Opinion
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of Los Angeles County, Soussan G. Bruguera, Judge. Los Angeles County Super. Ct. Nos. BS114845 & BC391476
The Beverly Law Group, Richard M. Johnson, Jr., and Paul J. Laurin; White & Case, John A. Sturgeon, Dan Woods, and Rachel J. Feldman for Plaintiff and Appellant.
Browne Woods George, Eric M. George, and Ira Bibbero for Defendant and Respondent.
SUZUKAWA, J.
Appellant Wells Fargo Bank, N.A. (Wells Fargo) and respondent Camden Properties, Ltd. (Camden) are the lessee and lessor, respectively, of commercial office space in Beverly Hills, California. In 1996, they entered a five-year lease (Lease) that, among other things, gave Wells Fargo the option to extend the lease term for two additional five-year periods. If Wells Fargo exercised the option to extend, the Lease provided that the parties should attempt to agree on the rent to be paid during the extension period, but that if they were unable to agree, the rent would be determined by appraisals conducted by two appraisers selected by the parties. If the appraisals differed by less than 10 percent, then the rent would be the average of the two appraisals; if the appraisals differed by more than 10 percent, then the rent would be determined by a third appraiser whose sole responsibility would be to determine “which of the determinations made by the first two (2) appraisers is most accurate.” The third appraiser was to be selected by the first two appraisers, but if the two appraisers failed to select a third appraiser, then one was to be appointed by the superior court at the request of either party.
In 2007, Wells Fargo exercised its right to extend the Lease for an additional five years. The parties were unable to agree on the rent, and each appointed an appraiser. The resulting appraisals were more than 10 percent apart. Wells Fargo petitioned the superior court to appoint a third appraiser pursuant to the terms of the lease, but Camden objected, contending that appointing a third appraiser was not appropriate because the appraisal conducted by Wells Fargo’s appraiser was not consistent with the terms of the Lease. The court agreed and denied Wells Fargo’s petition.
We reverse. For the reasons that follow, we conclude that, as expressed in the Lease, the parties intended a third appraiser, not a court, to review the appraisals’ accuracy and conformance with the appraisal provisions of the Lease in the first instance. Thus, the trial court erred in denying the petition.
FACTUAL AND PROCEDURAL BACKGROUND
I. The Lease
Camden leased portions of an office building (the office building) to Wells Fargo on June 28, 1996. The Lease was for five years, but it gave Wells Fargo the option to extend the lease for two additional five-year terms. If Wells Fargo exercised the option to extend the lease term, the Lease provided that rent during the extension term would be determined as follows.
(1) Paragraph 4.2 provided that the monthly base rent during the extension period “shall be the Market Rent (as defined in Section 5.3 below).” Paragraph 5.3 defined “Market Rent” as “the going market rental as of the date of the commencement of the Extension Term for similar space in the area where the Premises are located, taking into consideration location (within the City of Beverly Hills), size, condition, permitted uses (including general retail uses), and improvements (but excluding any alterations or personal property of Tenant installed in the Premises by Tenant at Tenant’s expense) for a tenant proposing to sign a lease equal to the Extension Term, and passing on to Tenant (in the form of reduced Market Rent) any cost savings which would be realized by Landlord in extending this Lease including, without limitation, any customary brokerage commissions which would have been paid relative to a nonrenewal tenant and any free rent, tenant improvement allowances, or other tenant concessions that may then be customarily granted to nonrenewal tenants.”
(2) Paragraph 5.3.1 provided for a period of negotiation of the “Market Rent” as follows: “Commencing from the date that notice of Tenant’s exercise of the option to extend the term is delivered to Landlord and continuing thereafter for thirty (30) days (the ‘Negotiation Period’), the parties shall negotiate in good faith the Market Rent. If the parties are unable to agree on the Market Rent prior to the expiration of the Negotiation Period, the matter shall be submitted to arbitration pursuant to the terms and conditions set forth in Section 5.3.2 below.”
(3) Paragraph 5.3.2.1 provided for an initial arbitration period based on appraisals prepared by two appraisers. It said: “Within fifteen (15) days after the expiration of the Negotiation Period, each party, at its own cost and by giving notice to the other party, shall appoint an MAI real estate appraiser, with at least five (5) years’ full-time commercial appraisal experience in the area where the Premises are located, to appraise and determine the Market Rent.... If two (2) appraisers are appointed by the parties, the two (2) appraisers shall independently, and without consultation, prepare an appraisal of the Market Rent within thirty (30) days after their appointment. Each appraiser shall seal its respective appraisal after completion. After both appraisals are completed, the resulting appraisals of the Market Rent shall be opened and compared. If the value of the appraisals differ by no more than ten percent (10%) of the value of the higher appraisal, then the Market Rent shall be the average of the two (2) appraisals.”
(4) Paragraph 5.3.2.2 provided for appointment of a third arbitrator if the two appraisals differed by more than 10 percent: “If the values of the appraisals differ by more than ten percent (10%) of the value of the higher appraisal, then within ten (10) days after the date the appraisals are compared, the two (2) appraisers selected by the parties shall appoint a third similarly qualified appraiser. If the two (2) appraisers fail to so select a third appraiser, a third similarly qualified appraiser shall be appointed at the request of either Landlord or Tenant by the then Presiding Judge of the Superior Court of the State of California for the County of Beverly Hills. The two (2) appraisers shall each then submit his or her independent appraisal in simple letter form to the third appraiser stating his or her determination of the Market Rent (which determination may not be changed from that which was set forth in such appraiser’s sealed appraisal). The sole responsibility of the third appraiser shall be to determine which of the determinations made by the first two (2) appraisers is most accurate. The third appraiser shall have no right to propose a middle ground or any modification of either of the determinations made by the first two (2) appraisers. The third appraiser’s choice shall be submitted to Landlord and Tenant within fifteen (15) days after the third appraiser has received the written determination from each of the first two (2) appraisers. The Market Rent shall be determined by the selection made by the third appraiser from the determinations submitted by the first two (2) appraisers.”
(5) Paragraph 5.3.2.4 provided that “The appraisers shall use their best efforts to fairly and reasonably appraise and determine the Market Rent in accordance with the terms of this Lease.” Paragraph 5.3.2.5 provided that the appraisers “shall have no power to modify the provisions of this Lease, and their sole function shall be to determine the Market Rent in accordance with this Section 5.3.2.”
II. The Lease Amendments
The parties entered a first lease amendment on April 14, 1998. Through this amendment, the parties agreed that Wells Fargo would continue to lease the eighth floor of the office building (the “Original Premises”), and would also lease the twelfth floor of the office building (the “New Premises”), for 10 years. It further provided an option for Wells Fargo to extend the lease term for an additional five years as follows: “Tenant shall have an option to extend the Term with respect to the New Premises for five (5) years (the ‘Extension Term’). During the Extension Term, the terms and conditions previously applicable to the initial Term with respect to the New Premises shall continue to apply, except that the Monthly Base Rent shall be equal to the fair market base rent therefor. Such fair market base rent shall be the base rental amount that a willing, comparable, non-equity tenant would pay, and a willing, comparable landlord would accept, at arm’s length, at Beverly Hills Triangle buildings comparable to the Building, for premises comparable to the New Premises in quality and size (plus or minus 20%), with comparable tenant improvements (excluding those installed by Tenant), under a lease for a five (5) year term entered into not more than six (6) months prior to Tenant’s exercise of such option, taking into consideration (a) that the Base Year shall be adjusted by ten (10) years and (b) all economic inducements and concessions then being granted to non-renewal tenants.”
In the event that the parties were unable to agree on a fair market base rent, the first lease amendment provided: “Within ten (10) days after... notice of exercise is given to Landlord, Landlord shall give Tenant notice of the rental applicable to the Extension Term (the ‘Proposal’). The Proposal shall apply to the Extension Term unless Tenant... rejects the proposal, in which event the rental applicable to the Extension Term shall be determined by appraisal in a manner corresponding to that set forth in Section 5.3.2 of the Lease.”
The parties entered a second amendment to lease on May 10, 2004. The amendment provided for the lease of additional space in the office building (the “Additional Premises”) through September 30, 2008. It further provided that “Tenant shall have the identical right (and subject to the same terms and conditions) to extend the term of the Lease with respect to the Additional Premises as Tenant has with respect to the New Premises (e.g., one time right to extend the term for 5 years at the then fair market base rent).”
III. Wells Fargo’s Exercise of the Option to Extend the Lease and the Resulting Dispute
In December 2007, Wells Fargo exercised its option to extend the term of its lease. In January 2008, Camden proposed a rental rate of $4.95 per square foot per month. Wells Fargo rejected the proposed lease rate and notified Camden that it would hire an appraiser pursuant to section 5.3.2 of the Lease.
Wells Fargo and Camden each obtained appraisals. Camden’s appraiser determined that the fair market base rent was $4.85 per square foot, and Wells Fargo’s appraiser determined that the fair market base rent was $4.20 per square foot. Since the appraisals were more than 10 percent apart, the parties’ appraisers attempted to agree on a third appraiser pursuant to section 5.3.2.2 of the lease. When they were unable to do so, Wells Fargo filed a petition for appointment of an appaiser (petition) with the superior court.
Camden opposed the petition. It claimed that the superior court lacked jurisdiction to appoint a third appraiser because Wells Fargo had not obtained a proper appraisal under the terms of the Lease. Specifically, Camden asserted that Wells Fargo’s appraiser had determined market rent by deducting both a tenant improvement allowance of $0.33 per square foot and “customary” leasing commissions of $0.26 per square foot. According to Camden, these deductions were not authorized by the Lease. Thus, Camden asserted, Wells Fargo’s appraisal was not performed under the terms of the Lease, and the court lacked jurisdiction to appoint a third appraiser: “An appraisal that incorporates impermissible deductions into the fair market base rent is, by definition, not obtained ‘in accordance with the terms of’ the lease. The parties agreed to the appointment of a third appraiser only upon the obtaining of appraisals made in accordance with the terms of the lease.... While [Wells Fargo] may correct this situation by obtaining a new appraisal done in accordance with the terms of the lease, until that happens—and only in the event the other conditions precedent to the appointment of a third appraiser are satisfied—this Court may not appoint a third appraiser.” Concurrently, Camden filed a declaratory relief action seeking a declaration that the conditions allowing for the appointment of a third party appraiser had not been satisfied.
The court held a hearing on the petition on September 11, 2008. On September 23, 2008, the court issued a ruling on submitted matter (ruling), which stated in pertinent part as follows: “In deciding a petition to compel arbitration, trial courts must first decide whether an enforceable arbitration agreement exists between the parties, and then determine the second gateway issue of whether the claims are covered within the scope of the agreement. [Citation.] Petitioner submits that the appointment of a third appraiser pursuant to Section 5.3.2.2 of the Lease has been triggered. However, respondent argues that petitioner’s appraisal pursuant to Section 5.3.2.1 of the Lease was not in accordance with the terms of the Lease amendments. Respondent submits that the Lease provision concerning rent when options to extend are exercised... has been modified by the amendments to the Lease.... Therefore, a dispute has arisen concerning the interpretation of the Lease. This is beyond the scope of the appraiser’s powers as indicated by Section 5.3.2.5 of the Lease.... Therefore, the petition for appointment of an appraiser is denied.”
In a subsequent order, dated October 3, 2008, the court stated that as the sole relief sought by Wells Fargo’s petition was the appointment of an appraiser, and as that relief has been denied, judgment “is hereby entered dismissing Case No. BS114845.” Notice of entry of the order was served on October 7, 2008. Wells Fargo timely appealed.
DISCUSSION
The central issue in this appeal is the “rather arcane” question of who decides whether a dispute is subject to arbitration. (See Dream Theater, Inc. v. Dream Theater (2004) 124 Cal.App.4th 547, 552.) To resolve this question, we must decide whether, in the first instance, the court or the third appraiser should determine whether the two appraisals were prepared in accordance with the terms of the Lease. If substantive review of the appraisals is a proper issue for the court to undertake in the first instance, then the trial court correctly denied the motion to compel appointment of an arbitrator pending such review by a court. If, however, substantive review of the appraisals should have been undertaken in the first instance by a third appraiser, then the trial court’s denial of the petition to compel was in error.
Camden contends that the Lease contains several steps before a third appraiser may be appointed: (1) Camden must propose rent for the Extension Term; and (2) if Wells Fargo rejects the proposed rent, each party must select its own appraiser, who must determine the “fair market base rent” “in accordance with the terms of this Lease.” If the appraisal step is not properly completed—that is, if an appraiser does not determine fair market base rent “in accordance with the terms of [the] Lease”—then appointment of a third appraiser would be a violation of the Lease. As a result, Camden urges, a court cannot rule on a petition to compel, which “is in essence a suit in equity to compel specific performance of a contract” (Atlas Plastering, Inc. v. Superior Court (1977) 72 Cal.App.3d 63, 69), without first deciding whether the appraisal step has been properly completed.
Wells Fargo disagrees. It contends that the parties never agreed to have a court interpret the Lease; instead, they agreed that if two appraisals differed by more than 10 percent, a third appraiser “shall” decide which is “most accurate.” Thus, Wells Fargo suggests, the trial court’s ruling ignored the mandatory language of the Lease. Further, Wells Fargo says, doubts concerning the scope of arbitral issues should be resolved in favor of arbitration, and courts generally should defer to an arbitrator’s finding regarding whether a particular question is within the scope of his or her contractual authority.
For the reasons that follow, we conclude that the appraisal provisions of the Lease constitute an agreement to arbitrate, and thus this appeal must be resolved with reference to statutory arbitration provisions. We further conclude that, as expressed in the Lease, the parties intended a third appraiser, not a court, to review the appraisals’ accuracy and conformance with the appraisal provisions of the Lease in the first instance. Thus, the trial court erred in denying the petition to appoint an appraiser.
I. Standard of Review
“The interpretation of an arbitration provision ‘is solely a judicial function unless it turns upon the credibility of extrinsic evidence; accordingly, an appellate court is not bound by a trial court’s construction of a contract based solely upon the terms of the instrument without the aid of evidence.’ (Merrick v. Writers Guild of America, West, Inc. (1982) 130 Cal.App.3d 212, 217; accord, Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, 1670.)” (Gravillis v. Coldwell Banker Residential Brokerage Co. (2006) 143 Cal.App.4th 761, 771.) Where, as here, the language of an arbitration provision is not in dispute, the trial court’s decision as to whether the provision compels appointment of an arbitrator is subject to de novo review. (Ibid.; Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 684.)
II. The Lease Contains an Arbitration Provision
The parties devote significant argument to the threshold question whether the appraisal provision of the Lease constitutes an agreement to arbitrate. Wells Fargo contends that under California law, an appraisal term necessarily creates an arbitration agreement subject to statutory contractual arbitration law. Thus, it urges that the Lease’s appraisal provision is an arbitration agreement. Camden disagrees; it contends that although appraisal may be a form of arbitration, not all appraisals are arbitrations, and California law recognizes that appraisers do not have the same authority as arbitrators. Further, it says, because an appraiser may not interpret a contract, the trial court correctly found that where, as here, the parties disagree as to the task the appraisers are to perform under the contract, it would not be proper to appoint a third appraiser to decide which appraiser interpreted the contract correctly.
We agree with Wells Fargo that the appraisal clause is an arbitration clause. Code of Civil Procedure section 1280, which defines the terms used throughout the California Arbitration Act (Code Civ. Proc., § 1280 et seq.), provides in pertinent part: “(a) ‘Agreement’ [to arbitrate] includes but is not limited to agreements providing for valuations, appraisals and similar proceedings and agreements....” (Italics added.) Thus, on its face, the statutory language defines arbitration agreements to include agreements for appraisals.
All further statutory references are to the Code of Civil Procedure unless otherwise indicated.
Moreover, the historical background of the California Arbitration Act confirms the Legislature’s intent that appraisals be deemed “arbitration” within the meaning of the statute. Our colleagues in Division Three comprehensively discussed this historical background in Coopers & Lybrand v. Superior Court (1989) 212 Cal.App.3d 524, 531-534 (Coopers & Lybrand), which we now quote at some length.
"A distinction between agreements to arbitrate and to appraise has long been observed in California, with the determining factor being whether the agreement provided for an adjudicatory type proceeding or for an independent examination. If an adjudicatory type proceeding were to be held, the agreement was regarded as one for arbitration. If an independent examination were contemplated, the agreement was regarded as calling for appraisement and the statutory procedure was not applicable. (Comment (1928-29) 17 Cal.L.Rev. 643, 647, fn. 26.)
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"The historical basis for distinguishing between appraisal and arbitration was that under the common law and the pre-1927 statutes, agreements to arbitrate were not specifically enforceable. (Kagel, Labor and Commercial Arbitration Under the California Arbitration Statute (hereinafter cited as Kagel) (1950) 38 Cal.L.Rev. 799, 814.) Reasons given at the time to support this dichotomy included (1) arbitration agreements tend to oust the courts of jurisdiction and therefore should not be tolerated, and (2) such agreements are by their nature unenforceable by a court of equity because they call for personal services. (Comment, supra, 17 Cal.L.Rev. 643-645.) To avoid the doctrine barring specific enforcement of arbitration agreements, the courts held that if no ‘controversy’ existed, or if no formal hearing and taking of evidence was intended, the arrangement was for appraisal, not arbitration, and therefore was enforceable. (Kagel, supra, at p. 815.)...
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"In 1960, the California Law Revision Commission (the Commission) submitted its recommendations to modify the arbitration law. (Recommendation and Study Relating to Arbitration (Dec. 1960) 3 Cal. Law Revision Com. Rep. (1961) (hereafter Recommendation), G-1.)...
"The Commission observed: ‘California courts have excluded valuations, appraisals and similar proceedings from the coverage of the arbitration statute....’
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“The Commission recommended: ‘The arbitration statute should be broadened to apply to agreements for appraisals and valuations. The distinction between “appraisal” and “arbitration” agreements was created by the courts at a time when the early statutory attempts to provide for enforcement of arbitration agreements imposed cumbersome procedural requirements upon the arbitration process. If it appeared from the nature of the agreement that the parties desired a determination of a particular fact—such as the value of certain property—and did not contemplate a formal proceeding in which evidence would be received, the courts found that the proceeding was an “appraisal” and not an “arbitration” in order to hold that the cumbersome statutory formalities were inapplicable. Since neither the present California arbitration statute nor the statute recommended by the Commission requires the observance of such formalities in the conduct of an arbitration proceeding, there is no longer any reason to preserve the judicially created distinction between these proceedings.’ (Recommendation, supra, at pp. G-5, G-6, italics added.)
“Toward that end, the Commission drafted a bill revising the arbitration law, which bill was enacted without change and signed into law on May 22, 1961. (See legislative history in Feldman, Arbitration Modernized—The New California Arbitration Act (1961) 34 So.Cal.L.Rev. 413, fn. 1.)
“Thus, the inclusion in section 1280, subdivision (a), of ‘agreements providing for valuations [and] appraisals’ within the definition of arbitration agreements was in direct response to the Commission’s recommendation ‘that the California statute be amended to include a provision which expressly extends the coverage of the statute to appraisals and valuation proceedings.’ (Recommendation, supra, at p. G-35.)” (Coopers & Lybrand, supra, 212 Cal.App.3d at pp. 531-534.)
Based on this historical overview, the court in Coopers & Lybrand concluded that “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.” (212 Cal.App.3d at p. 534.)
Other courts have similarly concluded. In Lambert v. Carneghi (2008) 158 Cal.App.4th 1120, 1129, the court said, “It is well settled that ‘[a]n agreement to conduct an appraisal... constitutes an “agreement” within the meaning of [Code of Civil Procedure] section 1280, subdivision (a), and therefore is considered to be an arbitration agreement subject to the statutory contractual arbitration law. [Citation.]’” The court continued: “Just because the role of appraisers may be more limited than that of arbitrators—whose powers may of course always be limited by contract (Bonshire v. Thompson (1997) 52 Cal.App.4th 803, 810)—that does not make an appraisal any less of an arbitration.... [¶]... A confirmed award of appraisers and umpire is treated as a confirmed arbitration award, which has the ‘“same force and effect as... a judgment in a civil action.”’” (Lambert v. Carneghi, supra, 158 Cal.App.4th at pp. 1131-1132.) The court reached the same result in Devonwood Condominium Owners Assn. v. Farmers Ins. Exchange (2008) 162 Cal.App.4th 1498, 1505, stating, “Generally, appraisal award proceedings are subject to the arbitration provisions outlined in the California Arbitration Act, Code of Civil Procedure section 1280 et seq.” And, in Kacha v. Allstate Ins. Co. (2006) 140 Cal.App.4th 1023, 1031, the court held, “Appraisal hearings are a form of arbitration and are generally subject to the rules governing arbitration.” (See also Community Assisting Recovery, Inc. v. Aegis Security Ins. Co. (2001) 92 Cal.App.4th 886, 893 [“appraisal term creates an arbitration agreement subject to the statutory contractual arbitration law”]; Louise Gardens of Encino Homeowners’ Assn., Inc. v. Truck Ins. Exchange, Inc. (2000) 82 Cal.App.4th 648, 658 [“An agreement to conduct an appraisal contained in a policy of insurance constitutes an ‘agreement’ within the meaning of section 1280, subdivision (a) [fn. omitted], and therefore is considered to be an arbitration agreement subject to the statutory contractual arbitration law.”]; Appalachian Insurance Co. v. Rivcom Corp. (1982) 130 Cal.App.3d 818, 824 [“As used in the Code of Civil Procedure, an agreement providing for an appraisal is included within the concept of agreements to arbitrate.”].)
We adopt the analyses quoted above to conclude that the appraisal agreement contained in the Lease is an arbitration agreement. It thus is subject to the arbitration statutes and the cases decided thereunder.
We note, however, the limited import of our conclusion. An arbitration agreement is a contract, and thus the scope of an arbitrator’s power is defined by the arbitration agreement’s terms, not by the label affixed to the agreement. (E.g., Devonwood Condominium Owners Assn. v. Farmers Ins. Exchange, supra, 162 Cal.App.4th at p. 1505 [“‘arbitratorsare frequently, by the terms of the agreement providing for arbitration... given broad powers’” (italics added, original italics omitted)]; EFund Capital Partners v. Pless (2007) 150 Cal.App.4th 1311, 1321 [“In considering the language of the [arbitration agreement], we apply the ordinary rules of contract interpretation.”]; United Public Employees v. City and County of San Francisco (1997) 53 Cal.App.4th 1021, 1026 [“The right to arbitration depends upon the terms of the contract.”].) Accordingly, our decision that the Lease’s appraisal provision is an agreement to arbitrate makes it subject to the arbitration statutes, but it does not define the scope of the appraisers’ powers. We thus now turn to the appraisal provisions to consider the scope of the powers afforded the appraisers under the Lease.
III. The Arbitration Provision Required the Trial Court to Appoint a Third Appraiser to Resolve the Rent Dispute
A. Overview of Legal Principles Applicable to Interpreting Arbitration Agreements
“The right to arbitration depends upon the terms of the contract—a petition to compel arbitration is simply a suit in equity seeking specific performance of that contract.” (United Public Employees v. City and County of San Francisco, supra, 53 Cal.App.4th at p. 1026.) Accordingly, the pivotal question before us is whether, through their arbitration agreement, the parties agreed to the appointment of an appraiser in the circumstances now present.
“[T]he question of whether the parties agreed to arbitrate a certain dispute is to be decided by the court, not the arbitrator, unless the parties have clearly and unmistakably provided otherwise. [Citation.] In making its determination, the court is required to examine and construe the underlying agreement.” (Hartnell Community College Dist. v. Superior Court (2004) 124 Cal.App.4th 1443, 1449.)
In construing the language of an arbitration provision, “we apply the ordinary rules of contract interpretation. [Citations.] The Supreme Court has held: ‘“‘The fundamental rules of contract interpretation are based on the premise that the interpretation of a contract 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. (Civ. Code, § 1636.) Such intent is to be inferred, if possible, solely from the written provisions of the contract. (Id., § 1639.) The ‘clear and explicit’ meaning of these provisions, interpreted in their ‘ordinary and popular sense,’ unless ‘used by the parties in a technical sense or a special meaning is given to them by usage’ (id., § 1644), controls judicial interpretation. (Id., § 1638.)” [Citations.] A [contract] provision will be considered ambiguous when it is capable of two or more constructions, both of which are reasonable. [Citation.] But language in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract.’ [Citation.]”’ (TRB Investments, Inc. v. Fireman’s Fund Ins. Co. (2006) 40 Cal.4th 19, 27.)” (EFund Capital Partners v. Pless, supra, 150 Cal.App.4th at p. 1321.)
In addition to these ordinary rules of contract interpretation, in construing an arbitration agreement we apply a presumption favoring arbitration of disputes. “California has a strong public policy in favor of arbitration. (Engalla v. Permanente Medical Group, Inc. [(1997)] 15 Cal.4th [951,] 971-972; Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9.) Given that strong public policy, any doubt as to whether plaintiff’s claims come within the arbitration clause must be resolved in favor of arbitration. (Coast Plaza Doctors Hospital v. Blue Cross of California, supra, 83 Cal.App.4th at p. 687; Hayes Children Leasing Co. v. NCR Corp. (1995) 37 Cal.App.4th 775, 788.) The Court of Appeal has held, ‘This strong public policy has resulted in the general rule that arbitration should be upheld “unless it can be said with assurance that an arbitration clause is not susceptible to an interpretation covering the asserted dispute. [Citation.]” (Bos Material Handling, Inc. v. Crown Controls Corp. (1982) 137 Cal.App.3d 99, 105....)’ (Coast Plaza Doctors Hospital v. Blue Cross of California, supra, 83 Cal.App.4th at p. 686; accord, Izzi v. Mesquite Country Club (1986) 186 Cal.App.3d 1309, 1315.) The burden is on... the party opposing arbitration, to show that the arbitration clause cannot be interpreted to cover the claims.... (Buckhorn v. St. Jude Heritage Medical Group (2004) 121 Cal.App.4th 1401, 1406; Coast Plaza Doctors Hospital v. Blue Cross of California, supra, 83 Cal.App.4th at pp. 686-687.)” (EFund Capital Partners v. Pless, supra, 150 Cal.App.4th at pp. 1320-1321.) However, “‘[t]he policy in favor of arbitration does not apply when the contract cannot be interpreted in favor of arbitration. There is no policy in favor of arbitrating a dispute the parties did not agree to arbitrate.’” (Gravillis v. Coldwell Banker Residential Brokerage Co., supra, 143 Cal.App.4th at p. 772.)
The question for us, then, is whether the Lease’s arbitration clause can be interpreted to cover the claims Camden asserts. More specifically, we must decide whether the parties intended the substantive issue raised by Camden—i.e., whether the first two appraisals were “in accordance with” the Lease—to be decided by a court or by a third appraiser in the first instance.
B. Helzel v. Superior Court
The court addressed an issue nearly indistinguishable from the issue before us in Helzel v. Superior Court (1981) 123 Cal.App.3d 652 (Helzel). That case concerned a stock purchase agreement containing a two-phase procedure for the appraisal of corporate shares. The first phase called for separate appraisals by two designated appraisers. If the disparity between the two appraisals was less than 20 percent, then the purchase price was to be the mean between them. If the disparity was greater and the parties were unable to arrive at an agreement within 10 days, then the two appraisers were to appoint a third appraisal, and the purchase price was to be determined on the basis of the third appraiser or the mean between the first two appraisals, whichever was the greater. (Id. at pp. 656-658.)
The first two appraisals were more than 20 percent apart, and when the parties’ attempts at agreement failed, the sellers made written demand for the appointment of a third appraiser. Buyers objected, and sellers filed a petition to compel arbitration (§ 1281.2), seeking to compel the buyers to proceed with a third appraisal. Sellers then filed an action for declaratory and injunctive relief, seeking to avoid the second phase appraisal on the grounds that the appraisers had failed to comply with the appraisal instructions. The trial court ordered the sellers’ petition to compel arbitration deferred pending determination of the issues presented in the buyers’ declaratory relief action. (Helzel, supra, 123 Cal.App.3d at pp. 657-659.)
Buyers alleged that the appraisal instruction “required the appraisers to consider [the corporation’s] business to be that of primarily owning income-producing property, to consider the shareholders as tenants in common of such real property, to use appraisal procedures customarily followed in valuing income-producing real property, and to avoid using appraisal procedures customarily followed in valuing stock in a corporation. [Buyers] contended that the procedures which [one appraiser] used in reaching its amended appraisal, and the procedures which [the other appraiser] used in reaching its appraisal, were not in accord with these instructions.” (Helzel, supra, 123 Cal.App.3d. at p. 658.)
Sellers filed a writ petition, contending that judicial determination of the issues raised by buyers’ declaratory relief action should be deferred pending completion of the appraisal process. The Court of Appeal agreed and granted the petition. In doing so, it considered at length whether the arbitration statute permitted “through any procedure the sort of interlocutory attack upon preliminary phases of the arbitration process which [buyers] seek to make, given the terms of their agreement,” or whether it required “that the issues asserted by [buyers] be deferred until the arbitration process is completed. (Id. at p. 661.)
To answer this question, the court considered buyers’ contention that validly conducted first-phase appraisals were a condition precedent to buyers’ obligation to participate in the second phase of the appraisal process. Resolving this issue, the court said, is primarily a matter “of contract interpretation.... The parties could have contracted for such a result expressly, but they did not do so. [Fn. omitted.] The narrow question presented, therefore, is whether such a result should be implied from the terms of the agreement and the function it was designed to serve.” (Id. at pp. 662-663.)
The court concluded that such a result could not be inferred from the terms of the agreement. “In favor of such an implication is the obvious proposition that if the first phase appraisals, or either of them, are invalid in the sense that they could not operate to sustain an ultimate award, then requiring the parties to undergo a third appraisal may prove to be an idle act. If they are invalid, in that sense, then a determination of their invalidity now could save the parties additional time and expense. To that extent, an implication of terms such as contended for by [buyers] would be reasonable.
“We are persuaded, however, that countervailing considerations compel a different conclusion. As a general rule of contract construction conditions precedent are not favored and an agreement will be strictly construed against a party asserting that its provisions impose a condition precedent. [Citations.] Normally, provisions of a contract will not be construed as conditions precedent in the absence of language plainly requiring such a construction. [Citations.]
“This agreement reflects an intent of the parties that determination of the value of the shares be undertaken as expeditiously as possible. It sets a limit, for example, of 10 days after receipt of both first phase appraisals within which the parties are to either agree upon a purchase price or proceed to appointment of a third appraiser. Interposition of a judicial proceeding between the first and second phase could well consume more time, and more expense, than completion of the process. And, there would exist the real possibility of two judicial proceedings, one at each phase of the appraisal process. It is exceedingly unlikely that the parties contemplated such a piecemeal procedure.
“Finally, petitioners’ self interest serves as some insurance against the possibility that the third appraisal will prove an idle gesture. Petitioners concede that the validity of the initial appraisals, if they continue to be questioned, may be subject to judicial scrutiny by appropriate procedures and standards after the third appraisal is completed; and, they, presumably, have no interest in seeing an idle process go forward. The parties of course have the right to withdraw from an arbitration proceeding if they agree that some preliminary error will invalidate the proceeding. [Citations.]
“The choice is between a procedure which could result in unnecessary litigation and a procedure which could result in unnecessary arbitration proceedings. The latter choice, under the circumstances of this case, is more compatible both with this state’s policy of encouraging arbitration as an alternative to the judicial resolution of disputes [citation], and with the tenor of the agreement between these parties.” (Helzel, supra, 123 Cal.App.3d at pp. 663-664.)
C. Application of Helzel to the Present Case
Like Helzel, the present case is before us prior to an arbitral resolution. That is, unlike many of the disappointed litigants in the cases on which Camden relies, Camden seeks judicial determination that an appraiser exceeded his powers before, rather than after, the conclusion of the appraisal process. Accordingly, like the Helzel court, we look to the parties’ contract to determine whether they intended such a result.
As in Helzel, the plain language of the Lease does not unambiguously resolve the question before us. Although they could have done so, the parties did not state explicitly whether they intended a court to consider the validity of the first phase appraisals in ruling on a request to appoint a third appraiser. Thus, as in Helzel, we consider whether such a result should be implied from the terms of the Lease and the function the appraisal provisions were intended to serve.
We note first that the Lease explicitly tasks the appraisers with making substantive determinations about the content of the appraisals, but provides no such role for the court. Specifically, it provides in paragraph 5.3.2.4 that the initial two appraisers shall use their best efforts to fairly and reasonably appraise and determine rent “in accordance with the terms of this Lease,” and it provides in paragraph 5.3.2.5 that the appraisers’ sole function shall be to determine rent “in accordance with this Section 5.3.2.” Further, in paragraph 5.3.2.2, it states that the third appraiser shall “determine which of the determinations made by the first two (2) appraisers is most accurate.” Thus, it expressly charges the appraisers with making determinations “in accordance with” the Lease’s terms. In contrast, on its face it seeks no such determination by the court. Instead, it provides only that the presiding judge of the superior court shall appoint a third appraiser if requested to do so by either landlord or tenant. Accordingly, on its face it seeks no substantive determinations by the court regarding the appraisals’ content.
Moreover, as in Helzel, the Lease reflects the parties’ intent that the determination of rent during the extension term shall be made expeditiously. It provides, for example, that the parties shall negotiate the rent for no more than 30 days from notice of Wells Fargo’s exercise of the option to extend the lease term, and that if the parties are unable to agree on the rent within 30 days, the issue shall be submitted to arbitration. It further provides that each party shall appoint an appraiser within 15 days of the expiration of the negotiation period, and that the appraisers shall prepare their appraisals within 30 days. And, it provides that if the two appraisals differ by more than 10 percent, then the two appraisers shall select a third appraiser within 10 days, and the third appraiser shall make a determination within 15 days. In view of the expeditious appraisal procedure explicitly contemplated by the Lease, we, like the Helzel court, consider it extremely unlikely that the parties intended to interpose a judicial proceeding between the first and second phase appraisals.
Accordingly, as in Helzel, we conclude that given a choice between “a procedure which could result in unnecessary litigation and a procedure which could result in unnecessary arbitration proceedings” (Helzel, supra, 123 Cal.App.4th at p. 664), the latter choice is more compatible with the Lease, as well as with California’s policy of encouraging arbitration. We thus conclude that Camden’s contentions regarding the propriety of the appraisal conducted by Wells Fargo’s appraiser should be addressed by the third appraiser in the first instance.
We emphasize, however, that our conclusion does not foreclose the possibility of future judicial review or, indeed, that a court may ultimately adopt Camden’s interpretation of the Lease. We simply conclude that the proper time for a court to reach these issues is after an appraisal award has been rendered, not before. (See § 1286.2.)
D. Camden’s Remaining Contentions Are Without Merit
Camden contends that under well-established case law, appraisers may not interpret contracts. Accordingly, Camden says, the trial court correctly found that where, as here, the parties disagree about the task the appraisers are to perform under a contract, it would not be proper to appoint a third appraiser to decide which appraiser interpreted the contract correctly.
We reject Camden’s contention that appraisers may never interpret contracts. As we have said, “‘[t]he scope of arbitration is... a matter of agreement between the parties’ [citation], and ‘“[t]he powers of an arbitrator are limited and circumscribed by the agreement or stipulation of submission.”’ [Citation.]” (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at p. 8.) Accordingly, because appraisal is a form of arbitration, an appraiser’s powers necessarily are defined not by the appraiser’s title, but rather by the terms of the appraisal agreement.
The cases on which Camden relies do not suggest to the contrary. In Kacha v. Allstate Ins. Co., supra, 140 Cal.App.4th 1023, 1032 (Kacha), the court stated that “‘Although arbitrators are frequently, by the terms of their agreement providing for arbitration,... given broad powers [citation], appraisers generally have more limited powers.’” (Italics added, original italics omitted.) We do not disagree that appraisers generally have more limited powers than other kinds of arbitrators; we find only that their powers are not necessarily so limited.
Camden further contends that before the court may appoint a third appraiser, two steps must be completed: Camden must propose a rent for the Extension Term, and, if Wells Fargo rejects the proposed rent, each party must select its own appraiser, who must determine the “fair market base rent” “in accordance with the terms of this Lease.” Thus, Camden urges, if the appraisal step is not properly completed—that is, if an appraiser does not determine fair market base rent “in accordance with the terms of [the] Lease”—then appointment of a third appraiser would be a violation of the Lease. As a result, a court cannot rule on a petition to compel, which “is in essence a suit in equity to compel specific performance of a contract” (Atlas Plastering, Inc. v. Superior Court, supra, 72 Cal.App.3d 63, 69), without first deciding whether the appraisal step has been properly completed.
We do not agree. For all the reasons discussed above, the parties in the present case intended a third appraiser, not a court, to make an initial determination as to which appraisal was “most accurate.” Accordingly, appointment of a third appraiser under the circumstances of the present case is not a violation of the Lease’s terms—to the contrary, it is consistent with those terms.
Kacha does not suggest otherwise. It arose in the context of an appeal from a judgment confirming an insurance appraisal award, not a petition to compel arbitration or to appoint an arbitrator. Thus, it holds only that, under the terms of the appraisal agreement at issue in that case, the appraisers exceeded their powers by interpreting the appraisal agreements. (SeeKacha, supra, 140 Cal.App.4th 1023.) It does not hold, nor does it address, whether a court may decide whether an appraiser is empowered to interpret an appraisal before the appraiser has had the opportunity to decide this issue.
We caution that our conclusion does not mean that if Camden is dissatisfied with the third appraiser’s determination, it cannot challenge it. To the contrary, section 1286.2 expressly contemplates such a challenge through a petition to vacate an arbitration award. (§ 1286.2, subd. (a) [“the court shall vacate the [arbitration] award if the court determines... [¶] (4) [t]he arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted”].) Our conclusion does mean, however, that the third appraiser, not the court, makes the initial determination of his or her own powers, and thus that the petition to compel should not have been denied on the basis that the third appraiser may exceed the scope of his or her authority.
Camden argues it will not be able to challenge the third arbitrator’s determination because no one will know the basis for his or her decision. We are not persuaded. Camden claims the Wells Fargo appraisal is inherently flawed because the appraiser utilized deductions not authorized by the lease. If its contention is correct and the third appraiser selects Wells Fargo’s figure, he or she will have chosen an appraisal that was not obtained in accordance with the terms of the Lease. In any event, as we have discussed, the parties intended that such arguments be made after the arbitration process is completed.
DISPOSITION
The order denying the petition for appointment of an appraiser is reversed, and the superior court is directed to enter a new and different order granting the petition. Wells Fargo shall recover its costs on appeal.
We concur: WILLHITE, Acting P.J., MANELLA, J.