Cal. Union Square L.P. v. Saks & Co.

71 Cal.App.5th 136

286 Cal.Rptr.3d 115

CALIFORNIA UNION SQUARE L.P., Plaintiff and Respondent,

v.SAKS & COMPANY LLC, Defendant and Appellant.

A162043

Court of Appeal, First District, Division 3, California.

Filed October 29, 2021

Orrick, Herrington & Sutcliffe, William A. Molinski, Los Angeles, David P. Faud, and Benjamin F. Aiken ; Moskovitz Appellate Team, Myron Moskovitz for Plaintiff and Respondent.

Allen Matkins Leck Gamble Mallory & Natsis, Anthony J. Oliva, Los Angeles, Marissa M. Dennis, Stacey A. Villagomez, San Francisco, and Marshall C. Wallace for Defendant and Appellant.

Petrou, J.

Appellant Saks & Company LLC ("Saks") appeals from an order denying its motion for attorneys’ fees. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

The background of this case is discussed in our prior opinion, California Union Square L.P. v. Saks & Co. LLC (2020) 50 Cal.App.5th 340, 263 Cal.Rptr.3d 841 (" Union Square I "), and we will summarize it to the extent relevant to the attorneys’ fees issue in this appeal.

California Union Square L.P. ("Union Square") owns a 131,000-square foot building located on the corner of Post Street and Powell Street in San Francisco (the "Property"). Saks has operated a department store at the Property since 1991, when Saks and Union Square's predecessor entered into the lease central to this dispute. The lease is over 100 pages long and consists of 24 Articles, most of which contain various sections and subsections. The lease provided Saks an initial 25-year lease period followed by five successive options to renew for 10-year periods.

Article III of the lease, which is entitled "Rent," includes Section 3.1, which is entitled "Base Rent." sets forth the rent for the initial lease period, and Section 3(b) describes the process for determining the rent for any renewal period. For each renewal period, Section 3(b) requires the base rent be reset to "Fair Market Rent," which means "the open market rental value of the [Property] for first-class retail use compatible with the then current standard in Union Square taking into account the size of the [Property]." If the parties are unable to agree to the Fair Market Rent, Section 3(b) states that the "Fair Market Rent shall be determined by arbitration in accordance with the provisions of Section 3.1(c)."

Section 3.1(c) sets forth the process for settling disputes about the Fair Market Rent. This subsection mandates an arbitration process which is to be conducted under the rules of the American Arbitration Association ("AAA"). It subjects this process to several modifications enumerated in Sections 3.1(c)(i) through 3.1(c)(v). Section 3(c)(i) requires Saks to make a demand for arbitration along with its proposed determination of the Fair Market Rent, and Union Square must respond with its own rent determination. If the parties’ positions continue to differ, Section 3.1(c)(ii) specifies the qualifications required for the arbitrator. Section 3.1(c)(iii) provides for what is known as "baseball arbitration," in which each party proposes its own rent determination and the arbitrator "select[s] which of the two determinations proposed ... most closely approximate[s] [the arbitrator's] determination [of rent]." Section 3.1(c)(iv) states that the process for appointing a successor arbitrator in the event the original appointee fails to act is the same as for the original appointment. Critically for this appeal, it also states that "[e]ach party shall share equally the fees and expenses of the arbitrator. The attorneys’ fees and expenses of counsel for the respective parties and of witnesses shall be paid by the respective party engaging such counsel or calling such witnesses." Section 3.1(c)(v) establishes how the arbitrator must conduct the arbitration.

Article XXIII of the lease contains a series of "Miscellaneous" provisions, which includes one for "Attorneys’ Fees." This provision, which appears as Section 23.10, states in relevant part: "Should either party institute any action or proceeding to enforce this Lease or any provision hereof, or for damages by reason of any alleged breach of this Lease or of any provision hereof, or for a declaration of rights hereunder, the prevailing party in any such action or proceeding shall be entitled to receive from the other party all costs and expenses, including reasonable attorneys’ fees, incurred by the prevailing party in connection with such action or proceeding."

In January 2016, Saks exercised its option to renew the lease for ten years. The parties were unable to agree on the Fair Market Rent, which triggered the dispute resolution process under Section 3.1(c).

In June 2016, the parties received from AAA a list of ten proposed arbitrators. While the parties’ arbitrator selection discussions were pending, Union Square filed a petition to appoint an arbitrator in federal district court. According to Saks’ counsel, Union Square's attorney said the filing was " ‘in the event we can't reach agreement on an arbitrator.’ " Days later, Union Square also filed in the federal court case an ex parte application for an order requiring the parties each submit a list of five appraisers to serve as arbitrator, to which Saks responded. Prior to any ruling in the federal district court case, the parties mutually agreed on Jan Kleczewski as the arbitrator.

The parties proceeded to arbitrate the rent dispute to Kleczewski in January 2017. Following a three-day arbitration hearing, Kleczewski issued his award in favor of Union Square (referred to as the "First Award"). He estimated the Fair Market Rent to be $10.94-10.98 million per year, which was closer to Union Square's proposed rent of $13.9 million than to Saks’ proposed $6.25 million. Thus, under the principles of "baseball arbitration," the annual rent for the new lease term would be $13.9 million.

Union Square moved to confirm the First Award in an action it commenced in San Francisco Superior Court, and Saks moved to vacate it. The trial court granted Saks’ motion to vacate the First Award and denied Union Square's motion to confirm it. The trial court found the arbitrator had exceeded his powers and ordered a new arbitrator be appointed and the matter re-arbitrated. In an effort to avoid re-arbitration, Union Square filed a petition for a writ of mandate in this court seeking an order directing the trial court to confirm the First Award. After inviting full briefing, this court summarily denied the petition.

After this court denied the writ, the parties began discussing a new arbitrator for a second arbitration. While these discussions were pending, Union Square filed in the superior court a motion to appoint the second arbitrator. After full briefing and oral argument, the court appointed Paula Konikoff. In late October/early November 2018, the parties participated in a four-day arbitration hearing before Konikoff. Konikoff found in favor of Saks and ruled that the $6.25 million annual rent proposed by Saks was the Fair Market Rent (the "Second Award"). Union Square moved to vacate the Second Award. After full briefing and a hearing on the motion, the trial court denied the motion. Saks subsequently filed an ex parte application to confirm the Second Award. The court granted the application and entered judgment in favor of Saks in June 2019.

Union Square appealed the judgment and the earlier order vacating the First Award. Following briefing and oral argument, we affirmed the trial court's order vacating the First Award as well as the order confirming the Second Award. ( Union Square I , supra , 50 Cal.App.5th at p. 356, 263 Cal.Rptr.3d 841.) Union Square filed a petition for review with the California Supreme Court, which Saks answered and the Supreme Court denied in August 2020.

Saks moved for approximately $1 million in attorneys’ fees for various "litigation proceedings arising out of the arbitration." Saks expressly noted that it was not seeking any of the "hundreds of thousands of dollars" in attorneys’ fees or costs incurred in the two arbitrations in light of Section 3.1(c)(iv)’s provision that "attorneys’ fees and expenses" of counsel for the respective parties and witnesses "shall be paid by the respective party engaging such counsel or calling such witnesses." Under the attorneys’ fees provision in Section 23.10, Saks sought the fees it incurred "only in court proceedings," which included the judicial proceedings in both federal and superior court beginning with Union Square's federal court action to appoint an arbitrator and concluding with its motion for attorneys’ fees.

Following full briefing and a hearing, the trial court denied Saks’ motion for attorneys’ fees. Saks appeals.

DISCUSSION

Saks contends the trial court erroneously denied its motion for attorneys’ fees. We disagree.

Attorneys’ fees are generally not recoverable as costs unless they are authorized by statute or agreement. ( Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 127, 158 Cal.Rptr. 1, 599 P.2d 83.). We interpret a contract so as to give effect to the mutual intention of the contracting parties at the time the contract was formed. ( Civ. Code, § 1636 ; see Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1998) 18 Cal.4th 857, 868, 77 Cal.Rptr.2d 107, 959 P.2d 265.) We ascertain that intention solely from the written contract if possible, but also consider the circumstances under which the contract was made and the matter to which it relates. ( Civ. Code, §§ 1639, 1647.) We consider the contract as a whole and interpret its language in context so as to give effect to each provision, rather than interpret contractual language in isolation. (Id ., § 1641.) We interpret words in accordance with their ordinary and popular sense and, if the contractual language is clear and does not involve an absurdity, the plain meaning governs. (Id. , §§ 1638, 1644.) The determination of the basis for an award of attorneys’ fees is a question of law which an appellate court reviews de novo....