Opinion
H051073
04-22-2024
SJC FUNERAL CARE, INC., Plaintiff and Appellant, v. CLAIRE OWENS et al., Defendants and Respondents
NOT TO BE PUBLISHED
(Santa Clara County Super. Ct. No. 22CV403948)
LIE, J.
Stymied in its attempts to exercise a purchase option in its mortuary lease agreement, SJC Funeral Care, Inc. sued property owners Claire Owens, trustee of the A. Alan Alameda Bypass Trust, and Dee's Group II, LLC (collectively, the owners) for "breach of contract; specific performance; declaratory relief; and to confirm appraisal award." SJC asked the trial court to "confirm the appraisal award" as "the purchase price" for the leased premises, and the trial court denied the request.
Although an agreement for a binding appraisal may in some cases be treated as an arbitration agreement (Coopers & Lybrand v. Superior Court (1989) 212 Cal.App.3d 524, 537 (Coopers & Lybrand); Code Civ. Proc., § 1280, subd. (a)), the lease agreement does not, in our independent judgment, demonstrate that the parties intended for the appraisal provision to be treated as a binding arbitration clause. Accordingly, we affirm the trial court's order.
Undesignated statutory references are to the Code of Civil Procedure.
I. BACKGROUND
In 2022, on the owners' demand that SJC vacate the property at the conclusion of its lease term, SJC sued the owners for "breach of contract, breach of the covenant of good faith and fair dealing, specific performance . . ., and declaratory relief confirming the [p]arties' respective rights and obligations."
SJC alleged the owners "improper[ly] refus[ed] to fulfill their contractual obligations to transfer real property to SJC Funeral Care" under a purchase option in the written lease agreement. In paragraph 39 of the lease, the parties had agreed: "Provided it is not in material default under this [l]ease, [t]enant shall have the option to purchase the [p]remises at the end of the term of the [l]ease for the then fair market value of the [p]remises, as determined by appraisal" on specified terms. Alleging that the final purchase price for the subject property has been conclusively set by a binding appraisal at $3.85 million, SJC prayed for damages, confirmation of the appraised value, specific performance under the purchase option, and declaratory relief.
The owners demurred and SJC petitioned the court "to confirm the purchase price for the [p]remises" based on the "appraisal award."
Real estate appraiser Richard D. Nakasako filed a declaration and his written appraisal report in support of SJC's petition. In the appraisal report, he concluded that "the As Is fee simple market value of an undivided 100 percent ownership interest in the subject property, as of May 23, 2022" (boldface and italics omitted) was $3.85 million. The appraisal report identified certain "assumptions and limiting conditions," including that "the intended use/users of the attached Appraisal Report is for exclusive use by Bay Area Development Company, the U.S. Small Business Administration (SBA), and participating 1st mortgage lender Heritage Bank of Commerce, for loan underwriting. The Appraisal Report should not be used or relied upon by any other parties for any reason." (Boldface and italics omitted.) Another "extraordinary assumption and limiting condition of this [a]ppraisal [r]eport" was that "valuation of the subject property is based on continued use of the existing building improvements," given the lease provision that" 'Tenant shall use and occupy the [p]remises for a funeral home and any related use or uses.'" (Some boldface and italics omitted.)
The owners maintained, among other arguments, that the appraisal provision did not constitute an agreement to submit to arbitration under the California Arbitration Act and that Nakasako's as-is appraisal was an appraisal for SJC's lender, Bay Area Development Company, and not an "appraisal for the parties" that would satisfy the appraisal provision's plain terms. The owners submitted a supplemental declaration from Nakasako in which he purported to "supplement and correct" the declaration he had executed in support of SJC's petition to confirm the appraisal. Nakasako disavowed his prior representation that he appraised the property" 'as described in [p]aragraph 39 of the [l]ease as the agreed-upon appraiser for the parties.'" Nakasako averred, per his written appraisal report, that the appraisal was an as-is appraisal that did not account for the property's general fair market value but was limited to its existing use as a mortuary and was "for lending."
In concurrently filed orders, the trial court sustained the owners' demurrer with 20 days' leave to amend and denied SJC's petition to confirm appraisal. With regard to the petition to confirm, the trial court concluded that paragraph 39 of the lease agreement did not constitute an arbitration provision. (See Coopers &Lybrand, supra, 212 Cal.App.3d at p. 537.)
SJC then filed a second amended complaint in which it continued to assert "the [a]ppraisal is indisputable and properly sets the fair market value of the [p]remises and it should be confirmed by this [c]ourt pursuant to SJC Funeral Care's [p]etition to [c]onfirm as a binding arbitration award ...." SJC renewed its demand for a jury trial and continued to seek damages, specific performance, and declaratory relief, among other remedies. SJC timely appealed the order denying the petition to confirm appraisal award.
II. DISCUSSION
A. Appealability
"A reviewing court has jurisdiction over a direct appeal only when there is (1) an appealable order or (2) an appealable judgment." (Griset v. Fair Political Practices Com. (2001) 25 Cal.4th 688, 696.) Appealability is conferred by statute. (Dana Point Safe Harbor Collective v. Superior Court (2010) 51 Cal.4th 1, 5.) The Legislature-though authorizing a party to appeal from "[a]n order dismissing or denying a petition to compel arbitration" (§ 1294, subd. (a), italics added)-opted to omit denials of petitions to "confirm, correct or vacate an [arbitration] award" from its authorization of appeal from "[a]n order dismissing" such petitions (§ 1294, subd. (b), italics added). However, "[i]n determining whether the trial court's order is appealable, we look to the substance and effect of the order, rather than its label." (Maplebear, Inc. v. Busick (2018) 26 Cal.App.5th 394, 400.) An order that disposes of a petition without reaching the merits is effectively a dismissal. (Ibid.) This is what the trial court did here, in denying SJC's petition on the ground that paragraph 39 does not constitute an arbitration provision; it did not reach the merits of an award, if any, and whether it should be confirmed. While we recognize that SJC filed its petition as part of a lawsuit with a complaint containing additional causes of action, rather than as a separate petition, we do not conclude that this procedural detail strips us of jurisdiction as "[t]o do so would elevate form over substance." (Davis v. Marin (2000) 80 Cal.App.4th 380, 387.) We accordingly turn to the merits.
B. Appraisal Provision
"[I]f arbitration is what is intended by the parties, the entire applicable statutory scheme comes into play." (Coopers &Lybrand, supra, 212 Cal.App.3d at p. 537.) This includes provisions that govern "the conduct of arbitration hearings (§ 1282.2), the time for making the award (§ 1283.8), court confirmation of the award (§ 1286), and grounds for vacating the award ([§] 1286.2)." (Coopers &Lybrand, supra, 212 Cal.App.3d at pp. 537-538.) Given these implications of an agreement to arbitrate, "a mere agreement for a binding valuation is not per se an agreement to submit to arbitration. Something more is required." (Id. at p. 537; see also id. at p. 527 [an agreement to arbitrate confers arbitral immunity on the arbitrator]; see also Vandenberg v. Superior Court (1999) 21 Cal.4th 815, 831 [judicial review of arbitration award is limited].)
"[J]udicial enthusiasm for alternative methods of dispute resolution must not in all contexts override the rules governing the interpretation of contracts" and" 'the policy favoring arbitration cannot displace the necessity for a voluntary agreement to arbitrate.'" (Victoria v. Superior Court (1985) 40 Cal.3d 734, 739.) Therefore, whether the parties are bound by a valid agreement to arbitrate turns on "general California contract law." (Avery v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50, 60; see also Avila v. Southern California Specialty Care, Inc. (2018) 20 Cal.App.5th 835, 843 ["Whether an agreement to arbitrate exists is a threshold issue of contract formation and state contract law"].) In interpreting a putative arbitration agreement, we" '" 'must give effect to the "mutual intention" of the parties. "Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. [Citation.] Such intent is to be inferred, if possible, solely from the written provisions of the contract." '" '" (EFund Capital Partners v. Pless (2007) 150 Cal.App.4th 1311, 1321.)
"[A] true arbitration agreement" has several attributes: "(1) a third party decision maker; (2) a mechanism for ensuring neutrality with respect to the rendering of the decision; (3) a decision maker who is chosen by the parties; (4) an opportunity for both parties to be heard, and (5) a binding decision." (Cheng-Canindin v. Renaissance Hotel Associates (1996) 50 Cal.App.4th 676, 684.)
Paragraph 39, the appraisal provision, does not specify that it is binding. In Coopers &Lybrand, the subject agreement included the following:" 'The Audit shall be a conclusive determination of the matters covered thereby and shall be binding upon the parties and shall not be contested by any of them and, in the event of non-performance by the parties hereto, the non-breaching party may obtain judgment thereon in any court of competent jurisdiction or exercise any other remedies arising therefrom (and shall be entitled to costs and attorney's fees).'" (Coopers &Lybrand, supra, 212 Cal.App.3d at p. 528.) Despite the clear "binding" language, the appellate court concluded the agreement was ambiguous as to whether the parties intended it to be "for a formal arbitration within the ambit of the code, or for a mere binding audit." (Id. at p. 538.) Paragraph 39 is even less clear than the agreement in Coopers & Lybrand in that it states neither that it is binding nor that it cannot be contested.
Additionally, paragraph 39 includes no mechanism for the parties to be heard. Although parties to arbitration proceedings may" 'otherwise provide by an agreement'" for different procedures than those set forth by statute, and "thereby dispense with a formal hearing and the taking of evidence[,] . . . the mere fact parties agree to an independent [appraisal] does not establish they agreed to an arbitration and that they elected to dispense with the statutory guidelines." (Coopers &Lybrand, supra, 212 Cal.App.3d at p. 538, quoting §§ 1282, 1282.2.)
It is clear that the parties knew how to provide for the resolution of disputes by arbitration, judging by the inclusion of other provisions specifically accounting for arbitration. Paragraph 41 of the lease agreement, titled "settlement by arbitration" (boldface and capitalization omitted), provides that "[a]ny claim or controversy" arising out of the lease "may be settled by arbitration" in accordance with the rules of the American Arbitration Association and, with regard to discovery prior to arbitration, the California Arbitration Act. Paragraph 40 also provides for "final and binding" arbitration if the parties are unable to agree on their maintenance obligations.
But even when squarely contemplating arbitration, the parties stopped short of indicating an intention to be bound, according to "the original signed [l]ease and the modified [l]ease with electronic [redlines] and handwritten revisions" that SJC attached to and incorporated by reference in its operative complaint. In one version, where paragraph 41 states that claims and controversies arising out of the lease shall be settled by arbitration, the word "shall" has been crossed out, and replaced with a handwritten "maybe." In the electronically redlined version, the word "shall" has been stricken and replaced with "may, provided that [l]andlord and [t]enant agree." Both versions evidence an intention to make arbitration optional for "any claim or controversy" arising out the agreement.
The inclusion of separate arbitration provisions, clearly indicating the application of arbitration to certain disputes, in addition to the complete lack of such language in paragraph 39, shows that the parties specifically contemplated arbitration and yet did not intend for the appraisal to be treated as a binding arbitration. Had the parties wanted paragraph 39 to be understood as an arbitration provision under the California Arbitration Act, they could have employed the hallmarks of such a provision, such as providing for a mechanism by which the parties can be heard or stating that it is binding.
Instead of the agreement's plain language, SJC argues that paragraph 39 is more specific than the general provision in paragraph 41, and that paragraph 41 applies not to "[a]ny claim or controversy" under the lease but only those not subject to paragraph 39's specific mutual agreement to arbitrate the purchase price. "Under well-established principles of contract interpretation, when a general and a particular provision are inconsistent, the particular and specific provision is paramount to the general provision." (Kashmiri v. Regents of University of California (2007) 156 Cal.App.4th 809, 834.) But "[t]he rule that the specific controls the general, however, applies only when the specific and general provisions cannot be reconciled." (Fremont Comp. Ins. Co. v. Superior Court (1996) 44 Cal.App.4th 867, 873; see also Wood v. County of San Joaquin (2003) 111 Cal.App.4th 960, 969 [observing that when "general and specific terms have independent purposes, then this general rule does not apply"].) Paragraphs 39 and 41 cannot be said to conflict unless we assume the conclusion SJC seeks-that paragraph 39 is an arbitration provision. Abstaining from that logical fallacy, the two paragraphs are easily reconciled, with paragraph 39 calling only for an appraisal, and paragraph 41 defining the apparently limited scope of the parties' willingness to arbitrate claims or controversies under the lease-including claims or controversies arising under paragraph 39.
SJC contends that paragraph 39 is similar to the appraisal contract in Helzel v. Superior Court (1981) 123 Cal.App.3d 652, 659, in which the court emphasized that an agreement for an appraisal is an arbitration agreement and that such agreements should be given "full force and effect." But this was only the starting point of Helzel's analysis, not its conclusion. The court went on to observe that "the procedure which the parties have chosen does not fit the pattern of the typical arbitration process," and stated that "[c]haracterizing [the] appraisals as 'awards' . . . does not appear to accord either with the statutory scheme or with the intention of the parties." (Id. at pp. 661-662.)
Here too, the language of paragraph 39 and the inclusion of other provisions in the lease covering arbitration leads to the conclusion that characterizing the appraisal as an arbitration "does not appear to accord either with the statutory scheme or with the intention of the parties."
Even the appraiser, Nakasako, did not understand the purpose or the procedure intended by the parties for the appraisal, and nothing shows that he believed he was acting in an arbitral role. In his original declaration filed in support of SJC's petition to confirm the purchase price, he stated that he "understood that Carneghi-Nakasako was assigned to complete the appraisal as described in [p]aragraph 39 of the [l]ease as the agreed-upon appraiser for the parties." In a supplemental declaration, however, he repudiated this statement, asserting that it was "incorrect."
III. DISPOSITION
The order is affirmed. Costs on appeal are awarded to Claire Owens, trustee of the A. Alan Alameda Bypass Trust, and Dee's Group II, LLC.
WE CONCUR: GREENWOOD, P. J., GROVER, J.