Arizona Court of Appeals Division One Holds That An Arbitration Clause in CC&Rs Does Not Apply When a Homeowner Fails to Obtain Proper Approval for a Structure.

Jack and Leigh Biltis own a home in the Saguaro Highlands Community.  They installed a swing set in their backyard without obtaining prior approval as required by the Saguaro Highlands Community Association’s Declaration of Covenants, Conditions and Restrictions (“CC&Rs”).  After sending letters to the Biltises requesting compliance with the CC&Rs, the Association filed a complaint in superior court seeking injunctive relief.  The Biltises filed a motion to compel arbitration, based on a provision in the CC&Rs requiring that “all matters are to first be submitted to negotiation, mediation and arbitration before filing a lawsuit.”  The superior court denied the motion, concluding that the arbitration provision applies only to disputes about quality of construction and compliance with building codes, and not to actions seeking injunctive relief to compel compliance with the CC&Rs.

The Court of Appeals agreed with the superior court.  The Court noted that the preamble to Article 10 of the CC&Rs makes clear that that article applies only to disputes involving quality of construction.  The Biltises argued, however, that Section 10.4, where the arbitration clause appears, has broad language encompassing the Association’s claim against them.  Specifically, that section states that the arbitration clause applies to, among other things, “any controversy or claim between [the Association and any Owner], including any claim based on contract, tort, or statute, arising out of or relating to (i) the rights or duties of the parties under this Declaration . . . .”  The Court concluded, however, that Section 9.1 of the CC&Rs, which governs enforcement, applied to the Association’s claim.  That provision states that “[t]he Association or any Owner shall have the right to enforce the Project Documents in any manner provided for in the Project Documents or by law or in equity, including, but not limited to, an action to obtain an injunction to compel removal of any Improvements constructed in violation of this Declaration or to otherwise compel compliance with the Project Documents . . . .”

The Court concluded that “the plain meaning of the preamble of Article 10” indicates that it applies only to disputes about quality of construction, notwithstanding “the poorly drafted language of Section 10.4.”  The Court noted that it would not make sense to require the Association to engage in alternative dispute resolution regarding violations of the CC&Rs, especially if construction was occurring in direct contravention of the CC&Rs.  The Court found support for this interpretation in other parts of the CC&Rs, which indicated an intention to treat disputes regarding construction quality and disputes regarding violations of the CC&Rs differently.

Judge Brown authored the opinion; Judges Irvine and Kessler concurred.