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Developer Prohibited from Enforcing Arbitration Clause Written into Governing Documents

By Mark M. Wiechnik

A recent court ruling unraveled a developer's creative attempt to avoid litigation related to its construction of a new condominium.  Pinnacle Market Development designed and constructed the Pinnacle Museum Tower Condominiums in San Diego California.  Contained within the association's governing documents was a clause which stated that all disputes with the developer must be decided through arbitration rather than via a jury trial.  After the association filed suit against the developer for construction defects which caused damage to the common areas, the developer filed a motion with the court to dismiss the case and enforce the arbitration clause. 
 

The court found that from a contractual standpoint, such an agreement could never be enforceable.  The developer created the association after the governing documents were drafted, and also controlled the association until the unit owners were elected to the board.  Given the fact that the Association did not exist at the time the "contract" was made, and that the developer was essentially contracting with itself, the court refused to enforce the arbitration clause.  The association's lawsuit was permitted to continue to recover damages to the association for various construction defects and deficiencies. 

Full post as published by New Jersey Law Blog on October 06, 2010 (boomark / email).