## Facts

- A law firm leased first-floor office space in an Oakland building from a limited partnership landlord under a five-year written lease dated August 15, 1979, with occupancy to begin November 15, 1979.
- The lease required arbitration of “any dispute ... with respect to the provisions of this Lease,” excluding disputes relating to payment of rent.
- After taking possession, the tenant complained that the building’s air conditioning was defective.
- Around Memorial Day weekend 1982, the tenant vacated and moved elsewhere, asserting the premises were untenable.
- On June 30, 1982, the tenant sued for damages and declaratory relief, alleging breach of quiet enjoyment, breach of habitability, frustration of purpose, breach of contract, constructive eviction, and fraud, and sought rescission plus general and punitive damages for alleged fraudulent inducement to enter the lease.
- The landlord petitioned to compel arbitration and to stay the court action under Cal. Code Civ. Proc. § 1281.2.
- The tenant acknowledged an agreement to arbitrate but opposed arbitration on the ground that fraud in the inducement of the lease supplied grounds to revoke the agreement.

## Issues

1. Whether a party may avoid arbitration by alleging the entire contract containing an arbitration clause was fraudulently induced.
2. Whether the arbitration clause is severable and enforceable so that a fraud-in-the-inducement claim must be arbitrated when the clause reasonably covers the dispute.
3. Whether a court, rather than an arbitrator, decides a fraud claim when the alleged fraud targets the contract generally rather than the arbitration agreement specifically.

## Decision

- The Supreme Court of California reversed the order denying the landlord’s petition to compel arbitration.
- The court held the arbitration commitment is severable from the lease.
- Because the clause could reasonably be construed to cover the tenant’s fraud-in-the-inducement theory, the dispute (including the fraud claim) was required to proceed in arbitration.
- The case was remanded with directions to compel arbitration and stay the civil action pending completion of arbitration.

## Legal Principles

- An arbitration clause in a contract is treated as a separate agreement; alleged fraud in the inducement of the contract as a whole does not, by itself, invalidate the promise to arbitrate.
- If the arbitration clause is broad enough to reach the asserted claim, questions such as fraud in the inducement of the underlying contract are for the arbitrator, not the court.
- A court may refuse to compel arbitration only when the challenge is directed specifically at the formation or validity of the arbitration agreement itself (as opposed to the overall contract).
- Arbitration clauses covering disputes “with respect to” a contract’s provisions are commonly construed to include disputes alleging fraudulent inducement related to the contract’s subject matter and obligations.

## Conclusion

The court required arbitration because the lease’s arbitration clause was severable and broad enough to include the tenant’s fraud-in-the-inducement claim, so the tenant could not keep the dispute in court merely by attacking the validity of the lease as a whole.


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