Tuesday, July 5, 2016

This Is Why You Need "Related to."

Rice v. Downs, No. B261860 (D2d1, as modified Jun. 23, 2016)

This case involves an investment dispute where an operating agreement contains an arbitration clause requiring that the parties arbitrate disputes “arising out of” the agreement. (As opposed to an ordinary “broad cause” covering disputes “arising or related to” it.) The parties asserted a bunch of different tort claims, most of which appear to “arise” not from the agreement, but from the fact that some of the investors were attorneys for others. The court declines to categorically rule that “arising from” clauses are limited to claims sounding in contract. But it does hold that the circumstances here merit the conclusion that the non-contract claims didn’t arise from the agreement because the attorney-client relationships they do arise from were extrinsic to the agreement itself. And a relatively narrow reading of the clause is bolstered by the fact that the prior section of the agreement—a consent to jurisdiction and venue—did include broader arising from or related to language. According to the court, the juxtaposition suggests that the choice of somewhat narrower arbitration language was deliberate.

Reversed.

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