Opinion
D074906
04-03-2020
MICHAEL S. SUMMERS, Plaintiff and Appellant, v. LEIDOS, INC., Defendant and Respondent.
Law Offices of Lee E. Burrows, Lee E. Burrows and Kristina M. Edrington for Plaintiff and Appellant. Noonan Lance Boyer & Banach, Ethan T. Boyer and Olga Y. Bryan for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2018-00016071-CU-PA-CTL) APPEAL from a judgment of the Superior Court of San Diego County, Joan M. Lewis, Judge. Affirmed. Law Offices of Lee E. Burrows, Lee E. Burrows and Kristina M. Edrington for Plaintiff and Appellant. Noonan Lance Boyer & Banach, Ethan T. Boyer and Olga Y. Bryan for Defendant and Respondent.
I.
INTRODUCTION
Michael S. Summers appeals from a judgment confirming an arbitration award in favor of his tenant, Leidos, Inc. On appeal, Summers contends that the arbitrator exceeded his powers in determining the amount of monthly rent that Leidos would owe Summers after Leidos exercised its option to renew a commercial lease. Specifically, Summers argues that the arbitrator exceeded his powers by improperly acting as a "mediator" and impermissibly relying on "privileged communications" in rendering his award. Summers also contends that the arbitrator improperly "enlarged the limited procedural scope of the contractual dispute resolution procedure" (boldface & capitalization omitted) provided for in the lease. Summers further maintains that the trial court erred in relying on the principle that the arbitrator was empowered to " 'decide the . . . entire issue submitted for determination" given a provision in the lease that required that all modifications to the lease be in writing. We affirm the judgment.
II.
FACTUAL AND PROCEDURAL BACKGROUND
A. Leidos rents commercial property from Summers
In July 2007, Leidos, then known as Science Applications International Corporation, entered into a commercial lease agreement (the "Lease") with Summers to lease two buildings and related real property. The initial term of the Lease was five years. B. Leidos renews the Lease and enters into an agreement amending the Lease
In 2012, the parties entered into an agreement that amended the Lease. Among other changes to the Lease, the amendment renewed the Lease for a period of five years.
The amendment to the Lease also granted Leidos the option to renew the Lease for two additional five-year periods. The amended Lease provides that the rent for any renewal periods will be at "100% of the Fair Market Rental Rate [FMRR]," and specifies how the FMRR will be determined. Specifically, section 3.04(A) of the amended Lease defines FMRR as the "net effective annual rent . . . that a willing tenant would pay, and a willing landlord would accept, in arms-length bona fide negotiations," for similar properties under similar conditions.
Section 3.04(A) of the amended Lease states in its entirety:
" '(A) For purposes of this Section III, the term "Fair Market Rental Rate" means the net effective annual rent for the Premises as of the commencement date of the applicable renewal term that a willing tenant would pay, and a willing landlord would accept, in arms-length bona fide negotiations, if the same were leased for a five (5) year period commencing on the first day of the applicable renewal term under a lease taking into account any applicable tenant concessions, including, without limitation, rental abatements, free rent periods, rental assumption, inducements, any leasehold improvement allowance, brokerage commissions, and otherwise taking into account any other pertinent factors, including, but not limited to, the relative creditworthiness of tenants, net effective annual rates for comparable leases recently or then being entered into for comparable, similar class industrial buildings in the Rancho Bernardo market ("Comparable Rates"). If, in the opinion of any applicable appraiser retained for the purposes of determining the Fair Market Rental Rate, there are not sufficient comparable transactions in the Rancho Bernardo market, then such appraiser(s) may consider (with appropriate adjustments) recent transactions in the Poway market as well (with the understanding the Poway market is less desirable than the Rancho Bernardo market). In determining the Fair Market Rental Rate and using Comparable Rates in connection with such determination, the following factors (and any other factors then known to be pertinent) shall also be considered: the size of the premises; the length of term and use; location; existing leasehold improvements (but not including any leasehold improvements paid for by Tenant; leasehold improvements to be provided by the landlord, whether directly or by allowance; the quality, age and location of the premises; respective obligations of the landlord and the tenant; the time the particular rate under consideration became or will become effective; and other pertinent information as necessary to determine value.' "
Section 3.04(B) provides that the parties will engage in good faith negotiations for a period of 30 days to determine the FMRR for each renewal period and specifies how such negotiations were to occur.
Section 3.04(C) states that if the parties were unable to agree on the FMRR through such negotiations, the parties will exchange sealed good faith estimates of the FMRR to attempt to determine the FMRR, pursuant to the following procedure:
"If Landlord and Tenant are unable to agree on Fair Market Rental Rate within said thirty (30) day period, then within ten (10) business days thereafter, Landlord and Tenant shall each simultaneously submit to the other, in a sealed envelope, its good faith estimate of the Fair Market Rental Rate. If the higher of such estimates is not more than one hundred five percent (105%,) of the lower of such estimates, then the Fair Market Rental Rate shall be the average of the two estimates."
Section 3.04(D) specifies that if the exchange of FMRR estimates does not result in a determination of FMRR, either party may require that the FMRR be determined by a real estate appraiser acting as an arbitrator. The provision provides in relevant part:
"If the Fair Market Rental Rate is not resolved by such exchange of estimates, then either Landlord or Tenant may, by written notice to the other within ten (10) business days after the exchange, require that the Fair Market Rental Rate be determined by a real estate appraiser acting as an arbitrator."
Section 3.04(D) also specifies how the parties were to select the arbitrator.
Section 3.04(E) outlines the manner by which the arbitrator is to select the FMRR. That provision states in relevant part:
"(E) Once the appraiser has been selected to serve as arbitrator (as provided above) and retained by the parties pursuant to written agreement, within ten (10) business days thereafter said arbitrator shall select one of the two estimates of Fair Market Rental Rate submitted by Landlord and Tenant in accordance with Section 3.04(C) above, which must be the one that is closer to the Fair Market Rental Rate as determined by the arbitrator. The decision of the arbitrator shall be rendered in writing to both Landlord and Tenant and shall be final and binding upon them."C. Leidos exercises its option to renew the Lease and the parties' attempt to determine the FMRR
In February 2017, Leidos exercised its option to renew the Lease. The parties thereafter engaged in good faith negotiations through early July 2017 in an attempt to determine the FMRR for the renewal period.
In the middle of July 2017, Leidos and Summers exchanged sealed FMRR estimates pursuant to section 3.04(C) of the Lease. Because Summers's estimate was "more than one hundred five percent (105%)" of Leidos's estimate, the FMRR remained undetermined. D. The arbitration
In late July 2017, Leidos gave notice to Summers that the FMRR would have to be determined by a real estate appraiser acting as an arbitrator. The parties retained an arbitrator in November 2017. After his retention, the parties each submitted their July FMRR estimates to the arbitrator.
On December 20, 2017, the arbitrator sent Leidos's representatives, Joe Anderson and Randall Wood, and Summers, an e-mail that stated the following:
Wood and Anderson worked for an entity called JLL, a real estate company that represented Leidos in negotiations with Summers over the FMRR.
"The parties to this arbitration have made renewal lease proposals that vary significantly. I have spoken to both Mike Summers and Joe Anderson regarding the substance of this e-mail. I mentioned to both that the potential exists that my conclusion of the FMRR could be such that it may result in only a slight difference to the proposal from each party. By that I mean that the effective rental amount and the percentage difference from my conclusion may not vary by much. While not part of the Arbitration process according to the lease and its amendments, I am interested in knowing if the parties would be interested in reevaluating their proposal[s] resulting in a meeting of the minds regarding the FMRR going forward. I want to reiterate that I have not yet finalized my conclusion, but plan to do so by Friday, December 22 unless otherwise instructed."
On December 22, Wood and Summers exchanged e-mails outlining revised FMRR estimates for the renewal period. Wood and Summers both copied the arbitrator on the e-mails.
That same day, the arbitrator issued an award. In his award letter, the arbitrator stated:
"I have completed my work on this assignment. In accordance with [the] lease provisions, it is my understanding that I am to render my opinion in writing to both the Tenant and the Landlord. Further, I am to select one of the two estimates of the Fair Market Rental Rate submitted by the Tenant and Landlord, which must be the one that is closer to the Fair Market Rental rate as determined by the arbitrator."
The arbitrator then outlined the revised FMRR estimates that the parties had submitted in their December 22 e-mails, as follows:
"The Landlord has submitted a total Fair Market Rental Rate as shown below.
"$1.40 NNN[] (or if acceptable 1.30 10[-]year lease, 1.35 7[-]year lease 1.25 15 year)
"5% base rent per month management fee
"3% annual increase (no change from current language)
Agreement that future extension will not result in a decrease in rental base from previous term plus 3%
"No commission
"No TIA[]
"No free rent
"The Tenant has submitted a total Fair Market Rental Rate as shown below.
"$1.20 NNN
"$1,500/month management fee (which equates to $0.036/[square foot]/month)
"No commission
"No TIA
"No free rent"
The arbitrator's award letter suggests that this abbreviation refers to a "triple net lease." "Under a triple net lease, a common commercial arrangement, 'the renter pays all operating expenses and the owner gets a net check.' " (Stephens & Stephens XII, LLC v. Fireman's Fund Ins. Co. (2014) 231 Cal.App.4th 1131, 1140.)
This abbreviation appears to refer to "Tenant Improvement Allowance." (See, e.g., Alexander E. Hamilton, 2 Cal. Real Est. Forms § 2:15 (2d ed.) [using the abbreviation].)
The arbitrator's award letter continued:
"Based upon my analysis of the property, the data and information submitted by both parties, and relevant market data, it is my conclusion that the Fair Market Rental Rate is closer to the Tenant proposal than it is to the Landlord proposal. Therefore, I have selected the Fair Market Rental [R]ate submitted by the Tenant."
That same day, Summers sent JLL an e-mail that stated, "It seems the arbitrator has reached his decision." Summers also stated, "For December moving forward [the rent] will be 1.20 NNN . . . Please adjust accordingly."
On January 11, 2018, Summers wrote to the arbitrator, contending that there was "mass confusion" over his award and stating that "JLL incorrectly led you to believe that e[-]mailed offers could be accepted but the contract and your engagement under the contract cannot be changed."
The arbitrator responded:
"I understand your confusion. My determination was based on the revised proposals from both parties. If that is not appropriate, you need to take it up with the tenant, not me. No one forced you to revise your proposal; I was simply trying to bring the parties closer together, but that did not happen. I assumed both parties revised their proposals in good faith and rendered my decision accordingly."E. Proceedings in the trial court
1. Summers' petition
Summers filed a petition to vacate or correct the arbitration award in April 2018. In a supporting brief, Summers argued that the arbitration award should be vacated because the arbitrator exceeded his powers under the Lease by basing his award on the parties' December 22 e-mails rather than on the parties' July 2017 estimates of FMRR. According to Summers, the December 22 "estimates of FMRR were provided by the parties for purposes of informal resolution or settlement, and not for the purposes set forth under [sections] 3.04(C) or 3.04(E) of the [Lease.]" Summers further argued that if the arbitrator had used the parties' July 2017 FMRR estimates in fashioning his award, the arbitrator would have been required to find in Summers's favor since Summers's July 2017 estimate was closer to the arbitrator's determination of FMRR than was Leidos's July 2017 estimate.
We focus on Summers's petition insofar as it sought to vacate the award, since, on appeal, Summers does not pursue his request to correct the award.
Together with his petition, Summers lodged the following exhibits: the Lease, the agreement amending the Lease, the parties' July 2017 FMRR estimates, the arbitrator's retention letter, the arbitrator's December 20 e-mail, the parties' December 22 e-mails, and the arbitrator's award letter and supporting documentation.
Leidos filed a response to Summers's petition. In a supporting brief, Leidos argued that "the arbitrator did not exceed his powers in determining he had authority to suggest that the parties submit revised bids, and, after the parties voluntarily submitted their revised bids, the arbitrator had authority to select the fair market rental rate therefrom."
Leidos also argued that Summers's petition was untimely. However, the trial court rejected that argument, and Leidos does not press that argument on appeal.
Leidos also lodged the declaration of Robert Scott, Leidos's Senior Vice President for Corporate Real Estate, Facilities and Workplace Services, with its response. Scott stated that Leidos's agents, Wood and Anderson, "were the primary point of contact for Leidos in the arbitration." With respect to the issue of the arbitrator's consideration of the parties' December 22 e-mails in fashioning his award, Scott stated the following:
"I was informed by JLL that the arbitrator asked the parties on December 20, 2017 if they would be interested in reevaluating their submitted bids, in light of the significant variance between the parties' proposals. I agreed that Leidos would do so and we submitted, through JLL, a revised bid on December 22, 2017, which increased our proposed rent for the renewal term as compared to our initial bid. Further, I understood that, unless it was accepted by Mr. Summers, the revised bid would be used by the arbitrator instead of Leidos' July 2017 bid in order to determine the fair market rental rate. Mr. Summers also submitted a revised bid, which was actually higher than his original bid. At no time did Mr. Summers state to me that he objected to the proposal that the parties submit revised bids."
Leidos also lodged Wood's declaration in which Wood stated:
Wood stated that he was the Executive Vice President for Tenant Representation at JLL.
"Along with my JLL colleagues, I was involved in the process with the arbitrator and Mr. Summers. On December 20, 2017, the arbitrator sent an e[-]mail to me, my colleague Joe Anderson and Mr. Summers asking the parties if they would be interested in reevaluating their submitted bids, in light of the significant variance between the parties' proposals. . . . We conferred with Leidos and agreed that Leidos would do so. I understood that this revised bid, if not accepted by Mr. Summers, would be used by the arbitrator as a replacement for Leidos' July 2017 bid in order to determine the fair market rental rate.
". . . On December 22, 2017, I submitted a revised bid for Leidos, which increased its proposed rent for the renewal term as compared to the initial July 2017 bid. Attached hereto as Exhibit J is a true and correct copy of my e[-]mail. Mr. Summers also submitted a revised bid on December 22, 2017, which was actually higher than his original bid. . . . At no time before the arbitrator rendered his award did Mr. Summers state that he objected to the proposal that the parties submit revised bids."
In addition to the declarations, Leidos lodged numerous exhibits, many of which were the same documents that Summers lodged with his petition.
Summers filed a reply brief in which he argued that the Lease specifically restricted the arbitrator to the use of the July 2017 sealed FMRR estimates in fashioning his award and did not provide for any alternative procedure. Thus, according to Summers, the arbitrator did not have the authority to consider "revised bids submitted through a separate and distinct settlement process."
2. Leidos's cross-petition
Leidos filed a cross-petition to confirm the arbitration award in April 2018, together with a supporting brief, declarations, and exhibits. Leidos's cross-petition reiterated the arguments made in Leidos's response to Summers's petition to vacate.
Summers filed a response to Leidos's cross-petition. In a supporting brief, Summers reiterated his contention that the arbitrator had exceeded his authority in the manner by which the arbitrator fashioned his award. According to Summers, the Lease "did not authorize the Arbitrator to alter the procedure by unilaterally taking estimates of FMRR which were from settlement discussions outside of the arbitration process." Summers maintained that the arbitrator had acted as a "mediator," which was "outside of the authority of the Arbitrator." Summers also contended that the Lease "expressly limited what bids the arbitrator was to use for making his determination and did not provide for an alternative procedure for the parties or the arbitrator for the selection of bids." Summers argued that the parties could alter the terms of their arbitral submission only through a written modification of the Lease, which did not occur.
In support of this contention, Summers cited section 26.02(b) of the Lease, which provides, "This Lease contains all the agreements of the parties and cannot be amended or modified except by a written agreement signed by the party to be charged."
With respect to the purpose of the December 22 e-mails, Summers stated that "his understanding of these communications [was that they] were for the purpose of settling the dispute over the rental rate of the subject property, as opposed to another sealed bid process under section 3.04(C) or even a revised bid process for consideration of the arbitrator in the making of his final determination under [s]ection 3.04(E) of the . . . [Lease]." Summers maintained that "[t]he language of the e-mails" supported this interpretation.
Summers also lodged a declaration in which he described the arbitrator's consideration of the parties' December 22 e-mails in fashioning his award as follows:
"On December 20, 2017, the Arbitrator sent an e[-]mail to Joe Anderson, Randall Wood, and myself asking the parties if they would be interested in reevaluating submitted bids for the FMRR, in light of the significant variance between the parties' proposals. The Arbitrator stated that this would not be a part of the arbitration process as stated in the lease and its amendments. It was my understanding from the Arbitrator's e[-]mail that this would be a way to come to an informal resolution to the issue of the rental rate for the subject property. [Citation.]
". . . On December 22, 2017, Randall Wood e[-]mailed to me, with a copy to the Arbitrator, Mr. Anderson, Leidos' revised proposal. In the e[-]mail[,] Mr. Wood stated 'in an effort to find middle ground in lieu of a ruling' in which I understood that this revised proposal for the rental rate was made in an effort to come to an informal resolution to the issue. It was my understanding, given the language of the e[-]mail, that if I agreed to the proposal, we would simply move forward with an amendment to the lease and we would not need to conclude the arbitration. [Citation.]
". . . On December 22, 2017, in response to Mr. Wood's e[-]mail proposal I e[-]mailed to Mr. Wood, with a copy to the Arbitrator . . . my proposal for the rental rate. I sent this e[-]mail to Mr. Wood for Ledios, Inc.'s consideration for the resolution of the dispute over the fair rental rate for the new lease term. [Citation.]
". . . At no time during this process, which began with the Arbitrator's e[-]mail of December 20, 2017, did I intend to waive any provisions of the lease agreement, its amendments, or the retention agreement with the Arbitrator. It was my explicit
understanding that by exchanging revised proposals for the rental rate to [sic] each other, and just copying the Arbitrator with those communications, that all parties were attempting to come to an informal resolution to the rental rate issue. I did not submit my revised proposal to Mr. Wood on December 22, 2017 as waiver of the arbitration process or as a substitution to it, nor did I foresee that the Arbitrator would use that bid in making a determination of the dispute."
Leidos filed a reply brief in which it argued that Summers was incorrect in maintaining that the parties had submitted the December 22 proposals solely for purposes of settlement. In support of this contention, Leidos quoted an additional e-mail that the arbitrator had sent on December 22, after receiving the parties' revised proposals, which stated:
"Gentlemen. Thank you for the revised proposal deal points. They are very acceptable to me as arbitrator in this matter."
Leidos lodged a copy of the e-mail as an exhibit along with its reply brief.
Leidos reiterated its argument that the arbitrator had the authority to offer the parties the opportunity to submit revised bids, noting that there were no explicit and unambiguous restrictions in the arbitration agreement in the Lease that prohibited the arbitrator from soliciting revised bids.
Summers filed a surreply brief in which he argued that the arbitrator had "violated ethical rules for arbitrators as well as breached the confidentiality of the settlement discussions between the parties in his role as 'mediator.' " Summers supported this argument by contending that the arbitrator had violated ethical guidelines developed by various organizations, including the American Bar Association and JAMS Arbitration Services as well as provisions of the Evidence Code governing mediations.
After Leidos filed its reply brief, Summers filed an ex parte application in which he sought to strike the exhibits lodged with Leidos's reply brief or, in the alternative, the right to file a surreply brief. The trial court granted Summers's alternative request, granting him permission to file a surreply brief.
3. The trial court's decision
In August 2018, after hearing oral argument, the trial court denied Summers's petition to vacate the arbitration award, ruling in relevant part:
"In denying the petition, the Court agrees with [Leidos] that it was within the arbitrator's powers to decide the merits of the entire issue submitted for determination — including consideration of the revised bids — and that this is what the arbitrator did. Moreover, there were no specific restrictions in the arbitration agreement prohibiting the parties from proceeding with the submission and consideration of revised proposals."
The court also granted Leidos's cross-petition to confirm the arbitration award. That same month, the trial court entered a judgment confirming the award. F. The appeal
Summers timely appeals from the judgment.
III.
DISCUSSION
The trial court properly denied Summers's petition to vacate the arbitration
award and properly granted Leidos's cross-petition to confirm the award
Summers claims that the trial court erred in denying his petition to vacate the arbitration award and in granting Leidos's cross-petition to confirm the award.
We distill two primary arguments from Summers's brief in support of reversal. First, Summers argues that the parties' December 22 proposals were settlement offers submitted in an attempt to settle the case outside of the arbitral process, rather than revised FMRR estimates to be used by the arbitrator in fashioning his award. Thus, Summers contends that the arbitrator exceeded his powers by improperly acting as a "mediator" in fashioning his award based on settlement offers that the parties did not intend for him to use for this purpose. Second, Summers contends that, even assuming that the parties did intend for the arbitrator to rely on their December 22 proposals in fashioning the award, the arbitrator improperly "enlarg[ed] the limited procedural scope of the contractual dispute resolution procedure" (boldface & capitalization omitted) provided for in the Lease by soliciting the December 22 proposals in the first place.
These two arguments are discussed in a section of Summers's brief entitled, "The arbitrator exceeded his powers by unilaterally enlarging the limited procedural scope of the contractual dispute resolution procedure and by impermissibly considering and relying upon privileged communications belate[d]ly solicited from the parties to fashion his award." (Boldface & some capitalization omitted.)
Summers's brief also contains a short, separate argument captioned, "The trial court erroneously conflated an arbitrator's power generally to decide the merits of a submitted issue, with the express prohibition against unilateral rewriting of the arbitration terms of a fully integrated written lease." (Boldface & some capitalization omitted.) We address this argument in part III.E, post, after addressing Summers's primary arguments in parts III.A-D, post.
We first summarize the law governing Summers's arguments. We next explain the appropriate standard of review for each of Summers's contentions. Finally, we apply this law and the applicable standard of review and resolve each of Sanders's contentions. A. Governing law
Code of Civil Procedure section 1286.2, subdivision (a)(4), provides in relevant part, "[T]he court shall vacate the award if the court determines any of the following: [¶] . . . [¶] . . . The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted."
"This exception is narrowly construed." (Emerald Aero, LLC v. Kaplan (2017) 9 Cal.App.5th 1125, 1138 (Emerald Aero, LLC).) "California law is clear that 'arbitrators do not "exceed[ ] their powers" . . . merely by rendering an erroneous decision on a legal or factual issue, so long as the issue was within the scope of the controversy submitted to the arbitrators.' " (Safari Associates v. Superior Court (2014) 231 Cal.App.4th 1400, 1403-1404; e.g., Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 28 (Moncharsh) [ordinarily, "it is within the 'powers' of the arbitrator to resolve the entire 'merits' of the 'controversy submitted' by the parties"].)
In Gueyffier v. Ann Summers, Ltd. (2008) 43 Cal.4th 1179 (Gueyffier), the California Supreme Court summarized the law governing an arbitrator's powers under an arbitration agreement and emphasized that any limitations on those powers must be explicitly stated in the agreement:
"When parties contract to resolve their disputes by private arbitration, their agreement ordinarily contemplates that the arbitrator will have the power to decide any question of contract interpretation, historical fact or general law necessary, in the arbitrator's understanding of the case, to reach a decision. [Citations.] . . . [¶] . . . [¶] An exception to the general rule assigning broad powers to the arbitrators arises when the parties have, in either the contract or an agreed submission to arbitration, explicitly and unambiguously limited those powers. [Citation] 'The powers of an arbitrator derive from, and are limited by, the agreement to arbitrate. [Citation.] Awards in excess of those powers may. . . be . . . vacated by the court.' [Citation.] The scope of an arbitrator's authority is not so broad as to include an award of remedies 'expressly forbidden by the arbitration agreement or submission.' (Id. at p. 381.)" (Id. at pp. 1184-1185, italics added.)
In other words, a party seeking to invalidate an award as being in violation of the arbitrator's powers in an arbitration agreement must identify " 'specific restrictions' " in the agreement that the arbitrator violated. (Emerald Aero, LLC, supra, 9 Cal.App.5th at p. 1140, italics added.) For example, in Hotels Nevada, LLC v. L.A. Pacific Center, Inc. (2012) 203 Cal.App.4th 336, the court concluded that a panel of arbitrators had not "exceed[ed] the powers accorded them by the [a]greement in fashioning a remedy that enabled the arbitration to proceed without [one of the arbitrator's] physical presence at the hearing each day," even though the agreement required that arbitrable claims " 'be settled by three (3) arbitrators.' " (Id. at p. 351.) B. Standards of review
1. The parties' contentions as to the appropriate standard(s) of review to be applied in this appeal
Summers and Leidos disagree as to the applicable standard of review to be applied to Summers's claims. Leidos contends that we should review the trial court's factual findings for substantial evidence, and the trial court's conclusions of law, de novo. In support of this argument, Leidos cites case law outlining the following standard of review to applied in reviewing a trial court's order confirming an arbitration award:
"To the extent the trial court made findings of fact in confirming the award, we affirm the findings if they are supported by substantial evidence. [Citation.] To the extent the trial court resolved questions of law on undisputed facts, we review the trial court's rulings de novo. [Citation]." (Cooper v. Lavely & Singer Professional Corp. (2014) 230 Cal.App.4th 1, 11-12 (Cooper).)
Specifically, Leidos contends that we should review for substantial evidence the trial court's implied finding that the arbitrator and the parties intended for their December 22 proposals to be used by the arbitrator in fashioning his award.
Specifically, Leidos argues on appeal, "While Summers disputed in the Superior Court proceedings that he agreed the revised bids could be used for the arbitration, claiming instead that he understood them only to be part of an ad hoc mediation by the arbitrator, this is a factual issue that the Superior Court resolved in favor of confirming the award which must be reviewed under a substantial evidence standard."
Summers, in turn, maintains that this court should review his claims entirely under the de novo standard of review. In support of this contention, Summers cites cases outlining the standard of review to be applied in reviewing a trial court's order in cases in which a party contends that an arbitrator exceeded his powers:
" 'In determining whether an arbitrator exceeded his powers, we review the trial court's decision de novo, . . . ." (Kelly Sutherlin McLeod Architecture, Inc. v. Schneickert (2011) 194 Cal.App.4th 519, 528 (Kelly); e.g., Jordan v. Department of Motor Vehicles (2002) 100 Cal.App.4th 431, 443 (Jordan); Alexander v. Blue Cross of California (2001) 88 Cal.App.4th 1082, 1087 (Alexander).)
In the portion of the quotation from Kelly that Summers omits with ellipses in his brief, the Kelley court stated, " '[B]ut we must give substantial deference to the arbitrator's own assessment of his contractual authority.' " (Kelly, supra, 194 Cal.App.4th at p. 528.) The "substantial deference" language also appears in the two other cases that Summers cites in his reply brief, Jordan, supra, 100 Cal.App.4th at page 443 and Alexander, supra, 88 Cal.App.4th at page 1087. The substantial deference qualification arose from Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 372-373 (AMD) [stating that "[a]lthough section 1286.2 permits the court to vacate an award that exceeds the arbitrator's powers, the deference due an arbitrator's decision on the merits of the controversy requires a court to refrain from substituting its judgment for the arbitrator's in determining the contractual scope of those powers," and observing that "[g]iving substantial deference to the arbitrators' own assessments of their contractual authority is consistent with the general rule of arbitral finality"].)
2. Relevant case law
In every case that we have found in which a court applied a de novo-based standard of review in determining whether the arbitrator exceeded his powers, the reviewing court was determining whether the arbitrator had the legal authority (or power) to perform some undisputed act. (See, e.g., Kelly, supra, 194 Cal.App.4th at p. 527 [examining whether arbitrator "was authorized to grant the requested relief of a retraction of the defamatory statements" (capitalization & italics omitted)]; Jordan, supra, 100 Cal.App.4th at p. 438 [considering whether arbitrators' award of attorney fees exceed their authority by violating public policy]; Alexander, supra, 88 Cal.App.4th at p. 1091 [considering whether arbitrator's failure to impose a discovery sanction exceeded arbitrator's powers]; AMD, supra, 9 Cal.4th at p. 381, 391 [considering whether arbitrator exceeded his powers in his "choice of remedies" and concluding that the "challenged portions of the arbitrator's award were within his authority to fashion remedies for a breach of contract"].)
By "de novo-based," we mean "de novo," but with "substantial deference to the arbitrator's own assessment of his contractual authority." (Kelly, supra, 194 Cal.App.4th at p. 528.)
However, we have found no cases, and Summers has cited none, in which a court applied a de novo-based standard of review in a case in which an appellant's claim on appeal turned on a factual determination with respect to a dispute over the arbitrator's or parties' intents during the arbitration. Indeed, in Trabuco Highlands Community Assn. v. Head (2002) 96 Cal.App.4th 1183 (Trabuco), the Court of Appeal made clear that where there is a dispute about whether "the arbitrator exceeded his powers" that turns on a factual dispute over "the parties' intent," such a claim is a factual one that is reviewed for substantial evidence. (Id. at p. 1190; see also Glaser, Weil, Fink, Jacobs & Shapiro, LLP v. Goff (2011) 194 Cal.App.4th 423, 434 [applying Trabuco and concluding that reviewing court could determine "whether the parties had agreed to make the arbitration binding . . . because the relevant facts are undisputed"].)
In Trabuco, appellants opposed a petition to confirm an arbitration award on the ground that the arbitrator had exceeded his powers by issuing a binding arbitration award, arguing that the parties had agreed only to nonbinding arbitration. (Trabuco, supra, 96 Cal.App.4th at p. 1187.) According to the Trabuco court, in resolving this claim, the trial court was required to determine whether the appellants had agreed to binding arbitration at the arbitration hearing. (Id. at p. 1191.) The Trabuco court further made clear that this was a "factual inquiry," (ibid.) the resolution of which would ordinarily be reviewed for substantial evidence. (Id. at p. 1189.)
The Trabuco court reversed the trial court's confirmation of the award in that case only because the trial court had "abdicated its function to determine whether the arbitrator exceeded his powers," (Trabuco, supra, 96 Cal.App.4th at p. 1190) by "relying on a letter by the arbitrator that said the arbitration was binding," rather than resolving the factual dispute concerning whether the parties had intended to submit to binding arbitration. (Ibid.; see ibid. ["If the trial court had simply decided whether the arbitration was binding based on the declarations of the parties concerning what was said at the arbitration hearing, we might simply affirm the ruling by concluding it was a matter of credibility for the trial court to decide"].)
3. The appropriate standard of review to be applied in cases in which a party claims that an arbitrator exceeded his powers
In light of the case law discussed above, we conclude that where an appellant's claim turns on a factual dispute about the arbitrator's and the parties' intent during the arbitration, we review a trial court's resolution of such matters for substantial evidence. (See Cooper, supra, 230 Cal.App.4th at pp. 11-12.) This is so even in cases in which such a finding is relevant in determining whether a trial court erred in deciding a claim as to whether an arbitrator exceeded his powers. (See Trabuco, supra, 96 Cal.App.4th at p. 1190.)
In contrast, when an appellant claims that an arbitrator's undisputed act exceeded his legal powers, such a contention is reviewed de novo, albeit with substantial deference being accorded to the arbitrator's own assessment of his contractual authority. (See, e.g., Kelly, supra, 194 Cal.App.4th at p. 528.)
4. Applying these standards of review to Summers's appeal
In part III.C, post, we consider Summers's contention that the trial court erred in impliedly finding that the arbitrator and the parties intended for the arbitrator to use their December 22 proposals in fashioning the award. In accordance with the principles articulated in part III.B.3, ante, we apply the substantial evidence standard of review to this claim because it is factual in nature in that it asks, "Did the arbitrator and the parties intend for the arbitrator to use the December 22 proposals in fashioning the award?"
In part III.D, post, we consider Summers's contention that, even assuming that the arbitrator and the parties intended for their December 22 proposals to be used by the arbitrator in fashioning the award, the arbitrator's solicitation of revised FMRR estimates exceeded his powers under the Lease. In accordance with the principles articulated in part III.B.3, ante, we apply the "de novo plus substantial deference" standard of review articulated in Kelly to this claim because such a claim is legal in nature in that it asks, "Did the arbitrator have the power under the Lease to solicit, receive and rely on the parties' revised FMRR estimates?" C. There is substantial evidence to support the trial court's implicit finding that the arbitrator did not act as a mediator nor improperly rely on settlement offers in rendering the award
1. Summers's argument
Summers claims that the arbitrator exceeded his powers by "[s]tepping into the [r]ole of [a] [m]ediator." (Boldface & capitalization omitted.) According to Summers, the arbitrator sent the December 20, 2017 e-mail to the parties in an attempt to settle the case, and the parties submitted their responses to him as privileged settlement offers to be used in a mediation rather than as revised FMRR estimates to be used in the arbitration. Summers further claims that the arbitrator acted improperly in soliciting, receiving, and utilizing the purported settlement offers outlined in the December 22 e-mails as FMRR estimates under the Lease in fashioning the award.
As noted in part II.D, ante, in his award letter, the arbitrator outlined the parties' December 22 proposals and stated that the arbitrator's determination of the "Fair Market Rental Rate is closer to the Tenant proposal than it is to the Landlord proposal." It is thus undisputed that the arbitrator relied on the December 22 proposals in fashioning the award.
2. The trial court's finding
In its order, the trial court stated, "The Court agrees with [Leidos] that it was within the arbitrator's powers to decide the merits of the entire issue submitted for determination - including consideration of the revised bids - and that this is what the arbitrator did." (Italics added.)
The italicized words indicate that the trial court implicitly found that the arbitrator and the parties intended for their December 22 proposals to be used by the arbitrator in fashioning his award.
We therefore reject Summers' argument, made in reply, that the trial court "overlooked or ignored the improper mediation issue" and "made no factual determination" on the issue. In addition, even if the trial court had not made such an implied factual finding, we would infer one. (See ECC Capital Corp. v. Manatt, Phelps & Phillips, LLP (2017) 9 Cal.App.5th 885, 900-901 [" 'appellate court will infer the trial court made implied factual findings favorable to the prevailing party on all issues necessary to support the judgment, including the omitted or ambiguously resolved issues' "].)
3. Evidence supporting the trial court's implicit finding
In his December 20 e-mail, the arbitrator stated, "I am interested in knowing if the parties would be interested in reevaluating their proposal[s] . . . regarding the FMRR going forward." This language is consistent with a finding that the arbitrator intended to solicit revised FMRR estimates from the parties for purposes of performing his function as an arbitrator. Moreover, there is nothing in either the arbitrator's December 20 e-mail or the parties' responses to that e-mail that clearly and unequivocally indicates that the arbitrator would not use the parties' revised FMRR estimates in fashioning his award. In particular, there is no language in Summers's December 22 e-mail proposing a revised FMRR that would support a finding that he intended for his revised FMRR estimate to constitute a privileged settlement offer.
In the ellipses, the arbitrator wrote the words "resulting in a meeting of the minds," which is arguably in tension with such a finding.
In his December 20 e-mail, the arbitrator stated, "I have spoken to both Mike Summers and Joe Anderson regarding the substance of this e[-]mail." There is no evidence in the record bearing on the content of those discussions.
Indeed, in his reply brief, Summers acknowledges that his December 22 proposal was a "higher bid" than his July 2017 FMRR estimate. Summers' submission of a revised bid with a higher FMRR than his July 2017 FMRR estimate that Leidos had already found unacceptable is not consistent with the conclusion that Summers submitted the December 22 proposal with an intent to settle the matter. Rather, Summers's submission of a revised bid with a higher FMRR is consistent with a finding that Summers intended for the arbitrator to use the revised FMRR estimate in selecting one of the two parties' FMRR estimates. As Leidos persuasively explains, "[A]fter learning from the arbitrator that one proposal was substantially off from the arbitrator's determination of the FMRR [by way of the December 20 e-mail], Summers submitted a revised proposal with a higher rental rate than his original bid - gambling that he would be closer to the FMRR and reap an even higher rent amount."
Leidos also submitted declarations from two of its representatives involved in the arbitration. Both representatives stated, "I understood that . . . the revised bid would be used by the arbitrator instead of Leidos' July 2017 bid in order to determine the fair market rental rate."
In addition, Leidos presented evidence that, after receiving the parties revised proposals, the arbitrator sent the parties an e-mail that stated:
"Gentlemen. Thank you for the revised proposal deal points. They are very acceptable to me as arbitrator in this matter." (Italics added.)
Further, on December 22, after having received the arbitrator's award, which expressly relied on the parties' December 22 proposals, Summers sent JLL an e-mail that appeared to ratify the award and raised no objection to the methodology that the arbitrator had employed in determining the award. The trial court could have reasonably found that this evidence supported a finding that Summers intended that his December 22 proposal be considered in the arbitral process.
While we acknowledge that there is evidence that would have supported a contrary finding in the trial court—including language in the arbitrator's December 20 e-mail and Leidos's December 22 e-mail, as well as Summers's declaration—that evidence does not support reversal on appeal. As an appellate court employing the substantial evidence standard of review, we decide only whether there is evidence in the record that supports the trial court's factual findings, whether express or implied; we do not make factual findings ourselves. (E.g., Caltec Ag Inc. v. Department of Pesticide Regulation (2019) 30 Cal.App.5th 872, 897 [citing case law supporting the proposition that "power of appellate court reviewing findings of a lower tribunal begins and ends with determining whether there is substantial evidence, contradicted or not, that supports the findings"].) We conclude that the evidence discussed above supports the trial court's implicit finding that the arbitrator did not act as a mediator nor improperly rely on settlement offers in rendering the award. D. The arbitrator did not exceed his powers under the Lease in soliciting, receiving, and relying upon revised bids in fashioning the award
Leidos's December 22 e-mail stated, "Mike [Summers], per [the arbitrator's] suggestion below, in an effort to find middle ground in lieu of a ruling, Leidos has authorized me to submit the following proposal." After outlining the terms of Leidos's proposal, the e-mail stated, "Please advise whether this is acceptable, and if so, we can immediately proceed to a [l]ease [a]mendment. I can be reached on cell up until [n]oon today, if you would like to talk live."
Summers also contends that the arbitrator violated various ethical rules applicable to mediations. In light of our conclusion that there is substantial evidence to support the trial court's implicit finding that the arbitrator had not acted as a mediator, we reject Summers's claim that the arbitrator violated his "duties as a mediator."
Summers argues that, even assuming that the arbitrator and the parties intended that their December 22 proposals be used by the arbitrator in fashioning the award, the arbitrator exceeded his powers by soliciting, receiving, and relying on the parties' revised bids in fashioning his award. According to Summers, the arbitrator was "expressly constrained [by the terms of the Lease] to making a purely binary choice as between the two parties' sealed [July 2017] bids." (Boldface & capitalization omitted.)
While it is not entirely clear from his brief whether Summers intends for this argument to constitute an additional and independent basis for reversal, apart from the argument rejected in part III.C, ante, we broadly interpret his opening brief to raise this argument.
As discussed in part III.A, ante, California law requires that contractual restrictions on an arbitrator's powers be "explicit[ ] and unambiguous[ ]" (Gueyffier, supra, 43 Cal.4th at p. 1185) and makes clear that an award will be vacated only when the arbitrator violates " 'specific restrictions' " on his conduct. (Emerald Aero, LLC, supra, 9 Cal.App.5th at p. 1140.) In addition, while we review the scope of the arbitrator's powers de novo, we accord substantial deference to the arbitrator's own assessment of his contractual authority. (Kelly, supra, 194 Cal.App.4th at p. 528.)
As discussed in part II.B, ante, section 3.04(E) of the Lease provides that the "arbitrator shall select one of the two estimates of Fair Market Rental Rate submitted by Landlord and Tenant in accordance with [s]ection 3.04(C) above, which must be the one that is closer to the Fair Market Rental Rate as determined by the arbitrator." Section 3.04(C), in turn, provides for a process whereby the parties "shall each simultaneously submit to the other, in a sealed envelope, its good faith estimate of the Fair Market Rental Rate."
Although Summers references the arbitrator's retention letter in his brief, he does not appear to contend that the letter narrows the scope of the arbitrator's powers beyond that contained in the Lease. Instead, Summers notes that the retention letter memorialized the "arbitrator's understanding of the expressly delineated scope of his powers." Accordingly, we consider whether the arbitrator exceeded his powers as defined in the Lease.
Neither provision, nor any other provision in the Lease, expressly addresses whether the arbitrator may solicit revised FMRR estimates from the parties. To nevertheless conclude that sections 3.04(C) and 3.04(E) prohibit the arbitrator from soliciting revised FMRR estimates would be to conclude that any affirmative explication of powers within a contract represents a "explicit[ ] and unambiguous[ ]" (Gueyffier, supra, 43 Cal.4th at p. 1185) restriction on the taking of any action that is not expressly enumerated in the contract. Such a conclusion would be entirely inconsistent with the requirement that any limitation on an arbitrator's conduct be expressly stated in the contract. (Emerald Aero, LLC, supra, 9 Cal.App.5th at p. 1140.)
Moreover, the arbitrator's decision to permit—not require—the parties to submit revised FMRR estimates was entirely consistent with the parties' intent to create a process that sought to foster a mutually agreeable FMRR, as outlined in the Lease. Further, the arbitrator's solicitation of revised bids indicates that he implicitly determined that he had the power to so act. According substantial deference to this determination as we must, we agree.
The trial court reached the same conclusion in its order denying Summers's petition to vacate, stating, "[T]here were no specific restrictions in the arbitration agreement prohibiting the parties from proceeding with the submission and consideration of revised proposals." (See pt. II.E.3, ante.)
Accordingly, we conclude that the arbitrator did not exceed his powers under the Lease in soliciting revised FMRR estimates. E. The trial court's reliance on the principle that the arbitrator was empowered "to decide the merits of the entire issue submitted for determination," does not provide a basis for reversal
In light of our conclusion, we need not consider Leidos's additional arguments for affirming the trial court's order, including whether the parties "enlarg[ed] the powers of the arbitrator," or "modif[ied] . . . the arbitration agreement," through their submission of revised FMRR estimates. (Italics added.) Nor need we consider whether Summers waived any objection to the arbitrator's acts.
Summers contends that the trial court's reliance on the principle that the arbitrator was empowered "to decide the merits of the entire issue submitted for determination," constituted an improper "rewrit[ing]" of the Lease, in derogation of the Lease's integration provision requiring that all modifications of the Lease be in writing.
As noted previously (see fn. 9, ante), the integration provision provides, "This Lease contains all the agreements of the parties and cannot be amended or modified except by a written agreement signed by the party to be charged."
We do not interpret the trial court's statement in its order denying Summers's petition that the arbitrator was empowered "to decide the merits of the entire issue submitted for determination," as indicating that the trial court concluded that the parties had enlarged the issues to be arbitrated or had modified the Lease. Rather, we interpret this statement as merely articulating well established law. (See Moncharsh, supra, 3 Cal.4th at p. 28 [stating "it is within the 'powers' of the arbitrator to resolve the entire 'merits' of the 'controversy submitted' by the parties"].) Thus, the trial court did not commit any legal error in stating that the arbitrator was empowered "to decide the merits of the entire issue submitted for determination."
Further, we concluded in part III.D, ante, that the trial court properly determined that the arbitrator did not exceed his powers under the Lease in soliciting revised FMRR estimates from the parties. Specifically, we concluded that, in soliciting, receiving, and relying on, revised FMRR estimates, the arbitrator did not violate any specific restrictions contained in the Lease. We reached this conclusion without relying on Leidos's alternative argument that the parties could effectuate a "modification of the arbitration agreement," either "express[ly] or implied[ly]." Thus, even assuming that the trial court did intend to find that the parties had agreed to modify the Lease to permit the submission of revised FMRR estimates to the arbitrator, we would affirm the trial court's decision on the alternative ground that the arbitrator acted within his powers within the unmodified Lease. (See, e.g., Mendoza v. Ramos (2010) 182 Cal.App.4th 680, 686 ["We affirm the result, not the reasoning of the trial court"].)
Accordingly, we conclude that the trial court's reliance on the principle that the arbitrator was empowered "to decide the merits of the entire issue submitted for determination," does not provide a basis for reversal.
IV.
DISPOSITION
The judgment is affirmed.
AARON, J. WE CONCUR: HALLER, Acting P. J. GUERRERO, J.