Condominium Law Group Update: Washington Statutes of Limitations Do Not Apply to Binding Arbitration Proceedings

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In December of 2009, in Owners Association vs. Satomi, LLC, the Washington Supreme Court ruled that the private binding arbitration provisions in the purchase and sale agreements for three condominium projects were enforceable. The lower courts had previously held such binding arbitration provisions unenforceable because section 100 of the Washington Condominium Act provides that it is enforceable by "judicial proceeding." These rulings deprived condominium developers of a dispute resolution tool that is available to other developers. The Satomi court ruled that this section of the Act was pre-empted by the Federal Arbitration Act, which makes private arbitration agreements enforceable despite contrary state law provisions. The Satomi case was welcomed by condominium developers, who had generally stopped including private binding arbitration provisions in their unit sales contracts. Please refer to our February 26, 2010 legal article for a detailed description of Satomi.

In July of 2010, however, the Supreme Court issued an opinion that could surprise developers who rely on Satomi. In Broom vs. Morgan Stanley, the Washington Supreme Court held that the Washington statute of limitations did not apply to securities arbitration proceedings because a private arbitration is not a judicial proceeding. In Broom, the arbitrators had dismissed an investor's claims as untimely under a Washington three-year statute of limitations. The Supreme Court reversed the arbitration award, however. The court noted that the statute of limitations referred to suits and not to arbitration proceedings. It also noted that the Washington Arbitration Act distinguishes between judicial proceedings and arbitration proceedings. It concluded that the statute of limitations applied only to judicial proceedings. Finally, it noted that the arbitration agreement did not state that state statutes of limitation applied to the arbitration proceeding.

The Broom opinion is relevant to condominium warranty claims because the statute of limitations for breach of warranty claims set forth in section 452 of the Washington Condominium Act states that any "judicial proceeding" for breach of warranty must be commenced within four years. If the Broom analysis applies to the statute of limitations for condominium defect claims, then owners and associations subject to private mandatory arbitration will not be bound by any statute of limitations. Responding to questions about the soundness of such a result, the Satomi court stated that parties could avoid the risk of stale claims by contractually agreeing that the statute of limitations applied to the arbitration proceedings. It is less clear whether the Broom analysis will apply to the six-year statute of limitations for breach of contract (applicable in other real estate contexts) because the statute refers only to "actions," not suits or judicial proceedings. Nevertheless, any developers who want to use private binding arbitration in Washington sales contracts should include a contractual statute of limitations clause in the arbitration agreements.

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Joseph P. McCarthy
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