Northrop Grumman Systems Corp. v. Goldentop Road CA4/1 (2016) · DecisionDepot
Northrop Grumman Systems Corp. v. Goldentop Road CA4/1
California Court of Appeal Jun 23, 2016 No. D067241Unpublished
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 v. Goldentop Road CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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
(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.
28
AI Brief
AI-generated · verify before citing
Holding. The court held that the lease agreement's broker appraisal process constituted a binding arbitration under California law, and therefore the trial court properly confirmed the resulting broker opinion as an arbitration award.
Issues
Whether the lease agreement's broker appraisal process constitutes an arbitration under California law.
Whether the trial court erred in confirming the broker's opinion as an arbitration award.
Whether the trial court erred in its interpretation of the lease agreement and grant of summary judgment.
Disposition. Affirmed.
Quotations verified verbatim against the opinion
“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.”
“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.”