Second District, Division One Provides In-Depth Discussion Of Whether Arbitration Clause Is Broad Or Narrow.
An issue that comes up repeatedly is whether an arbitration clause is broad enough to encompass tort claims. Our next case, certified for publication, is worth reading because it offers an in-depth analysis of how to determine the scope of an arbitration clause.
Downs, an attorney, entered into an LLC operating agreement he drafted with Rice, a client, and others. Client Rice and others sued attorney Downs for legal malpractice, breach of fiduciary duty, and breach of a written agreement. The superior court ordered Rice to arbitrate his claims pursuant to an arbitration provision in the written agreement. After arbitration, Rice and Downs appealed, raising various contentions, including Rice’s contention that the arbitration provision did not encompass his tort claims. In an opinion authored by Justice Lui, the Court of Appeal agreed with Rice that the trial court erred by compelling arbitration of those claims, and partially reversed, while concluding other contentions on appeal were moot. Rice v. Downs and Downs v. Rice, Nos. B261860 and B264964 (2/1 June 1, 2016).
The arbitration agreement governed “any controversy arising out of” the LLC operating agreement. The Court agreed that “any controversy” can included tort claims, but explained that “arising out of” language is narrower than “arising out of and in connection with” or “arising out of and relating to” language. “Moreover, even under a very broad arbitration provision, such as ‘any controversy or claim arising out of or relating to this agreement,’ tort claims must ‘ “have their roots in the relationship between the parties which was created by the contract” ‘ before they can be deemed to fall within the scope of the arbitration provision.” Citing Bos Material Handling, Inc. v. Crown Controls Corp.,137 Cal.App.3d 99, 105 (1982).
Parsing the language of the arbitration clause, which happened to be narrower than a preceding judicial jurisdiction clause in the LLC operating agreement, the Court concluded that the tort claims were not governed by the narrower arbitration clause.