Washington Construction Law Blog

Supreme Court Holds Condo Defect Claims Subject to Arbitration

Alan Middleton — Wed, 20 Jan 2010 08:27:58 -0800

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.

Northwest Hub

John Parnass — Tue, 18 Aug 2009 15:01:54 -0800

Congrats to the Buck Law Group and its affiliated partners on the recent launch of Northwest Hub, an excellent online newspaper for the land use, real estate and environmental community.

Some Eye Candy...

John Parnass — Thu, 09 Jul 2009 12:07:35 -0800

...for you bridge lovers out there....truly awesome feat of engineering.

Condo Defect Claim Dismissed on Causation Grounds

John Parnass — Fri, 15 May 2009 16:35:39 -0800

A fitting way to end the week...the latest dispatch from the Great Condo Wars: Division 1's recent opinion in Ballard Residential v. Pacific Rim Framing establishes:

Defect Causation: The condo used prefabricated Tyvek panels for the exterior. Pacific Rim did not install the Tyvek, but did list in its scope of work the obligation to "staple and tape ends of panelizer installed Tyvek vapor barrier." Eventually, the Tyvek panels fell off and/or permitted water intrusion. The Association sued Pacific Rim (the framer) for its alleged losses; in a decision that renews faith in the ability to get and defend a summary judgment even on a complex record, Division 1 sifted the evidence and concluded there was no breach by Pacific Rim of its limited duty to staple down the Tyvek that actually caused the Association's alleged losses.
Indemnity: Just as its breach claim against Pacific Rim failed for lack of causation, so too the Association's claim that the framer was required to indemnify for the siding failure fell apart because the claim was not one "arising out of, resulting from or connected with" Pacific Rim's own scope of work. The Court refused to treat the standard indemnity clause as a type of project-wide insurance.
Tender of Defense: The Court called the Association's notice of tender of defense to Pacific Rim "perfunctory" and suggested that for such a tender to be valid, the tender must be accompanied by a bill of particulars actually establishing the fact of the indemnitor's ultimate liability...but since this is an unpublished decision, take that with a grain of salt.

Copy of opinion also available here Download file

Challenge to Arbitration Award Based on Alleged Conflict of Interest Rejected

John Parnass — Tue, 12 May 2009 12:26:42 -0800

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

Division 1 Restores Lien, Limits Application of "Summary" Procedure to Dismiss Frivolous Liens

John Parnass — Tue, 12 May 2009 11:25:10 -0800

Division 1 in this new case raises the bar a bit higher on RCW 60.04.081's summary procedure for vacating frivolous liens on private jobs -- the lien must be "so devoid of merit that the claim has no possibility of succeeding."

The Court offered three examples for when the summary process (decided on motion with no live testimony) is best suited -- whether the lien is signed by the proper party, whether the lien was properly served, and whether the lien's content complied with statutory requirements. The case in question, by contrast, involved issues of scope of work and intent of the underlying subcontract.

Copy of opinion also available here Download file

New Real Estate Blog

John Parnass — Thu, 07 May 2009 08:29:29 -0800

There's a relatively new blog prowling the real estate and construction landscape, maintained by the Tacoma law firm of Dickson Steinacker. Let's see if they can keep up with the DWT real estate blog! Hey, a little friendly competition is a good thing, right?

Good luck to the Dickson firm with their nice looking, informative blog.

Arbitration Clause Can Apply to Nonsignatories

John Parnass — Wed, 06 May 2009 07:50:54 -0800

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).

Division 2: ELR Bars Fraud Claims

John Parnass — Tue, 05 May 2009 11:22:14 -0800

Division 2 today joins Division 1's recent decision in Carlile v. Harbour Homes holding that claims for fraudulent misrepresentation are barred by the Economic Loss Rule.

Copy of opinion also available here Download file

SHB 1555: Revised Retainage Rules for Public Works Contracts

John Parnass — Tue, 05 May 2009 09:03:28 -0800

Mike Purdy's timely and useful summary of the ins and outs of the Washington State public works retainage law, recently revised by SHB 1555, is available here in this post to his public contracting blog.

Division 1 Clarifies Estoppel Remedy for Bad Faith

John Parnass — Tue, 05 May 2009 07:54:28 -0800

This case, the latest from Division 1 in its treasure chest of condo defect / insurance coverage cases, contains two notable nuggets:

A 14 month delay in responding to a tender of defense and indemnity was bad faith as a matter of law, estopping the carrier from denying coverage under the additional insured endorsement it issued to a GC under a subcontractor's policy. As a result, the carrier had to pay both the defense costs incurred by the GC as they pertained to the subcontractor's scope of work as well as the portion of a related settlement that the GC paid to the HOA.
That estoppel remedy, however, did not run so far as to sweep into the policy liability for claims made against the GC that arose from work not performed by the particular subcontractor that the carrier insured. The Court rejected the GC's argument that bad faith in handling a claim related to a particular sub's work made the carrier liable for all of the GC's liabilities on the entire project, regardless of cause.

Copy of opinion also available here Download file

No "Property Damage" Trigger for Tank Leakage

John Parnass — Mon, 20 Apr 2009 10:40:49 -0800

Walla Walla College hired a tank company in 1991 to install two underground gas storage tanks. In 2001, approximately 10,000 gallons of gas leaked from one tank into the ground. The tank installation contractor had two CGL policies in effect from 1990 to 1992.

Seeking coverage under those policies to pay for the cleanup costs, the College claimed that the triggering "property damage" occurred at the time of installation in 1991 due to the installer's failure to use proper backfill which in turn set in motion stress to the tank which ultimately lead to the failure and leakage. The carrier, on the other hand, claimed that there was no covered "property damage" until the leakage in 2001.

Division Three held that mere stress to the tank was not enough to constitute "property damage" and therefore denied coverage for the loss under the 1990-1992 policies. First, the Court noted that the "your product" exclusion" negated any coverage for loss in value to the tank itself. Next, the Court distinguished continuous trigger cases such as Groul Construction Co., Inc. v. Ins. Co. of North America, 11 Wn.App 632 (1974) by noting that while "a process began" in 1991, the "property damage did not occur until the tank failed in September 2001, long after the policies had expired."

Where's My Blender?

John Parnass — Mon, 20 Apr 2009 10:29:20 -0800

OK, after a week in Mexico on vacation, yours truly in back in the saddle and ready to continue bringing you the latest and greatest in all matters construction...but in the meantime, I offer a few harmless graphics as a reminder of a great week away and a harbinger of things to come now that the weather is turning to margarita season:

Federal Government Contracts Blog

John Parnass — Wed, 08 Apr 2009 11:21:43 -0800

I read a fair number of construction - related websites and blogs, and many of them are pretty awful (present blog excluded). But here's one I quickly bookmarked for regular visits -- well written, thorough and concise coverage of federal government contract issues.

Wind Farm Construction - Case Study

John Parnass — Wed, 08 Apr 2009 09:18:14 -0800

Interesting article from CWU on wind farm construction in Eastern Washington, using a CM at Risk GMP model with novel contractual risk sharing provisions.

Green Prefabs

John Parnass — Tue, 07 Apr 2009 15:50:16 -0800

From the shameless commerce department of Washington Construction Law, herewith a promo for an excellent option to consider if you are looking for really cool, well-designed prefabricated homes with a sustainability focus.

Bidder Responsibility Criteria

John Parnass — Tue, 07 Apr 2009 14:19:07 -0800

The 2007 legislation on "supplemental bidder responsibility" (RCW 39.04.250) is getting a lot of attention across the industry. If you'd like an overview of some key issues, please check out the attached presentation we made recently to a workshop organized by APWA-WA and MRSC. Download file

Federal Equivalent of Stute Upheld by 8th Circuit

John Parnass — Thu, 02 Apr 2009 11:49:02 -0800

In Washington, it's known as the "Stute" doctrine -- named after one of the parties to a Supreme Court decision establishing that general contractors have a nondelegable project site safety duty. After years of litigation bouncing around in the 8th Circuit, that Court recently upheld OSHA's version of the "Stute" rule for federal projects. A link to the case is here.

Seattle Transit Blog

John Parnass — Mon, 30 Mar 2009 07:48:16 -0800

If you want to keep up with all things transit in the Puget Sound area, this site is a must read.

9th Circuit Certifies Economic Loss Doctrine Issues to Washington Supreme Court

John Parnass — Mon, 16 Mar 2009 09:06:52 -0800

A classic economic loss scenario:

The City of Seattle owns the Monorail between downtown and Seattle Center and has a contract with a JV who operates the Monorail. In 1999, the City hired a design firm (LTK) under a separate contract to identify and repair problems with the Monorail trains. The JV had no contractual relationship with LTK. In 2004, one train caught fire. The JV's insurance company paid the claim then blamed LTK for causing the fire.

Got it?

Into the thicket of Washington's economic loss doctrine now comes the 9th Circuit in this recent case certifying a question of state law to the Supreme Court, specifically:

May party A (here, SMS, whose rights are asserted in subrogation by [carrier]), who has a contractual right to operate commercially and extensively on property owned by non-party B (here, the City of Seattle), sue party C (here, LTK) in tort for damage to that property, when A (SMS) and C (LTK) are not in privity of contract?

At first blush, this issue might appeared to have been cleanly resolved by Berschauer/Philips v, Seattle School District (1994), but wait: the 9th Circuit thinks there are unresolved issues lurking in that case that need to be addressed:

First, the 9th Circuit notes that in Berschauer the claimant had been assigned the right to prosecute claims against the remote third party and thus the claimant still had a meaningful remedy. Would the doctrine still apply in this situation, where the JV appears not to have acquired the right to sue LTK by way of assignment of rights from Seattle?
Second, is the JV's right to operate the Monorail a "property right" such that fire damage to the train would come within an exception to the doctrine for harm to personal injury or property damage?

Stay tuned...the Supreme Court is not bound by the 9th Circuit's framing of the issue and could use this case as an opportunity to significantly revise the scope of the economic loss doctrine in Washington.