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