Bunker Hill Park Ltd. v. U.S. Bank National Ass'n , 180 Cal. Rptr. 3d 714 ( 2014 )

Filed 11/26/14
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FOUR
BUNKER HILL PARK LIMITED, B256822
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. SS024317)
v.
U.S. BANK NATIONAL ASSOCIATION,
Defendant and Respondent.
APPEAL from an order of the Superior Court of Los Angeles County, Richard A.
Stone, Judge. Reversed with directions.
Pircher, Nichols & Meeks, James L. Goldman; Shartsis Friese, Joel Zeldin and
Charles R. Rice, for Plaintiff and Appellant.
Katten Muchin Rosenman, Joshua Wayser and Brian J. Tanada, for Defendant and
Respondent.
Plaintiff Bunker Hill Park Limited (“Bunker Hill”) filed a petition to compel
arbitration with its tenant, defendant U.S. Bank National Association (“U.S. Bank”), to
resolve the parties’ disagreement over whether subleases automatically terminate if the
underlying lease between Bunker Hill and U.S. Bank terminates. The trial court denied
the petition on the grounds that the parties’ disagreement had not ripened into a
justiciable controversy meriting declaratory relief. Bunker Hill timely appealed. For the
reasons stated below, we reverse and remand with directions to grant the petition.
FACTUAL AND PROCEDURAL BACKGROUND
The facts underlying this appeal are not in dispute. The parties are successors-in-
interest to a 99-year ground lease governing a parcel of land located at 201-281 South
Figueroa Street in downtown Los Angeles. Landlord Bunker Hill owns the land, and
tenant U.S. Bank owns the five low-rise office buildings and other improvements erected
on the parcel until the lease expires in 2077 or is terminated, at which point the
improvements become the property of Bunker Hill. Bunker Hill may terminate the
ground lease only if U.S. Bank defaults. U.S. Bank, on the other hand, may terminate the
ground lease at any time so long as it provides Bunker Hill with 60 days’ advance notice.
U.S. Bank also is permitted to assign its interest in the ground lease and to sublet the
property. U.S. Bank has exercised the latter right.
The ground lease requires U.S. Bank to pay an annual “basic net rent,” the amount
of which is to be adjusted in April 2013 and April 2045. The parties were unable to agree
on the proper amount of the April 2013 adjustment. Pursuant to an arbitration provision
contained in an amendment to the ground lease that requires arbitration of “[a]ny and all
disputes, controversies, or claims arising under or relating to the Ground Lease, this
Amendment, . . . or the enforcement of the provisions thereunder or the determination of
the Parties’ rights and obligations thereunder, including but not limited to any unlawful
detainer actions, the subject matter of the Complaint and/or the subject matter of the
2
Cross-Complaint.” The parties arbitrated their dispute over the basic net rent in
December 2013.
During the course of that arbitration, Bunker Hill argued that the basic net rent
should reflect the value of the land at its highest and best use, which its expert opined was
not hosting a low-rise office complex but rather housing a mixed-use or residential
development. U.S. Bank retorted that no redevelopment of the property could be pursued
in the near future because it had entered into various lengthy subleases that could not be
terminated prematurely. U.S. Bank further argued that Bunker Hill would take title
subject to the subleases in the event that the ground lease terminated before its 2077
expiration. Bunker Hill maintained that the subleases would terminate concurrently with
any termination of the ground lease.
The arbitrator made no mention of subleases or their fate upon termination of the
ground lease in his January 31, 2014, arbitration award.1 The parties nevertheless
continued discussing these issues. On February 14, 2014, Bunker Hill sent a letter to
U.S. Bank. The letter reaffirmed Bunker Hill’s position that any subleases would
terminate along with the ground lease and requested that Bunker Hill’s views on the
subject “be made clear to the property manager, leasing agent, subtenants, and any broker
that [U.S. Bank] may engage, so as to minimize the likelihood of confusion or problems
with subtenants or assignees.” U.S. Bank responded by letter dated February 24, 2014.
“As for the substantive issue about whether [Bunker Hill] is bound by the subleases,”
U.S. Bank stated that it “cannot agree simply to disagree on the issue” because in its view
Bunker Hill’s stance “effectively makes the property un-leaseable and unsellable and
U.S. Bank believes that [Bunker Hill] is attempting to interfere improperly with U.S.
Bank’s actual and prospective economic advantage and contractual rights.” Accordingly,
1
The award increased the basic net rent by approximately 1200%. This sizeable
escalation is substantially less than the approximately 1800% bump Bunker Hill sought.
U.S. Bank asserts that it “currently pays rent to Bunker Hill in accordance with the
award.”
3
U.S. Bank invoked the ground lease’s arbitration provision and “demand[ed] binding
arbitration on the issue.”
Bunker Hill acceded to the demand and the parties began moving toward
arbitration pursuant to the expedited schedule set forth in the arbitration provision.
Bunker Hill proposed three potential arbitrators on March 19, 2014, and the parties
engaged in a back-and-forth exchange regarding their preferences before agreeing on an
arbitrator on March 26, 2014, the final day of the 30-day selection period set forth in the
arbitration provision. Counsel for U.S. Bank proposed a draft arbitration agreement on
March 25, 2014, which counsel for Bunker Hill “[took] the liberty of revising” on April
2, 2014. Also on April 2, counsel for Bunker Hill contacted the arbitration agency to
reserve an arbitration date of May 30, 2014, the earliest date on which the selected
arbitrator was available. Counsel for U.S. Bank requested that Bunker Hill hold off on
submitting the $400 case management fee to the arbitration agency, however, so that he
could “confer” with U.S. Bank “on several issues.”
By April 8, 2014, Bunker Hill had not heard back from U.S. Bank. U.S. Bank’s
silence prompted “some concern on [Bunker Hill’s] end,” as it feared that U.S. Bank
“may be having reservations about proceeding with an arbitration on the sublease issue at
this time.” In a letter dated April 8, 2014, Bunker Hill informed U.S. Bank that “[i]t is
important to [Bunker Hill] that the issue that [U.S. Bank] has raised relating to the
subleases be determined expeditiously.” By the same letter, Bunker Hill “formally
request[ed] . . . an arbitration on the sublease issue.” It also expressed a willingness to
work with U.S. Bank to finalize the arbitration agreement and to consider an alternative
schedule if necessary.
U.S. Bank responded by letter dated April 16, 2014. In that letter, U.S. Bank
“acknowledge[d] the request of Bunker Hill . . . set forth in its February 14, 2014 letter,
that U.S. Bank take into account [Bunker Hill’s] position that subleases are not binding
upon [Bunker Hill] upon any termination of the subject ground lease” and agreed to “take
that position into account.” U.S. Bank further “acknowledge[d]” Bunker Hill’s request
4
that its position on subleases “be made clear to the property manager, leasing agent,
subtenants, and any broker that [U.S. Bank] may engage,” and stated that it would
“provide the appropriate notifications at the appropriate times to the appropriate parties.”
In light of these acknowledgments, U.S. Bank advised Bunker Hill that it “d[id] not see
the need at this point to proceed with a new arbitration on this issue.”
Bunker Hill responded with a letter dated April 17, 2014. It advised U.S. Bank
that “it is unclear exactly what notices U.S. Bank is offering to provide, when the notices
will be provided, and to whom they will be provided.” Bunker Hill further asserted that
“in any case, such notices will not resolve the dispute and will thus be insufficient to
eliminate the possibility that there will be litigation or an arbitration with successors to
U.S. Bank’s interest in the ground lease or subtenants.” Bunker Hill also opined that “the
uncertainty that will remain until the issue relating to the effect of a termination of the
ground lease is resolved will adversely impact [Bunker Hill]’s interest in the property in
question.” Bunker Hill therefore reiterated its intention to “proceed with the arbitration”
and expressed “hope that U.S. Bank will cooperate . . . in scheduling the arbitration and
complying with the related requirements in the [arbitration provision].” Bunker Hill also
enclosed another copy of the April 2, 2014, draft of the arbitration agreement for U.S.
Bank to review.
U.S. Bank responded via email dated April 22, 2014. It contended that both of
Bunker Hill’s reasons for moving forward with the arbitration were “based on the faulty
premise that there will be an early termination of the ground lease before its termination
in 2077.” U.S. Bank went on to explain that it “has provided no indication, nor is there
any independent basis to conclude, that there will be an early termination of the ground
lease. We thus fail to see the need for arbitration of an issue based on the possibility of a
future event (early termination of the ground lease) that is purely hypothetical in nature.”
U.S. Bank also reiterated its April 16, 2014, contention that its agreement to provide
notice of Bunker Hill’s position to subtenants “further evidences that there is no live
dispute to be arbitrated.” U.S. Bank acknowledged that Bunker Hill had the right to
5
petition to compel arbitration, but advised Bunker Hill that if it did so, “we would ask the
Court to send any arbitration (if the petition is granted) to Mr. Chernick [the arbitrator
who resolved the net rent dispute], given his familiarity with the property.”2 U.S. Bank
further “reserve[d] the right to ask Mr. Chernick, or any other arbitrator, to reopen the
prior proceeding to consider lowering the basic net rent set by Mr. Chernick in light of
Bunker Hill’s post arbitration conduct, which we believe adversely impacts the basic net
rent analysis conducted by Judge Chernick.”
Bunker Hill responded on April 25, 2014. In its email, Bunker Hill set forth the
reasons why it believed that “[t]he dispute needs to be resolved promptly,” namely “the
threats that [U.S. Bank] has made; the impact of the dispute remaining unresolved on
[Bunker Hill]’s property interests; the absence of an agreement on exactly what
disclosures should be made, when they should be made, or to whom they should be
made; and the fact that merely disclosing the dispute to potential purchasers and
subtenants will not eliminate the uncertainty or impact, resolve the dispute, or eliminate
the possibility of future litigation.” Bunker Hill advised U.S. Bank that it planned to file
a petition to compel arbitration later in the day.
Bunker Hill followed through on its promise to file a petition to compel arbitration
on April 25, 2014. Bunker Hill provided the court with the arbitration provision, two of
the letters the parties had exchanged concerning arbitration, a declaration from one of its
attorneys, and the following explanation of the disagreement: “There is presently a
dispute between BHPL [Bunker Hill] and U.S. Bank regarding their respective rights and
obligations under the Ground Lease (the ‘Dispute’). Specifically, BHPL contends that,
upon termination of the Ground Lease, any and all existing subleases, except those with
respect to which a non-disturbance agreement has been executed by BHPL and an
attornment agreement has been executed by the subtenant, will be automatically
terminated. BHPL is informed and believes, and on that basis alleges, that U.S. Bank
2
Mr. Chernick was not the arbitrator the parties agreed upon to arbitrate the
sublease issue. It is unclear whether he was even among those proposed.
6
disputes BHPL’s contention and, in particular, contends that each sublease will remain in
place throughout its term, and that BHPL will be required to fulfill U.S. Bank’s
obligations under each sublease, regardless of the termination of the Ground Lease and
regardless of whether BHPL has agreed that it will not disturb said sublease. BHPL
disputes this contention.” In the memorandum of points and authorities accompanying its
petition, Bunker Hill argued that the parties’ disagreement was a “controversy” within the
meaning of Code of Civil Procedure, section 1280, subdivision (c),3 and that it was
entitled to an order compelling arbitration under section 1281.2 because it satisfied the
statutory criteria and none of the three exceptions set forth in that statute was applicable
to the instant case.
U.S. Bank opposed the petition on the grounds that Bunker Hill failed to “allege
facts demonstrating the existence of an actual arbitrable controversy.” U.S. Bank
contended that Bunker Hill improperly was “asking for arbitration about a hypothetical–
whether the subleases are binding in the event that the ground lease ever terminates early
at some point in the future,” and seeking “an advisory opinion about a hypothetical
event.” U.S. Bank analogized the disagreement to “a request for declaratory relief
regarding potential future rights dependent on events that are highly unlikely to occur,”
and argued that “declaratory relief about future potential rights based on events that have
not yet happened and may never happen is not appropriate under these circumstances.” It
further argued that arbitration was inappropriate for the additional reason that “it is the
subtenants whose rights will be impacted by any arbitration ruling [, b]ut they are not
parties to the ground lease or its arbitration provision and would not be parties to any
arbitration compelled by this Court.”
In its reply, Bunker Hill argued that “the dispute identified in BHPL’s petition is
arbitrable under Code Civ. Proc. §§ 1280, 1281, and 1060 because it concerns a
‘question’ or ‘disagreement’ between the parties as to the consequences of a termination
3
All further statutory references are to the Code of Civil Procedure unless otherwise
indicated.
7
of the ground lease and as to which declaratory relief is available.” Bunker Hill also
attempted to distinguish the cases U.S. Bank relied upon, and reiterated its contention that
the only bases for denying the petition were those set forth in section 1281.2.
In its order resolving the matter, the trial court recognized the strong public policy
in favor of arbitration and the presumption in favor of arbitrability. It also noted that
section 1281.2 requires the enforcement of arbitration agreements “unless one of three
limited exceptions applies”: “(1) a party waives the right to arbitration; (2) grounds exist
for revoking the arbitration agreement; and (3) pending litigation with a third party
creates the possibility of conflicting rulings on common factual or legal issues.” (Acquire
II, Ltd. v. Colton Real Estate Group (2013) 213 Cal. App. 4th 959, 967.) Without
addressing whether any of these exceptions applied, the court denied the petition on the
grounds that “the issue of the effect of the termination of the ground lease on the
subleases is not sufficiently crystallized such that declaratory relief is appropriate.” The
court, which characterized the question presented as “whether the respective parties’
‘dispute’ over the effect of termination of the ground lease on the subleases presents an
‘actual controversy,’ i.e., is ripe (as Petitioner contends), or whether adjudication of the
‘dispute’ would be tantamount to rendering an advisory opinion (as Respondent
contends),” concluded that no actual controversy existed between the parties. The trial
court added that it was “also troubled by the lack of input or notice to the sublessees who
might be directly affected by a ruling in support of the request being made by Petitioner,
Bunker Hill.” It noted that the denial of the petition was without prejudice to refiling
“after termination of the subject ground lease, should such event ever take place.”
Bunker Hill timely appealed pursuant to section 1294, subdivision (a).
8
DISCUSSION
I. Standard of Review
“There is no uniform standard of review for evaluating an order denying a motion
to compel arbitration.” (Robertson v. Health Net of California (2005) 132 Cal. App. 4th
1419, 1425.) “If the court’s order is based on a decision of fact, then we adopt a
substantial evidence standard. [Citations.] Alternatively, if the court’s decision rests
solely on a decision of law, then a de novo standard of review is employed.” (Ibid.) The
abuse of discretion standard also is applied in some cases, generally those in which the
denial is based upon section 1281.2, subdivision (c). (Lindemann v. Hume (2012) 204
Cal. App. 4th 556, 565.) Bunker Hill advocates for the de novo standard because the
pertinent facts are undisputed and no extrinsic evidence is in play. (See, e.g., Avery v.
Integrated Healthcare Holdings, Inc. (2013) 218 Cal. App. 4th 50, 60 (Avery)
[“Interpreting a written document to determine whether it is an enforceable arbitration
agreement is a question of law subject to de novo review when the parties do not offer
conflicting extrinsic evidence regarding the document’s meaning.”].) U.S. Bank
contends that the “more generous abuse of discretion standard” is applicable because (1)
“the trial court denied the Petition due to Bunker Hill’s failure to allege specific facts
showing entitlement to declaratory relief,” and (2) “analyzing the Petition requires the
court to determine whether declaratory relief is ripe.” U.S. Bank also contends that
“[r]egardless of which standard applies, the trial court’s ruling was proper and should be
affirmed in all respects.”
We conclude that the de novo standard of review is the appropriate one to apply
here. The trial court’s decision rested on its conclusion that the petition failed to present
an actual controversy sufficiently ripe for adjudication. Whether this decision was based
upon the court’s interpretation of the parties’ arbitration agreement, its application of
section 1060, section 1280, subdivision (c),4 or some combination of those two
4
Section 1060 sets forth the conditions under which a party may file an action for
declaratory relief. One of the criteria is that there must be an “actual controversy relating
9
provisions, or simply a general determination that the action was unripe, it was a legal
decision that must be examined anew. (Avery, supra, 218 Cal.App.4th at p. 60; Wilson &
Wilson v. City Council of Redwood City (2011) 191 Cal. App. 4th 1559, 1582; American
Meat Institute v. Leeman (2009) 180 Cal. App. 4th 728, 741; Coopers & Lybrand v.
Superior Court (1989) 212 Cal. App. 3d 524, 529.) Accordingly, in the course of our
analysis, we may consider legal arguments that were not raised below. (E.g., Cal Sierra
Construction, Inc. v. Comerica Bank (2012) 206 Cal. App. 4th 841, 851.)
II. Analysis
Our legislature “has expressed a ‘strong public policy in favor of arbitration as a
speedy and relatively inexpensive means of dispute resolution.’” (Moncharsh v. Heily &
Blase (1992) 3 Cal. 4th 1, 9.) Consequently, it has enacted statutes specifically
authorizing parties to enter arbitration agreements “to avoid the judicial forum
altogether” (Grafton Partners v. Superior Court (2005) 36 Cal. 4th 944, 955; § 1281) and
limiting the circumstances under which a court properly may decline to compel
arbitration once it determines that a valid “agreement to arbitrate a controversy” exists (§
1281.2). In accordance with this policy, courts have taken the statutory scheme at face
value and “decline[d] to read additional unwritten procedural requirements, such as actual
notice and meaningful reflection, into the arbitration statute.” (Pinnacle Museum Tower
Association v. Pinnacle Market Development (US), LLC (2012) 55 Cal. 4th 223, 245.)
Likewise, courts implement the strong public policy favoring arbitration when
determining whether a valid arbitration agreement exists and whether a particular
disagreement lies within its scope by resolving doubts concerning the scope of arbitrable
issues in favor of arbitration. (Wagner Construction Co. v. Pacific Mechanical Corp.
(2007) 41 Cal. 4th 19, 26.) Indeed, the general rule is that “arbitration should be upheld
‘unless it can be said with assurance that an arbitration clause is not susceptible to an
to the legal rights and duties of the respective parties.” Section 1280 subdivision (c),
defines “controversy” for purposes of the title of the Code of Civil Procedure governing
arbitration.
10
interpretation covering the asserted dispute. [Citation.]’” (Coast Plaza Doctors Hospital
v. Blue Cross of California (2000) 83 Cal. App. 4th 677, 686.)
Here, the trial court appears to have concluded that the arbitration provision at
issue does not cover the parties’ disagreement over subleases because that disagreement
is not a ripe controversy under either or both section 1280, subdivision (c), and section
1060. Ripeness, of course, is required in a judicial forum. “[T]he proper role of the
judiciary does not extend to the resolution of abstract differences of legal opinion”;
“judicial decision-making is best conducted in the context of an actual set of facts so that
the issues will be framed with sufficient definiteness to enable the court to make a decree
finally disposing of the controversy.” (Pacific Legal Foundation v. California Coastal
Com. (1982) 33 Cal. 3d 158, 170.) Neither Bunker Hill nor U.S. Bank has pointed us to
any authority squarely indicating that the same restriction necessarily applies in an
arbitral forum, and we are not persuaded that it does. (Cf. Gueyffier v. Ann Summers,
Ltd. (2008) 43 Cal. 4th 1179, 1186 [“In any event, whether a California trial court
properly could have excused the notice-and-cure condition in the circumstances of this
case is not at issue here. The parties chose to resolve their dispute not in court but by
private arbitration.”].)
Arbitration is foremost a creature of contract. (See, e.g., Rebolledo v. Tilly’s, Inc.
(2014) 228 Cal. App. 4th 900, 912-913.) “Arbitration’s consensual nature allows the
parties to structure their arbitration agreements as they see fit. They may limit the issues
to be arbitrated, specify the rules and procedures under which they will arbitrate,
designate who will serve as their arbitrator(s), and limit with whom they will arbitrate.”
(Network Capital Funding Corporation v. Papke (2014) 230 Cal. App. 4th 503, 509.)
Contracting parties also are free to negotiate and restrict the powers of an arbitrator and
the universe of issues that he or she may resolve; “[t]he powers of an arbitrator derive
from, and are limited by, the agreement to arbitrate.” (Gueyffier, supra, 43 Cal.4th at p.
1185.) “As for the requirement that there exist a controversy, it is sufficient the parties
contractually have agreed to resort to a third party to resolve a particular issue.”
11
(Coopers & Lybrand, supra, 212 Cal.App.3d at p. 534 [emphasis in original].) “The
limited function reserved to the courts in ruling on an application for arbitration is not
whether the claim has merit, but whether on its face the claim is covered by the contract.”
(Amalgamated Transit Union v. San Diego Transit Corp. (1979) 98 Cal. App. 3d 874,
879.) Thus, we look to the terms of the parties’ contract to ascertain whether they agreed
to arbitrate a particular disagreement or to restrict the arbitrator to resolving certain
issues. (See Rebolledo, supra, 228 Cal.App.4th at pp. 912-913.) Per the ground lease,
“[i]n all cases the language in all parts of th[e] Lease shall be construed simply, according
to its fair meaning and not strictly for or against Landlord or Tenant.”
Here, the parties, both of whom are sophisticated business entities, agreed to a
broadly worded arbitration provision that obligates them to arbitrate “[a]ny and all
disputes, controversies or claims arising under or relating to the Ground Lease.” The
parties do not argue that the putative ripeness requirement derives from this language,
and we agree with their implicit concession that it does not. Moreover, we decline to
read an unwritten justiciability requirement into the arbitration provision the parties
bargained for and negotiated. The expansive arbitration provision does not on its face
limit the universe of arbitrable disagreements to those that are “ripe.” Unlike some
arbitration provisions that explicitly apply only to disputes that are “justiciable under
applicable state or federal law” (See, e.g., Cunningham v. Leslie’s Poolmart, Inc. (C.D.
Cal. June 25, 2013) No. CV 13-2122 2013 U.S. Dist. Lexis 90256, at p.1; Rent-A-Center,
Inc. v. Iowa Civil Rights Commission (Iowa 2014) 843 N.W.2d 727, 728), the arbitration
provision in this case is devoid of any such limiting language. It is not our place to
“insert what has been omitted” (§ 1858), particularly absent some indication that the
parties understood or intended “[a]ny and all disputes, controversies or claims,” standing
alone, to exclude claims that may not be strictly “justiciable” from the ambit of the
arbitration provision. (See Civil Code, § 1639.)
Neither the arbitration provision nor the ground lease it amended specially defines
“any,” “all,” “dispute,” “controversy,” or “claim.” “Unless given some special meaning
12
by the parties, the words of a contract are to be understood in their ‘ordinary and popular
sense,’ focusing on the usual and ordinary meaning of the language used and the
circumstances under which the agreement was made.” (City of Bell v. Superior Court
(2013) 220 Cal. App. 4th 236, 248; see also § 1861; Civil Code, § 1644.) The phrase “any
and all” undoubtedly is usually and ordinarily understood to be expansive and all-
encompassing. “From the earliest days of statehood the courts have interpreted ‘any’ to
be broad, general, and all embracing.” (Burnsed v. State Board of Control (1987) 189
Cal. App. 3d 213, 217.) The definitions of “disputes,” “controversies,” and, to a lesser
extent, “claims” contained in legal and lay dictionaries, to which this court may
“appropriately refer” when attempting to ascertain the ordinary meaning of a word,
further suggest that the language used by the parties encompasses both legally justiciable
and non-justiciable disputes. (Wasatch Property Management v. Degrate (2005) 35
Cal. 4th 1111, 1122; Webster’s New World Dict. (3d college ed. 1991) pp.73, 257, 303,
396; Black’s Law Dict. (9th ed. 2009) pp. 281, 379, 540.)
The parties did expressly provide that select portions of the Code of Civil
Procedure would apply to the arbitration of certain matters: (“If the dispute relates to a
dispute over Tenant’s alleged non-payment of a Basic Net Rent or Additional Rent, . . .
the Parties shall be entitled to all remedies and procedures under Chapter Four of the
California[ ] Code of Civil Procedure, including but not limited to the expedited
procedures set forth therein. . . .”) This demonstrates the parties’ recognition that, absent
some clear directive, procedural rules applicable by default in a court of law would not
necessarily apply in an arbitral setting. Yet there is no evidence that they sought to
ensure that unwritten rules of justiciability would carry over into any arbitration they
might have. Indeed, as noted above, neither side ever has suggested that the parties’
arbitration provision is the source of the bar on arbitrating the disagreement at issue. The
trial court appears to have concluded that the sublease issue fell within the broad scope of
the arbitration provision but could not be arbitrated due to justiciability constraints
imposed by some extratextual source. To the extent that this source is the Code of Civil
13
Procedure, we are not convinced that the provisions cited by the trial court and the parties
operate to impose any such justiciability restriction.5
The statutory definition of “controversy” for purposes of the statutes governing
arbitration is very broad: “‘any question arising between parties to an agreement whether
such question is one of law or of fact or both.’ (§ 1280, subd. (c)”; Coopers & Lybrand,
supra, 212 Cal.App.3d at p. 534, fn. 5.) As noted above, we have interpreted section
1280, subdivision (c), expansively, clarifying that “[a]s for the requirement that there
exist a controversy, it is sufficient the parties contractually have agreed to resort to a third
party to resolve a particular issue.” (Coopers & Lybrand, supra, 212 Cal.App.3d at p.
534 [emphasis in original].) Here, the parties’ unfettered arbitration provision plainly
encompasses the particular issue of sublease termination, an unresolved dispute which
both arises under and relates to the ground lease. U.S. Bank cannot plausibly contend
that the provision does not reach the particular issue of sublease termination when it was
the party that originally demanded arbitration of the issue in the first place. Thus, we are
satisfied that the requisite “controversy” is present here.
U.S. Bank does not dispute this. Instead, evidently building on its earlier analogy
likening the instant dispute to “a request for declaratory relief regarding potential future
rights dependent on events that are highly unlikely to occur” and Bunker Hill’s
invocation of section 1060 in its reply below, U.S. Bank argues that no “actual
controversy” exists and Bunker Hill therefore cannot seek declaratory relief under section
1060. That might be accurate if Bunker Hill had filed an action seeking declaratory
5
This is not contrary to Graphic Arts International Union v. Oakland National
Engraving Co. (1986) 185 Cal. App. 3d 775, 782-783, which held that parties seeking to
compel arbitration must provide the court with a statement of facts “as would be required
in any civil action” by section 425.10. The rationale behind the holding in Graphic Arts
was to ensure that courts ruling on petitions to compel arbitration were not “required to
engage in guesswork as to what the issues are.” (Graphic Arts, supra, 185 Cal.App.3d at
p.783.) Here, the parties agree what the salient issues are, and Bunker Hill pleaded them
clearly in any event. The question presented is whether these issues constitute an
arbitrable “controversy.”
14
relief. But U.S. Bank does not explain how or why a petition to compel arbitration must
satisfy the statutory requirements imposed upon claims for declaratory relief. 6 Nor did
the trial court. There is no doubt that the relief Bunker Hill ultimately seeks is
declaratory in nature. But a petition to compel arbitration is, consistent with the
contractual nature of arbitration, “‘simply a suit in equity seeking specific performance of
that contract.’” (Rebodello, supra, 228 Cal.App.4th at p. 912; Freeman v. State Farm
Mutual Automobile Insurance Co. (1975) 14 Cal. 3d 473, 479.) A petition to compel
arbitration is a separate proceeding, distinct from the claims it relates, which “states a
separate cause of action subject to its own limitation period.” (Wagner Construction Co.
v. Pacific Mechanical Corp., supra, 41 Cal.4th at p. 29.)
In the instant case, that means that the petition to compel arbitration is distinct
from Bunker Hill’s underlying request for declaratory relief. We accordingly find it
irrelevant whether the petition to compel arbitration articulates an “actual controversy”
that could support an award for declaratory relief under section 1060. (Cf. § 1281.2 [“If
the court determines that a written agreement to arbitrate a controversy exists, an order to
arbitrate such controversy may not be refused on the ground that the petitioner’s
contentions lack substantive merit.”]; Wagner, supra, 41 Cal.4th at p. 26 [holding that a
court may not deny a petition to compel arbitration on the ground that the statute of
limitations has run on the claims the parties agreed to arbitrate].) Whether compelling
arbitration is “necessary or proper at the time under all the circumstances” (§ 1061) is an
equally inapposite consideration, as is the possibility that U.S. Bank will foment
additional litigation.
For purposes of section 1281.2, the statute that expressly governs petitions to
compel arbitration, all a petitioner is required to show before arbitration “shall” be
6
We need not and do not determine whether the sublease issue constitutes an
“actual controversy” within the meaning of section 1060, or even whether it is “ripe” or
otherwise justiciable in a judicial forum. In light of the statutory framework governing
arbitration and the expansive language of the parties’ arbitration provision, the ripeness
of the parties’ dispute is not pertinent to our resolution of this matter.
15
ordered is the existence of a valid agreement to arbitrate the issue underlying the petition
and the opposing party’s refusal to arbitrate the controversy. (§ 1281.2; Coast Plaza
Doctors Hospital, supra, 83 Cal.App.4th at p. 687.) Because Bunker Hill made those
showings here, and there is no indication that any of the three narrow exceptions apply
(see § 1281.2, subds. (a)-(c)), the trial court erred in denying the petition to compel
arbitration in this case.
In so holding, we note that we find nothing unjust or unreasonable in enforcing the
arbitration provision against U.S. Bank in this case. (See Civ. Code, § 3391.) U.S.
Bank’s sophisticated predecessor-in-interest negotiated the broadly written arbitration
provision with Bunker Hill, and there is no indication that U.S. Bank has any quarrel with
the provision or has sought to renegotiate it. We acknowledge U.S. Bank’s concern that
it may “make[ ] little sense to spend time and resources arbitrating a dispute that is
contingent on an event that may never occur,” but the parties agreed to arbitrate “[a]ny
and all disputes, controversies or claims arising under or relating to the Ground Lease,”
not merely those that meet the criteria for justiciability in a court of law. More
importantly, U.S. Bank was the party that demanded arbitration of the sublease issue in
the first instance and indeed is “contradicting itself by contesting the Petition.” For these
reasons, granting the petition to compel arbitration does not amount to “mak[ing] the
arbitration process itself an offensive weapon in one party’s arsenal[,]” Saika v. Gold
(1996) 49 Cal. App. 4th 1074, 1081, which we recognize could be a danger in cases where
parties to a broadly worded arbitration agreement have asymmetric levels of bargaining
power, sophistication, or legal resources and the stronger party seeks to compel
arbitration of a dispute that might not otherwise be justiciable in a court of law. The
statutory exception permitting courts to deny petitions to compel arbitration where it is
shown that “[g]rounds exist for the revocation of the agreement” may protect against
such concerns in such cases. (See § 1281.2, subd. (b).).
16
DISPOSITION
The order denying the petition to compel arbitration is reversed with directions to
the trial court to grant the petition. Bunker Hill is entitled to costs on appeal.
CERTIFIED FOR PUBLICATION
COLLINS, J.
We concur:
WILLHITE, Acting P. J.
KRIEGLER, J*
*
Associate Justice of the Court of Appeal, Second Appellate District, Division Five,
assigned by the Chief Justice pursuant to article VI, section 6 of the California
Constitution.
17