• The Fourth District Strikes Again
  • July 15, 2011
  • Law Firm: Hanna Van Atta - Palo Alto Office
  • THE FOURTH DISTRICT STRIKES AGAIN

    By John Paul Hanna and David M. Van Atta

    Are CC&R provisions requiring construction defect claims to be handled by arbitration or judicial reference dead on arrival?

    The Pinnacle Museum Tower Decision

    There are two cases now pending before the California Supreme Court concerning the use of binding arbitration and judicial reference clauses in Covenants, Conditions, and Restrictions (CC&Rs) by developers who sell lots or units in residential real estate projects: Villa Vicenza Homeowners Ass’n v Nobel Court Dev., LLC (review granted Apr. 20, 2011, S190805; superseded opinion at 191 CA4th 963, 120 CR3d 217) and Pinnacle Museum Tower Ass’n v Pinnacle Market Dev. (US), LLC (review granted Nov. 10, 2010, S186149; superseded opinion at 187 CA4th 24, 113 CR3d 399). Discussion of the facts of these cases and the parties’ respective arguments are taken from the now-depublished opinions. Villa Vicenza was reported at 34 CEB RPLR 58 (March 2011) (affirmed on rehearing) and 33 CEB RPLR 122 (July 2010) (initial appellate decision). Pinnacle was reported at 33 CEB RPLR 159 (Sept. 2010).

     

     

    For many years, developers have attempted to protect themselves from protracted and complex litigation, with the risk of potentially unwarranted jury awards, involving construction defect disputes in the sale of new or converted residential housing projects. Developers have inserted language in the CC&Rs for residential projects requiring that construction defect disputes be resolved by alternative dispute resolution procedures, such as arbitration or judicial reference. These provisions have been worded to bind not only the project unit or lot owners who are members of the project’s homeowners association, but also the association itself. In addition, developers have inserted mandatory arbitration and judicial reference provisions in purchase and sale agreements made with the buyers of units or lots. Sometimes such contract provisions incorporate by reference the provisions of the CC&Rs on dispute resolution.

    In Villa Vicenza, the California Court of Appeal, Fourth District, held that a developer could not enforce the arbitration provision in the CC&Rs against the association or the owners because there was no contractual relationship between the developer and those parties. In Pinnacle, the Fourth District struck another blow against the use of binding arbitration and judicial reference clauses in CC&Rs by developers who sell lots or units in residential real estate projects. These cases raise two major concerns:

    (1)    Can a developer compel a buyer under a purchase and sale contract and/or CC&Rs for a common interest development to arbitrate a construction defect claim regarding the residence sold or the common area that is appurtenant to the residence?

    (2)    Can the developer, by provisions in the purchase contract or the project’s CC&Rs, compel the homeowners association to resolve construction defect claims of the association, as to the common areas, through arbitration or other alternative dispute resolution means, such as judicial reference?

    In light of the appellate decisions in Pinnacle and Villa Vicenza, we explore whether, pending ultimate determination by the supreme court, anything can be done, short of a statutory change, to ameliorate the results of these cases. Can CC&Rs or purchase contracts be revised to fit within the dictates of the opinions in Pinnacle and Villa Vicenza, and the earlier cases on this issue, such as Treo @ Kettner Homeowners Ass’n v Superior Court (2008) 166 CA4th 1055, 1066, 83 CR3d 318 (reported at 31 CEB RPLR 212 (Nov. 2008))?

    Referencing previous California appellate court decisions from the Fourth District, such as Treo, the Pinnacle court found that developers’ efforts to insert such mandatory arbitration clauses were, essentially, a nullity. In Pinnacle and Villa Vicenza such provisions were found to be both procedurally and substantively unconscionable. Importantly, the court also found that inserting such mandatory arbitration provisions in a purchase and sale contract and in the common interest development’s CC&Rs did not create a contractual obligation of the project’s owners association to arbitrate. Although the Federal Arbitration Act (FAA) (9 USC §§1-16) was found to govern the arbitrability of the matter, the Fourth District Court of Appeal stated that the FAA did not determine whether a contract to arbitrate was actually made and effectuated. 

    The rulings in Pinnacle and Villa Vicenza conflict with some earlier California appellate court cases concerning the issue of a mandatory arbitration clause. However, the tendency of at least the Fourth District Court of Appeal is to disfavor any attempt by developers to deprive home buyers or homeowners associations of the right to seek a jury trial.

    There is clearly a stand-off between handling complex legal matters in a timely manner through arbitration or judicial reference, on the one hand, and potentially lengthy jury trials, on the other. The question for drafters of legal documents for developers in the home building industry is whether provisions to compel arbitration or judicial reference are warranted in the context of construction defect matters. Perhaps including such wording in the development’s documents only gives developers a false sense of security as to how legal disputes, particularly over construction defect matters, will be handled. One potential problem with jettisoning the arbitration or judicial reference language relates to insurance. Many insurance companies that provide insurance to developers, such as “wrap coverage” insuring against claims of negligence and strict liability for construction defects, essentially dictate the use of arbitration for resolution of such claims. If developers do not include these provisions, it is an open question whether insurance companies will balk at providing such wrap coverage to developers, their contractors, subcontractors, and design and construction consultants.

    An examination of the Pinnacle decision and other decisions is warranted to see if there is a bright line as to when mandatory arbitration or judicial reference provisions, whether stated in CC&Rs or in purchase and sale contracts, can be enforced. In Pinnacle, a homeowners association for a condominium project filed a construction defect action against the developer, on its own behalf and as a representative of its members, for damage to common areas, property owned by the association, and property owned by individual members. The Fourth District Court of Appeal concluded that an arbitration provision in the CC&Rs recorded by the developer of the condominium project—which could not be changed by the association without the written consent of the developer—did not constitute an “agreement” by the association sufficient to waive the constitutional right to a jury trial for construction defect claims brought by the homeowners association. Additionally, assuming the homeowners association was bound by a jury waiver provision contained in purchase and sale agreements signed by the individual condominium owners, the court concluded that the jury waiver provision in the purchase and sale agreements was not enforceable because it too was unconscionable. Accordingly, the appellate court affirmed the trial court’s order denying the developer’s motion to compel arbitration.

    In Pinnacle, the developer had attempted to highlight the existence of the arbitration provision. The second page of the project’s CC&Rs imposed by the developer stated, in capital letters, that article 18 contained a mandatory procedure for the resolution of construction defect disputes that included the waiver of the right to a jury. Article 18 of the CC&Rs contained an arbitration provision reciting, again in capital letters, that the developer, the condominium owners, and the association agreed to resolve any construction dispute through binding arbitration in accordance with the FAA and the California Arbitration Act (CAA) (CCP §§1280-1294.2). Specifically, the arbitration provision stated that by accepting a deed for any portion of the association property, the association and each owner agreed to give up their right to a jury trial and agreed to have any construction dispute decided by arbitration. None of this appeared to impress the court of appeal.

    In selling the condominiums, the developer used what was described as a standard purchase and sale agreement. This form of agreement recited on the first page that the buyer agreed to comply with the CC&Rs by accepting a grant deed to the condominium. The purchase agreement contained a section pertaining to dispute notification, resolution procedures, and waivers, which required the initials of the buyer and seller. This provision stated (187 CA4th at 32):

    Buyer and Seller agree that any certain disputes shall be resolved according to the provisions set forth in Article XVIII of the [CC&R’s] and waive their respective rights to pursue any dispute in any manner other than as provided in [the CC&R’s].  [¶] Buyer and Seller acknowledge that by agreeing to resolve all disputes as provided in [the CC&R’s], they are giving up their respective rights to have such disputes tried before a jury.  [¶] WE HAVE READ AND UNDERSTOOD THE FOREGOING AND AGREE TO COMPLY WITH ARTICLE XVIII OF THE [CC & R’s] WITH RESPECT TO THE DISPUTE REFERENCED THEREIN. [Capitalization and bold type in original.]

    The developer petitioned to compel arbitration of the matter, after the association had filed the action on its own behalf and as a representative of its members for damages to common areas, property owned by the association, and property owned by individual association members, including “subterranean parking garage, drainage, exterior walls, windows, decks, interior walls and doors, roof and electrical, plumbing, and mechanical components and systems.” The trial court denied the motion on the ground that, while the arbitration provision in the CC&Rs constituted an agreement to arbitrate entered into by the developer and the association, the court refused to enforce the arbitration provision because it was unconscionable. It also concluded that the association was not a party to the purchase and sale agreements; thus, the developer could not rely on the jury waiver provision in the purchase and sale agreements to compel arbitration as to the association.

     

    The Federal Arbitration Act

    The arbitration provision in the CC&Rs also provided that its interpretation was to be governed by the FAA because many of the materials incorporated into the project were manufactured in other states, and the project thus involved interstate commerce. In addition, the arbitration provision provided that it applied only to a construction dispute in which developer Pinnacle had been named as a party, and that it could not be amended without Pinnacle’s written consent.

    The court of appeal found that the FAA applied to the situation, but this did not resolve the developer’s concerns. Developers have inserted references to the FAA in CC&Rs and purchase and sale agreements with the goal of avoiding provisions in California law that are perceived as making enforcement of arbitration provisions difficult, particularly in matters pertaining to construction defects in residential housing. The court found that the FAA would apply to the matter at hand, as pertaining to a transaction involving interstate commerce. However, state law—not the FAA—determines whether the parties actually made a contract to arbitrate. “[T]he FAA does not apply until the existence of an enforceable arbitration agreement is established under state law principles involving formation, revocation and enforcement of contracts generally.” 187 CA4th at 33, citing Banner Entertainment, Inc. v Superior Court (1998) 62 CA4th 348, 357, 72 CR2d 598. In Villa Vicenza, the court stated that although the sale and financing of a large residential development created an interstate commerce connection sufficient to support application of the FAA, the binding arbitration clause in the CC&Rs did not provide any continuing contract rights to the developer, nor did it represent a binding contract on the part of the association to arbitrate its construction defect claims against the developer. State law governs the question of whether an agreement to arbitrate has been made.

    The Arbitration Provision in the CC&Rs Did Not Constitute an Agreement to Arbitrate

    The court of appeal stated in Pinnacle that:

    • There was no evidence that the association agreed to the arbitration provision;
    • The association could not have agreed to waive its constitutional right to a jury trial because, for all intents and purposes, the developer was the only party to the “agreement”; and
    • There was no independent homeowners association when Pinnacle recorded the CC&Rs. 

    There was no express acceptance by the association or any conduct by the association from which the necessary agreement could be implied.

    The court also rejected the developer’s claim that the association was bound by the arbitration provision as a third party beneficiary because the association was not seeking to enforce the arbitration provision in the CC&Rs.

    The court disagreed with a portion of the earlier Fourth District Court of Appeal’s decision in Villa Milano Homeowners Ass’n v Il Davorge (2000) 84 CA4th 819, 102 CR2d 1 holding that provisions in CC&Rs could be read to apply and bind the association to the arbitration provisions in the CC&Rs. In Villa Milano, the court concluded that an arbitration clause contained in the CC&Rs of a condominium homeowners association was a sufficient agreement to require the association’s construction defect claims against the developer to be submitted to arbitration. The Pinnacle court stated that it was following its decision in Treo @ Kettner Homeowners Ass’n v Superior Court, supra, which also declined to follow that aspect of the Villa Milano opinion.

    Essentially, the court in Treo found that although CC&Rs constitute a contract between owners in the project and the association, the portion of that contract compelling judicial reference was unenforceable. The CC&Rs could not be held to constitute a contract with the developer compelling judicial reference or waiving jury trial rights. It did not comport with the requirements under Grafton Partners L.P. v Superior Court (2005) 36 C4th 944, 32 CR3d 5 for a party’s valid agreement to waive its rights to a jury trial. The Pinnacle court reiterated the statement made in Treo that CC&Rs could be construed as a contract between and among owners and owners and the association “when the issue involved is the operation or governance of the association or the relationships between owners and between owners and the association.” 187 CA4th at 38, quoting Treo, 166 CA4th at 1066.

    Although Treo dealt with provisions in CC&Rs requiring judicial reference of disputes, the Pinnacle court stated that the general principles discussed in Treo regarding the need for free and voluntary consent before a party can be deprived of its constitutional right to a jury trial are equally applicable to arbitration.

    Perhaps controversially, the Pinnacle court emphasized the statement in Treo that the association did not come into existence and presumably have contracting powers until it “sprang into existence,” when a separate interest was conveyed with an appurtenant interest in the common area of the project. This statement should be challenged as to whether a common interest project association has the power to make contracts, if it has been duly incorporated and formed, even if there has yet to be any conveyance of a real property interest in the project. Under general principals of corporation law, the Treo statement is incorrect. Associations routinely enter into contracts (e.g., managerial or landscaping), open bank accounts, buy insurance, and do other such things before conveyance of common area property to the association.

    The Relationship Between Contract Provisions for Arbitration and the Davis-Stirling Act

    The court in Pinnacle found some support for requiring the association’s actual consent to the arbitration process in the statutory procedures relative to ADR and associations under the Davis-Stirling Common Interest Development Act (CC §§1350-1378). The court noted that the legislature has provided complex alternative dispute resolution procedures that a common interest development association must follow before it can file an action against a builder of a common interest development. See CC §1375. Furthermore, the court noted that the legislature has also enacted statutes providing a simple and efficient internal dispute resolution procedure to resolve disputes between an association and its members (CC §§1363.810-1363.850), stating (187 CA4th at 38):

    If this internal procedure does not resolve a dispute between an association and its members, additional statutes require the association and its members use an alternative dispute resolution procedure as a prerequisite to filing an enforcement action in superior court. (§§ 1369.510, 1369.520, subd. (a).)  Significantly, the Legislature stated that “[t]he form of alternative dispute resolution chosen pursuant to this article may be binding or nonbinding, with the voluntary consent of the parties.”  § 1369.510, subd. (a).)  This statement comports with the general principles we discussed in Treo, and reiterated here, that the waiver of the right to a jury requires an actual “agreement.” (Treo, supra, 166 Cal. App. 4th at p. 1066.)

    The Provisions of CC §945 (SB 800)

    Civil Code §945 is part of the “Right to Repair Act” (CC §§895-945.5) regarding construction defects in new residential housing. The Pinnacle court discussed the application of §945, stating that it creates the requisite privity between the association and the developer for the association to make warranty claims under the Right to Repair Act. This discussion related to the court’s earlier opinion in Windham at Carmel Mountain Ranch Ass’n v Superior Court (2003) 109 CA4th 1162, 135 CR2d 834 and whether the association could be found to have contracted for arbitration because it had privity under the Right to Repair Act. The court found that CC §945 and the Windham decision did not impact the question of whether a developer can compel a homeowners association to arbitrate its claims against the developer by an arbitration provision in the CC&Rs or purchase and sale agreements signed by individual homeowners. The fact that associations were declared to have standing to enforce the provision of the Right to Repair Act could not be interpreted to create the necessary privity of contract for the purpose of creating a binding arbitration agreement in CC&Rs. 

    The Role of the DRE

    The court determined in Pinnacle that the review and approval of the arbitration provision in the CC&R’s or the purchase and sale agreements by the Department of Real Estate (DRE) had no bearing on the matter that was the subject of the appeal. Notwithstanding the DRE’s right to review and approve the project documents, the court stated that it failed to see how the issuance of a public report as to a project with documents containing such provisions amounts to a ruling on the enforceability of any arbitration provision. (“Nothing in the regulation addresses the enforceability of a binding arbitration clause on homeowners associations.  (See Cal. Code Regs., tit. 10, § 2791.8.)” 187 CA4th at 40.)

    The Right to Amend

    The Pinnacle court considered tangentially the issue of whether the unit owners could amend the binding arbitration clause. The provision at issue in Pinnacle could not be modified without the developer’s consent. The court found this fact to be important, intimating that if the provision could be amended by the unit owners, then it would be more likely to be enforceable. To a practitioner representing the owners, this determination might give some solace. Providing the unit owners with the right to amend the provision might make it more likely that the arbitration provision would be enforceable. However, in reality, the net effect of this would seem to be counterproductive to the developer, because the unit owners could simply amend the provision before bringing an action on their claims.

    Arbitration Clause Contained in Real Property Sales Documentation Could Not be Enforced

    In Pinnacle the developer contended that because the association was suing as a representative of members who suffered damages to their individual units, the association should be bound by the jury waiver provision contained in the purchase and sale agreements signed by all original purchasers. The court rejected this argument because (1) the association was not a party to those contracts and had no standing to enforce them, and (2) assuming that the association was bound by the jury waiver provision contained in the purchase and sale agreements, the waiver provision was not enforceable because it was unconscionable. The purchase and sale agreements incorporated by reference the arbitration provision contained in the CC&Rs, with the individual owners agreeing to waive their right to a jury trial and comply with the provisions of the CC&Rs for certain disputes.

    As a threshold matter, the court noted that the legislature had addressed the form, content, and effect of arbitration clauses contained in real property sales documentation in CCP §§1298-1298.8. The court specifically referred to CCP §1298.7, prohibiting the enforcement of a binding arbitration provision in a purchase contract purporting to preclude a buyer from litigating a construction defect action in court. However, this reference to CCP §1298.7 ignores the ruling of the Third District Court of Appeal in Shepard v Edward Mackay Enters., Inc. (2007) 148 CA4th 1092, 56 CR3d 326, that this statute, permitting a purchaser of real property to pursue a construction defect case even if the agreement conveying real property contained an arbitration clause, was preempted by the FAA (based on the finding that building materials for the project came from outside of California).

    The association in Pinnacle did not dispute that the jury waiver provision in the purchase and sale agreements, together with the arbitration provision in the CC&Rs, constituted an agreement to arbitrate entered into by the developer and the original condominium owners. However, the court found that the jury waiver provision in the purchase and sale agreements was both procedurally and substantively unconscionable, providing grounds for revocation of the agreement to arbitrate. The court stated that generally applicable contract defenses such as unconscionability may be applied to invalidate arbitration agreements without contravening the FAA. Reading Pinnacle, one wonders if the Fourth Circuit could accept any arbitration provision in a developer’s purchase contract.

    The Pinnacle court made this finding of unconscionability even though the purchase and sale agreements contained a provision, which required the initials of the buyer and seller, that addressed dispute notification, resolution procedures, and waivers. It provided that the buyer and seller agreed to comply with article 18 of the CC&Rs with respect to construction disputes referenced in that article and agreed to give up their right to a jury trial for such disputes. However, the provision waiving the right a jury was neither in bold font nor capitalized. The court pointed out that only the portion of the provision stating “[w]e have read and understood the foregoing and agree to comply with Article XVIII of the [CC&R’s] with respect to the dispute referenced therein” was in bold and capitalized. In addition, the provision in the purchase and sale agreements did not specifically mention arbitration or explain to purchasers the type of disputes for which they agreed to waive their constitutional right to a jury. As the court stated, “To discover this information, purchasers needed to read the CC&R’s. . . .  Here, the purchase and sale agreements incorporated the CC&R’s, but Pinnacle presented no evidence showing that purchasers received a copy of the CC&R’s, or that the CC&R’s were readily available when they signed the purchase and sale agreements.” 187 CA4th at 42. Would the court have reached a different conclusion if the entire provision in both the CC&Rs and the purchase and sale agreements had been in bold or capitalized font, the CC&Rs had been initialed by the purchaser (the purchase and sale agreement provision was initialed by the purchaser), and the association and the builder had signed an agreement to submit construction defect claims to arbitration, which agreement provided that both parties deemed it preferable to have such cases decided by arbitration (or judicial reference) rather than by jury trial?

    The fact that the CC&Rs were recorded did not help the developer in this case: “[A]ssuming the CC&R’s had been recorded before the sale of the first condominium, we cannot conclude that recording a document qualifies as making the document readily or easily obtainable.” 187 CA4th at 43.

    Thus the court found procedural unconscionability because, according to the court,  there was a high degree of surprise, with purchasers having no means of ascertaining the type of dispute for which they had agreed to waive their right to a jury, or that they would be required to arbitrate those disputes, when they signed the purchase and sale agreements.

    Additional evidence of procedural unconscionability was that the jury waiver provision in the purchase and sale agreements and the arbitration provision in the CC&Rs were part of preprinted materials presented on a take-it-or-leave-it basis to purchasers without any negotiation (citing, among others, Villa Milano, 84 CA4th at 828 (arbitration provision in CC&Rs was procedurally unconscionable because CC&Rs were not negotiable, provision was included near end of lengthy legalistic document, and homeowners could not amend arbitration agreement without developer’s consent)). Accordingly, the Pinnacle court found the existence of both surprise and oppression, revealing a high degree of procedural unconscionability. The thread of this argument in these cases seems to ignore the basic precepts of covenants running with the land, and the enforceability of these agreements. This issue was considered in a Third Circuit Court of Appeal case, but that portion of the opinion was not published. See Mansouri v Superior Court (2010) 181 CA4th 633, 104 CR3d 824. See also Alfaro v Community Housing Imp. System & Planning Ass’n, Inc. (2009) 171 CA4th 1356, 89 CR3d 659, citing CC§1102.6 regarding the affect of constructive notice of recorded CC&Rs. The tenor of the court’s discussion in both Pinnacle and Villa Vicenza (finding unconscionability based on CC&Rs for common interest developments being complex and lengthy) is somewhat disconcerting, raising concerns of the possibility that entire sets of CC&Rs could be invalidated on the basis of this argument.

    In Pinnacle, the court also found the provision in the CC&Rs and the purchase and sale agreements to be substantively unconscionable. The CC&Rs and the purchase and sale agreements, together, required arbitration of “construction disputes,” defined in the CC&Rs as “relat[ing] to the use or condition of the Project or any improvements to the Project.” The court concluded that the arbitration provision was unfairly one-sided because it required virtually every claim the condominium purchasers might raise against the developer to be arbitrated, whereas the developer would have no conceivable reason to make a claim against condominium purchasers related to the use or condition of the project, particularly after escrow closed, and thus would likely never be subject to the arbitration requirement. The court cited, among others, the First District Court of Appeal opinion in Thompson v Toll Dublin LLC (2008) 165 CA4th 1360, 81 CR3d 736.

    Both procedural and substantive unconscionability must be present for a contract to be unenforceable. Villa Milano Homeowners Ass’n v Il Davorge (2000) 84 CA4th 819, 102 CR2d 1. In Pinnacle, the court stated that because the arbitration agreement was highly procedurally unconscionable, to establish that the agreement should be invalidated, condominium purchasers “may demonstrate that the terms of the agreement were substantively unconscionable to a lesser degree.” 187 CA4th at 44. Thus, the court concluded that even assuming the association was bound by the jury waiver provision contained in the purchase and sale agreements signed by the individual condominium owners, the jury waiver provision in the purchase and sale agreements was unenforceable because it was unconscionable.

    The Dissent

    Justice O’Rourke dissented in Pinnacle, stating that he would have followed the determination made in Villa Milano, supra, that the CC&Rs bound the association to arbitrate and, as such, was an enforceable agreement against the association. The court in Villa Milano reasoned, “Individual condominium unit owners ‘are deemed to intend and agree to be bound by’ the written and recorded CC&R’s, inasmuch as they have constructive notice of the CC&R’s when they purchase their homes.  [Citation.]  CC&R’s have thus been construed as contracts in various circumstances.” Pinnacle, 187 CA4th at 45, quoting Villa Milano, 84 CA4th at 825. Regarding whether a homeowners association would be similarly bound by the arbitration clause in the CC&Rs, Justice O’Rourke again referred to Villa Milano, where the court stated that “the Association here is representing the collective interests of the homeowners, per Code of Civil Procedure section 383.  The individual unit owners cannot be permitted to use the Association as a shell to avoid the application of the arbitration clause.” Pinnacle, 187 CA4th at 45, quoting Villa Milano, 84 CA4th at 825 n4. Justice O’Rourke was not persuaded by the unconscionability arguments made by the majority or the trial court and dismissed the majority’s reliance on the ability to amend the CC&Rs.

    Now that the California Supreme Court has granted review in both Pinnacle and Villa Vicenza, the enforcement of arbitration and judicial reference agreements in CC&Rs against associations and purchasers of residences remains an area of uncertainty.

    Conclusion

    Drafters of legal documentation for residential projects need to be cautious when inserting in the project’s CC&Rs and purchase and sales contracts mandatory alternative dispute resolution provisions, for either arbitration or judicial reference, applicable to construction defect disputes. The Fourth District Court of Appeal opinions show a strong bias against such provisions binding the association or the buyers of the residences. The hurdles are quite high, and perhaps insurmountable, to establish that such provisions in CC&Rs or purchase and sales agreements are enforceable against homebuyers and are not unconscionable.

    However, with these cases before the supreme court, we urge that the documentation and the underlying issues be examined and considered in a broader context: How to best achieve effective resolution of disputes regarding construction defect claims in residential housing developments. The concern is particularly acute when the project is a condominium project, with extensive common areas. These disputes are fraught with complexity, with multiple parties, potentially complex construction issues, and difficult evidentiary problems, often requiring expert testimony regarding technical issues.

    Particularly when construction defect disputes involve complex condominium projects, we suggest that these types of cases may be more appropriately resolved by an alternative procedure, rather than by a jury trial. A better method for resolving such disputes may indeed be mandatory judicial reference or arbitration, particularly when there is an established association that can act as the representative of the unit owners.

    When the supreme court reviews the issues raised in Pinnacle and Villa Vicenza we hope the court will consider if the same rationale and the same fundamental issues exist in complex construction defect cases that serve as the basis for the establishment and preservation of the right to a jury trial for individual claimants. These cases frequently involve a builder, a general contractor, often numerous subcontractors, architects, structural engineers, material suppliers, and insurance companies. These disputes in condominium projects often pertain to common areas of a development, not individual homes. There are often many hours of testimony by technical experts. Such a case generally involves determining whether certain standards of design or construction have been met, and if not, which party or parties among the group participating in the enterprise should be held to account for the failure to meet those standards. When the project documentation establishes an alternative dispute resolution process for these disputes, particularly when these cases involve incorporated homeowners associations that will represent the interests of the individual owners, the supreme court should support effectuating the alternative dispute resolution process. Compelling these cases to be heard in a jury trial setting will not provide for prompt or efficient resolution of these types of disputes.