It is relatively routine for developers or “declarants” to include arbitration provisions into the declaration of restrictive covenants recorded to establish a common interest community. Generally, arbitration clauses are preferred by developers for a variety of reasons including avoiding a jury and having a say in the choice of the fact-finder. However, those decisions made by the developers have long lasting effects upon homeowner boards following transition, because it is difficult for a board to effect a change in the documents.

In an unpublished decision, the Virginia Supreme Court reversed a Loudoun County Circuit Court that had vacated an arbitrator’s decision in a homeowner lawsuit. In Worman v. River Creek Owners Association, the homeowners wanted to install a basketball goal. The association denied all three applications, so the homeowners submitted a demand for arbitration with AAA. The association did not consent to the arbitration, but the AAA arbitrator held a preliminary hearing and determined the issue arbitrable.

The homeowners prevailed in the arbitration and were also awarded attorneys’ fees. As is required in Virginia, the homeowners filed a motion to affirm the decision in the Loudoun County Circuit Court. The Court vacated the arbitration award, deciding that the issue was not arbitrable.

The Wormans appealed to the Virginia Supreme Court on two issues: 1) The arbitrator had the authority to determine whether the issue was arbitrable; and 2) Regardless of the arbitrator’s authority, the issue was indeed arbitrable. The Virginia Supreme Court held that the issue was arbitrable, issue number “2” above, and consequently did not address issue number “1.” The Court ruled that based upon the language in the relevant arbitration clause, all issues between the homeowners association and a homeowner were arbitrable. Therefore, the arbitrator’s decision was final.

This case is interesting on several levels. First, the particular clause in this declaration is similar to several that we have reviewed. The Court’s interpretation is important guidance to reviewing arbitration clauses, so the opinion is important for that reason. Second, the Virginia Supreme Court continues to uphold arbitration clauses and the resulting arbitrator decisions.

Make sure you talk with your attorney about the advisability of arbitration clauses. Arbitration has its advantages, just make sure you are making a reasoned decision and not relying upon “boilerplate” language. Furthermore, if your contract has an arbitration clause, you may want to think again about using valuable resources to contest whether an issue is arbitrable because courts continue to uphold the enforceability of these clauses.

Tarley Robinson, PLC, Attorneys and Counsellors at Law

Williamsburg, Virginia

John Tarley

John is the firm's managing partner and chairs the firm's small business, zoning, and litigation practice areas.

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