COLLINS, J. —
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
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 lowrise 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 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 lowrise 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.
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
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 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 e-mail 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 petition to compel arbitration, but
Bunker Hill responded on April 25, 2014. In its e-mail, 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 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 "[c]ontroversy" within the meaning of Code of Civil Procedure, section 1280, subdivision (c),
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 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 [153 Cal.Rptr.3d 135].) 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
"There is no uniform standard of review for evaluating an order denying a motion to compel arbitration." (Robertson v. Health Net of California, Inc. (2005) 132 Cal.App.4th 1419, 1425 [34 Cal.Rptr.3d 547].) "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 [138 Cal.Rptr.3d 597].) 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 [159 Cal.Rptr.3d 444] (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),
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
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.
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
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.
Willhite, Acting P. J., and Kriegler, J.,