Helo
Energy v. So. Cal. Edison
Filed
10/15/13 Helo Energy v.
So. Cal. Edison CA2/7
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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115.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
SEVEN
HELO ENERGY LLC et al.,
Plaintiffs and Respondents,
v.
SOUTHERN CALIFORNIA EDISON
COMPANY,
Defendant and Appellant.
B244263
(Los
Angeles County
Super. Ct.
No. BC481840)
APPEAL from
an order of the Superior Court of Los
Angeles County, Charles F. Palmer, Judge.
Reversed and remanded with directions.
Brune &
Richard, Laurie Edelstein, Seth R. Sias; Southern California Edison Company,
Leon Bass, Jr., James J. Ward and Allan D. Johnson for Defendant and Appellant
Southern California Edison Company.
Akin Gump
Strauss Hauer & Feld, Richard K. Welsh, Hyongsoon Kim and Scott J.
Street for Plaintiffs and Respondents Helo Energy, LLC, Sand Canyon of
Tehachapi, LLC, Saugatuck Energy, LLC.
_____________
>
Southern California Edison Company
(SCE) appeals from an order denying
its petition to compel arbitration of a dispute with Helo Energy, LLC, Sand
Canyon of Tehachapi, LLC and Saugatuck Energy, LLC (collectively the Helo
parties). The trial court acknowledged
the Helo parties’ claims against SCE were covered by a valid
petition under Code of Civil Procedure section 1281.2, subdivision (c),
same transaction or series of related transactions as the Helo parties’
nonarbitrable claims against third parties and enforcing the arbitration
agreement would create a possibility of conflicting rulings. SCE contends the court erred in denying
arbitration under section 1281.2, subdivision (c), because the statutory
prerequisites for application of that statute had not been met: There was no litigation involving parties who
were not subject to the arbitration
agreement and, even if there was, there was no possibility of conflicting
rulings. Alternatively, SCE contends the
court abused its discretion in denying its request to stay the arbitration
pending a resolution of the third party litigation. Although we agree with the trial court that
the statutory prerequisites to applying section 1281.2, subdivision (c), were
satisfied, we reverse the order denying arbitration. Where, as here, the potential for conflicting
rulings is remote and entirely theoretical and can be eliminated by other means
short of denying arbitration, it is an abuse of discretion to deny arbitration
entirely.
1. The
In November
2008 Heather Kann and David Pitcher, a married couple, formed Sand Canyon of
Tehachapi, LLC and acquired the option to purchase real property located in Tehachapi,
California.
After acquiring the property Sand Canyon of Tehachapi negotiated a power
purchase agreement (PPA) in January 2010 with SCE in which the company agreed
to develop a wind farm and SCE agreed to purchase a substantial amount of power
generated by the wind farm at a fixed price over a 20-year term. Kann signed the PPA as the managing member of
Sand Canyon of Tehachapi.
2. The
Helo Parties’ Purchase of the
In August
2010 Helo Energy’s predecessor-in-interest, Sand Canyon Holdco, Inc.,
million, a purchase that included 100 percent of the membership interests in
Sand Canyon of Tehachapi and the company’s rights under the PPA. To effect the sale, Kann transferred 100
percent of Sand Canyon of Tehachapi’s membership interests to GLJ, an entity
Kann formed in May 2010. Then, on behalf
of GLJ, Kann transferred those membership interests to Helo Energy.
The Helo
parties financed their purchase of the Sand Canyon property and the rights to
the PPA by obtaining a $1.5 million loan from Saugatuck, secured by a deed of
trust on the Sand Canyon property, and a $5.51 million loan from GLJ, secured
by both a second deed of trust on the Sand Canyon property and a pledge by the
Helo parties to return 100 percent of the membership interests in Sand Canyon
of Tehachapi to GLJ in the event of their default.
The PPA
prohibited the assignment of any rights granted by it without SCE’s written
consent. SCE formally consented to the
transfer of Sand Canyon’s
membership interests, including any interest the company had in the PPA, in a
document entitled “Consent to Transfer.â€
SCE also executed a “Consent to Collateral Assignment Agreement†in
which it consented to Helo Energy’s pledge of 100 percent of its membership
interests in Sand Canyon of Tehachapi to GLJ as collateral for GLJ’s loan. The consent to collateral assignment was
signed by Rudy Saenz (on behalf of Helo Energy), Kann (on behalf of Sand Canyon
of Tehachapi) and Marc Ulrich (on behalf of SCE).
3. The
Arbitration Provisions
Both the
PPA and the consent to collateral assignment (but not the consent to transfer)
contained arbitration provisions. The
PPA provided, “Any and all Disputes which the Parties have been unable to resolve
by informal methods after undertaking a good faith effort to do so, must first
be submitted to mediation . . . and, if
the matter is not resolved through mediation, then for final and binding
arbitration†in accordance with the California Arbitration Act. “Dispute†is defined under the PPA to mean
“any and all disputes, claims or controversies arising out of, relating to,
concerning or pertaining to the terms†of the PPA “or to either Party’s
performance or failure of performance under this Agreement.†The consent to collateral assignment
provided, “All disputes, claims or controversies arising out of, relating to,
concerning or pertaining to the terms of this Consent shall be governed by the
dispute resolution provisions in the [PPA].â€
4. SCE’s
Termination of the PPA
Following their purchase of the Sand
Canyon project, the Helo parties
spent more than $9 million developing the wind farm. In November 2011 SCE notified the Helo
parties it was terminating the PPA pursuant to section 2.04(c) of the PPA,
which granted SCE the right to terminate if the results of an interconnection
study by the California Independent System Operator (CAISO) concluded the costs
to SCE of transmission upgrades or new transmission facilities to connect the
wind farm facility to SCE’s transmission grid would exceed $2.5 million.
5. GLJ
Seeks To Reclaim the Sand
Soon after
SCE terminated the PPA, GLJ notified the Helo parties they were in default of
their obligations under the GLJ note and, as a result, it intended to reclaim
the property and 100 percent of the membership interests in Sand Canyon of
Tehachapi in accordance with the terms of the note. GLJ also persuaded SCE that it, rather than
any of the Helo parties, was entitled to the $600,000 development security
deposit that, under the terms of the PPA, SCE was required to refund if it
exercised its termination rights. SCE
refunded the deposit to GLJ.
6. This
Lawsuit
In March
2012 the Helo parties filed this lawsuit.
Helo Energy and Sand Canyon of Tehachapi (in which Helo Energy claimed a
100 percent ownership interest) asserted claims against SCE for breach of
contract. Saugatuck separately alleged a
claim against SCE pursuant to California Uniform Commercial Code section 9607,
subdivision (a), contending it was entitled to the refund of the $600,000
development security deposit as a secured first lien holder on the Sand
Canyon project.
In the same
lawsuit the Helo parties asserted several fraud-based causes of action against
Kann, Pitcher, GLJ, Kent Hoggan and Jeffrey Hoggan and the Hoggans’ company,
Eagle Energy, LLC (collectively the seller defendants). The first through fourth causes of action for
fraud alleged the Hoggans were real estate investors who initially wanted to
purchase the Sand Canyon
property themselves in 2008 to capitalize on California’s
emerging market for renewable energy.
However, their mounting debt and poor credit—casualties of their
multiple real estate investments and ensuing crash of the housing market in
2007 and 2008—precluded them from obtaining the necessary financing. Instead, they devised a plan with Pitcher and
Kann to help them acquire the property:
Pitcher and Kann formed Sand Canyon of Tehachapi, acquired the right to
purchase the Sand Canyon
property and, in 2009, agreed to sell the property to Eagle Energy.
The Hoggans
then recruited Rudy Saenz, owner of Lightwave Energy, LLC, to assist them in
finding investors in the project. When
Saenz learned of the Hoggans’ mounting liabilities, he balked at providing any
further assistance in finding investors.
The Hoggans then persuaded Saenz to purchase the project without
them. Working with Pitcher and Kann, the
Hoggans provided Saenz with a wind report purporting to show very high wind
speeds on the property that would support the wind project envisioned by the
PPA. Based on this report, Saenz formed
Helo Energy, purchased Sand Canyon of Tehachapi, including the Sand
Canyon property and Sand Canyon of
Tehachapi’s rights under the PPA. The
wind report also persuaded Saugatuck to help finance the project. In fact, the report, on which each of the
Helo parties substantially relied, related to a completely different property
and had been deliberately altered by the seller defendants to make it appear as
though it related to the Sand Canyon
property. The Helo parties did not
discover the fraud until May 2011. After
learning the truth, however, the Helo parties elected to continue developing
the wind farm rather than seek rescission of the agreement.
In the
fifth cause of action, Helo Energy alleged the seller defendants had failed to
disclose Eagle Energy’s option rights in the project until after it had
purchased the project and SCE had consented to the assignment of the PPA. At that point GLJ refused to provide further
financing until Helo Energy paid Eagle Energy $1.1 million to resolve any
dispute Eagle Energy might have had over Helo Energy’s acquisition of the
project. GLJ also required Helo Energy
to execute an amendment to the GLJ promissory note releasing Kann and GLJ from
any liability for actions relating to the sale of the project. Kann and GLJ claimed the release was
necessary to protect them from a lawsuit by the Hoggans concerning GLJ’s sale
of the Sand Canyon
project to Helo Energy. However, this
statement was false. The Hoggans and GLJ
were working together, and the Hoggans had no intent to sue Kann or GLJ. Had Helo Energy known of the conspiracy, it
would not have entered into the settlement agreement and release with Eagle
Energy. Helo Energy sought rescission of
the settlement agreement and restitution of the monies it paid in consideration
for the agreement.
GLJ filed a
cross-complaint against the Helo parties for breach of the promissory note
obligations and sought declaratory relief as to which entity or individual was
the rightful owner of the Sand Canyon property and the membership interests in
Sand Canyon of Tehachapi, LLC.
name="_ftnref4" title="">[4]
7. SCE’s
Petition To Compel Arbitration
On May 14, 2012 SCE petitioned the court
to compel arbitration of the Helo parties’ claims against it based upon the
arbitration provision in the PPA.
name="_ftnref5" title="">[5] Although SCE acknowledged Saugatuck was not
an assignee of Sand Canyon of Tehachapi’s rights under the PPA, it argued
Saugatuck’s claim to recover the development deposit was based upon, and thus
inextricably intertwined with, the terms of the PPA. Thus, it argued, Saugatuck was properly bound
to arbitrate its claim in accordance with the arbitration provision in the PPA.
The Helo
parties opposed the petition to compel arbitration. Helo Energy and Sand Canyon of Tehachapi
acknowledged the validity of the arbitration agreement and its application to
their claims against SCE, but urged the court to deny SCE’s petition pursuant
to section 1281.2, subdivision (c), on the ground none of the seller
defendants had sought arbitration and there was a substantial overlap between
their nonarbitrable fraud claims against the seller defendants, on the one
hand, and their arbitrable breach of contract claim against SCE, on the other
hand, which could result in inconsistent rulings. For its part, Saugatuck argued it was not a
party to the arbitration agreement and thus was not bound by it in pursuing its
claim against SCE.
In reply
SCE maintained there was no third party whose interests could be harmed from
compelling arbitration since each of the seller defendants was either a
signatory of the PPA or a principal, agent or assignee of a signatory and thus
bound by the agreement to arbitrate contained in the PPA. Alternatively, it argued the contract claims
against SCE and the fraud claims against the seller defendants were legally and
factually distinct, thus eliminating any possibility of conflicting rulings;
and any possible overlap on the issue of ownership of Sand Canyon of Tehachapi,
the subject of GLJ’s cross-complaint and an integral part of Saugatuck’s claim
against SCE, could be resolved by staying the arbitration until after a trial
on the nonarbitrable claims.
8.
The Trial Court’s Ruling Denying
the Petition To Compel Arbitration
After holding a hearing and
taking the matter under submission, the trial court denied the petition to
compel arbitration pursuant to section 1281.2, subdivision (c), finding,
without specification (a statement of decision was neither requested nor
issued), there was a substantial overlap of law or facts between the arbitrable
claim and the nonarbitrable claims proceeding against third parties in a
judicial forum.
title="">[6]
CONTENTIONS
SCE contends section 1281.2,
subdivision (c), is inapplicable because the seller defendants are not true
“third parties†to the arbitration agreement and, even if they were, there is
no possibility of conflicting rulings if arbitration were ordered. It also contends, even if section 1281.2,
subdivision (c), applies, the court abused its discretion in denying
arbitration rather than staying it pending resolution of the third party
litigation.
DISCUSSION
1. Governing
Law and Standard of Review
Section 1281.2 requires the
trial court to order arbitration of a controversy under most circumstances if
it determines a valid agreement to arbitrate exists. However, arbitration of a controversy need
not be ordered when the court determines that “[a] party to an arbitration
agreement is also a party to a pending court action or special proceeding with
a third party, arising out of the same transaction or series of related
transactions and there is a possibility of conflicting rulings on a common
issue of law or fact. . . .â€
(§ 1281.2, subd. (c); see Pilimai
v. Farmers Ins. Exchange Co. (2006) 39 Cal.4th 133, 141 [under
§ 1281.2, subd. (c), a party’s contractual right to arbitration “‘may
have to yield if there is an issue of law or fact common to the arbitration and
a pending action or proceeding with a third party and there is a possibility of
conflicting rulings thereon’â€]; Mercury
Ins. Group v. Superior Court (1998) 19 Cal.4th 332, 347 [same];
Rehabilitation Center, LLC (2007) 150 Cal.App.4th 469, 475 [“[w]hile
there is a strong public policy in favor of arbitration, there is an ‘equally
compelling argument that the Legislature has also authorized trial courts to
refuse enforcement of an arbitration agreement . . . when, as here,
there is a possibility of conflicting rulings’â€].)
If section
1281.2’s prerequisites are met—an issue of law or fact is common to the
arbitration and a pending action or proceeding with a third party and there
exists a possibility of conflicting rulings—the trial court has four options: The court “(1) may refuse to enforce the
arbitration agreement and may order intervention or joinder of all the parties
in a single action or special proceeding; (2) may order intervention or joinder
as to all or only certain issues; (3) may order arbitration among the parties
who have agreed to arbitration and stay the pending court action or special
proceeding pending the outcome of the arbitration proceeding; or (4) may stay
arbitration pending the outcome of the court action or special proceeding.†(§ 1281.2, subd. (c); accord,
205 Cal.App.4th 1346, 1367-1358; Metis
Development LLC v. Bohacek (2011) 200 Cal.App.4th 679, 691.)
An order denying a petition to
compel arbitration under section 1281.2, subdivision (c), is generally reviewed
for abuse of discretion. (
19 Cal.4th at p. 349; Lindemann v.
Hume (2012) 204 Cal.App.4th 556, 565.)
Under this standard we must affirm unless the trial court’s order
“‘exceeded the bounds of reason.’†(
1318.) The question whether section
1281.2, subdivision (c), is properly invoked at all, however, is a legal
determination subject to de novo review.
(Lindemann, at p. 565;
2. The
Trial Court Did Not Err in Applying Section 1281.2, subdivision (c) a. Third
parties
SCE contends the court erred in
denying its petition to compel arbitration because there is no litigation
involving third parties within the meaning of section 1281.2, subdivision
(c). (See Acquire II, Ltd. v. Colton Real Estate Group (2013)
court does not have discretion to deny arbitration under . . .
section 1281.2(c), absent the presence of a third party’â€];
1276, 1288, fn. 6 [“[t]he court’s discretion under section 1281.2,
[subd.] (c), does not come into play until it is ascertained that the
subdivision applies, which requires the threshold determination of whether
there are nonarbitrable claims against at least one of the parties to the
litigation (e.g., a nonsignatory)â€].)
Relying on cases defining a third
party for purposes of section 1281.2, subdivision (c), as “a party to the
action that is not bound by or entitled to enforce the arbitration agreement†(
Cal.App.4th 605, 612; accord, Laswell v.
AG Seal Beach, LLC (2010) 189 Cal.App.4th 1399, 1407), SCE posits several
theories on which each of the seller defendants (though most were not
signatories to the PPA containing the arbitration provision) could have
compelled arbitration of the Helo parties’ claims: Kann was a signatory to the PPA containing an
agreement to arbitrate; Pitcher was an agent of the former Sand Canyon of Tehachapi,
a signatory to the PPA; GLJ was a signatory to the consent to collateral
assignment agreement, which, like the PPA, contained an arbitration provision;
and the Hoggans and Eagle Energy, while not signatories to any arbitration
agreement, were the principals and/or agents of signatories who did agree to
arbitrate. Because each of the seller
defendants could have enforced an arbitration agreement concerning the Helo
parties’ claims, SCE argues, none is properly considered a third party to the
agreement for purposes of section 1281.2, subdivision (c).
The Helo parties respond, because none of the seller
defendants has actually sought arbitration, they are necessarily “third
parties†to the arbitration proceeding.
SCE, on the other hand, insists what matters is that they could have
enforced the agreement to arbitrate.
Otherwise, it argues, a defendant subject to arbitration could defeat a
codefendant’s contractual arbitration right simply by waiving arbitration and
electing to defend the action in court.
SCE’s concern for the effect of a defendant’s waiver
of arbitration on the arbitration rights of other parties in multi-party
litigation ignores the trial court’s broad discretion under section 1281.2,
subdivision (c), to allow arbitration to proceed as to at least a limited set
of arbitrable claims notwithstanding the potential for conflicting rulings in
third party litigation. (See
Services (2005) 35 Cal.4th 376, 393 [“[S]ection 1281.2(c) is not a
provision designed to limit the rights of parties who choose to arbitrate or
otherwise to discourage the use of arbitration.
Rather, it is part of California’s statutory scheme designed
to enforce the parties’ arbitration agreements . . . . Section 1281.2(c) [gives the court discretion
to] address[] the peculiar situation that arises when a controversy also
affects claims by or against other parties not bound by the arbitration
agreement.â€].) In any event, we need not
determine the precise contours of the pending third-party-litigation doctrine
here; for, as we explain, the Helo parties’ claims against the seller
defendants arise out of the purchase and sale of the Sand Canyon project, not out of the PPA
or consent to collateral assignment.
Because the scope of the PPA’s arbitration agreement does not cover the
fraud claims asserted against the seller defendants, section 1281.2,
subdivision (c), necessarily applies.
As discussed, the PPA requires the parties to that
agreement to arbitrate “any and all disputes, claims or controversies arising
out of, relating to, concerning or pertaining to the terms†of the PPA “or to
either Party’s performance or failure of performance under this
Agreement.†As the successor-in-interest
to Sand Canyon of Tehachapi’s rights under the PPA, Helo Energy’s breach of
contract claim against SCE plainly arises under the PPA. Similarly, Saugatuck’s claim under the
Commercial Code to recover the development deposit as provided in the PPA is
rooted in the terms of the PPA, thus making Saugatuck, although a nonsignatory,
bound by the agreement to arbitrate under principles of equitable
estoppel. (See JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th
1222, 1241 [nonsignatory plaintiff
can be compelled to arbitrate a claim when
plaintiff’s claim itself is based on, or inextricably intertwined with, the
contract containing the arbitration clause]; DMS Services, Inc. v. Superior Court, supra, 205 Cal.App.4th
at p. 1354 [same].)
In
contrast, the Helo parties’ fraud claims against the seller defendants do not
arise out of, relate, concern or pertain to the terms of the PPA or the
parties’ performance or failure of performance under that agreement. Rather, they concern a wholly separate
purchase and sale agreement between Helo Energy and the former Sand Canyon of
Tehachapi, one that apparently did not include an arbitration provision. Accordingly, whatever the nature of the
relationships is between and among the seller defendants, the Helo parties’
claims against them fall outside the scope of the arbitration agreement
contained in the PPA. (See
Cal.App.4th at p. 570 [“[e]ven if Levin and Nazarian are bound by the
arbitration agreement and could be compelled to arbitrate certain disputes
arising from the sale of the Ocean Front Walk property . . . their claims for
indemnity from the Hancock Park defendants are outside the scope of the
arbitration provision, which covers only disputes between the seller and the
buyer, not internecine disputes among members of the seller’s team of
advisorsâ€]; see also JSM Tuscany, LLC v.
Superior Court, supra, 193 Cal.App.4th at p. 1240, fn. 20 [noting
inability to enforce agreement to arbitrate may be based on the theory that the
claims fall outside the scope of the agreement to arbitrate].)
SCE’s reliance on Helo Energy’s
execution of the consent to collateral assignment agreement is similarly
misplaced. Like the PPA, the arbitration
agreement in the consent to collateral assignment is limited in scope: It requires arbitration of all “disputes,
claims or controversies arising out of, relating to, concerning or pertaining
to the terms of this consent.†Because
the Helo parties’ claims against the seller defendants do not relate to SCE’s
consent to Helo Energy’s use of its membership interests in Sand Canyon of
Tehachapi as collateral for GLJ’s loan, they are also outside the scope of that
agreement to arbitrate.
b.
SCE also contends the court erred in concluding there
was a possibility of conflicting rulings on a common issue of law or fact
because the fraud claims, on the one hand, and the breach of contract claim, on
the other hand, are factually distinct:
The contract claim centers on whether SCE had the right to terminate the
PPA based on the results of a study showing unduly high interconnection
costs. The fraud claims are based on
alleged misrepresentations made to the Helo parties by the seller
defendants.
SCE’s characterization of the different causes of
action alleged in the complaint is sound.
Nonetheless, its conclusion there is no possibility, however remote, of conflicting rulings on a common issue of law or
fact is incorrect. To recover for breach
of contract against SCE, Helo Energy and Sand Canyon of Tehachapi must show
they fully performed under the PPA, that is, they developed the wind farm
contemplated in the PPA. (See
Agency (1999) 75 Cal.App.4th 1262, 1276 [to recover on breach of contract
claim, plaintiff must show he either fully performed under contract or had
ability to perform and was prevented from performing by defendant’s breach];
connection with the Helo parties’ purported reliance on the misrepresentations
by the seller defendants and any damages they incurred as a result of the
fraud. (See Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951,
976 [to recover in fraud action, plaintiff must show reasonable reliance on
misrepresentation caused damage].)
SCE contends Helo’s performance under the contract is
of no significance because it is not in dispute. However, absent SCE’s stipulation removing
that issue, the Helo parties’ efforts to develop the wind farm are an essential
part of their own prima face case for breach of contract and fraud. Such efforts may also be relevant to the
amount of damages incurred in connection with each of these claims. SCE disputes this, asserting the costs
expended to develop the wind farm, while perhaps relevant to damages for fraud,
are not recoverable in a breach of contract action seeking
benefit-of-the-bargain damages, which rest on the amount of profits lost as a
result of the alleged breach. (See
Pomona Unified School Dist. (2004) 34 Cal.4th 960, 967-968 [“[t]he
injured party’s damages cannot . . . exceed what it would have
received if the contract had been fully performed on both sidesâ€]; Civ. Code,
§ 3358 [same].) However, SCE’s
argument presupposes a binding election of remedies that need not be made at
this early stage of the proceedings.
(See Smith v. Golden Eagle Ins.
Co. (1999) 69 Cal.App.4th 1371, 1375 [party need not make election of
remedies at outset of litigation]; see also Lindemann
v. Hume, supra, 204 Cal.App.4th at p. 567 [“[t]he issue to be addressed
under § 1281.2, subdivision (c), however, is not whether inconsistent rulings
are inevitable but whether they are possible if arbitration is orderedâ€].)
There is also a possibility of conflicting rulings on
the ownership of membership interests in Sand Canyon of Tehachapi, a fact
central to both Saugatuck’s arbitrable claim to recover the development deposit
under the PPA and GLJ’s nonarbitrable claim for declaratory relief and damages
based upon the Helo parties’ alleged default under the GLJ note. SCE acknowledges this potential for
conflicting rulings, but insists it can be eliminated by staying the
arbitration pending resolution of the judicial proceedings; SCE would agree to
abide by any finding on this issue in the judicial proceeding. SCE’s suggestion for avoiding the possibility
of conflicting rulings addresses how the court should exercise its discretion
once it determines section 1281.2, subdivision (c), applies—an issue we
consider in the following section—not whether the statute applies in the first
place. Plainly it does here.
3.
Denying Arbitration Entirely
If the statutory prerequisites to section 1281.2,
subdivision (c), are met, the court has broad discretion in selecting among the
statute’s delineated options. (See
Cal.App.4th at p. 568.) That one
approach is reasonable does not necessarily mean a different one selected by
the trial court is not. (
19 Cal.4th at p. 351 [“[t]he reasonableness of an approach that was not
selected [under § 1281.2, subd. (c)] does not entail the unreasonableness
of the one that wasâ€].) Still, the
court’s discretion under section 1281.2, subdivision (c), is not unlimited, but
rather guided by the extent to which the possibility of inconsistent rulings
may be avoided. (Metis Development LLC v. Superior Court, supra, 200 Cal.App.4th at
pp. 692-693 [“[w]hat the trial court chooses to do in this situation is a
matter of its discretion, guided largely by the extent to which the possibility
of inconsistent rulings may be avoidedâ€].)
Here, the possibility of inconsistent rulings on the
factual question of Helo’s performance under the contract, while existent in
theory, is remote and highly speculative.
Both Helo’s breach of contract claim and SCE’s defense to that claim
center on the truth of SCE’s purported reason for termination, that is, the
interconnection study showing the costs to SCE (the costs to connect the wind
farm to SCE’s transmission grid) exceeding $2.5 million. Helo’s performance under the PPA has not, to
date, been raised by SCE and is unlikely to be a factor at all in resolving the
breach of contract claim. Thus, this
case is very different from Lindemann v.
Hume, supra, 204 Cal.App.4th at page 568 (trial court’s observation of
possibility of inconsistent rulings on central issue of plaintiff’s liability
was “eminently reasonableâ€), Birl v.
Heritage Care, supra, 150 Cal.App.4th at page 1322 (trial court did
not abuse its discretion in denying motion to compel arbitration where
conflicting rulings on central issue of who was at fault in medical malpractice
action), and Fitzhugh v. Granada
Healthcare and Rehabilitation Center, supra, 150 Cal.App.4th at pages 475
to 476 (observing the tangible potential for conflicting rulings on question
whether any violations of the Patients’ Bill of Rights caused the victim’s
injuries or her death), where the potential for inconsistent rulings on a
central issue was neither remote nor theoretical.
A more concrete possibility of a potential for
inconsistent rulings involves the question whether GLJ or the Helo parties own
the membership interests in Sand Canyon of Tehachapi. As we explained, this is an issue in both the
Helo parties’ breach of contract and Commercial Code claims against SCE and
their claims against the fraud defendants.
However, SCE has agreed to be bound by the ruling in the trial court on
this question, thus eliminating the
potential for inconsistent rulings.
It is, of course, not the province of this court to
second-guess the trial court’s evaluation of different options available under
section 1281.2, subdivision (c). (
Cal.App.4th at p. 568; Birl v.
Heritage Care, supra, 172 Cal.App.4th at p. 1322.) In many instances there will be more than one
reasonable choice and the selection of one over the other will not amount to an
abuse of discretion. (
19 Cal.4th at p. 351; Fitzhugh v
Granada Healthcare and Rehabilitation Center, supra, 150 Cal.App.4th at pp.
475-476.) Here, however, any possibility
of conflicting rulings was either remote and entirely theoretical or related to
a tangential issue (to whom should SCE return the development deposit) that
could have easily been eliminated by reasonably available means. Denying arbitration under these circumstances
would also impose an additional and unreasonable burden on SCE, forcing it to
participate in a protracted fraud litigation that, as we have explained, only
marginally relates to the series of transactions at issue in the contract
claims asserted against it. We need not
determine whether any single factor we have recited is itself sufficient to
compel reversal. Considered
cumulatively, together with the strong public policy favoring arbitration, they
compel the conclusion the order denying arbitration was an abuse of
discretion. (See, e.g.,
supra, 200 Cal.App.4th at
p. 693 [“In this case, the record does not support the court’s decision to
deny arbitration entirely. . . .
[T]here is no indication why the possibility of conflicting rulings as
to those third parties could not also be resolved by staying the claims against
them, given the court’s apparent conclusion that it could be resolved by
staying the claims against Polatiâ€].)
DISPOSITION
The order denying arbitration is
reversed. On remand the trial court is
directed to compel arbitration of the Helo parties’ claims against SCE and to
exercise its discretion under section 1281.2, subdivision (c), as to how and
when the arbitration shall proceed. Each
party is to bear its own costs on appeal.
PERLUSS,
P. J.
We
concur:
WOODS,
J. SEGAL J.
references are to the Code of Civil Procedure unless otherwise indicated.
ease of reference, we refer to both Sand Canyon Holdco, Inc. and its
successor-in-interest Helo Energy as Helo Energy.
