Code of Civil Procedure Section 1281.2 Is Interpreted to Require a Party Seeking to Compel Arbitration to Plead and Prove a Prior Demand for Arbitration Under the Parties’ Arbitration Agreement and a Refusal to Arbitrate Thereunder.
In the next case, Homeowner Association successfully petitioned to arbitrate a dispute with a homeowner, only to have the order granting the Association’s petition overturned on appeal because it did not carefully follow the provisions of the arbitration provision. As a consequence, the Association’s award of fees ($8,283.50) for its expense in bringing the petition to compel arbitration went . . . . poof. Zari Mansouri v. The Superior Court of Placer County, Case No. C062366 (3d Dist. filed 1/28/10) (certified for partial publication).
The Association claimed that Mansouri extended the coverage of her patio beyond what had been approved by the Association, and requested Mansouri to submit the dispute to binding arbitration before a single arbitrator, unilaterally pre-selected by the Association. However, the arbitration provision contained in the CC&Rs provided for three arbitrators – the first chosen by the Association, the second chosen by the homeowner, and the third chosen by the first two arbitrators. Mansouri refused the invitation to arbitrate, but the trial court granted the Association’s petition to compel arbitration. The Association’s petition to compel arbitration also sought attorney fees pursuant to a provision in the CC&Rs, and pursuant to fee-shifting statute Civil Code section 1354, allowing for an award of fees to the prevailing party in Association disputes involving CC&Rs. The trial court awarded fees.
Section 1281.2 requires a petition to compel arbitration to allege, “the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy [.]” In a 3-0 decision authored by Justice Cantil-Sakauye, the Court concluded that section 1281.2 required a party seeking to compel arbitration to plead and prove a prior demand for arb itration under the parties’ arbitration agreement and a refusal to arbitrate under the agreement. The problem here was that the offer to arbitrate with a single arbitrator was not under the terms of the arbitration provision, and thus Mansouri’s refusal to arbitrate was not a refusal to arbitrate under the agreement. Once the Court vacated the order granting the petition to compel, the fee award also disappeared.
Moral: There are likely to be fee-shifting consequences in homeowner association disputes resulting from a provision in the CC&Rs, or resulting from Civil Code section 1354. If you file a petition to compel arbitration, be prepared to plead and prove a prior demand for arbitration and a refusal to arbitrate under the agreement – or else be prepared to face the consequences, which may include the loss of attorney’s fees.
Mike and Marc know attorney Benjamin G. Shatz, an appellate specialist, who represented the Petitioner. We send him our regards, and congratulate him on the outcome.