Date: 01-05-2012

Case Style: Donia Townsend v. The Quadrant Corporation

Case Number: 84422-4

Judge: Gerry Alexander

Court: Supreme Court of Washington on appeal from the Superior Court, King County

Plaintiff's Attorney: Lory Ray Lybeck and Brian Clifford Armstrong

Defendant's Attorney: Michael Ramsey Scott, Laurie Lootens Chyz and Michael Jacob Ewart for Respondents

Bryan Patrick Harnetiaux, Dvid P. Gardner, and George M. Ahrend for Washington State Assocaition for Bryan Patrick Harnetiaux

Description: We granted review of a decision of the Court of Appeals in

which that court reversed the superior court's denial of a motion by a corporate home

seller and its parent companies to compel certain home purchasers to engage in

arbitration pursuant to an arbitration clause in the purchase and sale agreement. We

affirm the Court of Appeals.

I

Donia Townsend and Bob Perez (Townsend), Paul and Jo Ann Ysteboe, Vivian

and Tony Lehtinen, and Jon and Christa Sigafoos (collectively Homeowners)

purchased homes from the Quadrant Corporation (Quadrant). Quadrant, which builds

and sells homes, is owned by Weyerhaeuser Real Estate Company (WRECO), which,

in turn, is owned by the Weyerhaeuser Company (Weyerhaeuser). At the time of

purchase, each couple entered into a purchase and sale agreement (PSA) with

Quadrant. The PSA contained a clause that required that

[a]ny controversy or claim arising out of or relating to this agreement, any claimed breach of this agreement, or any claimed defect relating to the property, including without limitation, any claim brought under the Washington State Consumer Protection Act (but excepting any request by Seller to quiet title to the Property) shall be determined by arbitration. Clerk's Papers (CP) at 640.1

Several years after the home purchases, Townsend and the Ysteboes jointly

filed a lawsuit in King County Superior Court against Quadrant, WRECO, and

Weyerhaeuser, alleging outrage, fraud, unfair business practices, negligence,

negligent misrepresentation, rescission, and breach of warranty. In support of these

allegations, they claimed that Quadrant knowingly engaged in shoddy workmanship in

building the homes and that this resulted in serious construction defects that caused


personal injuries relating to mold, pests, and poisonous gases. They also claimed that

the PSA, as well as the arbitration clause contained therein, is unenforceable.

Shortly after Quadrant received notice of the lawsuit, it filed a motion to stay

proceedings and compel arbitration. At about the same time, WRECO and

Weyerhaeuser filed a motion for summary judgment contending that, aside from the

parent-subsidiary relationship with Quadrant, "neither [WRECO] nor Weyerhaeuser . . .

has any connection to the plaintiffs or their houses." CP at 61. The superior court

denied these motions.

The Lehtinens and Sigafoos, individually and on behalf of their minor children,

then each separately filed a lawsuit against Quadrant, WRECO, and Weyerhaeuser,

asserting causes of action identical to those asserted by Townsend and the Ysteboes.

A King County Superior Court judge consolidated all of the actions filed by the

Homeowners for "pretrial purposes." CP at 144.

Quadrant again moved to compel arbitration and WRECO and Weyerhaeuser

sought similar relief. The superior court denied the motions, concluding that there were

issues of fact about whether the PSA was a negotiated contract or a contract of

adhesion.

On appeal, the Court of Appeals, Division One, reversed the superior court,

concluding that "[t]he issue of the PSA's procedural unconscionability is a matter

reserved for the arbitrator." Townsend v. Quadrant Corp., 153 Wn. App. 870, 885, 224

P.3d 818 (2009) (citing RCW 7.04A.060(3)). That court also determined that the claims

3


of the children of the Homeowners' were subject to the arbitration clause and that

WRECO and Weyerhaeuser did not waive their right to arbitration by moving for

summary judgment. We thereafter granted the Homeowners' petition for review.

Townsend v. Quadrant Corp., 169 Wn.2d 1021, 238 P.3d 504 (2010).

II

We engage "in de novo review of a trial court's decision granting a motion to

compel or deny arbitration." Satomi Owners Ass'n v. Satomi, LLC, 167 Wn.2d 781, 797,

225 P.3d 213 (2009) (citing Adler v. Fred Lind Manor, 153 Wn.2d 331, 342, 103 P.3d

773 (2004)). "'The party opposing arbitration bears the burden of showing that the

agreement is not enforceable.'" Id. (quoting Zuver v. Airtouch Commc'ns, Inc., 153

Wn.2d 293, 302, 103 P.3d 753 (2004)).

III

The primary issue before us is whether the procedural unconscionability question presented by these facts is one to be decided by an arbitrator or the court.2

The Homeowners contend that "where there is a challenge to an integrated arbitration

clause, the court, not an arbitrator, must evaluate evidence of contract formation when

determining whether an arbitration provision is procedurally unconscionable." Pet'rs'

Suppl. Br. at 12. Quadrant, WRECO, and Weyerhaeuser respond that the question is

to be decided by an arbitrator, rather than the court, because the Homeowners framed

the procedural unconscionability issue in terms of the PSA generally, rather than "only and

specifically" as to the arbitration clause. Answer to Pet. for Review at 11.

The Court of Appeals agreed with Quadrant and its parent companies, holding

that under these facts the question of procedural unconscionability is for an arbitrator to

decide because the Homeowners challenged the enforceability of the PSA as a whole.

It said that 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." Townsend, 153 Wn. App. at 879-80 (citing McKee v.

AT&T Corp., 164 Wn.2d 372, 394, 191 P.3d 845 (2008)).

In reaching its decision, the Court of Appeals looked to provisions of the uniform

arbitration act (UAA), chapter 7.04A RCW. Although it acknowledged that courts

generally apply the rules of statutory construction only after deeming a statutory

provision ambiguous, the Court of Appeals turned to the official comments to the UAA

prior to examining the relevant statute for ambiguity. Townsend, 153 Wn. App. at 878

n.7 (citing Cerrillo v. Esparza, 158 Wn.2d 194, 201, 142 P.3d 155 (2006)). It properly

did so because "RCW 7.04A.901 requires that '[i]n applying and construing this uniform

act, consideration must be given to the need to promote uniformity of the law with

respect to its subject matter among states that enact it.'" Id. (alteration in original)

(citing Lewis River Golf, Inc. v. O.M. Scott & Sons, 120 Wn.2d 712, 718, 845 P.2d 987

(1993) (citing the official Uniform Commercial Code (U.C.C.) comments in its analysis

of U.C.C. § 1 -- 106); Olmsted v. Mulder, 72 Wn. App. 169, 177, 863 P.2d 1355 (1993))).

The Court of Appeals then set forth the statutory provisions that it considered

relevant to its inquiry: RCW 7.04A.060(3) states that an arbitrator "'shall decide . . .

whether a contract containing a valid agreement to arbitrate is enforceable'" and

whether subsection (2) of that statute provides that the "'court shall decide whether an

agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate.'"

Townsend, 153 Wn. App. at 879 (quoting RCW 7.04A.060). The Court of Appeals also

cited a comment to the UAA, which explains that the above-cited subsections are

intended to

"incorporate the holdings of the vast majority of state courts and the law that has developed under the FAA [Federal Arbitration Act, 9 USC §§ 1 -- 14] that, in the absence of an agreement to the contrary, issues of substantive arbitrability, i.e., whether a dispute is encompassed by an agreement to arbitrate, are for a court to decide and issues of procedural arbitrability, i.e., whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have been met, are for the arbitrators to decide."

Id. at 879 (alteration in original) (quoting UAA § 6 cmt. 2, 7 U.L.A. 24 (2005)). The

Court of Appeals further explained that comment 4 to section 6 of the UAA notes that

the language in RCW 7.04A.060(3), "whether a contract containing a valid agreement

to arbitrate is enforceable, is intended to follow the 'separability' doctrine outlined in

Prima Paint Corp. v. Flood & Conklin Manufacturing Co. [388 U.S. 395, 87 S. Ct. 1801,

18 L. Ed. 2d 1270 (1967)]." Townsend, 153 Wn. App. at 880 (internal quotation marks

omitted) (quoting UAA § 6 cmt. 4, 7 U.L.A. at 25). In Prima Paint, a corporation brought

suit against another corporation to rescind a consulting agreement, claiming fraudulent

inducement of the contract. The plaintiff, Prima Paint Corporation, did not, however,

specifically allege fraud in the inducement of the arbitration clause within the contract.

Applying the then-extant United States Arbitration Act of 1925 (9 U.S.C. §§ 1-14), the

United States Supreme Court determined that "if the claim is fraud in the inducement of

the arbitration clause itself -- an issue which goes to the 'making' of the agreement to

arbitrate -- the federal court may proceed to adjudicate it," but that court cannot

"consider claims of fraud in the inducement of the contract generally." Prima Paint, 388

U.S. at 403-04.

The United States Supreme Court reaffirmed its Prima Paint decision in Buckeye

Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445, 126 S. Ct. 1204, 163 L. Ed. 2d

1038 (2006). In Buckeye, individuals alleged that a company, Buckeye Check Cashing,

had charged usurious interest rates under an agreement signed by the parties that

contained an arbitration clause. The Court held that "because respondents challenge

the Agreement, but not specifically its arbitration provisions, those provisions are

enforceable apart from the remainder of the contract. The challenge should therefore

be considered by an arbitrator, not a court." Id. at 446.

After Buckeye was decided, we were presented in McKee with the question of

whether the court or an arbitrator was to decide a challenge that was "only and

specifically" directed to an arbitration clause in a consumer services agreement, rather

than to the agreement as a whole. McKee, 164 Wn.2d at 394. We concluded there that

the enforceability of the arbitration provision was to be decided by the court, not an

arbitrator. In reaching our decision in McKee, we distinguished Buckeye on the basis

that the challenges raised therein related only and specifically to the arbitration clause,

whereas in Buckeye the challenge was directed to the contract as a whole rather than

simply to the arbitration clause. Thus, we concluded that the court must decide whether

the agreement to arbitrate was enforceable, whereas that question was properly

reserved for an arbitrator in Buckeye.

Here, as we have observed, the Court of Appeals concluded that an arbitrator

should decide whether the arbitration clause is enforceable. In making its

determination, that court reviewed the record and observed that the Homeowners failed

to allege facts relating specifically and only to the arbitration agreement but, instead,

alleged facts "relat[ing] to the PSA as a whole." Townsend, 153 Wn. App. at 885. It

further stated that the "Homeowners' challenge to the validity of the arbitration clause

rests on their argument that the PSAs themselves were invalid for procedural

unconscionability as contracts of adhesion." Id. Here we must similarly review the facts

to determine whether the Homeowners' challenge to the arbitration clause is sufficiently

discrete to be decided by the court under McKee or whether it is so wrapped into their

general allegations regarding the PSA that both issues must be decided by an

arbitrator under Prima Paint and Buckeye.

In what the Homeowners titled their eighth cause of action in their complaint,

they asserted that the PSA was an adhesion contract and that the arbitration clause

within it was unenforceable. Significantly, they also asserted in that cause of action that

their "claims for antecedent or subsequent fraud and for personal injury arise

independently of the [PSA]; the arbitration clause contained therein is voidable and

unenforceable on such claims." CP at 26. It is apparent, however, that they did not

claim that the arbitration clause itself was procured by fraud. Significantly, the

Homeowners testified in pretrial proceedings that Quadrant told them the terms of the

PSAs were not negotiable and that they had to agree to all of the terms, including the

arbitration clause, in order to purchase a Quadrant home. They also claimed that they

were denied the opportunity to review and question the terms of the agreements before

signing them, they were subjected to "high-pressure sales tactics," and had they been

told the truth, they "would never have agreed to purchase a Quadrant home, let alone

enter a purchase and sale agreement to buy a Quadrant home that contained an

arbitration clause." CP at 674. In our view, each of the Homeowners' allegations pertain

to the PSA as a whole because each time they separately mention the arbitration

clause within the PSA, they do so by relating it to their general allegation that the PSA

is procedurally unconscionable. In sum, the Homeowners have framed their claims

pertaining to the arbitration clause and the PSA in a way that renders the two

inseparable. In our view, one could decide whether the arbitration clause is

unenforceable only by deciding whether the PSA as a whole is unenforceable.

Under these facts, the Court of Appeals properly determined that because the

facts alleged by the Homeowners relate to the PSA as a whole, the "issue of the PSA's

procedural unconscionability is a matter reserved for the arbitrator." Townsend, 153

Wn. App. at 885.


IV

We must also decide whether the Court of Appeals correctly held that the

children of the Lehtinens and Sigafoos are bound by the arbitration clause to the same

extent as their parents. The Court of Appeals determined that the children's claims

"relate to the PSA" and there is "no distinction in the complaints" between the children's

claims and the parents' claims. Id. at 888. We affirm the Court of Appeals on this issue

as well, but we do so for reasons that differ from those given by the Court of Appeals.

As a general rule, nonsignatories are not bound by arbitration clauses. In

Satomi, we held that "'"arbitration is a matter of contract and a party cannot be required

to submit to arbitration any dispute which he has not agreed so to submit."'" Satomi,

167 Wn.2d at 810 (quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83,

123 S. Ct. 588, 154 L. Ed. 2d 491 (2002) (quoting United Steelworkers v. Warrior & Gulf

Nav. Co., 363 U.S. 574, 582, 80 S. Ct. 1347, 4 L. Ed. 2d 1409 (1960))). However,

courts have recognized limited exceptions to this rule, including the principle of

equitable estoppel. See id. at 811 n.22; Mundi v. Union Sec. Life Ins. Co., 555 F.3d

1042, 1046 (9th Cir. 2009). Equitable estoppel "'"precludes a party from claiming the

benefits of a contract while simultaneously attempting to avoid the burdens that

contract imposes."'" Mundi, 555 F.3d at 1045-46 (quoting Comer v. Micor, Inc., 436

F.3d 1098, 1101 (9th Cir. 2006) (quoting Wash. Mut. Fin. Group, LLC v. Bailey, 364

F.3d 260, 267 (5th Cir. 2004))). In this regard, equitable estoppel may require a

nonsignatory to arbitrate a claim if that person, despite never having signed the

agreement, "'"knowingly exploits"'" the contract in which the arbitration agreement is

contained. Id. at 1046 (quoting Comer, 436 F.3d at 1101) (quoting E.I. DuPont de

Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, 269 F.3d 187, 199 (3d

Cir. 2001))).

Here, the Lehtinens and Sigafoos contend that their children "do not attempt to

enforce the terms of the PSAs, nor do they base their claims on any alleged warranty

contained in them." Pet'rs' Suppl. Br. at 7. We disagree. Throughout the pleadings filed

by the Lehtinens and Sigafoos, the parents and children are referred to collectively as

the "plaintiffs" and they present eight identical causes of action. Additionally, two of the

causes of action alleged by the parents and their children relate directly to the PSAs,

including an allegation of breach of warranty and a request for rescission. It is

apparent, contrary to the contention made by the Lehtinens and Sigafoos, that the

children are attempting to enforce the terms of the PSA and that they base their claim

for breach of warranty on the warranties contained therein. Although the children

received the benefit of the bargain in the transaction with Quadrant to the same extent

as their parents, they now seek to avoid the burden of arbitration imposed by the PSA.

The children, therefore, can be said to be knowingly exploiting the terms of the contract

and, under Mundi, cannot avoid the arbitration clause within it. The children are, thus, bound by the arbitration agreement to the same extent as their parents.3


V

The final issue before us is whether WRECO and Weyerhaeuser waived their

right to seek arbitration by moving for summary judgment based on a contention that

they were not proper parties to the lawsuit and that the Homeowners submitted

evidence outside of the pleadings. In addressing the issue, the Court of Appeals

properly observed that "a waiver of arbitration cannot be found if there is conduct

suggesting a lack of intention to forgo the right to arbitrate." Townsend, 153 Wn. App.

at 888-89 (citing Lake Wash. Sch. Dist. No. 414 v. Mobile Modules Nw., Inc., 28 Wn.

App. 59, 62, 621 P.2d 791 (1980)).

In the Homeowners' view, "a party who chooses to litigate by moving for

summary judgment on the merits waives any right to later seek arbitration of the same

claims." Pet. for Review at 18-19. They do not, however, cite any case that

unequivocally states that a party that moves for summary judgment necessarily waives

its right to compel arbitration. Instead, the Homeowners rely on the case of Naches

Valley School District No. JT3 v. Cruzen, 54 Wn. App. 388, 395-96, 775 P.2d 960

(1989). There the Court of Appeals was faced with a dispute about the meaning of a

sick-leave buy-out provision in a teachers' collective bargaining agreement. The trial

court granted summary judgment to the teachers named in the lawsuit while denying a

motion to arbitrate that had been filed by a teachers association. Although the teachers

never requested arbitration, the teachers association appealed the decision to deny

arbitration. The Court of Appeals concluded that the teachers association was not

entitled to arbitration because the individual teachers had waived their right to compel

arbitration by moving for and obtaining summary judgment. The facts before us are

quite different because unlike the teachers in Naches Valley who prevailed on summary

judgment and therefore waived their right to arbitrate, WRECO and Weyerhaeuser

moved to compel arbitration after the trial court denied their motion for summary

judgment.

In Otis Housing Ass'n v. Ha, 165 Wn.2d 582, 201 P.3d 309 (2009), we cited with

approval the rule that the right to arbitrate is waived by conduct inconsistent with any

other intent and stated that "'a party to a lawsuit who claims the right to arbitration must

take some action to enforce that right within a reasonable time.'" Id. at 588 (quoting

Lake Wash. Sch. Dist. No. 414, 28 Wn. App. at 64). We concluded that, "[s]imply put,

we hold that a party waives a right to arbitrate if it elects to litigate instead of arbitrate."

Id. Here, WRECO and Weyerhaeuser moved to compel arbitration promptly after the

superior court denied their motion for summary judgment based on their assertions that

they had no connection to the lawsuit. In our view, this conduct did not evince intent to

waive arbitration. Accordingly, we affirm the Court of Appeals' holding that WRECO

and Weyerhaeuser did not waive arbitration.

* * *

See: http://www.courts.wa.gov/opinions/index.cfm?fa=opinions.showOpinion&filename=844224MAJ

Outcome: We affirm the Court of Appeals' holdings that (1) the Homeowners' procedural unconscionability claim that pertained to the entire PSA, including the arbitration clause contained therein, is to be decided by an arbitrator; (2) the children of the Lehtinens and Sigafoos are bound by the arbitration clause; and (3) WRECO and Weyerhaeuser did not waive their right to arbitrate by moving for summary judgment prior to seeking to compel arbitration.

Plaintiff's Experts:

Defendant's Experts:

Comments: