Court Opinion

ID: 9841242
Source: CourtListenerOpinion
Date Created: 2023-09-21 18:04:34.853178+00
Date Added: 2024-06-11T08:42:07.850902
License: Public Domain

Filed 9/21/23 Silver Dot Properties v. Hartbeat Digital CA2/5
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         SECOND APPELLATE DISTRICT

                                        DIVISION FIVE

 SILVER DOT PROPERTIES, LLC,                                        B316452

           Appellant,                                               (Los Angeles County
                                                                    Super. Ct. No.
           v.                                                       20STCP04092)

 HARTBEAT DIGITAL, LLC,

           Respondent.

      APPEAL from a judgment of the Superior Court of
Los Angeles County, Patricia D. Nieto and Kristin S. Escalante,
Judges. Affirmed.
      Akerman, Michael R. Weiss, Jonathan M. Turner and
William Bernfeld for Appellant.
      Venable, Ben D. Whitwell and Melissa C. McLaughlin for
Respondent.
                      ——————————
      Appellant Silver Dot Properties, LLC, appeals from a
judgment in favor of respondent HartBeat Digital, LLC, following
orders confirming two arbitration awards and denying petitions
to vacate the awards in this matter arising out of the
interpretation of a commercial lease. On appeal, Silver Dot
contends the arbitrator exceeded his power by interpreting the
lease to provide perpetual renewals because: (1) public policy
requires a right to perpetual renewals be created by clear,
explicit language in the lease, without resorting to extrinsic
evidence, (2) the language of the lease in this case was ambiguous
and did not state a clear intent to create a right of perpetual
renewals, and (3) the arbitrator relied on extrinsic evidence to
interpret the lease to provide perpetual renewals, in violation of
public policy. We conclude the arbitrator expressly found the
lease clearly and unambiguously provided for perpetual renewals,
a finding which is not reviewable by the court for error.
Therefore, we affirm.

        FACTS AND PROCEDURAL BACKGROUND

Lease Agreement

      On August 3, 2016, Silver Dot entered into an agreement to
lease commercial property in Canoga Park, California, to
Hartbeat for use as a film studio. The lease term began on
September 1, 2016, and ended on August 31, 2019. The property
was in poor condition, so the lease contemplated that in addition
to rent, HartBeat would make a substantial financial investment
to make the property suitable for use. HartBeat spent more than
$1 million over two years to renovate the property.

                                2
       The lease provided for renewal as follows: “Upon giving
written notice no later than 60 days before the expiration of the
term of this Lease, the Tenant may renew this Lease for an
additional 1, 2 or 3 year term at the end of each term. All terms
of the renewed lease will be the same except for any signing
incentives/inducements and this renewal clause and the amount
of the rent.” The lease contained a calculation for annual rent
increases. The parties agreed California law governed the lease
provisions, and any controversy or claim arising out of the
agreement was to be settled by binding arbitration administered
by ADR Services, Inc.
       On June 21, 2019, Hartbeat delivered a notice requesting
renewal for three years. Silver Dot attempted to renegotiate the
lease terms. Eventually, Silver Dot stated that Hartbeat
occupied the property as a month-to-month tenant.

Arbitration and Merits Award

       On November 21, 2019, Hartbeat initiated arbitration. A
hearing was conducted on June 19, 2020. Hartbeat argued that it
effectively exercised the option for renewal, while Silver Dot
disagreed and asserted HartBeat was a month-to-month tenant.
The arbitrator was required to interpret the renewal provision of
the lease, including whether HartBeat had a right to unlimited or
perpetual renewals. Silver Dot argued that a provision for
perpetual renewal of the lease was not supported by the language
of the lease and was contrary to California’s public policy.
       On September 3, 2020, the arbitrator served an interim
arbitration award (the merits award). The arbitrator found
HartBeat had an option to renew the lease, which HartBeat

                                3
effectively exercised. The arbitrator summarized the extrinsic
evidence surrounding negotiation of the lease which supported
HartBeat’s argument that the parties intended HartBeat to have
unlimited renewals. The arbitrator also discussed Silver Dot’s
view that under the rule of construction expressed in Ginsberg v.
Gamson (2012) 205 Cal.App.4th 873, 895 (Ginsberg), extrinsic
evidence was not permitted to determine whether the parties
intended to allow perpetual renewals. The arbitrator
distinguished the lease provision at issue in the present case
from the ambiguous nature of the provision at issue in Ginsberg.
       After reviewing the arguments of both parties, the
arbitrator found “[t]he language in the first sentence of the
renewal clause is clear and unambiguous, that [HartBeat] can
renew the Lease ‘at the end of each term’ and there is no stated
limitation.” In addition to the plain language of the first sentence
of the renewal provision, the arbitrator found the parties’ intent
for perpetual renewals was evidenced in several provisions of the
lease that contemplated a long-term tenancy. There was a
specific formula for annual rent increases without limitation,
HartBeat was permitted to make extensive renovations and
control rentals to third parties, rent was contingent on HartBeat
making substantial improvements, HartBeat had a right of first
refusal to purchase the property, and the lease was not a
preprinted form. The arbitrator noted that extrinsic evidence of
the parties’ negotiations supported his view of the plain language
of the lease.
       The arbitrator concluded the second sentence of the
renewal provision, stating the terms of the renewed lease would
be the same except for the renewal clause, was a drafting error
carried over from a prior version that permitted only one renewal

                                 4
term, and therefore, the arbitrator disregarded the phrase based
on mutual mistake.
       The arbitrator concluded: “The language of the lease and
the intentions of the parties leads this Arbitrator to find that the
renewal clause was clear and unambiguous as interpreted under
California law including the portions disregarded by this
Arbitrator. This Arbitrator has distinguished this case from that
of the Ginsberg situation in that the clause under consideration
here clearly states the intentions of the parties at the time they
entered the contract without the need for extrinsic evidence.
However, to the extent counsel may believe otherwise, if the
language were ambiguous, this Arbitrator believes that finding
only one renewal was available to [HartBeat] would work an
injustice and the special rule of construction adopted in Ginsberg
would have created this injustice and such rule would, by
discretion given this Arbitrator under the [Code of Civil
Procedure] and ADR Services, Inc. Rules of Arbitration, not have
been applied in this case.” (Underscoring omitted.)
       The arbitrator declared his finding, based on all the
evidence presented and the applicable California law, that
“[HartBeat] bargained for and [Silver Dot] accepted that
[HartBeat] would have unlimited renewals of the Lease, for 1, 2,
or 3 years, under Paragraph 22[ ] of the Lease as modified by this
interpretation and subject to the agreed upon rent escalations
provided in said Lease.” The arbitrator further found the
renewal clause was subject to Civil Code section 718, limiting
renewals to 99 years.

                                 5
Silver Dot’s Motion to Vacate the Merits Award

       On December 11, 2020, after the merits award became
final, Silver Dot filed a petition in the trial court to vacate the
award. Silver Dot argued that the arbitrator exceeded his
authority by relying on extrinsic evidence to interpret an
ambiguous renewal provision, giving HartBeat the right to
perpetual renewals, in violation of public policy expressed in
Ginsberg.
       The trial court denied the petition to vacate the award on
February 22, 2021. The court noted that an arbitrator’s decision
is final and not reviewable for errors, even if they are apparent
on the face of the decision and cause substantial injustice. In
addition, the court concluded the special rule of construction
stated in Ginsberg was not a “public policy” such that the
arbitrator exceeded his jurisdiction with respect to the
alternative ruling. Ginsberg allowed for perpetual leases and
applied an evidentiary principle that extrinsic evidence should
not be admitted to prove the parties’ intent concerning perpetual
renewals. Civil Code section 718 expresses a public policy
validating commercial lease renewals up to a total of 99 years.
The arbitration award was in line with Ginsberg and public
policy, as the arbitrator found the renewal provision clearly and
unambiguously allowed renewal of the lease at the end of each
term.

                                 6
Fee Award and Motion for Reconsideration

       On February 25, 2021, the arbitrator issued a 20-page fee
award awarding $214,992.01 in costs and attorney fees to
HartBeat. In determining the reasonable hourly rates, the
arbitrator found the case was not simply a landlord-tenant
dispute, as Silver Dot argued. The arbitrator explained that he
took into consideration “the nature of the litigation, its difficulty,
the amount involved, the skill required in its handling, the skill
employed, the attention given, the success or failure, and other
circumstances in this case.” In applying these factors, the
arbitrator discussed the parties’ interests. The arbitrator noted
that while drafting, revising, and finalizing the lease, it appeared
the attorneys for both parties “failed to express in words in a
proper fashion the intention of both the parties with respect to
the number of renewals that the tenant would be able to make
ultimately. [¶] These drafting oversights lead to the legal
positions and posturing that the sides took and complicated this
matter because of the implications of the mutual oversights. The
legal issues became inextricably entwined with the factual issues
and were not just whether [HartBeat] had a right to renew the
lease even once but whether that right to renew was by the
actions of both parties one that was in perpetuity or not. [¶]
[Silver Dot] used as its foundation for its argument that
[HartBeat] should have no renewals and could not possibly have
a perpetual lease, subject to the statutory limitation of 99 years
maximum, pursuant to the case of Ginsberg v. Gamson (2012)
205 [Cal.App.4th] 873. [(Fn. and underscoring omitted.)] On its
face and in the abstract, [Silver Dot’s] position was a strong

                                  7
position. There is little doubt that outside of the arbitration
universe, the position [Silver Dot] took would have been
extremely difficult for [HartBeat] to overcome. Thus, in this
Arbitrator’s view, the objective difficulty of the task facing
[HartBeat] was difficult even in arbitration.”
       “In considering the skill required and the skill employed by
the attorneys for Venable LLP in this matter, there was nothing
left that wasn’t done by them to inform their opposing counsel,
educate this Arbitrator and skillfully present their theories, the
underlying facts that supported those theories, and the
weaknesses inherent in their opponent’s case.” The arbitrator
also praised the skill of Silver Dot’s attorneys in framing the
issues and presenting their case, but noted the focus was the
reasonableness of the hourly rates charged by Venable’s
attorneys.
       Silver Dot filed a motion in the trial court for
reconsideration of the petition to vacate the merits award,
arguing that the arbitrator’s statements in the fee award
contradicted findings in the earlier award and admitted the lease
did not clearly and explicitly provide for unlimited renewals. The
trial court denied the petition for reconsideration, finding that
the fee award did not contradict the holding of the earlier award
or the legal justifications.
       On June 16, 2021, HartBeat filed petitions to confirm each
of the arbitration awards. Silver Dot opposed the petitions and
filed a petition to vacate the fee award on the same grounds as
the earlier petition to vacate the merits award. On August 31,
2021, the trial court confirmed the arbitration awards and denied
the petition to vacate the fee award. On September 10, 2021, the

                                 8
court entered judgment for Hartbeat. Silver Dot filed a timely
appeal from the judgment.

                          DISCUSSION

Judicial Review of Arbitration Awards

       Arbitration awards are generally not subject to judicial
review. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 11
(Moncharsh).) “[B]ecause it vindicates the intentions of the
parties that the award be final, and because an arbitrator is not
ordinarily constrained to decide according to the rule of law, it is
the general rule that, ‘The merits of the controversy between the
parties are not subject to judicial review.’ [Citations.] More
specifically, courts will not review the validity of the arbitrator’s
reasoning. [Citations.] Further, a court may not review the
sufficiency of the evidence supporting an arbitrator’s award.
[Citations.] [¶] Thus, it is the general rule that, with narrow
exceptions, an arbitrator’s decision cannot be reviewed for errors
of fact or law.” (Id. at p. 11.)
       Code of Civil Procedure section 1286.2 provides for vacating
an arbitration award, however, when “[t]he arbitrators exceeded
their powers and the award cannot be corrected without affecting
the merits of the decision upon the controversy submitted.”
(Code of Civ. Proc., § 1286.2, subd.(a)(4).)
       “We subject the trial court’s ruling on a petition under Code
of Civil Procedure section 1285 to a different standard of review
than the underlying arbitration award. [Citation.] We apply the
substantial evidence test to the trial court’s determination of
disputed factual issues. [Citation.] ‘Issues of statutory

                                 9
interpretation and the application of that interpretation to a set
of undisputed facts are questions of law subject to independent
review by this court. [Citation.]’ ” (Soni v. SimpleLayers,
Inc. (2019) 42 Cal.App.5th 1071, 1087.)

Perpetual Lease Renewals

       Silver Dot contends that the arbitrator exceeded his powers
by finding the lease provided a right to perpetual renewals,
because public policy expressed in Ginsberg requires a right to
perpetual renewals be explicit and clear, without resort to
extrinsic evidence. HartBeat asserts Ginsberg merely states an
evidentiary rule, which the arbitrator was free to disregard. We
need not dissect the holding in Ginsberg, however, because the
arbitrator found the plain language of the renewal provision
clearly and unambiguously provided for perpetual renewals of the
lease, consistent with the holding in Ginsberg.
       The Ginsberg court stated: “Despite being disfavored,
courts will enforce a lease provision that grants a tenant the
right to unlimited renewals, so long as the parties’ intent to
create that right is explicit and clear.” (Ginsberg, supra, 205
Cal.App.4th at p. 884.) If a lease is uncertain as to whether it
was intended to be renewable in perpetuity, it will be construed
as allowing one renewal. (Id. at pp. 884–885.) “ ‘[¶] On the other
hand, a clause providing for perpetual renewals at the option of
the lessee is held to be enforceable when it appears that it was
clearly the intention of the parties that the lessee should have
that right.’ ” (Id. at p. 885.)
       The Ginsberg court further stated: “ ‘Unless it appears
from the covenant in the lease, by express term or clearly by

                                10
implication, that plaintiffs are entitled to have the lease renewed
for all time to come, a court of equity will not decree specific
performance of the covenant for that purpose. . . . So it has been
said that a covenant which does not plainly imply or express a
perpetual renewal, will not be construed to give this right.’
[Citations.] When confronted with a lease that is equivocal or
ambiguous as to whether the tenant has a right to unlimited
renewals of the lease, courts following this rule do not apply
principles of contract interpretation that would allow admission
of extrinsic evidence relevant to the parties’ intent, or rules
construing ambiguities against the drafter. Instead, courts
simply will not construe the provision as creating a right to
perpetual renewals.” (Ginsberg, supra, 205 Cal.App.4th at
p. 885.)
       In this case, the arbitrator expressly found the renewal
clause clearly and unambiguously provided that HartBeat could
renew the lease in perpetuity, without limitation. In addition to
the plain language of the provision, the arbitrator noted other
provisions of the lease supported his conclusion that HartBeat
had a right to unlimited renewals in the context of the agreement
as a whole. The arbitrator did not rely on extrinsic evidence to
reach his conclusions, but noted the extrinsic evidence presented
by the parties supported his interpretation of the plain language
of the agreement. Ginsberg does not purport to articulate public
policy, but even if it did, the arbitrator’s award was consistent
with the rule expressed in Ginsberg. This court may not review
the arbitrator’s interpretation of the plain language of the
agreement for errors of law or fact. The trial court properly
confirmed the arbitration awards, and the judgment in favor of
HartBeat must be affirmed.

                                11
                        DISPOSITION

      The judgment is affirmed. Respondent HartBeat Digital,
LLC, is awarded its costs on appeal.
      NOT TO BE PUBLISHED.

                                       MOOR, J.

We concur:

             BAKER, Acting P. J.

             KIM, J.

                               12
Silver Dot Properties, LLC v. HartBeat Digital, LLC
B316452

BAKER, Acting P. J., Concurring

      I join the opinion for the court. I write separately only to
emphasize that the proper disposition of this appeal does not
require resolution of whether Ginsberg v. Gamson (2012) 205
Cal.App.4th 873 is correctly decided—a question the opinion for
the court does not reach.

                       BAKER, Acting P. J.