The Washington State Supreme Court recently ruled that issues regarding the unconscionability of a purchase and sale agreement were bound by the arbitration terms within the agreement. In addition, nonsignatory children were bound by the terms of an arbitration agreement.
In Townsend vs. Quadrant Corp., Docket 84422-4, the Court held in favor of Quadrant Corp., the homebuilder and its owners Weyerhauser Real Estate Company and Weyerhauser Company. This case arose out of issues regarding deficiencies in the home plaintiffs purchased from Quadrant. Plaintiffs attempted to file a lawsuit, however, defendants compelled arbitration. The trial court ruled that there were issues of fact to determine whether the Purchase and Sale Agreement was a contract of adhesion or a negotiated contract. The state Court of Appeals overturned the trial court stating that the issue of the contract should be decided by the arbitrator.
The Plaintiffs argued that the Purchase and Sale Agreement (PSA) in dispute must be reviewed by a court even though the agreement has an arbitration provision when issues of unconscionability are raised.
The Court of Appeals held in favor of the defendants as plaintiffs challenged the enforceability of the PSA rather than just the arbitration provision within the PSA. Under RCW 7.04A.060(2), “a court may entertain only a challenge to the validity of the arbitration clause itself, not a challenge to the validity of the contract containing the arbitration clause.”
The Washington State Supreme Court affirmed the Court of Appeals. In addition, it ruled that the children of the plaintiffs (also plaintiffs to the lawsuit), who did not sign the purchase and sale agreement with the arbitration provision, were still bound by the provision.
The Court indicated that the unconscionability of the arbitration agreement in the contract was to be decided by the arbitrator and not the courts. In Townsend, the plaintiffs argued that the purchase and sale agreements that they executed for the purchase of their home could not be negotiated and thus the arbitration agreement was void. The Court differentiated the issue of challenging a contract versus challenging the arbitration provision in the contract. It found that courts could take the issue of the arbitration provision but the arbitrator could decide the issue of whether a contract as a whole was unconscionable. In Townsend, the plaintiffs took issue with the contract as a whole.
The lawsuit was originally filed in King County Superior Court.
UPDATE 1/25/12: Although the lead opinion ruled that the children of the plaintiffs were bound by arbitration, the 5 of the 9 justices stated that the children were not bound by the arbitration agreement signed by the parents and thus their claims could go forward in court.
The information in this post is opinion only. In addition, and because this is my opinion, it is not intended to be (and is not) legal advice or an advertisement for legal services. This post provides general information only. Although I encourage interested parties to contact me on the subjects discussed in the article, the reader should not consider information on this site to be an invitation for an attorney-client relationship. I disclaim all liability in respect to actions taken or not taken based on any contents of this post. Any e-mail sent to me will not create an attorney-client relationship, and you should not use this site to send me e-mail containing confidential or sensitive information.