Appellate panel hears dispute over whether arbitration must decide fraud claims in Heredia v. Huang

An appellate panel heard oral argument in Heredia v. Huang on whether the trial court erred in denying defendants' motion to compel arbitration, attorneys told the court.

Ian Kerence, counsel for the appellants, told the panel that the denial should be reversed for two reasons: the trial court's findings that defendants made misrepresentations to their insurer reflected a misunderstanding of what is material to an insurer, and challenges that attack the validity of the entire settlement agreement — including claims of misrepresentation and unconscionability — must be decided by an arbitrator when they do not target only the arbitration clause. "The issue before this court on de novo review is whether or not the trial court erred in denying the defendant's motion to compel arbitration," Kerence said.

Alan Singer, representing the plaintiffs, urged the panel to affirm. Singer said the trial court had authority to determine whether the agreement was enforceable and that the record contains substantial evidence supporting the trial court's ruling. He noted a November 24 finding that the settlement "was the product of bad faith, fraud, or collusion," and said documents later produced by defendants showed management and coverage materials that supported the trial court's conclusions. "The substantial evidence in the record supports the trial court's decision," Singer said.

The panel probed whether the dispute about fraud and unconscionability goes to the arbitration clause itself or to the settlement in which that clause sits — a central legal point that determines who decides the issue first. One panel member asked whether an argument that the entire contract was induced by fraud would still require an arbitrator to decide arbitrability; another noted case law distinguishing challenges to an arbitration clause from attacks on an agreement as a whole.

Kerence emphasized that, even if plaintiffs argue the entire contract was voided by fraud, established precedent requires arbitrators to decide threshold questions about whether a contract containing a delegation to arbitrate is enforceable. He also told the court that defendants provided Continental, the liability insurer for VIP International Real Estate Group, with answers denying property management and with the plaintiffs' mediation brief but that some interrogatory answers were produced later; he said Continental's reservation-of-rights letter indicated the insurer's coverage analysis relied on the complaint's allegations.

Singer replied that the facts here — particularly the post‑signing production of documents and Judge Lee's finding of fraud — make this an occasion where the trial court appropriately concluded the settlement was invalid. He argued those circumstances distinguish this case from authorities typically cited to send such disputes to arbitration.

Argument concluded and the court moved to the next case on the calendar.