In a 6-3 decision issued on Christmas Eve, the Washington Supreme Court sided with condominium developers in upholding arbitration clauses incorporated into condominium purchase and sale agreements. 

In the consolidated case of

Satomi Owners Association v. Satomi, LLC

, this firm argued on behalf of two of its condominium association clients (Satomi Owners Association and Pier at Leschi Owners Association) that arbitration clauses contained within “Limited Warranty” packages were unenforceable. The Associations argued that the Washington Condominium Act’s provision for judicial enforcement or the

arbitration provisions of RCW 64.55

, which were drafted through a compromise of industry professionals and specifically designed for construction defect cases in Washington, trumped arbitration provisions contained within these so-called warranties.

The developers’ attorneys argued that the

Federal Arbitration Act (“FAA”),

which provides for enforcement of arbitration agreements in contracts, trumped the Washington Condo Act and the related arbitration provisions as a matter of constitutional preemption law. But the FAA only applies where there the transaction being sued over affects interstate commerce. The developers argued that the FAA applied because materials that make up the condominiums (such as lumber and siding) travelled in interstate commerce. At the court of appeals, we successfully argued that the fact that the materials used in constructing the condominiums travelled in interstate commerce was insufficient and irrelevant because the associations did not contract for the building of the physical condominium building, they merely purchased a finished condominium – a type of real estate that is intangible and specific to Washington law. 

Unfortunately, the 6-member majority held that because the arbitration clauses were referenced in the purchase and sale agreements, the fact that physical pieces of the condo travelled in interstate commerce was enough for the FAA to apply. The Court also cited the fact that some unit purchasers came from out of state or borrowed out-of-state funds.

The Court declined to decide the “gateway disputes” of whether Associations were bound when it is unclear whether all original purchasers signed an agreement including the arbitration clause. 

As a result, developers in Washington may be able to enforce terms of the arbitration clauses instead of following the carefully crafted

arbitration provisions of RCW 64.55

. 

This does not mean, however, that every part of the arbitration clause or the “limited warranties” in which they are found will be enforceable. While declining to decide whether the arbitration clause in the Blakeley Village case was unconscionable because of procedural irregularities, the majority confirmed that that issues of whether the contracts containing the arbitration clauses are unconscionable remain for the trial court to decide.

Another good summary of the case appears on the Supreme Court's

blog

.