Court Opinion

ID: 4750968
Source: CourtListenerOpinion
Date Created: 2021-08-12 17:45:14.283702+00
Date Added: 2024-06-11T08:08:42.930770
License: Public Domain

*191¶38 (dissenting) — I respectfully dissent from Part II of the majority opinion. Despite recognizing that the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16, “ £signals[s] the broadest permissible exercise of Congress’ Commerce Clause power’ ” (majority at 183) (quoting Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56, 123 S. Ct. 2037, 156 L. Ed. 2d 46 (2003)), the strong policy of both state law and the FAA favoring arbitration (majority at 182), the purpose of the FAA “to overcome courts’ unwillingness to enforce arbitration agreements” (majority at 182), and the “questionable” viability of our decision in Marina Cove Condominium Owners Ass’n v. Isabella Estates,51 (majority at 185), the majority still tries to rescue the judicial review provision of the Washington Condominium Act (WCA)52 from federal preemption. Given the interstate nature of condominium sales and the building materials used to construct this condominium, the warranty addendum which contains the arbitration clause and covers those very materials evidences a transaction “involving interstate commerce” within the expensive coverage the courts have given the FAA. The FAA thus preempts the WCA’s judicial resolution provision. I would reverse and allow arbitration under the warranty addendum.53
Agid, J.
¶39 There are two major problems with the majority’s approach. First, it relies on authority it admits is of questionable continuing validity for one of its major premises: that ££[t]he right to a judicial forum for resolution of *192WCA warranty disputes cannot be waived.”54 And, even if this premise is still an accurate statement of the law, the United States Supreme Court has had no difficulty striking down similar nonwaiver provisions in Montana,55 Alabama,56 and California57 when they run afoul of the FAA. Second, the majority does everything it can to localize, encapsulate, and miniaturize the transaction at issue here so it can conclude that the business of building condominiums “does not acquire an interstate character simply because a refrigerator or a brick was manufactured in another state.” Majority at 190. This characterization completely misses the point of the cases the majority so carefully outlines at pages 181-85 of its opinion. In the end, it is left relying on distinctions without differences, “facts” that do not distinguish this case from the letter or the spirit of the Supreme Court’s decisions in Allied-Bruce Terminix Cos. v. Dobson58 and Citizens Bank 59 I would hold that the “general practice”60 involved here is building condominiums, not executing local real estate contracts or signing warranty addenda. Interstate commerce is clearly implicated by a project on which not one brick or refrigerator but 70 percent of the building components are manufactured, ordered, and shipped from other states.
¶40 The FAA provides that
[a] written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of *193such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.[61]
The party moving to compel arbitration must make a threshold showing that there is a written agreement to arbitrate and that the contract at issue involves interstate commerce.62
¶41 Satomi, LLC Company argues the transactions evidenced by the warranty addendum involve interstate commerce because over 70 percent of the building materials used to construct the condominium complex were manufactured in and shipped from outside Washington. The Satomi Owners Association (Association) asserts the origin of the building materials is too remote an interstate connection for the FAA to apply. It contends this court in Marina Cove established that condominium purchase and sale agreements between Washington companies and Washington residents do not implicate the FAA.63
¶42 The FAA’s basic purpose is to overcome courts’ refusals to enforce arbitration agreements.64 The FAA preempts state law, prohibiting state courts from applying state statutes that invalidate arbitration agreements.65 The United States Supreme Court has interpreted the phrase “involving commerce” to be the
functional equivalent of the more familiar term “affecting commerce” — words of art that ordinarily signal the broadest *194permissible exercise of Congress’ Commerce Clause power. Because the statute provides for “the enforcement of arbitration agreements within the full reach of the Commerce Clause,” it is perfectly clear that the FAA encompasses a wider range of transactions than those actually “in commerce” — that is, “within the flow of interstate commerce.”[66]
¶43 In Allied-Bruce, the Gwins entered into a termite protection contract for their home with Allied-Bruce and Terminix.67 They sold their home to the Dobsons, who discovered the house was infested with termites and, along with the Gwins, sued Allied-Bruce and Terminix in Alabama state court. Allied-Bruce and Terminix argued the contract’s arbitration clause was enforceable under the FAA despite an Alabama statute which, like the one in question here, made written, predispute arbitration agreements unenforceable. The Alabama Supreme Court ruled the FAA did not apply because the connection between the termite contract and interstate commerce was too tenuous considering the parties never “contemplated” substantial interstate activity.68 The United States Supreme Court reversed.
¶44 After holding that the words “involving commerce” invoked the full extent of Congress’ Commerce Clause powers, the Court disapproved of the “ ‘contemplation of the parties’ ” test and held the transaction evidenced by the contract need only “in fact” involve interstate commerce.69 The parties did not contest that the transaction involved interstate commerce. Allied-Bruce and Terminix operated in multiple states, and “the termite-treating and house-repairing material used by Allied-Bruce in its (allegedly *195inadequate) efforts to carry out the terms of the [contract], came from outside Alabama.”70 Thus, the FAA applied.71
¶45 In Basura v. U.S. Home Corp., homeowners brought suit against a developer for alleged design and construction defects, and the developer moved to compel arbitration based on the arbitration clause in the sale agreements.72 The California Court of Appeals ruled that United States v. Lopez73 did not change Allied-Bruce’s broad interpretation of the FAA’s coverage. It then held that the “indicia of interstate commerce are far greater” than in Allied-Bruce because constructing the homes involved using building materials and equipment manufactured and shipped from states all over the country.74 The court also noted that the developer had contracted with out-of-state architects, trade contractors, and subcontractors, and engaged in marketing and advertising throughout the country using interstate media.
¶46 In Citizens Bank75 the United States Supreme Court reaffirmed its holding in Allied-Bruce and rejected the proposition that Lopez had narrowed that ruling. An Alabama bank had entered into debt-restructuring arrangements with an Alabama construction company, and each arrangement included an arbitration clause. The company brought suit against the bank alleging several claims, and the bank moved to compel arbitration under the FAA. The Alabama Supreme Court again held there was an insufficient nexus with interstate commerce to invoke the FAA. The United States Supreme Court again reversed.
*196¶47 The Court reiterated that Congress’ Commerce Clause power “ ‘may be exercised in individual cases without showing any specific effect upon interstate commerce’ if in the aggregate the economic activity in question would represent ‘a general practice . . . subject to federal control.’ ”76 It held that only the general practice need have a substantial effect on interstate commerce.77 The Court held the debt-restructuring agreements, although executed in Alabama by Alabama residents, easily passed the FAA’s “involving commerce” test for at least three reasons: (1) Alafabco financed projects throughout the southeastern United States using loans that were the subject of the debt-restructuring agreements; (2) the restructured debt was secured in part by Alafabco’s inventory of goods assembled from out-of-state materials; and (3) the general practice represented by the transactions at issue, commercial lending, had a broad impact on the national economy and was clearly within Congress’ regulatory power.78 The Court stated the Alabama Supreme Court’s decision “adheres to an improperly cramped view of Congress’ Commerce Clause power. . . . Lopez did not restrict the reach of the FAA or implicitly overrule Allied-Bruce Terminix Cos.— indeed, we did not discuss that case in Lopez.”79
¶48 If there was any question about whether the far-reaching “involving interstate commerce” test in Allied-Bruce remained valid, Citizens Bank answered that ques*197tion in the affirmative. I agree with the majority that our decision in Marina Cove is no longer viable. And, as this case and Basura highlight, this is especially true because in Marina Cove we did not consider whether the manufacture and movement of the building materials in interstate commerce triggers a transaction involving interstate commerce under the FAA.
¶49 Here, the warranty addendum containing the arbitration clause evidences a transaction “involving interstate commerce” within the United States Supreme Court’s expansive interpretation of the FAA. The addendum states in part:
The Unit in the Condominium identified above and the Common Elements are suitable for the ordinary uses of real estate of their type and, except as provided below, all parts of the Unit and Common Elements constructed by or for the Declarant are free from defective materials and have been constructed in accordance with applicable law, in accordance with sound engineering and construction standards, and in a workmanlike manner.[80]
As the Association points out, the warranty addendum evidences an agreement between a Washington company and primarily Washington-resident purchasers about warranties on condominiums located within Washington. But the addendum also specifically addresses the materials used to construct the condominium complex, most of which were manufactured and shipped from outside Washington. Basura and Citizens Bank give this interstate materials connection significant weight in determining whether the FAA applies. Most importantly, the general practice represented by the transactions at issue, condominium warranties and sales, has an undeniably broad impact on the national economy.81
*198¶50 That the parties to the warranty addendum and the location of the condominium complex are local does not resolve the question whether the transaction involves interstate commerce. While the addendum may not have as significant an overall interstate nexus as the debt-restructuring agreements in Citizens Bank or the sale agreements in Basura, this has not been the focus of the Supreme Court’s decisions in Allied-Bruce and Citizens Bank. The 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. In this connection, it is important to note that the same out-of-state building materials which implicate interstate commerce are the focus of the Association’s claims.82
¶51 The majority characterizes this as a “private dispute” to which the FAA does not apply and the warranty as the “general practice” to which we must look under Citizens Bank. Majority at 189. The first characterization begs the question and the second is an attempt to miniaturize the transactions at issue to shield them from interstate significance. All the disputes discussed in Allied-Bruce, Basura, and Citzens Bank were “private.” Yet the courts held the FAA applied to them all because, when viewed through the lens of interstate commerce and the purpose of the FAA, all were a part of broader “aggregate economic activity,” i.e., pest control using out-of-state products, home *199building, and loans. Similarly, each of those transactions could have been reduced to its lowest common denominator had the courts wished to ignore the “general practice” of which it was a part. But the United States Supreme Court made it very clear when it repudiated the Lopez approach in Citizens Bank that we may not compartmentalize transactions to avoid the strong federal mandate in favor of arbitration.
¶52 Finally, the majority seeks to downplay the significance of the out-of-state materials at issue in this dispute. Majority at 190. If anything, the connection this condominium project has to interstate commerce is far greater than in Allied-Bruce. If any contract would seem to be remote from the reach of the Commerce Clause, it is one between a homeowner and his local Terminix outlet to spray for bugs. Yet the Supreme Court found FAA preemption based solely on Allied-Bruce’s multistate operations and the fact that a single commodity — the bug spray — was manufactured in another state. Here, virtually all the materials at issue come from another state. This, too, is a contract that “in fact” involved interstate commerce.83
I agree with the majority that “a significant right created by state law is at issue.” Majority at 190. But so were the similar laws invalidated in Allied-Bruce, Basura, and Citizens Bank. I simply do not think we can ignore the very clear mandate of the United States Supreme Court that, where a contract involves a general practice that has a substantial effect on interstate commerce, state laws limiting or prohibiting arbitration must yield to the FAA.
Review granted at 163 Wn.2d 1017 (2008).

 109 Wn. App. 230, 34 P.3d 870 (2001).

 RCW 64.34.100(2) (right of action), .030 (nonwaiver provision).

 As the majority recognizes (majority at 190), even if the FAA did not preempt the WCA remedy here, the arbitration clause still applies to the Satomi Owners Association’s implied warranty of habitability and Consumer Protection Act, chapter 19.86 RCW, claims. It would clearly promote judicial economy to resolve these claims, which arise from identical facts, in one arbitration hearing.

 Majority at 187 (citing Marina Cove, 109 Wn. App. at 236-37).

 Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 683, 116 S. Ct. 1652, 134 L. Ed. 2d 902 (1996).

 Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 269, 115 S. Ct. 834, 130 L. Ed. 2d 753 (1995).

 Basura v. U.S. Home Corp., 98 Cal. App. 4th 1205, 1212, 120 Cal. Rptr. 2d 328, review denied, 2002 Cal. LEXIS 6245.

 513 U.S. 265, 115 S. Ct. 834, 130 L. Ed. 2d 753 (1995).

 539 U.S. 52.

 Id. at 57.

61 9 U.S.C. § 2 (emphasis added).

 Walters v. A.A.A Waterproofing, Inc., 120 Wn. App. 354, 358, 85 P.3d 389 (2004) (citing Maxum Founds., Inc. v. Salus Corp., 779 F.2d 974, 978 n.4 (4th Cir. 1985)).

 109 Wn. App. 230.

 Allied-Bruce, 513 U.S. at 270.

 Id. at 272 (citing Southland Corp. v Keating, 465 U.S. 1, 15-16, 104 S. Ct. 852, 79 L. Ed. 2d 1 (1984)).

66 Citizens Bank, 539 U.S. at 56 (citations omitted) (quoting Allied-Bruce, 513 U.S. at 273-74; Perry v. Thomas, 482 U.S. 483, 490, 107 S. Ct. 2520, 96 L. Ed. 2d 426 (1987)).

 513 U.S. 265.

 Id. at 269.

 Id. at 279-80.

 Id. at 282.

 Id.

 98 Cal. App. 4th 1205, 120 Cal. Rptr. 2d 328, review denied, 2002 Cal. LEXIS 6245.

 514 U.S. 549, 115 S. Ct. 1624, 131 L. Ed. 2d 626 (1995). This is the case we erroneously relied on in Marina Cove to narrow the test for applying the FAA. 109 Wn. App. at 243.

 Basura, 98 Cal. App. 4th at 1214.

 539 U.S. 52.

 Id. at 56-57 (alteration in original) (quoting Mandeville Island Farms, Inc. v. Am. Crystal Sugar Co., 334 U.S. 219, 236, 68 S. Ct. 996, 92 L. Ed. 1328 (1948)).

 Id. (citing Maryland v. Wirtz, 392 U.S. 183, 196 n.27, 88 S. Ct. 2017, 20 L. Ed. 2d 1020 (1968), overruled on other grounds by Nat’l League of Cities v. Usery, 426 U.S. 833, 96 S. Ct. 2465, 49 L. Ed. 2d 245 (1976); Nat’l Labor Relations Bd. v. Jones & Laughlin Steel Corp., 301 U.S. 1, 37-38, 57 S. Ct. 615, 81 L. Ed. 893 (1937)).

 Id. at 57-58.

 Id. at 58. Notably, the Texas Supreme Court had earlier used the same reasoning, that Lopez did not affect Allied-Bruce, in granting mandamus relief and essentially overruling the Texas Court of Appeals’ decision in Kempwood Associates, which we had relied on in Marina Cove. See In re L&L Kempwood Assocs., LP, 9 S.W.3d 125 (Tex. 1999). Although the only interstate feature of that contract was that the parties lived in different states, the court ruled the contract still involved interstate commerce, so the FAA applied. Id. at 127.

80 (Emphasis added.)

 “[E]ven when a transaction is entered into between residents of the same state and consummated in that state, the tramsaction implicates the FAA when ‘in the aggregate the economic activity in question’ represents a ‘general practice *198subject to federal control.’ ” Legacy Wireless Servs., Inc. v. Human Capital, LLC, 314 F. Supp. 2d 1045, 1052 (D. Or. 2004) (quoting Citizens Bank, 539 U.S. at 57). The parties disagree about whether the “general practice” represented by the transactions at issue is condominium sales or the more specific practice of warranties in condominium sales. But both transactions are integral parts of the same general practice — housing construction — which is a multibillion dollar business that obviously affects interstate commerce when the materials are manufactured and shipped from state to state.

 The Association’s complaint alleged causes of action based on a “variety of construction defects and other deficiencies in building components and/or installation including, but not limited to, siding and trim, sealant joints, building paper, flashing, penetration wraps, concrete entry patios and walkways, parapet guardrails on walkways, columns, shear walls, windows and concrete slabs on grade.”

 Allied-Bruce, 513 U.S. at 279-80.