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In affirming a lower court order denying arbitration of a warranty claim, the Washington Court of Appeals held that the transaction did not involve interstate commerce and, accordingly, that the Federal Arbitration (FAA) did not preempt a Washington statute which precluded arbitration.
In Satomi Owners Ass'n v. Satomi, LLC, No. 56265-7-I, 2007 WL 1663086 (Wash. Ct. App. June 11, 2007), the Satomi Owners Association (the Association) sued Satomi LLC (the Company), the developer of the Satomi condominiums, claiming that the Company was liable at common law and under the Washington Condominium Act (WCA).
The Company moved to compel arbitration pursuant to an arbitration clause in the warranty addendum. In opposing the motion, the Association argued that judicial enforcement of the WCA cannot be waived. The Company countered by arguing that the FAA preempted the WCA's requirement of a judicial forum.
The preemption question turned on whether the FAA applied to the sale of the condominiums as a transaction involving interstate commerce. In arguing that interstate commerce was involved, the Company pointed out that some of the building materials came from out of state.
Despite the use of out-of-state building materials, the Court held that the FAA did not apply. In support of its holding, the Court cited the following factors: (1) there was no national marketing and no out-of-state contractors or architects; (2) the sale of property is governed by state law; (3) the warranties at issue arose "entirely from state law"; and (4) the construction and sale of the condominiums "ha[d] none of the earmarks of an economic activity that in the aggregate would represent a general practice subject to federal control."
Regarding the use of out-of-state materials, the Court noted that "[t]he condominium owners purchased real property, not building materials, goods or services."
One of the judges wrote a dissenting opinion, stating that "[t]he interstate nature of the building materials and the 'general practice' of condominium construction and sales is enough to evidence a transaction 'involving interstate commerce,' given the broad interpretation we must now give that phrase under the cases interpreting the FAA."
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