Filed 6/23/16 Northrop Grumman Systems Corp. v. Goldentop Road CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
NORTHROP GRUMMAN SYSTEMS D067241 CORPORATION,
Plaintiff and Respondent, (Super. Ct. No. 37-2013-00044542- v. CU-MC-CTL)
GOLDENTOP ROAD, LLC,
Defendant and Appellant.
APPEAL from a judgment of the Superior Court of San Diego County, Judith F.
Hayes, Judge. Affirmed.
Manatt, Phelps & Phillips, Craig J. de Recat, John W. McGuinness and Benjamin
G. Shatz for Defendant and Appellant.
Horvitz & Levy, Jeremy B. Rosen, Steven S. Fleischman; McDermott Will &
Emery and Chris C. Scheithauer for Plaintiff and Respondent.
Northrop Grumman Systems Corporation (Northrop) is the lessee and Goldentop
Road, LLC (Goldentop) is the lessor of real property in the Rancho Bernardo area of San Diego, California. After Northrop exercised its option under a written lease agreement to
extend its tenancy, Northrop and Goldentop were unable to agree on the rental rate for the
extension. Northrop and Goldentop engaged in a broker appraisal process under the lease
agreement to set the rental rate. After this process was completed, Northrop and
Goldentop could not agree as to how, or whether, the results would affect the rental rate
for the extension. Several months later, Northrop filed a complaint in the trial court. The
complaint consisted of (1) a petition to confirm the result of the broker appraisal process
as an arbitration award and (2) two causes of action for declaratory relief regarding
Northrop's past and future rent obligations under the extension of the lease agreement.
The trial court granted Northrop's petition to confirm an arbitration award and, on that
basis, granted summary judgment in Northrop's favor on its causes of action for
declaratory relief.
Goldentop appeals the ensuing judgment. Goldentop contends that the trial court
erred by (1) finding that the broker appraisal process was an arbitration, (2) confirming
the results of that process as an arbitration award, and (3) granting summary judgment
based on an erroneous interpretation of the lease agreement. We conclude that the broker
appraisal process was an arbitration and that the trial court properly confirmed the results
of that process as an arbitration award. We further conclude that the trial court did not err
in interpreting the lease agreement or in granting summary judgment in Northrop's favor.
We therefore affirm the judgment.
2 FACTUAL AND PROCEDURAL BACKGROUND
In 2000, Northrop entered into a written lease agreement with Goldentop's
predecessor-in-interest. The lease agreement had a term of seven years and specified an
amount certain as "Base Rent" to be paid monthly. The lease agreement provided for
increases in the Base Rent every two years. In addition to Base Rent, the lease agreement
provided for payments by Northrop for insurance, maintenance, taxes, and other items,
which the lease agreement defined as "Additional Rent." The lease agreement also
provided for broker's fees, to be determined by separate agreement. An exhibit to the
lease agreement described a tenant improvement allowance ("Improvement Allowance"),
which the lessor was obligated to pay Northrop under certain circumstances, to fund
improvements to the property.
Section 3.4 of the lease agreement gave Northrop the option to renew the lease on
specified terms: "Lessee shall . . . have three (3) successive options to renew this Lease
for a term of five (5) years, on the same terms and conditions set forth in the Lease,
except as modified by the terms, covenants and conditions as set forth below[.]" The
additional terms described an "increase" in the Base Rent for the renewal term: "[T]he
annual Base Rent and monthly installments in effect at the expiration of the then current
term of the Lease shall be increased, commencing on the first day of the renewal term, to
reflect ninety-five percent (95%) of the Fair Market Rental Rate (as hereinafter defined)."
The lease agreement defined Fair Market Rental Rate as "the annual amount per rentable
square foot that a willing, new, non-renewal, non-equity, non-expansion tenant will pay
for comparable space and landlord would accept, at arm's length, giving appropriate
3 consideration to annual rental rates per rentable square foot, escalation (including type,
gross or flat and if gross, whether, base year or expense 'stop'), and abatement provisions
reflecting free rent and/or no rent during the period of construction or any period during
the lease term, brokerage commissions, if any, length of the Lease term, size and location
of premises being leased, building standard work letter and/or tenant improvement
allowance, if any, and other generally applicable terms and conditions of tenancy for
comparable space in comparable buildings ('comparable Leases')."
If the parties could not agree on a Fair Market Rental Rate for the renewal term,
the lease agreement required an appraisal process involving real estate brokers who
would set the Fair Market Rental Rate: "If Lessee does not agree with Lessor's opinion
of the Fair Market Rental Rate within thirty (30) days after Lessee delivers the Option
Notice, then within ten (10) days thereafter, each party . . . shall appoint a real estate
broker ('Broker') . . . to appraise and set the Fair Market Rental Rate. . . . If the two (2)
Brokers are appointed by the parties as stated in this Section, they shall meet promptly
and attempt to set the Fair Market Rental Rate. If they are unable to agree within thirty
(30) days after the second Broker has been appointed, they shall attempt to elect the third
Broker . . . . Each of the parties shall bear one-half (1/2) of the cost of appointing the
third Broker and of paying the third Broker's fee. . . . Within thirty (30) days after the
selection of the third Broker, a majority of the Brokers shall set the Fair Market Rental
Rate. If a majority of the Brokers are unable to set the Fair Market Rental Rate within
such thirty (30) day period, the three (3) appraisals shall be added together and their total
divided by three (3); ninety-five percent (95%) of the resulting quotient shall be the Basic
4 [sic] Rent. The Brokers engaged to approve the Fair Market Rental Rate shall not receive
a commission, but shall be paid on an hourly basis."
At the end of the initial lease term, Northrop sought to extend the lease agreement
for an additional five year term. Northrop and Goldentop agreed on a Fair Market Rental
Rate, which resulted in an increased Base Rent. Northrop and Goldentop entered into an
amendment to the lease agreement, documenting the extension term. The amendment
contained, among other provisions, the following two recitals: (1) "Section 3.4 of the
Lease provides Tenant with the option to extend the term of the Lease, with the Base
Rent set at ninety-five percent (95%) of the Fair Market Rental Rate as defined therein,
and otherwise on the same terms and conditions set forth in the Lease." (2) "Tenant has
exercised such extension option and the parties have determined the appropriate Base
Rent in accordance with the provisions of Section 3.4 of the Lease. This Amendment
modifies the Lease to document such extension term." The amendment specified an
agreed-upon Fair Market Rental Rate and, based on that figure, a Base Rent. The
amendment also provided for yearly increases in the Base Rent and a 4 percent
commission for Northrop's brokers.
At the end of the first renewal term, Northrop exercised its option to extend the
lease agreement for a second renewal term. In accordance with the lease agreement,
Goldentop proposed $1.65 per square foot per month as the Fair Market Rental Rate.
Goldentop's proposal would result in the same Base Rent as was in effect during the last
year of the first renewal term. Northrop disagreed with Goldentop's proposal and, as set
5 forth in the lease agreement, appointed a broker to appraise the Fair Market Rental Rate.
Goldentop appointed a broker as well.
The two brokers appointed by the parties were unable to agree on a Fair Market
Rental Rate. Pursuant to the lease agreement, they identified a third broker, Warren "Jay"
Arnett, to appraise the Fair Market Rental Rate. Arnett entered into an "Agreement for
Professional Consulting Services" with Northrop and Goldentop. Arnett's agreement
stated that Northrop had exercised its renewal option, that "the rental rate for that renewal
period is to be 95% of Fair Market Value," and that because Northrop and Goldentop
"have not agreed to a rental rate, in accordance with Lease Article 3.4(c), to resolve this
disagreement, [Northrop and Goldentop] have agreed to contract with a Consultant . . . ."
An exhibit to Arnett's agreement described his assignment as follows: "Consultant has
been hired to prepare a written Fair Market Rental Rate (FMRR) analysis, to be delivered
to each Client [i.e., Northrop and Goldentop] separately and at the same time, and act as
the third party arbiter for the Lease . . . ."
Goldentop's broker sent Arnett his Fair Market Rental Rate analysis for the
property. Goldentop's broker concluded that the Fair Market Rental Rate was $1.68 per
square foot per month. In addition, he noted, "Fair Market rental inducements outlined in
the lease that apply will be as follows: [¶] • 1 month of rental abatement [¶] • 3%
annual increases in the Base Rental Rate [¶] • Five dollar ($5.00) per square foot of
office space only (approximately $150,000 total)[.]"
After forming some preliminary thoughts, Arnett solicited input from the brokers
for Northrop and Goldentop. Arnett then prepared a final report entitled "Consultation
6 for: Fair Market Rental Rate[,] Third Party Broker." The report assessed the facilities
and improvements on the property, market conditions, and comparable lease terms.
Arnett concluded that the Fair Market Rental Rate was $1.10 per square foot per month,
with 3 percent annual increases, $8.00 per square foot tenant improvement allowance per
month, four and one-half months' rental abatement, and broker commissions of 6 and 1/2
to 7 percent. Northrop's broker provided notice under the lease agreement that he agreed
with Arnett's opinion. Arnett's opinion therefore enjoyed majority support.
After receiving Arnett's final report, Goldentop wrote to Northrop, describing the
process as "an interesting exercise for the brokers involved." Goldentop explained its
view that the language of the lease agreement required that the Base Rent for any
extension could only be increased, not decreased, from the prior Base Rent. Because
applying Arnett's Fair Market Rental Rate opinion would result in a decrease in the Base
Rent, it could have "no impact on the contractual obligations of the parties going
forward." Goldentop believed that under the terms of the lease agreement, the Base Rent
for the extension would be the same as the last Base Rent for the prior extension.
Northrop responded by letter, explaining that it disagreed with Goldentop's position but
that it would make rental payments as demanded by Goldentop for the extension term
under protest and with full reservation of rights.
Approximately nine months later, Northrop filed its complaint in this action.
Northrop's operative first amended complaint (FAC) consisted of a petition to confirm an
arbitration award (Arnett's opinion) and two causes of action for declaratory relief
regarding Northrop's past and future rent obligations.
7 In connection with its petition to confirm an arbitration award, Northrop argued
that the lease agreement's broker appraisal process was a binding arbitration and that
Arnett's conclusions constituted its award. Northrop urged the trial court to confirm the
award, including all of its components (i.e., rent per square foot, annual increases, tenant
improvement allowance, rental abatement, and broker commissions). Goldentop
opposed, contending that the broker appraisal process was not an arbitration. Even if it
were an arbitration, Goldentop argued, Arnett had not determined what the Base Rent
should be under the lease agreement and any award should be limited to Arnett's opinion
that the Fair Market Rental Rate was $1.10 per square foot per month.
The trial court granted Northrop's petition to confirm Arnett's conclusions as an
arbitration award. The court found that the broker appraisal process was a binding
arbitration and that Goldentop's challenges to Arnett's award were untimely.
Northrop moved for summary judgment (or in the alternative, summary
adjudication) on its declaratory relief causes of action and for entry of judgment on the
confirmed arbitration award. Northrop's first declaratory relief cause of action sought a
declaration regarding the rent that Northrop would be obligated to pay during the
extension period. Northrop argued that Arnett's opinion, as a confirmed arbitration
award, provided the parameters for its rental payments going forward, including all of its
components. Northrop's second declaratory relief cause of action sought a declaration
regarding the amount that Northrop had overpaid in rent in the months since the
extension began. Northrop argued that this amount should be the difference between the
8 rental payments determined by Arnett's opinion (including all of its components) and the
rent that Northrop had actually paid.
In support of its motion, Northrop submitted declarations from several individuals,
including A.J. Paz, Northrop's director of real estate. Paz participated in the original
lease negotiations between Northrop and Goldentop's predecessor-in-interest. During
these negotiations, Goldentop's predecessor-in-interest proposed language for the lease
extension option provisions that read, in relevant part, as follows: "[I]n no event shall the
annual rent and monthly installment for any option period be less than the annual rent and
monthly installment in [the] preceding period." Northrop rejected that language, and it
was not included in the lease agreement. Although the lease agreement contained
language noting that the Base Rent "shall be increased" for the extension (option) period,
Paz stated that he did not intend that language to mean that the Base Rent for the
extension period could only increase. Instead, the Base Rent for the extension period
would be calculated as 95 percent of the Fair Market Rental Rate, as determined under
the terms of the lease agreement. Northrop also submitted a declaration from Arnett, who
described his engagement and his conclusions.
In opposition, Goldentop argued that Arnett's powers under the lease agreement
were limited to appraising the Fair Market Rental Rate and that his opinion could, at
most, only be the first step in determining the rental rate for the lease extension period
under the lease agreement. Goldentop argued that Arnett's opinion could not override the
plain language of the lease agreement, which provided that the Base Rent "shall be
increased" for the extension period. Goldentop also contended that Arnett's opinion
9 included components that were not properly included in the Fair Market Rental Rate (i.e.,
tenant improvement allowance, rental abatement, and broker commissions) and that
Arnett's opinion could not rewrite the lease to incorporate those additional components
into the monetary terms for the extension period. Goldentop argued that Northrop's
evidence surrounding the lease negotiations was irrelevant and inadmissible. In support
of its opposition, Goldentop submitted declarations from the president of Goldentop's
parent company, a real estate expert, and Goldentop's counsel.
The trial court granted Northrop's motion for summary judgment. The court again
determined that Goldentop's challenges to Arnett's opinion were untimely. The court
overruled Goldentop's evidentiary objections to Northrop's declarations on the ground
that Goldentop had previously sought judicial notice of the same or similar declarations
in connection with Goldentop's earlier demurrer to Northrop's complaint. The court
sustained various evidentiary objections to Goldentop's evidence and struck the
declarations of its parent company's president and its real estate expert. The court issued
a statement of decision supporting its order confirming Arnett's opinion as an arbitration
award and entered judgment in favor of Northrop on all of its claims. Goldentop appeals.
DISCUSSION
I
Goldentop first argues that the trial court erred in determining that the lease
agreement's broker appraisal process was an arbitration under California law.
10 (Code Civ. Proc., § 1280 et seq.)1 "Arbitration is not defined by any statute. One
appellate court surveyed the various definitions of arbitration and quoted from Black's
Law Dictionary that arbitration is ' "[a] process of dispute resolution in which a neutral
third party (arbitrator) renders a decision after a hearing at which both parties have an
opportunity to be heard. Where arbitration is voluntary, the disputing parties select the
arbitrator who has the power to render a binding decision." ' " (Saeta v. Superior Court
(2004) 117 Cal.App.4th 261, 268 (Saeta).) " '[A]lthough [an] arbitration can take many
procedural forms, a dispute resolution procedure is not an arbitration unless there is a
third party decision maker, a final and binding decision, and a mechanism to assure a
minimum level of impartiality with respect to the rendering of that decision.' " (Ibid.) It
is these hallmark attributes, not the label applied to the procedure, that determines
whether a procedure is an arbitration. "The fact that a procedure is labeled an 'arbitration'
does not mean that it is . . . , and a procedure may constitute an arbitration even though it
does not bear that characterization." (Elliott & Ten Eyck Partnership v. City of Long
Beach (1997) 57 Cal.App.4th 495, 503; see Cheng-Canindin v. Renaissance Hotel
Associates (1996) 50 Cal.App.4th 676, 684 [label not determinative; " '[m]ore important
is the nature and intended effect of the proceeding' "].)
California's arbitration statutes provide several examples of common dispute
resolution procedures that fall within the statutory scope of an agreement to arbitrate:
" 'Agreement' includes but is not limited to agreements providing for valuations,
1 Further statutory references are to the Code of Civil Procedure unless otherwise specified. 11 appraisals and similar proceedings . . . ." (§ 1280, subd. (a).) Thus, "[a]ppraisal hearings
are a form of arbitration and are generally subject to the rules governing arbitration."
(Kacha v. Allstate Insurance Co. (2006) 140 Cal.App.4th 1023, 1031; see Lambert v.
Carneghi (2008) 158 Cal.App.4th 1120, 1129 (Lambert); Appalachian Insurance Co. v.
Rivcom Corp. (1982) 130 Cal.App.3d 818, 824.)
The question whether the agreement at issue was an agreement to arbitrate under
California law rests primarily on interpretation of the agreement itself. (See Saeta, supra,
117 Cal.App.4th at p. 267.) "The interpretation of a contract is subject to de novo review
when construction does not turn on the credibility of extrinsic evidence. [Citation.] We
are not bound by the trial court's interpretation of the agreement when the agreement is
unambiguous." (Ibid.) Northrop asserts that we should review this issue for substantial
evidence. Our conclusion would be unchanged under Northrop's suggested standard of
review.
The broker appraisal process is the procedure set forth in lease agreement to
resolve disputes regarding the Fair Market Rental Rate for a renewal term. The
procedure begins with each party's selection of a real estate broker "to appraise [the
property] and set the Fair Market Rental Rate." If the two party-appointed brokers fail to
agree, they are required to select a third broker. The third broker must be an individual
"who has not previously acted in any capacity for either party." A majority of the three
brokers then determines the Fair Market Rental Rate.
This procedure meets the minimum requirements of an arbitration under California
law. It is explicitly an appraisal process, which is included by statute within the scope of
12 agreements to arbitrate. (§ 1280, subd. (a).) Numerous authorities have determined that
analogous appraisal processes are arbitrations. (See, e.g., Lambert, supra,
158 Cal.App.4th at p. 1131; Helzel v. Superior Court (1981) 123 Cal.App.3d 652, 659;
San Luis Obispo Bay Properties, Inc. v. Pacific Gas & Electric Co. (1972) 28 Cal.App.3d
556, 562; see also Wasyl, Inc. v. First Boston Corp. (9th Cir. 1987) 813 F.2d 1579, 1582.)
In addition, the procedure includes the hallmark aspects of arbitration: a third party
decision maker (the neutral third broker), a final and binding decision (the majority
decision of the brokers, which sets the Fair Market Rental Rate), and a mechanism to
assure a minimum level of impartiality (the qualifications of the brokers, the requirement
that the party-appointed brokers agree on the third broker, and the fact that the third
broker cannot have a relationship with the parties). (See Saeta, supra, 117 Cal.App.4th
at p. 268.) The fact that the parties agreed to a procedure with these attributes shows that
the parties intended to agree to arbitrate under California law.
Relying primarily on Coopers & Lybrand v. Superior Court (1989)
212 Cal.App.3d 524 (Coopers), Goldentop points out that not all appraisals or valuations
are arbitrations. (Id. at p. 537 ["We hold [that] a mere agreement for a binding valuation
is not per se an agreement to submit to arbitration. Something more is required . . . ."].)
In Coopers, the appellate court considered whether an agreement providing for a binding
audit by a third party accounting firm was an agreement to arbitrate as a matter of law.
(Id. at p. 527.)
The Coopers court concluded that an agreement for a binding audit could be an
agreement to arbitrate, but the court could not conclude as a matter of law that the
13 agreement at issue reflected an intent to conduct an arbitration: "We conclude
agreements to arbitrate include agreements providing for valuations, appraisals and
similar proceedings, including audits. A formal hearing and the taking of evidence are
not essential to arbitration, which alternatively may consist of a submission of a
controversy to an independent examination. . . . [¶] However, while [the parties] agreed
to be bound by Coopers' audit, because we cannot say as a matter of law their agreement
reflected the intent to conduct an arbitration within the ambit of the statutory scheme, the
trial court properly overruled petitioners' demurrer asserting arbitral immunity."
(Coopers, supra, Cal.App.4th at pp. 527-528.) The court found that the applicable
provision was ambiguous "with respect to whether the agreement is for a formal
arbitration within the ambit of the Code, or for a mere binding audit." (Id. at p. 538.)
The court believed that it had to credit plaintiffs' allegation regarding the meaning of the
agreement (that it was not an agreement to arbitrate) in ruling on the sufficiency of
plaintiff's complaint. (Ibid.) The court further found persuasive the facts that
(1) Coopers, the purported arbitrator, had filed a prior suit as a third party beneficiary of
the contract without mentioning arbitration and (2) no party had filed a petition to
confirm, vacate, or correct the purported arbitration award. (Id. at pp. 538-539.)
Coopers has little relevance to our assessment of the broker appraisal process in
the lease agreement at issue here. Unlike Coopers, we are not reviewing an order
sustaining a demurrer. Also unlike Coopers, Northrop did file a petition to confirm the
results of the broker appraisal process as an arbitration award. In addition, the binding
audit process in Coopers was far different from the broker appraisal process here, which
14 more closely corresponds to the hallmark aspects of arbitration than did the audit in
Coopers.
Goldentop points out that the lease agreement does not use the terms "arbitration"
or "arbitrator" in describing the broker appraisal process. As we have noted, however,
the lack of such description is not dispositive. (Elliott & Ten Eyck Partnership v. City of
Long Beach, supra, 57 Cal.App.4th at p. 503.) Moreover, the parties did refer to the third
broker (Arnett) as an "arbiter" in his consulting agreement and in an email during the
appraisal procedure. While not the same term as "arbitrator," the fact that the parties
referred to Arnett as an "arbiter" shows that they intended that he inhabit that type of
decisionmaking role.2
In reply, Goldentop argues that the broker appraisal process cannot be an
arbitration because it did not conclusively resolve the parties' dispute. Goldentop claims
that the parties' dispute was centered on the Base Rent for the lease renewal term, but that
the broker appraisal process was intended only to determine the Fair Market Rental Rate.
While the Fair Market Rental Rate may be used to determine the Base Rent, Goldentop
contends, the Fair Market Rental Rate does not fully resolve the parties' dispute.
2 Goldentop also claims that certain aspects of Arnett's opinion did not comply with California law regarding signature and service of arbitration awards. (§§ 1283.4, 1283.6.) Goldentop argues that these irregularities show that the broker appraisal process was not an arbitration. We disagree. Whether a dispute resolution procedure is an arbitration is determined by the attributes of the procedure, not by whether the arbitration complied with the procedural requirements of California law. If we were to credit Goldentop's contention, the status of arbitration procedures in California would be thrown into grave doubt because any such procedure could be found not to be an arbitration if the arbitrator failed to comply with these formal procedural requirements. 15 Goldentop's argument is not persuasive. Parties may agree to arbitration to resolve
the entire controversy between them or some limited portion thereof. (See Coopers,
supra, 212 Cal.App.3d at p. 534.) Goldentop's argument appears to revive the historical
distinction between arbitrations and appraisals, where appraisals were not seen as
arbitrations because they did not involve a controversy to be resolved. (Id. at p. 533.)
This distinction was erased by amendments to California's arbitration statutes more than
50 years ago: "[W]e conclude the 1961 statute erased the judicial distinction between
agreements to arbitrate disputes and agreements providing for independent examinations
by way of valuations, appraisals and similar proceedings, such as audits, and brought
such agreements within the arbitration law. 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.[3] Because the parties to an arbitration may dispense with a
formal hearing and the taking of evidence, the absence of such elements does not impair
the status of a proceeding as an arbitration." (Id. at p. 534; see Klubnikin v. California
Fair Plan Association (1978) 84 Cal.App.3d 393, 397.)
For the foregoing reasons, we conclude that the broker appraisal process was an
arbitration under California law. The trial court did not err by treating it as such.
3 The Coopers court included a footnote here quoting the statute's definition of controversy: " 'Controversy' is broadly defined by statute as 'any question arising between parties to an agreement whether such question is one of law or of fact or both.' (§ 1280, subd. (c).)" (Coopers, supra, 212 Cal.App.3d at p. 534, fn. 5.) 16 II
Goldentop further contends that even if the broker appraisal process is an
arbitration, the court erred by confirming Arnett's opinion (joined by Northrop's broker)
as an arbitration award. Goldentop contends that confirmation was improper because the
award encompassed items not properly included in the Fair Market Rental Rate, such as a
tenant improvement allowance, rental abatement, and broker commissions.4 Goldentop
maintains that any confirmed award must be limited to Arnett's opinion of the Fair
Market Rental Rate.
"Any party to an arbitration in which an award has been made may petition the
court to confirm, correct or vacate the award." (§ 1285.) A petition to confirm an award
must be served and filed within four years of service of a signed copy of the award, while
a petition to vacate or correct an award must be served and filed within 100 days of such
service. (§ 1288.) Any other party to the arbitration may file a response to a petition. "A
4 Goldentop also appears to fault the trial court for confirming an award of Base Rent, rather than simply Arnett's Fair Market Rental Rate opinion. However, as Goldentop acknowledges, Arnett's opinion did not include an award of Base Rent. Arnett first provided a calculation of Base Rent (based on the lease agreement's 95 percent provision) in a declaration in support of Northrop's petition to confirm the award. Although the trial court referenced this calculation in its order granting Northrop's petition, any error in "confirming" an award of Base Rent is harmless. Northrop's declaratory relief causes of action called upon the trial court to interpret the lease agreement and determine whether the Base Rent should be set at 95 percent of the Fair Market Rental Rate. The trial court determined that the lease agreement required such a calculation, even if it resulted in a decrease in the Base Rent, and entered declaratory judgment accordingly. The trial court's judgment would have been no different if the trial court had omitted any reference to Base Rent in its order confirming Arnett's opinion as an arbitration award. In any event, our independent review of the court's ruling granting summary judgment shows that the court was correct to calculate Base Rent as reflecting 95 percent of the Fair Market Rental Rate. (See part III, post.) 17 response to a petition under this chapter may request the court to dismiss the petition or to
confirm, correct or vacate the award." (§ 1285.2.) However, a party to an arbitration
may only file a response seeking to vacate or correct an award within the time period for
filing an original petition to vacate or correct an award, i.e., 100 days after service of a
signed copy of the award. (§ 1288.2.) If a petition or response is filed, the court must
confirm the award or, if sufficient grounds exist, correct or vacate the award. (§ 1286.)5
Thus, the court may correct or vacate the award only if a petition or response
seeking such relief is filed within 100 days after service of the award; otherwise, the court
must confirm the award. " ' "[I]f one wishes to have an award vacated or corrected he
must act within one-hundred days of service of the award or be precluded from attacking
the award." ' [Citation.] 'If [the party who lost the arbitration does] not serve and file a
petition to vacate or a response to [a] petition to confirm within the 100-day period from
the date of service of the award . . . , the award must be treated as final.' " (Eternity
Investments Inc. v. Brown (2007) 151 Cal.App.4th 739, 745; see Louise Gardens of
Encino Homeowners' Association, Inc. v. Truck Insurance Exchange Inc. (2000)
82 Cal.App.4th 648, 659-660 (Louise Gardens).)
"Through this detailed statutory scheme, the Legislature has expressed a 'strong
public policy in favor of arbitration as a speedy and relatively inexpensive means of
dispute resolution.' [Citations.] Consequently, courts will ' "indulge every intendment to
give effect to such proceedings." ' " (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9.)
5 The court may also dismiss the proceeding as to any person not a party to the arbitration and not bound by the arbitration award. (§§ 1286, 1287.2.) 18 " 'The policy of the law in recognizing arbitration agreements and in providing by statute
for their enforcement is to encourage persons who wish to avoid delays incident to a civil
action to obtain an adjustment of their differences by a tribunal of their own choosing.'
[Citation.] 'Typically, those who enter into arbitration agreements expect that their
dispute will be resolved without necessity for any contact with the courts.' " (Ibid.)
"Moreover, in reviewing a judgment confirming an arbitration award, we must accept the
trial court's findings of fact if substantial evidence supports them, and we must draw
every reasonable inference to support the award. [Citation.] On issues concerning
whether the arbitrator exceeded his powers, we review the trial court's decision de novo,
but we must give substantial deference to the arbitrator's own assessment of his
contractual authority." (Alexander v. Blue Cross of California (2001) 88 Cal.App.4th
1082, 1087.)
Goldentop did not file a petition to vacate or correct Arnett's award. Nor did it file
a response seeking to vacate or correct the award within 100 days of service of the award.
Goldentop is therefore barred from raising arguments that, if correct, would require
vacating or correcting the award. (See Louise Gardens, supra, 82 Cal.App.4th at p. 659
["A party who fails to timely file a petition to vacate under section 1286 may not
thereafter attack that award by other means on grounds which would have supported an
order to vacate."].)
Goldentop does not dispute this general principle. Instead, Goldentop claims that
it is not seeking to correct or vacate the award, but rather, that it is seeking merely to limit
confirmation of the award to the only issue properly before Arnett, i.e., the Fair Market
19 Rental Rate, which the lease agreement defines as rent per square foot. In Goldentop's
view, Arnett's award—as a factual matter—was limited to the Fair Market Rental Rate.
Goldentop argues that the other items are merely considerations that Arnett used to
determine the Fair Market Rental Rate, much as an appraiser might describe aspects of
other properties in order to assess whether they are comparable or not. Goldentop claims
that it had no reason to petition to vacate or correct the award because the award was
limited to the Fair Market Rental Rate.
Goldentop's view is not supported by the language of the award. Under the
headings "CONCLUSION" and "Fair Market Rental Rate," Arnett's report lists the
following items: "Base Rent,"6 "Term," "Lease rate adjustment," "Tenant
Improvements," "Rental abatement," and "Commissions." It is clear that Arnett intended
each of these items to be part of his opinion regarding the Fair Market Rental Rate. He
did not distinguish the "Base Rent" component (which Goldentop claims is the only
effective portion of Arnett's award) from any other component. Goldentop's argument
that Arnett's award does not in fact encompass these other components is unpersuasive.
Substantial evidence therefore supports the trial court's determination that the award
encompasses all of the components identified by Arnett, and we would reach the same
conclusion even on de novo review.
6 The "Base Rent" in Arnett's opinion was listed as $1.10 per square foot. The parties agree that this "Base Rent" component is not the "Base Rent" defined in the lease agreement. Arnett's Base Rent is merely the rent per square foot component of his Fair Market Rental Rate opinion. The trial court determined that the initial Base Rent per square foot under the lease agreement was $1.045, or 95 percent of Arnett's Base Rent of $1.10. 20 Goldentop also appears to argue that Arnett was empowered by the lease
agreement to award only a per square foot rate as the Fair Market Rental Rate and
therefore his award of other components exceeded his authority. The fact that an
arbitrator exceeded his authority is a statutory ground for vacating or correcting an
arbitration award. (§§ 1286.2, subd. (a)(4), 1286.6, subd. (b).) Goldentop is barred from
raising this ground because it did not do so in a timely petition or response. (See Louise
Gardens, supra, 82 Cal.App.4th at p. 659.)
Although unnecessary to our decision, we note that Arnett did not include these
components in a vacuum. Goldentop's own appointed broker included a per square foot
Fair Market Rental Rate ($1.68) as well as several "Fair Market rental inducements" in
his opinion (such as rental abatement, tenant improvements, and annual rent increases),
prior to Arnett's appointment. In addition, in the trial court, Goldentop assumed that the
per square foot rental rate would increase annually, as Arnett awarded, even though such
an increase is not mandated by the language of the renewal terms of lease agreement
itself. It is therefore not apparent that Arnett exceeded his powers in proposing Fair
Market Rental Rate components in addition to a per square foot rent.
III
Goldentop contends that the trial court erred by interpreting the lease agreement to
allow a decrease in Base Rent based on Arnett's opinion of Fair Market Rental Rate. As
we have noted, the lease agreement provides that it may be renewed "on the same terms
and conditions set forth in the Lease, except as modified" by the renewal provisions. The
renewal provisions mention an "increase[]" in the Base Rent for the renewal term: "[T]he
21 annual Base Rent and monthly installments in effect at the expiration of the then current
term of the Lease shall be increased, commencing on the first day of the renewal term, to
reflect ninety-five percent (95%) of the Fair Market Rental Rate (as hereinafter defined)."
(Italics added.) If the broker appraisal procedure is invoked, "a majority of the Brokers
shall set the Fair Market Rental Rate."7
The trial court found that, notwithstanding the use of the word "increased," the
lease agreement required that the Base Rent for the renewal term should "reflect"
95 percent of the Fair Market Rental Rate, regardless of whether that calculation resulted
in an increase or decrease of the Base Rent. The court relied on its interpretation to grant
Northrop's motion for summary judgment on its two declaratory relief causes of action.
We review the trial court's summary judgment ruling de novo, using the same standards
applicable to the trial court. (Kahn v. East Side Union High School Dist. (2003)
31 Cal.4th 990, 1003.)
The parties dispute the meaning of the renewal provisions in the lease agreement.
" 'When a dispute arises over the meaning of contract language, the first question to be
decided is whether the language is "reasonably susceptible" to the interpretation urged by
the party. If it is not, the case is over. [Citation.] If the court decides the language is
reasonably susceptible to the interpretation urged, the court moves to the second
question: what did the parties intend the language to mean? [Citation.] [¶] Whether the
7 If a majority of the brokers could not agree, the three broker's opinions would be added together and divided by three. The lease agreement provided that "ninety-five percent (95%) of the resulting quotient shall be the Basic [sic] Rent." 22 contract is reasonably susceptible to a party's interpretation can be determined from the
language of the contract itself [citation] or from extrinsic evidence of the parties' intent
[citation].' [Citation.] If a contract is capable of two different reasonable interpretations,
the contract is ambiguous." (Oceanside 84, Ltd. v. Fidelity Federal Bank (1997)
56 Cal.App.4th 1441, 1448.)
Goldentop contends that the language of the renewal provisions of the lease
agreement is clear and unambiguous. Goldentop argues that the phrase "shall be
increased" means that the Base Rent could only be increased in the renewal term. In
Goldentop's view, if the broker appraisal process resulted in a majority opinion of the
Fair Market Rental Rate that would result in a decrease in Base Rent, the Base Rent for
the renewal term would nonetheless remain unchanged because the lease would continue
on "the same terms" as the prior term under the general prefatory language of the renewal
provisions. Northrop, by contrast, contends that the renewal provisions are ambiguous.8
The phrase "shall be increased" does not account for the situation where the result of the
broker appraisal process would yield a Fair Market Rental Rate that, when 95 percent of
that figure is calculated, would result in a Base Rent that is lower that the Base Rent in
effect at the end of the prior term. In such a situation, the Base Rent cannot be
"increased . . . to reflect ninety-five percent (95%) of the Fair Market Rental Rate," as the
lease requires.
8 Northrop makes several additional arguments in favor of affirmance. Given our conclusion, we need not consider these arguments. 23 We conclude that the lease renewal provisions are ambiguous. The views offered
by Goldentop and Northrop are both reasonable interpretations of the lease renewal
language, given its failure to explicitly account for a decrease in Base Rent in the renewal
term.9 While it is possible that the remainder of the lease (i.e., the prior Base Rent)
would apply (as Goldentop argues), it is also possible the parties intended that the Base
Rent in the renewal term would always "reflect" 95 percent of the Fair Market Rental
Rate as determined by the broker appraisal process regardless of whether that constituted
an increase or decrease in Base Rent (as Northrop argues).10
We must therefore determine the meaning of the lease renewal provisions, based
on the mutual intention of the parties at the time the agreement was executed. (See
Oceanside 84, Ltd. v. Fidelity Federal Bank, supra, 56 Cal.App.4th at p. 1448.) "The
mutual intention to which the courts give effect is determined by objective manifestations
of the parties' intent, including the words used in the agreement, as well as extrinsic
evidence of such objective matters as the surrounding circumstances under which the
parties negotiated or entered into the contract; the object, nature and subject matter of the
9 Contrary to Goldentop's focus, we do not limit our review only to the interpretation of the phrase "shall be increased." Instead, we must determine whether the lease agreement renewal provisions as a whole are ambiguous. (See Adams v. MHC Colony Park Limited Partnership (2014) 224 Cal.App.4th 601, 622-623; see also Civ. Code, § 1641.)
10 Goldentop relies on the general principle that an omitted term or provision does not render a contract ambiguous. (See, e.g., Beverly Hills v. Albright (1960) 184 Cal.App.2d 562, 570.) While correct as a general matter, that principle does not apply where, as here, a term is not omitted. Here, the lease renewal terms are present, but their meaning is ambiguous. 24 contract; and the subsequent conduct of the parties." (Morey v. Vannucci (1998)
64 Cal.App.4th 904, 912.) Where, as here, the interpretation of contractual language
does not turn on the credibility of conflicting extrinsic evidence, such interpretation is a
legal question that may be resolved on summary judgment. (See id. at pp. 912-913; see
also Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865.)
The language of the agreement shows that the parties' mutual intent was that the
Base Rent in a renewal term would be set by the broker appraisal process (or by mutual
agreement), regardless of whether that process resulted in an increase or decrease in Base
Rent. The most relevant language is ambiguous: it provides that Base Rent "shall be
increased . . . to reflect ninety-five percent (95%) of the Fair Market Rental Rate" set by a
majority of the brokers in the broker appraisal process. The words "increase" and
"reflect" effectively point to opposite conclusions under the circumstances here, where
95 percent of the Fair Market Rental Rate results in a Base Rent that is less than that in
effect at the end of the prior term. However, later in the same paragraph, the renewal
provisions state that Base Rent shall be set at 95 percent of the average of the three
brokers' opinions if a majority cannot agree on a Fair Market Rental Rate. This provision
is silent on the question of an increase or decrease. There does not appear to be any
rational reason why a new Base Rent based on a majority opinion of the brokers could
only increase, whereas a new Base Rent based on an average of the brokers' opinions
could increase or decrease. The language of the agreement therefore points in favor of
Northrop's view that the Base Rent may either increase or decrease in the renewal term,
depending on the Fair Market Rental Rate.
25 The language of the amendment extending the lease agreement for a first
additional five-year term supports Northrop's interpretation. The amendment describes
the renewal provisions without limiting their application to increases in Base Rent:
"Section 3.4 of the Lease [i.e., the renewal provisions] provides Tenant with the option to
extend the term of the Lease, with the Base Rent set at ninety-five percent (95%) of the
Fair Market Rental Rate as defined therein, and otherwise on the same terms and
conditions set forth in the Lease."
Extrinsic evidence of the parties' conduct after the lease agreement was executed
also supports this interpretation. "In construing contract terms, the construction given the
contract by the acts and conduct of the parties with knowledge of its terms, and before
any controversy arises as to its meaning, is relevant on the issue of the parties' intent."
(Southern Pacific Transportation Co. v. Santa Fe Pacific Pipelines, Inc. (1999)
74 Cal.App.4th 1232, 1242.) For example, in a recital in Arnett's consulting agreement,
the parties described the Base Rent for the renewal term as follows: "Whereas the rental
rate for that renewal period is to be 95% of Fair Market Value [sic] . . . ." In both cases,
the parties agreed that Base Rent would be 95 percent of the Fair Market Rental Rate (or
Value), regardless of whether that reflected an increase or decrease over the prior Base
Rent. This extrinsic evidence confirms that the parties' intent was for the Base Rent to be
26 set by the broker appraisal process in the event of a dispute, and that process could result
in an increased or decreased Base Rent for the renewal term.11
Goldentop argues that the language of the amendment is not binding because it
applied only to the first lease extension. In a similar vein, Goldentop argues that neither
the amendment nor the language of Arnett's consulting agreement constitutes contractual
estoppel under Evidence Code section 622. Even assuming that Goldentop is correct that
these documents are not binding, they still have evidentiary value in determining the
parties' intent. As we have discussed, they show that the parties intended that the Base
Rent reflect 95 percent of the Fair Market Rental Rate, regardless of whether the Base
Rent was an increase or decrease over the prior Base Rent. Goldentop argues that these
documents are irrelevant because, at the time they were created, there had never been a
decrease in Base Rent. We disagree. The fact that the amendment, in particular, was
created prior to a dispute over the meaning of the lease agreement renewal provisions
makes it especially probative of the parties' intent. The parties could have included
language in the amendment confirming that the Base Rent could only increase, but they
11 Goldentop argues that consideration of extrinsic evidence is barred by the parole evidence rule. However, where, as here, a contract is ambiguous, extrinsic evidence may be admissible to interpret the ambiguous provisions of the contract. (ASP Properties Group, L.P. v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1266-1267.) Goldentop's argument is therefore unpersuasive. We note that the trial court admitted additional extrinsic evidence supporting Northrop's interpretation of the lease renewal provisions, including documentation showing the parties' negotiations and a declaration from a Northrop executive, drafted during this litigation, discussing Northrop's intent regarding the lease renewal provisions. Given our conclusion regarding the meaning of the lease renewal provisions based on the language of the lease agreement, the amendment, and Arnett's consulting agreement, we need not consider whether this additional extrinsic evidence would be relevant and admissible to support Northrop's interpretation as well. 27 did not. Arnett's agreement is also probative because Goldentop agreed to it, even though
it does not include language regarding an increase. The absence of such language shows
that that the parties intended that Base Rent be set at 95 percent of the Fair Market Rental
Rate, regardless of whether the Base Rent in the renewal term was an increase or a
decrease over the prior term.
DISPOSITION
The judgment is affirmed.
AARON, J.
WE CONCUR:
BENKE, Acting P. J.
IRION, J.