Whether an Issue Is Arbitrable Is Determined Solely by Language in Arbitration Agreement
The Bunker Hill v. U.S. Bank case involved a rather dry, but nonetheless important issue which may have an impact on real-world situations: when arbitration may be compelled pursuant to an arbitration agreement between two parties, and more specifically, what kinds of issues may be arbitrated.
Landlord Bunker Hill owned land in Los Angeles County. It leased the land to U.S. Bank, who owns five low-rise buildings on the parcel. The parties are governed by a 99-year ground lease, which expires in 2077. When the lease is terminated (either in 2077 or at some point before then), the buildings and other improvements on the property become the property of Bunker Hill. The lease also allows U.S. Bank to sublet the property, which it did.
A dispute arose between the parties over the amount of rent, which was adjusted in April of 2013. They went to arbitration pursuant to an arbitration provision in the lease. During the arbitration, a related issue arose: whether, upon termination of the lease, the subleases would terminate or whether Bunker Hill would take title to them. That issue was not resolved during the arbitration, but the parties continued to correspond about it. After a while, U.S. Bank invoked the arbitration provision again and demanded arbitration to resolve the issue.
After a few months of conferring, U.S. Bank made several acknowledgements which, in its view, made arbitration on the sublease issue unnecessary. Bunker Hill pressed its position that arbitration was necessary to eliminate uncertainty which may arise when the lease ends. U.S. Bank responded that the issue was “purely hypothetical.”
Bunker Hill filed a petition to compel arbitration with the court, stating that there was presently a dispute between the parties regarding their respective rights and obligations under the ground lease. U.S. Bank opposed on the grounds that there was no justiciable controversy, and therefore, in essence, there was nothing to arbitrate. The trial court agreed with U.S. Bank and denied the motion. Bunker Hill appealed.
The appellate court held that the usual requirements of justifiability and ripeness, which are required before a court can hear a case, do not necessarily apply in arbitration. The language in the arbitration agreement or provision is what governs what can and cannot be arbitrated. Contracting parties are free to negotiate and restrict the powers of an arbitrator and the “universe of issues that he or she may resolve,” as the powers of the arbitrator are derived from and limited by the arbitration agreement. In this case, the provision broadly obligated the parties to arbitrate “any and all disputes, controversies or claims arising under or relating to the Ground Lease.” As the lease did not define these terms, the court interpreted them in their “ordinary and popular sense,” and concluded that the sublease issue was plainly included, as it was an “unresolved dispute which both arises under and relates to the ground lease.”
Bunker Hill Park Ltd. v. U.S. Bank, N.A. (2014) 231 Cal.App.4th 1315