Despite its declaration that the Federal Arbitration Act (FAA) does not apply to simple residential real estate transactions involving out-of-state purchasers, a Puerto Rico federal district court has compelled arbitration of claims between a homeowner and an agent of his homeowner's association.

In Garrison v. Palmas Del Mar Homeowners Ass'n, Inc., Civ. No. 06-2062 (GAG/MEL), 2008 WL 655607 (D.P.R. Mar. 10, 2008), a dispute arose between homeowner Garrison, the Palmas Del Mar Homeowners Association (PDMHA), the Palmas Del Mar Architectural Review Board (PDMARB), and certain fellow residents over impeded construction work. PDMARB, citing a dispute resolution agreement within Garrison's property deeds, moved to compel arbitration of Garrison's claims against it.

In ruling on the motion to compel, the Court first opined that the FAA generally "does not apply to residential real estate transactions that have no substantial or direct connection to interstate commerce, regardless of whether said transactions involve out-of-state purchasers," such as Garrison.

The Court implied that the complexity of a real estate transaction or a commercial real estate transaction may involve interstate commerce and trigger the FAA, while a simple residential real estate transaction may not. Compare Sanaii v. Robards, 289 F.Supp.2d 855 (W.D. Ky. 2008) (cited as a simple residential transaction not invoking the FAA), with Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (1995) (cited as a complex transaction invoking the FAA), and Monte v. Southern Delaware County Authority, 321 F.2d 870 (3rd Cir. 1963) (cited as a commercial transaction invoking the FAA).

Nevertheless, applying Puerto Rico law, the Court found that a fair reading of the deeds' dispute resolution agreements required submission of all claims to mediation or arbitration. To the Court, holding that arbitration or mediation was optional after a dispute arose would render the plain language of the agreements superfluous and unneeded.

While some claims were specifically excluded from the scope of the arbitration agreements, the Court found Garrison's claims did fall within those exceptions. Only one exception applied to claims not brought by PDMHA, and the remaining exception was inapplicable because all Garrison's claims were based on, related to, or stemmed from the homeowner's deeds.