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Thursday, 28 June 2007

Wash. Appellate Court Says Condo Owners Not Limited to Arbitration & La. Court Denies Manufacturer’s Motion To Compel Arbitration
Washington State’s Court of Appeals has concluded that the Federal Arbitration Act does not preempt state law allowing judicial enforcement of condominium warranties... A Louisiana appellate court has refused to compel the buyer of a manufactured home to arbitrate construction defect issues with the seller, ruling that the dispute is over the arbitration agreement rather than a sales contract and must be resolved by a court


COURTROOM NEWS
     

Date: 18 June 2007
Wash. Appellate Court Says Condo Owners Not Limited to Arbitration
Related Document: Opinion - MOL-0706-12 (PDF format)
SEATTLE — Washington State’s Court of Appeals has concluded that the Federal Arbitration Act does not preempt state law allowing judicial enforcement of condominium warranties where the only interstate commerce that would implicate the FAA was a subcontractor’s use of out-of-state materials. Satomi Owners Association v. Satomi, LLC, No. 56265-7-1 (Wash. Ct. App., Div. 1).

The Court of Appeals, Division One, held in a published opinion on June 11 that the dispute over a “garden variety real estate deal” involves only Washington State parties and does not have the “significant effect” on commerce required to compel arbitration.

The issue of FAA preemption was raised by Satomi LLC, the developer of an 85-unit condominium complex in Bellevue, Wash.

The Satomi Owners Association sued developer Satomi LLC in Washington State Court, alleging numerous construction defects in the 85-unit complex, some of which were attributable to defective materials.

Satomi LLC moved to compel, citing arbitration clauses in the sale agreements. Satomi also asserted that the FAA preempts the Washington Condominium Act’s language allowing for judicial enforcement of warranties (chapter 64.34 RCW).

The trial court ruled for the homeowners, finding that Satomi failed to show that all of the owners agreed to arbitrate and that the arbitration agreements would not apply to the homeowners association, which is a separate entity.

The trial court also ruled that the issue of FAA preemption was governed by the Court of Appeals’ prior holding that condominium sales primarily impact Washington residents and, thus, do not implicate the FAA (Marina Cove Condominium Owners Ass’n v. Isabella Estates, 109 Wn. App. 230, 34 P.3d 870 [2001]). Satomi LLC appealed.

The Court of Appeals held, first, that the lower court erred in finding that the arbitration agreements would not apply to the homeowners’ association, saying that the association did not sue on its own behalf, but on behalf of individual owners.

The court also acknowledged that the validity of its Marina Cove is in question, given the U.S. Supreme Court’s opinion in Citizens Bank v. Alafabco, Inc. (539 U.S. 52, 123 S.Ct. 2037, 156 L.Ed. 2d 46 [2003]) that the FAA applies to a “transaction involving commerce,” and should be applied “if in the aggregate the economic activity in question would represent ‘a general practice … subject to federal control.’”

The Court of Appeals noted that in reaching its decision in Marina Cove it adopted the rationale of a Texas appellate ruling that the FAA would not apply where the transaction did not “substantially effect” interstate commerce (L&L Kempwood Associates, L.P. v. Omega Builders, 972 S.W.2d 819, 822 [Tex. App. Corpus Christi 1998]).

The court said that in the only similar case it could discover, the California Court of Appeals held that construction defect claims involved interstate commerce and required arbitration where a developer used out-of-state contractors, engaged in nationwide marketing, and used out-of-state equipment and materials (Basura v. U.S. Home Corp., 98 Cal. App. 4th 1205, 120 Cal. Rptr. 2d 328 [Cal. App. 2d Dist. 2002]).

The issue here is whether Satomi met similar criteria for interstate commerce, thus implicating the FAA, the court said.

In finding that the FAA didn’t apply, the court said that the transaction “was a garden variety Washington real estate deal,” and “real property law has historically been the law of each state.”

In addition, the warranties at issue arose from state law and, the court ruled, “[u]nlike Citizens Bank and Allied-Bruce, where the very subject matter of the contracts involved interstate commerce, here the issues are confined to claims founded in warranties created by the Washington legislature” (Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 270, 115 S. Ct. 834, 130 L.Ed. 2d 753 [1995]).

Fourth and finally, the court said, “these transactions have none of the earmarks of an economic activity that in the aggregate would represent a general practice subject to federal control.”

“The Company offers no authority holding that local real estate transactions represent such a practice, or that warranties required by state law for state condominium projects represent such a practice, or that local regulation of real estate transactions can constitute an economic activity that in the aggregate would represent a general practice subject to federal control,” the Court of Appeals explained.

The issue in this case is the warranty, and the origin of the allegedly defective materials is irrelevant, the court continued.

“Here, a significant right reached by State law is at issue,” the court said. “The legislature of Washington state retains sovereignty over local real estate transactions. Despite its strong policy favoring arbitration, the legislature created warranty rights in condominium purchasers and provided an exclusively judicial remedy.”

“We do not think this legislative determination as to the appropriate forum for adjudicating legislatively created rights is preempted solely because construction materials may have crossed state lines,” the court concluded.

Marlyn K. Hawkins and Dean E. Martin of Barker Martin in Seattle represent Satomi Owners Association.

Satomi LLC is represented by Stellman Keehnel, Kit W. Roth and Rogelio O. Riojas of DLA Piper US in Seattle, Anthony Todaro of Peterson Y. Putra in Seattle; and Joel T. Salmi and Daniel L. Dvorkin of Salmi & Gillaspy in Bellevue, Wash.

Counsel for amici curiae were Sharon E. Cates of Microsoft Corp. in Redmond, Wash., and Thomas F. Ahearne of Foster Pepper in Seattle, for Master Builders Association of King and Snohomish Counties; Kit W. Roth and Daniel L. Dvorkin, for Blakely Village LLC; Lori K. McKown and Davie E. Chawes of Preg, O’Donnell & Gillett in Seattle, for Leschi Corp.

Document Is Available
Call (800) 496-4319 or
Search www.harrismartin.com
Opinion Ref# MOL-0706-12
 
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Date: 20 June 2007
La. Court Denies Manufacturer’s Motion To Compel Arbitration
Related Document: Opinion - MOL-0706-13 (PDF format)
LAFAYETTE, La. — A Louisiana appellate court has refused to compel the buyer of a manufactured home to arbitrate construction defect issues with the seller, ruling that the dispute is over the arbitration agreement rather than a sales contract and must be resolved by a court in the first instance. Easterling v. Royal Manufactured Housing LLC, et al., No. 07-136, consolidated with 06-1084, 07-192 (La. Ct. App., 3rd Cir.).

In rejecting the appeal by Royal Manufactured Housing, Louisiana’s 3rd Circuit Court of Appeals said that while it acknowledged the “presumption of arbitrability” in state and federal law, the trial court properly found in this instance that there was no valid arbitration agreement.

Royal sought to compel arbitration of defect claims by Chad Easterling, who paid $85,080 for a Royal home in 2004 and later alleged that water leaks and excessive condensation led to mold contamination.

The Court of Appeals said that Easterling signed a Placement and Service Agreement on Feb. 23, 2004. The agreement included language anticipating a mortgage agreement between the parties and, within that section, providing for binding arbitration for any disputes. He signed a construction contract for the home on July 2, 2004, after obtaining financing elsewhere, and moved his family into the home after construction was completed on Aug. 31, 2004, the court said.

After complaining of leaks, and after Royal attempted repairs, Easterling sued in the 12th Judicial District, Parish of Avoyelles, asking that the sale be voided and the family awarded personal injury damages for illnesses from their mold exposure.

Royal moved to compel arbitration, citing the arbitration agreement signed in February 2004.

The trial court denied the motion, ruling that the arbitration agreement would have applied if Easterling had financed the home through Royal, but did not apply to a non-construction contract signed five months after the document containing the arbitration agreement.

Royal appealed, arguing that the trial court ruling was contrary to the Louisiana Supreme Court’s holding in Aguillard v. Auction Management Corp. (04-2804, 04-2857 [La. 6/29/05]), that Louisiana law favors arbitration and follows the Federal Arbitration Act.

Royal also relied on the U.S. Supreme Court’s holding in Buckeye Check Cashing, Inc. v. Cardegna (546 U.S. 440, 126 S.Ct. 1204 [2006]), in which the high court ruled that where a contract contained an arbitration clause, a challenge to the contract as a whole had to go to the arbitrator for resolution.

The Court of Appeals noted that the Buckeye court explained that its finding in favor of arbitration was because the arbitration provision was severable from the rest of the contract, and “unless the challenge is to the arbitration clause itself, the issue of the contract’s validity is considered by the arbitrator in the first instance.”

“Accordingly,” the Court of Appeals ruled, “this case falls into the ‘unless’ category; that is, Easterling’s challenge is to the arbitration agreement itself, not to the underlying sales contract.”

Andrea D. Aymond of Riddle & Moreau in Marksville, La., is counsel for Easterling.

Royal Manufactured Housing is represented by Lamont P. Domingue of Voorhies & Labbe, Bruce D. Beach of Ungarino & Eckert and F. Douglas Ortego of the Juneau Law Firm, all of Lafayette, La.

Document Is Available
Call (800) 496-4319 or
Search www.harrismartin.com
Opinion Ref# MOL-0706-13

 
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