ERICKSEN ARBUTHNOT McCARTHY KEARNEY WALSH INC v. 100 OAK STREET

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Court of Appeal, First District, Division 3, California.

ERICKSEN, ARBUTHNOT, McCARTHY, KEARNEY & WALSH, INC., Plaintiff and Respondent, v. 100 OAK STREET, a California Limited Partnership, et al., Defendants and Appellants.

A019813.

Decided: March 24, 1983

Randall I. Barkan, Sternberg & Barkin, Oakland, for defendants and appellants. William G. Hoback, Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc., Oakland, for plaintiff and respondent.

Lessor, 100 Oak Street, a California limited partnership, appeals from the denial of its motion to compel arbitration and to stay proceedings.  (Code Civ.Proc., § 1294, subd. (a).)

The underlying dispute arises from a lease between respondent lessee, Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc., a law firm (hereafter, Ericksen), and 100 Oak Street, the owner of an office building in which Ericksen was a tenant from November 1979 to June 1982.   Ericksen occupied the first floor of 100 Oak Street under a five-year lease.   It vacated in the middle of the lease term when defects in the premises' air conditioning and heating system allegedly forced Ericksen to move.

After it moved, on June 30, 1982, Ericksen filed a complaint naming 100 Oak Street as a defendant.   The complaint set forth eight causes of action:  breach of an implied covenant of quiet enjoyment;  breach of an implied warranty of habitability;  frustration of purposes entitling Ericksen to a rescission;  breach of contract entitling Ericksen to a rescission;  constructive eviction;  mutual rescission and cancellation of the lease by way of accord and satisfaction;  intentional misrepresentation constituting fraud and inducement;  and negligent misrepresentation constituting fraud and inducement.   On August 3, 1982, appellant filed its petition to compel arbitration and to stay proceedings in which it quoted the arbitration clause of the lease and urged that the issues to be arbitrated pursuant to its petition were the same as those in the action filed by respondent Ericksen.   Ericksen responded to the petition specifically denying that the same issues were asserted in the petition and in its complaint.   While it admitted that it had entered into the lease containing an arbitration clause, Ericksen pled, as an affirmative defense, that “[g]rounds exist for revocation of the agreement to arbitrate the alleged controversy in that [it] was falsely and fraudulently induced to enter into the lease agreement.”   After hearing, appellant's motion was denied.   The trial court's order does not show the basis of its denial of the petition.   The appeal is now before this court on stipulated issues.

 Paragraph 23 of the parties' lease, entitled Arbitration Clause, provides:  “In the event of any dispute between the parties hereto with respect to the provisions of this Lease exclusive of those provisions relating to payment of rent, the parties agree that the matter shall be settled by arbitration, and in such a manner as the parties may agree upon, or if they cannot agree, in accordance with the rules of the American Arbitration Association.”

Code of Civil Procedure section 1281.2 provides inpertinent part:  “On the petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: ․  (b) Grounds exist for the revocation of the agreement.”  “The clear purpose and effect of section 1281.2 is to require the superior court to determine in advance whether there is a duty to arbitrate the controversy which has arisen.   The performance of this duty necessarily requires the court to examine and, to a limited extent, construe the underlying agreement.”  (Freeman v. State Farm Mut. Auto. Ins. Co. (1975) 14 Cal.3d 473, 480, 121 Cal.Rptr. 477, 535 P.2d 341.)

Bos Material Handling, Inc. v. Crown Controls Corp. (1982) 137 Cal.App.3d 99, 105–106, 186 Cal.Rptr. 740, hg. den. January 19, 1983, sets forth the general principles respecting arbitration under a contract containing an arbitration clause such as is found in this appeal:

In California, the general rule is that arbitration should be upheld unless it can be said with assurance that an arbitration clause is not susceptible to an interpretation covering the asserted dispute.  (Pacific Inv. Co. v. Townsend (1976) 58 Cal.App.3d 1, 9–10 [129 Cal.Rptr. 489].)  In the particular situation where contracts provide arbitration for “ ‘any controversy ․ arising out of or relating to this contract ․’ ” the courts have held such arbitration agreements sufficiently broad to include tort, as well as contractual, liabilities so long as the tort claims “have their roots in the relationship between the parties which was created by the contract.”   (Berman, supra, 44 Cal.App.3d [999], at p. 1003 [119 Cal.Rptr. 130];  see also Lewsadder v. Mitchum, Jones & Templeton, Inc. (1973) 36 Cal.App.3d 255, 259 [111 Cal.Rptr. 405];  Crofoot v. Blair Holdings Corp. (1953) 119 Cal.App.2d 156, 182 [260 P.2d 156].) 1

 A proceeding to compel arbitration is in essence a suit in equity to compel specific performance of a contract.  (Freeman, supra, 14 Cal.3d at p. 479, 121 Cal.Rptr. 477, 535 P.2d 341.)   In the absence of a valid contract no rights to arbitrate can arise and no power can be conferred upon the arbitrator to determine such nonexistent rights.   The question of the validity of the basic contract is essentially a judicial question (Loving & Evans v. Blick (1949) 33 Cal.2d 603, 610, 204 P.2d 23) and not within the purview of the arbitration clause for the reason that if there is no contract, there is no provision for arbitration.  (Silva v. Mercier (1949) 33 Cal.2d 704, 709, 204 P.2d 609.)   Respondent pled fraud in the inducement and mutual rescission among its causes of action.   As Professor Corbin has noted:  “The fraud of one party, inducing the other's assent to the whole, makes the whole voidable at the latter's option;  after a proper avoidance, the right to an arbitration falls along with all other rights created by the other promises that were made ․  Before issuing [an order to arbitrate] the court must know that a legal duty to arbitrate exists;  this is an issue that the court itself must decide.”  (6A Corbin, Contracts (1962) § 1444, p. 449.)   Since it appears from our examination of the record, including respondent's complaint and the lease, that the complaint shows one or more grounds may exist for revocation of the lease, under the clear language of Code of Civil Procedure section 1281.2, subdivision (b), the assertion by Ericksen of claims of fraud in the inducement of the lease and mutual rescission justified denial of the petition to compel arbitration.  (Cf. Bianco v. Superior Court (1968) 265 Cal.App.2d 126, 71 Cal.Rptr. 322.)

In view of the conclusion we have reached with respect to the petition to compel arbitration, it is unnecessary for us to decide whether the arbitration clause itself precluded arbitration of some issues tendered by the complaint.   We note, however, that Parker v. Twentieth Century-Fox Film Corp. (1981) 118 Cal.App.3d 895, 906, 173 Cal.Rptr. 639, states:  “The Legislature recognized that overlapping (arbitrable and nonarbitrable) issues will arise and has given the power to deal with the problem to the court.”   We discern no error in the trial court's ruling.

The order is affirmed.

FOOTNOTES

1.   The arbitration clause in Bos, supra, provided:  “[A]ny controversy or claim arising out of or relating to this agreement, or the breach thereof, shall be settled by arbitration ․ in accordance with the rules of the American Arbitration Association then obtaining.”

 SCOTT, Associate Justice.

WHITE, P.J., and BARRY–DEAL, J., concur.