Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak St. - 35 Cal. 3d 312, 197 Cal. Rptr. 581, 673 P.2d 251 (1983)

Rule:

The scope of arbitration is a matter of agreement between the parties, and if they choose to limit that scope so as to exclude questions of fraud in the inducement of the contract that choice must be respected. In this state, as under federal law doubts concerning the scope of arbitrable issues are to be resolved in favor of arbitration. In the absence of indication of contrary intent, and where the arbitration clause is reasonably susceptible of such an interpretation, claims of fraud in the inducement of the contract as distinguished from claims of fraud directed to the arbitration clause itself will be deemed subject to arbitration.

Facts:

Plaintiff law firm contracted with defendant partnership to occupy their first-floor building. Immediately after occupancy began, plaintiff started complaining about the air conditioning unit being broken. Plaintiff vacated the premises and filed suit alleging various contractual violations and fraud despite their lease agreement to arbitrate. Defendant filed a petition to compel arbitration of the dispute under Cal. Civ. Proc. Code § 1281.2 and to stay the civil proceedings. Based on plaintiff's allegations that it was fraudulently induced into entering the lease, the trial court denied defendant's petition. Defendant sought review.

Issue:

By asserting that the agreement itself was the product of fraud, could the plaintiff bypass arbitration and invoke the jurisdiction of the courts? 

Answer:

No.

Conclusion:

The court reversed the judgment and directed the trial court to vacate its order denying the defendant’s petition to compel arbitration. The court held that, in the absence of an indication of contrary intent, and where the arbitration clause was reasonably susceptible of such an interpretation, claims of fraud in the inducement of the contract (as distinguished from claims of fraud directed to the arbitration clause itself) will be deemed subject to arbitration. The court held that the claim of substantive breach--that the air conditioning did not perform properly--was totally embraced within the claim of fraud--that the defendant knew at the time of the lease, that the air conditioning would not perform, and, accordingly, the arbitration clause was broad enough to include the claim of fraud in the inducement.