Northwest Condo & HOA Law Blog : Washington & Oregon Construction Defect Lawyer & Attorney : Barker Martin Law Firm : Homeowner Associations, Condos : Seattle, Portland

This session, Representative Jamie Pedersen of the 43rd Legislative District has prime sponsored SHB 2657, which would fix the rather large loophole identified by the Washington Supreme Court in its May 2009 decision in Chadwick Farms Owners Association v. FHC, LLC, 166 Wn.2d 178, 207 P.3d 1251 (2009). 

In Chadwick Farms, the court held that any and all legal claims against LLCs abated -- essentially disappeared -- when an LLC's certification of formation was "cancelled."  The court explained that under the LLC statute as written, cancellation signalled the end of the LLC's existence and therefore, it could neither sue or be sued.  As a result, a company formed as an LLC could avoid liability -- even if a lawsuit had already been filed against it -- simply by filing a certificate of cancellation.  Since many condominium and HOA developers are formed as LLCs, homeowners in Washington stood to lose quite a bit if the loophole was not fixed.  But the court's holding is not limited to construction defect or homeowner lawsuits - any LLC could avoid liability simply by cancelling.

With the support of WSCAI and the LLC section of the Washington State Bar Association, Rep. Pedersen's bill does away with the concept of cancellation and makes the LLC statutes (found in RCW Chapter 25.15) more consistent with existing law for corporations.  The most recent striking amendment to the bill ensures that claims will survive against dissolved LLCs unless a sometimes-optional "certificate of dissolution" is filed and three years has run since the filing of the certificate.  WSCAI and the homeowners we represent thank Rep. Pedersen, the Bar Association Section and the Judiciary Committees in both the House and Senate for their efforts to pass this bill.

The bill was passed by the House and is scheduled for executive session in the Senate Committee on Judiciary on Feb. 19.  The bill is expected to pass out of committee and be forwarded to the Rules Committee for review.  Click here for an update on the bill's status. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In a 6-3 decision issued on Christmas Eve, the Washington Supreme Court sided with condominium developers in upholding arbitration clauses incorporated into condominium purchase and sale agreements. 

In the consolidated case of Satomi Owners Association v. Satomi, LLC, this firm argued on behalf of two of its condominium association clients (Satomi Owners Association and Pier at Leschi Owners Association) that arbitration clauses contained within “Limited Warranty” packages were unenforceable. The Associations argued that the Washington Condominium Act’s provision for judicial enforcement or the arbitration provisions of RCW 64.55, which were drafted through a compromise of industry professionals and specifically designed for construction defect cases in Washington, trumped arbitration provisions contained within these so-called warranties.

The developers’ attorneys argued that the Federal Arbitration Act (“FAA”), which provides for enforcement of arbitration agreements in contracts, trumped the Washington Condo Act and the related arbitration provisions as a matter of constitutional preemption law. But the FAA only applies where there the transaction being sued over affects interstate commerce. The developers argued that the FAA applied because materials that make up the condominiums (such as lumber and siding) travelled in interstate commerce. At the court of appeals, we successfully argued that the fact that the materials used in constructing the condominiums travelled in interstate commerce was insufficient and irrelevant because the associations did not contract for the building of the physical condominium building, they merely purchased a finished condominium – a type of real estate that is intangible and specific to Washington law. 

Unfortunately, the 6-member majority held that because the arbitration clauses were referenced in the purchase and sale agreements, the fact that physical pieces of the condo travelled in interstate commerce was enough for the FAA to apply. The Court also cited the fact that some unit purchasers came from out of state or borrowed out-of-state funds.

The Court declined to decide the “gateway disputes” of whether Associations were bound when it is unclear whether all original purchasers signed an agreement including the arbitration clause. 

As a result, developers in Washington may be able to enforce terms of the arbitration clauses instead of following the carefully crafted arbitration provisions of RCW 64.55. 

This does not mean, however, that every part of the arbitration clause or the “limited warranties” in which they are found will be enforceable. While declining to decide whether the arbitration clause in the Blakeley Village case was unconscionable because of procedural irregularities, the majority confirmed that that issues of whether the contracts containing the arbitration clauses are unconscionable remain for the trial court to decide.

Another good summary of the case appears on the Supreme Court's blog.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In Garron v. Pier Point Condominiums Association, Division One of the Washington Court of Appeals affirmed the trial court’s summary judgment dismissal of a personal injury lawsuit by a housecleaner against the condominium association. While cleaning one of the condominium units, the plaintiff slipped and fell on a wet tiled walkway in the common area of the condo. The court agreed with the association that there was no evidence the association knew or should have known about the slippery and dangerous walkway.

The Pier Point Condominium is a small eight-unit condo in Oak Harbor. The plaintiff had cleaned a unit at the condo every week for several years, so she was familiar with the complex. She was aware that when it rained, the walkway tiles became wet and slippery. The unit owner who employed the plaintiff testified he believed the walkway was dangerous when it rained, but had failed to inform the association of his concern. The appellate court concluded, as had the trial court, that there was no evidence the association knew or should have known about the alleged danger created by wet tiles on the walkway.

The appellate court also denied the plaintiff’s attempt to amend her complaint to sue the individual condominium unit owners. The court relied upon a specific provision of the Washington Condominium Act that states “an action alleging a wrong done by the association must be brought against the association and not against any unit owner or any officer or director of the association.” See RCW 64.34.344.

This case turned on the specific testimony of the parties. The plaintiff herself testified that she was aware that the steps got wet when it rained. Although there was some testimony about puddling of water on the walkway tiles, the plaintiff testified there were no puddles the day she slipped and was injured.

Although the plaintiff was unsuccessful in this particular case, associations should be vigilant and act as soon as reasonably possible to eliminate dangerous conditions.

For more information on this case, or to answer any related questions involving association liability, select the “Contact” tab at the top of this blog page to reach one of our attorneys.      

• Email This
• Print
• Comments
• Trackbacks
• Share Link

On May 14, 2009, the Washington Supreme Court published its opinion in Chadwick Farms v. FHC, LLC, 2009 WL 1333004 (May 14, 2009). The issue in Chadwick Farms was the capacity of LLCs to sue or be sued after cancellation of the LLC pursuant to the Washington LLC Act (Chapter 25.15). Without much analysis, the court first held that administratively dissolved LLCs are actually cancelled by operation of law two years later if the LLC has not reinstated the LLC. 

Based on RCW 25.15.290, the court then held that claims against LLCs abate once the LLC is cancelled. In other words, once the LLC is cancelled, it ceases to exist and cannot prosecute or defend claims against it, even if the LLC is currently involved in a lawsuit in which it has been sued or has sued others. 

The court said that the new statute regarding a 3-years statute of limitations after dissolution, RCW 25.15.303, did not change the result because of its “inartful” use of the term dissolution rather than cancellation.

As if to balance the seemingly disastrous result, the court reminded everyone of the existing rule that where an LLC is cancelled, there may be personal liability for LLC members who allow their LLC to get cancelled if they failed to properly wind up and “make provision” for “known” liabilities.  Thus, at least where an LLC has a known liability (like a lawsuit against it), members of LLCs might want to ensure that the LLC is not cancelled in order to avoid personal liability.   

• Email This
• Print
• Comments
• Trackbacks
• Share Link

A case decided on the last day of December 2007 may affect how older condominiums vote on additions to condos.  Boards of older condominiums built prior to July 1, 1990 subject to the Horizontal Property Regimes Act often have difficulties knowing what percentage vote is required to do certain acts. In a recent decision, Lake v. Woodcreek Homeowners Association, Division I of the Washington Court of Appeals held that a homeowner adding a bonus room onto his unit actually converted common area to part of his unit under the theory that the air space around his unit was common area because common areas were defined as anything “not expressly described as part of the individual residence apartments or as limited common area.” Thus, the declaration required consent of all unit owners. This case could have a major impact on the ability of architectural control committees to approve exterior construction on condominiums subject to the Horizontal Property Regimes Act.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In June 2007, the Division One Court of Appeals of Washington case reaffirmed that a claim of fraudulent concealment against a home builder requires privity, meaning that the plaintiff must have a contract with the builder – i.e. he must be the original owner of the home. This continues the trend of limiting most claims single family homeowners may have against their builders to those who bought directly from the builder. Subsequent purchasers of single family homes have very few rights against their builders, even if the original purchaser only owned the home a short time, as in this case. The court also reiterated the elements of fraudulent concealment:

"[A] builder-vendor's duty to speak arises in those situations where: there is a concealed defect in the premises of the residential dwelling, the builder-vendor has knowledge of the defect, the defect is dangerous to the property, health or life of the purchaser, and the defect is unknown to the purchaser and a careful, reasonable inspection on the part of the purchaser would not disclose the defect. In addition, the defect complained of must ‘substantially affect[ ] adversely the value of the property or operate[ ] to materially impair or defeat the purpose of the transaction. In such a situation, a builder-vendor's failure to inform the purchasers of the defect constitutes fraudulent concealment."

Check out the full opinion in Nguyen v. Doak Homes.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In June 2007, the Division One Court of Appeals of Washington case reaffirmed that a claim of fraudulent concealment against a home builder requires privity, meaning that the plaintiff must have a contract with the builder – i.e. he must be the original owner of the home. This continues the trend of limiting most claims single family homeowners may have against their builders to those who bought directly from the builder. Subsequent purchasers of single family homes have very few rights against their builders, even if the original purchaser only owned the home a short time, as in this case. The court also reiterated the elements of fraudulent concealment:

"[A] builder-vendor's duty to speak arises in those situations where: there is a concealed defect in the premises of the residential dwelling, the builder-vendor has knowledge of the defect, the defect is dangerous to the property, health or life of the purchaser, and the defect is unknown to the purchaser and a careful, reasonable inspection on the part of the purchaser would not disclose the defect. In addition, the defect complained of must ‘substantially affect[ ] adversely the value of the property or operate[ ] to materially impair or defeat the purpose of the transaction. In such a situation, a builder-vendor's failure to inform the purchasers of the defect constitutes fraudulent concealment."

• Email This
• Print
• Comments
• Trackbacks
• Share Link