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Bunker Hill Park Ltd. v. U.S. Bank National Association

California Court of Appeals, Second District, Fourth Division

November 26, 2014

BUNKER HILL PARK LIMITED, Plaintiff and Appellant,
v.
U.S. BANK NATIONAL ASSOCIATION, Defendant and Respondent.

APPEAL from an order of the Superior Court of Los Angeles County, No. SS024317 Richard A. Stone, Judge.

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COUNSEL

Pircher, Nichols & Meeks, James L. Goldman; Shartsis Friese, Joel Zeldin and Charles R. Rice, for Plaintiff and Appellant.

Katten Muchin Rosenman, Joshua Wayser and Brian J. Tanada, for Defendant and Respondent.

OPINION

COLLINS, J.

Plaintiff Bunker Hill Park Limited (“Bunker Hill”) filed a petition to compel arbitration with its tenant, defendant U.S. Bank National Association (“U.S. Bank”), to resolve the parties’ disagreement over whether subleases automatically terminate if the underlying lease between Bunker Hill and U.S. Bank terminates. The trial court denied the petition on the grounds that the parties’ disagreement had not ripened into a justiciable controversy

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meriting declaratory relief. Bunker Hill timely appealed. For the reasons stated below, we reverse and remand with directions to grant the petition.

FACTUAL AND PROCEDURAL BACKGROUND

The facts underlying this appeal are not in dispute. The parties are successors-in-interest to a 99-year ground lease governing a parcel of land located at 201-281 South Figueroa Street in downtown Los Angeles. Landlord Bunker Hill owns the land, and tenant U.S. Bank owns the five low-rise office buildings and other improvements erected on the parcel until the lease expires in 2077 or is terminated, at which point the improvements become the property of Bunker Hill. Bunker Hill may terminate the ground lease only if U.S. Bank defaults. U.S. Bank, on the other hand, may terminate the ground lease at any time so long as it provides Bunker Hill with 60 days’ advance notice. U.S. Bank also is permitted to assign its interest in the ground lease and to sublet the property. U.S. Bank has exercised the latter right.

The ground lease requires U.S. Bank to pay an annual “basic net rent, ” the amount of which is to be adjusted in April 2013 and April 2045. The parties were unable to agree on the proper amount of the April 2013 adjustment. Pursuant to an arbitration provision contained in an amendment to the ground lease that requires arbitration of “[a]ny and all disputes, controversies, or claims arising under or relating to the Ground Lease, this Amendment, ... or the enforcement of the provisions thereunder or the determination of the Parties’ rights and obligations thereunder, including but not limited to any unlawful detainer actions, the subject matter of the Complaint and/or the subject matter of the Cross-Complaint.” The parties arbitrated their dispute over the basic net rent in December 2013.

During the course of that arbitration, Bunker Hill argued that the basic net rent should reflect the value of the land at its highest and best use, which its expert opined was not hosting a low-rise office complex but rather housing a mixed-use or residential development. U.S. Bank retorted that no redevelopment of the property could be pursued in the near future because it had entered into various lengthy subleases that could not be terminated prematurely. U.S. Bank further argued that Bunker Hill would take title subject to the subleases in the event that the ground lease terminated before its 2077 expiration. Bunker Hill maintained that the subleases would terminate concurrently with any termination of the ground lease.

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The arbitrator made no mention of subleases or their fate upon termination of the ground lease in his January 31, 2014, arbitration award.[1] The parties nevertheless continued discussing these issues. On February 14, 2014, Bunker Hill sent a letter to U.S. Bank. The letter reaffirmed Bunker Hill’s position that any subleases would terminate along with the ground lease and requested that Bunker Hill’s views on the subject “be made clear to the property manager, leasing agent, subtenants, and any broker that [U.S. Bank] may engage, so as to minimize the likelihood of confusion or problems with subtenants or assignees.” U.S. Bank responded by letter dated February 24, 2014. “As for the substantive issue about whether [Bunker Hill] is bound by the subleases, ” U.S. Bank stated that it “cannot agree simply to disagree on the issue” because in its view Bunker Hill’s stance “effectively makes the property un-leaseable and unsellable and U.S. Bank believes that [Bunker Hill] is attempting to interfere improperly with U.S. Bank’s actual and prospective economic advantage and contractual rights.” Accordingly, U.S. Bank invoked the ground lease’s arbitration provision and “demand[ed] binding arbitration on the issue.”

Bunker Hill acceded to the demand and the parties began moving toward arbitration pursuant to the expedited schedule set forth in the arbitration provision. Bunker Hill proposed three potential arbitrators on March 19, 2014, and the parties engaged in a back-and-forth exchange regarding their preferences before agreeing on an arbitrator on March 26, 2014, the final day of the 30-day selection period set forth in the arbitration provision. Counsel for U.S. Bank proposed a draft arbitration agreement on March 25, 2014, which counsel for Bunker Hill “[took] the liberty of revising” on April 2, 2014. Also on April 2, counsel for Bunker Hill contacted the arbitration agency to reserve an arbitration date of May 30, 2014, the earliest date on which the selected arbitrator was available. Counsel for ...


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