Washington Construction Law Blog : Washington Construction Lawyer & Attorney : Davis Wright Tremaine Law Firm : Serving Seattle, Spokane, Tacoma, Bellevue, Everett & Yakima

In an important decision, on December 24, 2009, the Washington Supreme Court held that claims under the Washington Condominium Act (WCA) are subject to arbitration despite provisions in the Act requiring judicial resolution of claims where condominium owners agree to arbitrate disputes in their purchase and sale agreements. The case is Satomi Owners Ass'n v. Satomi, LLC. www.courts.wa.gov/opinions/pdf/804800.opn.pdf

In Satomi, purchasers of individual condominium units had agreed in their purchase and sale agreements to arbitrate claims they might have against the seller/developer. Satomi gathered three separate cases in which trial courts had denied motions to compel arbitration of claims under the WCA. The WCA historically prevented parties from opting out of judicial resolution of disputes. In 2005, the Legislature amended the WCA to permit arbitration of at least some disputes pursuant to RCW 64.55.100 through .160, but allowed any aggrieved party to demand a new trial in superior court at the end of arbitration proceedings – in other words, the arbitration was not binding. In Satomi, the Court concluded that the statute’s requirement of a judicial resolution (and the amended statute’s resort to trial de novo) was preempted by the Federal Arbitration Act (FAA).

 

First, the Court held that the FAA applied to the transactions, at least where arbitration provisions were clearly tied to purchase and sale agreements relating to purchase and sale of the condominiums at issue. The Court rejected the argument that the “transaction” at issue involved only warranties and therefore did not involve interstate commerce. It held instead that the “transaction” included the purchase and sale of the condominium. Based upon this broader view of the “transaction” at issue, the Court held that the transactions “involve commerce” so as to be subject to preemption by the FAA based on (1) the use of out-of-state materials in constructing the condos; (2) a substantial number of purchasers were not Washington residents; (3) a substantial number of mortgages obtained by Washington and non-Washington residents were obtained from out-of-state mortgage companies.

Second, the Court concluded that the WCA's provisions conflicted with the FAA. To begin with, the earlier statutory enforcement clause - dictating judicial resolution and not permitting the parties to agree to arbitration - clearly conflicted with the FAA. Further, the amended statute, although it permitted arbitration of at least some issues, nonetheless required trial de novo where one party was disappointed in the result. The Court held that declaring arbitration to be non-binding conflicted with the FAA.

 

Third, the Court concluded that the associations were bound by the arbitration clauses to which their members had agreed in purchasing their units. The associations claimed no property interest of their own; they were suing entirely on behalf of their members (members owned undivided percentages of common and limited common areas). Consequently, the associations were bound.

 

Finally, the Court held that the arbitration clauses were not unconscionable or lacking in mutuality of obligation, despite the fact that the developers retained the sole right to have disputes heard in arbitration.

 

The WCA therefore no longer stands as a barrier to parties who wish to require arbitration of disputes under the WCA. They should nevertheless assure that their contracts are written with the Satomi decision in mind.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

If you need to figure out whether that disappointing arbitration award you received can be vacated for conflict of interest on the part of the arbitrator, here's the recent Division 1 case to read.

Copy of opinion also available here Download file

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Supreme Court on Tuesday ruled an arbitration clause can be applied against (or for the benefit of) persons who do not sign the clause, as long as governing state law makes that extension to nonsignatories possible. 

At issue in Arthur Anderson LLP v Carlisle was a tax shelter scheme gone bust, which in turn generated suits by individual investors who had put money into the tax shelters against the advisors and lawyers who recommended the illegal schemes.  Certain LLCs created for the purpose of facilitating the tax scheme (but not the individual investors themselves) signed contracts containing arbitration clauses with one or more of the defendant advisors.

When the investors filed suit in federal district court, the defendants moved for a stay under Section 3 of the Federal Arbitration Act (FAA) on the ground that the issues in the suit were "referable to arbitration under an agreement in writing" under Section 3.  The plaintiff/investors fought this, contending that they are not individually bound by whatever clauses the LLCs had signed.

The Supreme Court held that state law governs the issue of whether such clauses can be extended to nonsignatories, and there's nothing in the FAA itself that preempts or overrides whatever the outcome is under that state law.

Note:  Washington state law is well-settled on the fact that nonsignatories can in certain circumstances be bound by -- or take advantage of -- arbitration clauses.  See McClure v. Davis Wright Tremaine, 77 Wn. App. 312 (1995).

 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The contract in this case stated a time limit on claims -- 21 days after occurrence of the event giving rise to the claim (fairly typical AIA clause).   The subcontractor argued that the arbitration clause did not apply because (1) the contractor failed to comply with the 21 day notice rule and (2) the 21 day notice rule was a "condition precedent" to enforcement of the arbitration clause.

Division 1 held that the notice defense is for the arbitrator to decide and was not a condition precedent.  In distinguishing the Mike Johnson case, however, the Court seemed to suggest that the parties are generally free to rewrite the arbitration clause to make the 21 day notice rule a true condition precedent (and thereby preserve the notice issue for judicial -- not arbitral - resolution).

Copy of opinion available here Download file

• Email This
• Print
• Comments
• Share Link

It's Arbitration Day here at WCL.

The U.S. Supreme Court today issued its decision in Main Street LLC v. Mattel.  The main issue in the case (previewed here) is whether the parties to an arbitration clause are free under the Federal Arbitration Act to provide for a broader scope of judicial review than is otherwise allowed in the FAA itself.  For example, can the parties ask the court to review the award for an error of law by the arbitrator (something which would not ordinarily be allowed under the FAA)?

The Court said no -- once the FAA applies, its limited grounds for vacating an award are exclusive.

• Email This
• Print
• Comments
• Share Link

The obvious question about this case is why the parties even bothered to bring an appeal involving a $2,500 arbitration award arising from the construction of a dental office. 

With that said, however, the case is instructive by demonstrating the broad authority of the arbitrator to fashion remedies -- here, by conditioning the owner's recovery on its counterclaim upon timely payment to the AAA of the required filing fee.  Because the owner for unexplained reasons never paid the fee, it lost its right to recovery any sums on its counterclaim.

• Email This
• Print
• Comments
• Share Link

Not exactly a news flash but worth noting all the same:  today's decision by the U.S. Supreme Court once again affirms the virtual supremacy of arbitration clauses.  

Here, the dispute revolved around TV's "Judge Alex" and an entertainment lawyer.  It seems the good Judge failed to pay his counsel.  To collect the debt, the lawyer filed an arbitration demand under the arbitration clause in the contract.  The good Judge said that the contract as a whole was null and void because the lawyer was not properly licensed under a California statute that regulates talent agents -- and on that ground sought to have the dispute decided by a state administrative tribunal that has original jurisdiction over such issues.

The good Judge lost & will have to arbitrate his claim that the contract was null and void.

• Email This
• Print
• Comments
• Share Link

This procedurally tangled case between Fluor and the structural steel subcontractor Walter on the DOC project in Aberdeen will be of virtually no interest to anyone but the parties themselves, except for the following two kernels:

1. The Court of Appeals recognizes -- and presumably adopts in Washington -- the federal Severin doctrine (a GC who has been fully released of liability from its sub cannot pass-through the sub's claim to the owner); and
2. The Court also applies the old Balfour case (OK, maybe not that old -- decided in 1980) in which the Supreme Court said as a general matter that courts lack the authority to order consolidation of two separate arbitration proceedings.

Copy of opinion also available here Download file

• Email This
• Print
• Comments
• Share Link

Arbitration awards are notoriously difficult to overturn in court because the various arbitration statutes list only narrow grounds for appeal such as arbitrator bias.  But are the parties free to provide for a broader scope of court review by so stipulating in the arbitration contract itself?  Various courts have said various things on the matter, and it will now be decided by the U.S. Supreme Court in the Hall Street v. Mattel case on appeal from the 9th Circuit.  Oral argument was  this week.  Decision in early 2008.

• Email This
• Print
• Comments
• Share Link

This case arose from a home remodel contract and went to private arbitration before Seattle arbitrator Don Logerwell who ruled in favor of the contractor.  In seeking to vacate the award, the owner claimed that Logerwell was biased toward the contractor because of a close relationship with the contractor's counsel.

The Court rejected this challenge on procedural grounds, holding that the owner had failed to raise the challenge in a "timely" manner -- which the Court defined to be "upon learning of any basis of partiality and before the arbitrator makes a decision."  The Court held that Logerwell had disclosed his "specific relationships with both attorneys" prior to the commencement of the arbitration and therefore the owner could not, as a matter of law, mount a post-award challenge to the validity of the award.

Copy of opinion also available here Download file

• Email This
• Print
• Comments
• Share Link

Building on its recent Tacoma Narrows case summarized in our April 25 post, Division 2 here again affirms that the scope of an arbitration clause -- i.e., whether a particular dispute falls within the clause or not -- is for the court to decide, unless the parties have stated otherwise in the arbitration agreement.

• Email This
• Print
• Comments
• Share Link

Fluor Daniel has lost its appeal to obtain prejudgment interest on an arbitration award entered against the Department of Corrections.  The Supreme Court held that interest does not begin to accrue on an arbitration award until the award is turned into a court judgment.  

Previous coverage of this case by WCL is found here and a copy of the Supreme Court's opinion can be downloaded here Download file

• Email This
• Print
• Comments
• Share Link

The prevailing party fee clause in this case said that fees would be awarded in connection with any action to collect sums due.  What about prevailing on a motion to compel arbitration to decide the debt collection dispute -- is that enough to trigger the fee clause?  The Supreme Court said no -- legal fees are not yet due because the merits of the case had not yet been decided -- and thus vacated an award of fees which had been granted to Belfor USA in a dispute with an owner.   The Court hinted the outcome might have changed if the clause had been written differently (i.e., awarding fees to the prevailing party for enforcing a contractual term).

Copy of opinion (Belfor v. Thiel) also available here Download file

• Email This
• Print
• Comments
• Share Link

Under Washington's Condominium Act, a unit purchaser is guaranteed the right to pursue judicial relief for breach of the statutory warranties.  The issue is this case is whether this right of judicial access is trumped by federal law (specifically, the Federal Arbitration Act or FAA) so as to compel private arbitration of the disputes.  Division 1, by a 2-1 vote, held that the federal FAA did not apply to a "garden variety" real estate development within Washington and therefore allowed the claimant to proceed in court rather than be compelled to arbitrate.

 

• Email This
• Print
• Comments
• Share Link

Samsung entered into a purchase order with Nippon Steel to provide the bridge deck for the new Tacoma Narrows Bridge, a design-build project awarded by the WSDOT to a Bechtel-Kiewit joint venture known as Tacoma Narrows Constructors (TNC).  Nippon Steel was a first-tier subcontractor to TNC.

Delays and changes related to the bridge deck resulted in disputes, which in turn spawned two lawsuits in Thurston County Superior Court -- (1) a suit by TNC vs. Nippon Steel and (2) a suit by Nippon Steel vs. Samsung and TNC.

Samsung sought to invoke the Singapore arbitration clause in the purchase order and thereby stay the Superior Court action against it.  In a decision favoring joinder of interrelated disputes, Division 2 held that Samsung may not compel arbitration because of an exception contained in the arbitration clause.  Under that exception, the duty to arbitrate did not extend to any dispute which arises "in connection with the TNC Contract" if Nippon Steel is "of the opinion that such dispute touches or concerns" the work of Samsung.

The Court concluded the arbitration clause did not apply because there was a "high degree of connection" factually between the claims made in the TNC suit against Nippon Steel and Nippon Steel's suit against Samsung.

The decision is also notable for the Court's strong statement that the issue of arbitrability itself -- that is, whether the court has jurisdiction or not -- is for the Court to decide not the arbitrator, absent a clear delegation to the contrary in the arbitration clause.

Copy of decision also available here Download file

• Email This
• Print
• Comments
• Share Link

This case illustrates what a friend calls the "black cloud" theory of construction litigation -- certain projects seem cursed from the get-go and invariably plunge into dispute and disarray.  Nothing seems to go right.

Nominally, this case is about whether to vacate an arbitration award rendered in favor of Sellen arising from a tenant improvement project.  As is often the case, this challenge to the award failed to meet the stringent test in RCW 7.04. 

The path to conflict in this case included the following mis-steps and misdeeds:

1. Sellen's project manager forged the company president's signature on the construction contract.
2. The same project manager was charged with felony theft for transferring costs to other Sellen projects to make it look as if this project was on budget.
3. Neither Sellen nor the owner adhered to the contract's change provisions, leading the Arbitrator to find the parties had abandoned the contract.

The only interesting legal nugget in this mess is the Court's holding that, even though the PM forged the contract, Sellen had effectively ratified the contract by performance and therefore the arbitration clause in the contract was enforceable.

• Email This
• Print
• Comments
• Share Link

There's a lot to chew on in this recent Oregon Supreme Court case arising from a $2.6 million delay and disruption claim, and the basic proposition relied on by the Court is nothing new:  arbitration clauses will be broadly applied and, in case of doubt, all disputes potentially within the scope of the arbitration clause will in fact be shipped off to arbitration for resolution.

The interesting twist in this case is in how the Court applied this general rule to the specific issue of who decides -- as between the court and the arbitrator -- whether a particular issue is in fact subject to arbitration.  Here, one side argued the claimant had no right to initiate an arbitration because it lacked a valid contractor's license.  Traditionally, it was the rule that the Court decides whether an issue is subject to arbitration and the arbitrator decides the merits of the dispute if it is subject to arbitration. 

That rule is good as far as it goes, but leaves open an important battleground:  if one side argues that (for example) the other side has waived its right to arbitrate (or, as in this case, lacks standing because it has no license), who decides this threshold issue?  Under this Oregon case, the threshold issue goes to the arbitrator because it is characterized as a "procedural" defense to arbitration rather than a "substantive" one.

This holding is part of a broader trend - spearheaded by the American Arbitration Association (AAA) - to expand the power of the arbitrator to decide an important array of threshold and jurisdictional defenses to arbitration. 

The lesson here is relatively simple:  if you enter into an arbitration clause but want the court to maintain some control over which issues actually get referred to arbitration for decision, you need to be very explicit in how you (a) write the clause and (b) define the scope of the arbitrator's authority.  Because once the issue is decided by the arbitrator, the courts will not entertain any kind of appeal absent some sort of egregious circumstance.

• Email This
• Print
• Comments (2)
• Share Link

Whenever 8 of the 9 U.S. Supreme Court Justices vote the same way in a particular case, you can assume the issue is relatively free of doubt. And so it was with yesterday's decision in which the Court held that an arbitration clause contained in a contract that may be void on some basis (such as illegality) is still enforceable and thus still requires arbitration of the dispute. The Court acknowledged that its holding would from time to time result in compelling arbitration in a contract the arbitrator later finds to be void.

The holding is not a surprise, given the Court's precedent in this field, but it again is a reminder to those who include arbitration clauses in construction agreements of the potent scope of such clauses and of the care which needs to accompany their drafting.

• Email This
• Print
• Comments
• Share Link

Division I holds that arbitration award is akin to jury verdict rather than final judgment, and thus does not accrue prejudgment interest.

• Email This
• Print
• Comments
• Share Link