8802Fax: (619)233-6039
Attorneys for BASF CONSTRUCTION CHEMICALS, LLC, fkaDEGUSSA BUILDING SYSTEMS, fka CHEMREX
Gregory D. Hagen, Esq.DRATH CLIFFORD MURPHY & HAGEN, LLP600 B Street, Suite 1550San Diego, CA 92101-4506Tel: (619)595-3060Fax: (619)595-3066
Attorneys for CANADIAN HEATING PRODUCTS, LTD,and MONTIGO DEL RAY CORP.
Donna E. Moore, Esq.OSMAN & ASSOCIATES9325 Sky Park Court, Suite 230San Diego, CA 92123Tel: (858)616-6160Fax: (858)616-6170
Attorneys for HP FORMING INTL, LTD.
Charles L. Harris, Esq.LEWIS BRISBOIS BISGAARD & SMITH, LLP650 Town Center Drive, Suite 1400Costa Mesa, CA 92626Tel: (714)545-9200Fax: (714)850-1030
Attorneys for GLOTMAN • SIMPSON
Thomas A. Balestreri, Esq.Scott Silber, Esq.BALESTRERI, PENDELTON & POTOCKI401 “B” Street, Suite 1470San Diego, CA 92101-4223Tel: (619)686-1930Fax: (619)497-1052
Attorneys for LAKEVIEW BUILDING SYSTEMS, INC.
John A. Simpson, Esq.SIMPSON, DELMORE, GREENE, LLP600 West Broadway, Suite 400San Diego, CA 92101Tel: (619)515-1194Fax: (619)515-1197
Brian K. Stewart, Esq.Michael L. Wroniak, Esq.COLLINS, COLLINS, MUIR & STEWART, LLP750 The City Drive, Suite 400Orange, CA 92868Tel: (714)823-4100Fax: (714)823-4101
Attorneys for CONSTRUCTION ADMINISTRA TORS
Susanneh M. Mitchell, Esq.Chris Cruz, Esq.BRYAN CAVE, LLP3161 Michelson Drive, Suite 1500Irvine, CA 92612Tel: (949)223-7000Fax: (949)223-7100
Attorneys for GLASS FACTORY, INC.
John Michael Harmata, Esq.HARMATA & ASSOCIATES, APLC550 West “C” Street, Suite 1960San Diego, CA 92101Tel: (619)233-4711Fax: (619)231-1389
Attorneys for J.P. WITHEROW ROOFING COMPANY
Michael M. Edwards, Esq.Craig A. Weeber, Esq.BYRON & EDWARDS, APC402 West Broadway, Suite 1900San Diego, CA 92101-3550Tel: (619)400-5880Fax: (619)400-5881
Attorneys for McPARLANE & ASSOCIATES, INC.
Chrissa N. Corday, Esq.CORDAY & HARTNEY, PLC11665 Avena Place, Suite 202San Diego, CA 92128Tel: (858)385-2772Fax: (858)385-1771
Attorneys for MISSION POOLS OF ESCONDIDO, INC.Attorneys for PC Iron, Inc., dba Pacific Coast Iron
Timothy S. Noon, Esq.André M. Picciurro, Esq.NOON & ASSOCIATES, APC501 W. Broadway, Suite 710San Diego, CA 92101Tel: (19)235-6200Fax: (619)235-6233
David M. Hall, Esq.LAW OFFICES OF THOMAS A. MARSHALL501 West Broadway, Suite 1000San Diego, CA 92101Tel: (619)235-1379Fax: (619)235-1399
Attorneys for PROFESSIONAL SERWCE INDUSTRIES
Keith C. Cramer, Esq.GORDON & REES, LLP101 West Broadway, Suite 1600San Diego, CA 92101Tel: (619)696-6700Fax: (619)696-7124
Attorneys for STO CORP, dba STO INDUSTRIES, INC
Garry McCarthy, Esq.LEWIS BRISBOIS BISGMRD & SMITH, LLP550 West “C” Street, Suite 800San Diego, CA 92101-3540Tel: (619)233-1006Fax: (619)233-8627
Attorneys for SUPERIOR GUNITE
John J. Higgins, Esq.Joseph Mälte Bickley, Esq.HIGGINS HARRIS SHERMAN & ROHR, APC45-445 Portola Avenue, Suite 1Palm Desert, CA 92260Tel: (760)568-3009Fax: (760)568-9719
Attorney for STARLINE WINDOWS, INC.
Robert B. Titus, Esq.Brandi G. Wallace, Esq.STUTZ ARTIANO SHINOFF & HOLTZ, APC2488 Historic Decatur Road, Suite 200San Diego, CA 92106(619)232-3122Fax: (619)232-3264
Attorneys for SUNDT CONSTRUCTION, INC
James R. Balich, Esq.Wilson K. Park, Esq.SCHIFF HARDIN, LLPSpear Street TowerOne Market, 32nd FloorSan Francisco, CA 94105Tel: (415)901-8700Fax: (415)901-8701
Attorneys for TREMCO, INC., a California corporation;WEATHEPROOFING TECHNOLOGIES, INC., fka TREMCOSERVICE CORPORA TION
Shaun K. Boss, Esq.LAW OFFICES OF SHAUN K. BOSS, APC306 Upas StreetSan Diego, CA 92103-4921Tel: (619)293-7937Fax:(619)293-7939
Attorneys for VULCAN MATERIALS COMPANY Attorneys for WILLIAM KELLY & SONS, CALIFORNIA, INC.
James Morris, Esq.KENNEDY & SOUZA, APC1230 Columbia Street, Suite 600San Diego, CA 92101Tel: (619)233-8591Fax: (619)233-8593
Attorney WINDCO PAINTING, INC
The Hon. Ronald S. PragerSUPERIOR COURT OF THE STATE OF CALIFORNIA,County of San Diego, Office of the ClerkPost Office Box 2724San Diego, CA 92112
Office of the Attorney GeneralPost Office Box 85266San Diego, CA 92186
On behalf of The People of California
CALIFORNIA COURT OF APPEALFourth Appellate District750 B Street, Suite 300San Diego, CA 92101-8189