Court Opinion

ID: 9940184
Source: CourtListenerOpinion
Date Created: 2024-02-13 17:16:51.086862+00
Date Added: 2024-06-11T13:42:40.196303
License: Public Domain

I join in the majority's opinion. It decides that, for most of the plaintiffs, their claims that the arbitration clause is unenforceable because of fraud should now proceed to arbitration. I write separately to explain the procedure that should occur when those claims are presented to the arbitrator.
As explained by the majority, claims that an arbitration clause is unenforceable because of fraud are to be decided by the court if the fraud would render the entire contract void or if the fraud was specifically directed at the arbitration clause. Thus, claims of fraud in the execution of the entire contract (because they would show the contract to be void) and claims of fraud in the execution or the inducement of the arbitration clause itself (because they are directed at the arbitration clause), must be decided by the court in the first instance before it can compel arbitration. (Prima Paint v. *Page 432 Flood Conklin (1967) 388 U.S. 395, 403-404 [18 L.Ed.2d 1270, 1277-1278, 87 S.Ct. 1801]; Hayes Children Leasing Co. v. NCRCorp. (1995) 37 Cal.App.4th 775, 783-784 [43 Cal.Rptr.2d 650] .) By contrast, a claim that a contract containing an arbitration clause is unenforceable because of fraud in the inducement of the contract as a whole is for the arbitrator and not the court to decide (because such a fraud would make the contract voidable but not void). (Prima Paint v. Flood Conklin, supra, 388 U.S. 395, 403-404 [18 L.Ed.2d 1270, 1277-1278]; Ericksen, Arbuthnot, McCarthy, Kearney Walsh,Inc. v. 100 Oak Street (1983) 35 Cal.3d 312, 323-324 [197 Cal.Rptr. 581, 673 P.2d 251].)
In this case, plaintiffs claim that the arbitration clause is unenforceable because defendants fraudulently misrepresented the contract's written terms. This type of claim can be either for the court or the arbitrator depending on whether the party objecting to arbitration presents evidence that it lacked a reasonable opportunity to learn of the written terms, and therefore reasonably relied on the other party's misrepresentations. If the party lacked a reasonable opportunity to learn of the contract's written terms, then the contract may be void, making the issue of fraud one for the court. (See maj. opn., ante, at pp. 419-420 and authorities cited thereat.) If the party had a reasonable opportunity to learn the terms of the contract but did not, then the contract is subject to reformation or other equitable relief although it is not void (California Trust Co. v. Cohn (1932) 214 Cal. 619, 627 [7 P.2d 297]; Van Meter v. Bent Construction Co. (1956)46 Cal.2d 588, 593-595 [297 P.2d 644]; Rest.2d Contracts, §§ 166, 172 com. a, pp. 450, 468-469), making the issue of fraud one for the arbitrator.
A court presented with a claim that an arbitration clause is unenforceable because the written terms of the contract of which it forms a part were misrepresented should initially decide, as the majority does here, whether the party has shown that it lacked a reasonable opportunity to learn of the contract's terms. If the court decides, as in the case of most of the plaintiffs here, that the party seeking to avoid arbitration had a reasonable opportunity to learn the terms of the contract and discover the alleged misrepresentation, it is for the arbitrator and not the court to resolve the further questions of whether the alleged misrepresentation actually occurred and whether reformation of the contract or other equitable relief is justified under the circumstances. (If, unlike here, the party objecting to arbitration asserts that the particular misrepresentation amounts to fraud in the execution or the inducement of the arbitration clause, the court must first decide those questions as well.)
An arbitrator presented with a claim that the arbitration agreement is unenforceable because of fraudulent misrepresentation of the terms of the *Page 433 
written contract that contains it should decide that question first, for it potentially affects the arbitrator's jurisdiction to decide the merits of the other disputes between the parties. If the arbitrator decides that the contract should be rescinded or reformed to delete the arbitration clause because of fraud, then there is no enforceable agreement to arbitrate any further claims between the parties. (Because courts have the power to reform a contract or provide other equitable relief on this ground, an arbitrator has that power as well. Advanced MicroDevices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362
[36 Cal.Rptr.2d 581, 885 P.2d 994] [arbitrators have greater remedial powers than courts]; see also id. at p. 391 (dis. opn. of Kennard, J.) [arbitrators should have same remedial powers as courts].)
In this respect, the position of an arbitrator presented with a defense of reliance on a misrepresentation of a written contract is similar to that of an arbitrator to whom the parties have expressly given the power to decide questions of arbitrability. In the latter case, if a party contends that a claim submitted for arbitration is outside the scope of the arbitration agreement, the arbitrator should decide that question first. If the arbitrator decides that the claim is not arbitrable under the arbitration agreement, the arbitrator should then issue a decision to that effect and leave the claim for judicial resolution. Here, too, if an arbitrator decides that, because of misrepresentations by the defendants as to the nature of the brokerage agreement signed by a given plaintiff, the brokerage agreement should be rescinded or equitably reformed to delete the arbitration clause, the logical consequence is that the arbitrator should then refuse to decide the merits of the plaintiff's other claims and leave them for judicial resolution. *Page 434