Washington Supreme Court Enforces Arbitration Clause in Quadrant's Purchase and Sale Agreement

In a recent decision, in which several justices dissented, the Washington Supreme Court enforced an arbitration provision in Quadrant Corporation’s (“Quadrant”), a residential developer, standard form Purchase and Sale Agreement (“PSA”).

In Townsend v. Quadrant Corp., several Quadrant homeowners and their children filed suit against the developer alleging “outrage, fraud, unfair business practices, misrepresentation and breach of warranty.” The homeowners alleged that Quadrant knowingly engaged in shoddy workmanship resulting in construction defects that caused personal injuries relating to “mold, pests and poisonous gasses.” Quadrant filed a motion to transfer the claims to arbitration relying upon the arbitration clause in the PSA.

In an effort to avoid having their claims heard by an arbitrator, the homeowners claimed that the PSA was procured by “high pressure sales tactics” and should not be enforced as an unconscionable contract of adhesion. The dispute over enforcement of the arbitration clause was ultimately appealed to the Washington Supreme Court.

In a ruling which favored Quadrant, the high court held that the issue of whether the overall PSA was procured by fraud was for the arbitrator to decide, not the courts. The court reasoned that because the homeowners had not claimed that the arbitration provision itself had been procured by fraud, the arbitrator and not the court had jurisdiction to decide that issue.

The court also held in a controversial decision (which was criticized by four justices in a dissenting opinion) that the children’s claims against Quadrant were also subject to arbitration even though the children had not signed the PSA. The court’s curious reasoning was that the children’s claims effectively sought the benefits of the PSA such that it was reasonable to hold them to the “burden” of the arbitration provision as well.

The Townsend decision is a significant victory for Quadrant and for all businesses seeking to enforce arbitration provisions contained in contracts with the general public.

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