74 Cal.App.5th 675
Cal. Ct. App.2022Background:
- Thomas Ahern (through Amlap Ahern, LLC) purchased a fractional TIC interest in the Amlap office property marketed by BH & Sons/Asset Management Consultants, Inc. (AMC); offering materials disclosed a $1.3 million commission that plaintiffs allege was a secret buyer-paid markup.
- Investors acquired TIC interests via a tenant-in-common purchase-and-sale agreement (no arbitration clause); a separate cotenancy agreement (signed later) governed post‑acquisition management and contained a narrow arbitration clause limited to disputes about interpretation or enforcement of that agreement.
- Ahern sued in 2012 for fraud, concealment, breach of fiduciary duty, and related claims based on the marketing and sale; defendants initially compelled arbitration under a different iStar purchase agreement (this Court previously reversed that compelled arbitration).
- In 2017 defendants successfully moved to compel arbitration under the cotenancy agreement; arbitrator sustained demurrers on statute-of-limitations/inquiry-notice grounds and entered an award for defendants; plaintiff sought to vacate and the trial court confirmed the award.
- The Court of Appeal reversed: it held the fraud/marketing claims arose from the purchase transaction (governed by the purchase agreement and offering materials), not from the cotenancy agreement’s management obligations, so they were not subject to that agreement’s narrow arbitration clause; remanded to vacate the award and the order compelling arbitration.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the cotenancy agreement’s arbitration clause covers Ahern’s fraud/marketing claims | Ahern: claims arise from the purchase/marketing, not from interpretation/enforcement of the cotenancy agreement, so not arbitrable | BH: the contracts are part of one transaction; tort claims are "rooted in" the cotenancy relationship and therefore arbitrable | Held: Not arbitrable — clause is narrow and limits arbitration to interpretation/enforcement of the cotenancy agreement; Ahern’s claims arise from the purchase agreement/offering materials. |
| Whether separate contracts (purchase agreement and cotenancy) should be read together under Civ. Code §1642 so arbitration clause applies to purchase claims | Ahern: §1642 does not merge separate agreements or import arbitration terms where parties intended otherwise | BH: the agreements are parts of a single transaction and should be construed together, bringing the arbitration clause to purchase disputes | Held: §1642 permits construing agreements together but does not merge them; intent and the separate dispute-resolution provisions control — arbitration not imported into the purchase agreement. |
| Whether tort claims are arbitrable as "rooted in" the cotenancy agreement | Ahern: tort claims have their roots in the purchase agreement relationship with BH & Sons, not the post‑acquisition management agreement | BH: under Buckhorn and similar authority, torts connected to the contractual relationship can be arbitrated | Held: The "rooted in" theory applies only where torts derive from the contract creating the relationship containing the arbitration clause; here the relevant contractual relationship (purchase agreement) did not contain arbitration, so "rooted in" does not apply. |
| Whether arbitrator exceeded powers by using demurrer procedure/deciding limitations without full evidentiary hearing and by applying statutes of limitations in arbitration | Ahern: arbitrator improperly refused evidentiary hearing on delayed discovery and applied limitations not authorized under California law | BH: demurrer procedure and limitations rulings were within arbitrator’s powers; any legal error is not a ground to vacate | Held: Court did not need to reach or sustain these grounds because arbitration was wrongly compelled; relief ordered to vacate award and arbitration order. |
| Whether cotenancy agreement was illegal (real‑estate brokerage services by unlicensed entity) and thus unenforceable/severable from arbitration clause | Ahern: agreement void as it required unlicensed brokerage services | BH: any illegal provision is severable and does not invalidate arbitration clause | Held: Court rejected the need to decide illegality because arbitration was improper on scope grounds; trial court’s severability ruling was not needed for reversal. |
Key Cases Cited
- American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 (U.S. 2013) (arbitration is a matter of contract; threshold is whether parties agreed to arbitrate)
- Pinnacle Museum Tower Assn. v. Pinnacle Market Dev. (US), 55 Cal.4th 223 (Cal. 2012) (courts decide whether a dispute falls within the arbitration agreement)
- Rice v. Downs, 248 Cal.App.4th 175 (Cal. Ct. App. 2016) (distinguishing broad vs. narrow arbitration clauses and scope analysis)
- Buckhorn v. St. Jude Heritage Medical Group, 121 Cal.App.4th 1401 (Cal. Ct. App. 2004) (tort claims "rooted in" contractual relationship can be arbitrable under broad clauses)
- Brookwood v. Bank of America, 45 Cal.App.4th 1667 (Cal. Ct. App. 1996) (several contracts in one transaction may be construed together for arbitrability where relationships are intertwined)
- Stella v. Asset Management Consultants, Inc., 8 Cal.App.5th 181 (Cal. Ct. App. 2017) (disclosure in offering materials can trigger inquiry notice for limitations purposes)
- Mountain Air Enterprises, LLC v. Sundowner Towers, LLC, 3 Cal.5th 744 (Cal. 2017) (contracts relating to the same transaction are construed together but not merged)