San Luis Obispo Bay Properties, Inc. v. Pacific Gas & Elec. Co.

• Decision Date: 06 November 1972
• Citation: 104 Cal.Rptr. 733,28 Cal.App.3d 556
• Court: California Court of Appeals Court of Appeals
• Parties: SAN LUIS OBISPO BAY PROPERTIES, INC., a California corporation, Petitioner and Appellant, v. PACIFIC GAS AND ELECTRIC COMPANY, a California corporation, Respondent. Civ. 39792.

Page 733

104 Cal.Rptr. 733

28 Cal.App.3d 556

SAN LUIS OBISPO BAY PROPERTIES, INC., a California corporation, Petitioner and Appellant, v. PACIFIC GAS AND ELECTRIC COMPANY, a California corporation, Respondent.

Civ. 39792.

Court of Appeal, Second District, Division 2, California.

Nov. 6, 1972.

Crossman, Weaver & Geihs, Gerald C. Weaver, Pismo Beach, O'Melveny & Myers and Richard C. Bergen, Los Angeles, for petitioner and appellant.

Charles T. Van Deusen, Richard A. Clarke, J. Bradley Bunnin, San Francisco, and James C. Logsdon, Berkeley, for respondent.

HERNDON, Associate Justice.

This appeal is taken from a judgment confirming an arbitration award. The major issue is whether or not the trial court erred in rejecting appellant's contention that as a matter of law the arbitrator who made the award was disqualified by reason of undisclosed relationships. The challenged award was based upon the arbitrator's appraisal of appellant's leasehold interest in certain parcels of real property situated on the coast in San Luis Obispo County.

In 1966, Luigi Marre and Cattle Company entered into a lease with San Luis Obispo Bay Properties, Inc. (appellant), leasing to appellant certain parcels of coastal land (designated as parcels, P, T, R and L) for a period of 99 years with options to renew.

Appellant in turn subleased certain interests in parcels P, T and R to Pacific Gas and Electric Company (respondent). In lieu of paying cash rental, respondent agreed to guarantee the repayment of loans or advances made to appellant by third party lenders. The amount of the loans to be guaranteed was to be established by appraisers' opinions of the market value of appellant's leasehold interests in all four parcels. The initial maximum amount of loans to be guaranteed was set at $6,420,000. The sublease further provided that at intervals of not less than three years, the interest of appellant in the four parcels would be appraised, upon the request of either party, and a new maximum for the guaranty would be established in the amount of the appraisal.

Upon execution of the sublease, respondent petitioned the Public Utilities Commission for approval of the guaranty arrangement, as required by section 830 of the Public Utilities Code. The approval was granted.

In 1969, respondent requested an appraisal. The parties agreed upon and retained Robert Gandy, who appraised appellant's interest at $17,141,000. A dispute developed over that appraisal and whether Gandy had appraised in accordance with accepted land appraisal practices. In order to settle this dispute and by way of compromise, the parties entered into a 'Modification Agreement.' This agreement provided that the disputed Gandy appraisal would have no force or effect and that the guaranty would be raised to $9,000,000 until a new maximum was established by a new appraisal.

With respect to that new appraisal, the agreement provided that appellant would employ E. R. Holabird and that respondent would employ Shattuck & Company to appraise appellant's interest. In the event that they were unable to agree, they would select a third appraiser to function as an arbitrator. Prior to his selection, the two named appraisers would prepare a statement setting forth the areas of agreement and disagreement and their respective positions. It was further agreed that the third appraiser would independently review these statements, make such other investigation as he should see fit, and reach a conclusion on the matters not agreed upon and on the final opinion of value.

Mr. Holabird and Mr. Kurt Shelger, principal in Shattuck & Company, were unable to agree upon an opinion of value, and Stanley Goode, Jr. was selected as arbitrator. Holabird and Shelger prepared a joint statement setting forth their areas of agreement and disagreement. ¹

Mr. Goode appraised appellant's interest in the subject properties at $5,387,000. In addition, he appraised the value of the contracts of guaranty at $1,000,000, yielding a total of $6,387,000.

The modification agreement provided that the parties would promptly accept this valuation. Appellant, however, refused to accept it and filed in the court below a petition for an order vacating the arbitration award, initially on the sole ground that the arbitrator had exceeded his powers. In an amended petition, appellant added allegations to the effect that undisclosed relationships between Goode and respondent had existed that created an 'impression of possible bias.' A second amended petition added a third ground based on the 1966 order of the Public Utilities Commission.

The court below denied appellant's petition and granted respondent's petition to confirm the award, together with costs and attorney fees. This appeal is from that judgment.

Appellant advances several contentions: (1) that the award must be set aside because it represents an obvious error of fact and is manifestly unjust; (2) that the neutral arbitrator failed to comply with the provisions of the submission agreement; (3) that the trial court failed to make all necessary findings of fact; (4) that the relationship between the neutral arbitrator and respondent's arbitrator creates an impression of possible bias; (5) that the relationships between the neutral arbitrator, the Irvine interests and respondent's director and executive officer combine to create an impression of possible bias; and (6) that the court erred in granting respondent attorney fees.

The Award Cannot Be Set Aside As Obviously Erroneous.

In 1966, the Public Utilities Commission, in its opinion and order authorizing and approving the guaranty provisions of the sublease, stated: 'The utility's contingent liability under the aforementioned contracts is set forth in the sublease at an initial maximum amount of $6,420,000 based on the fair market value of land securing the liability. This maximum amount may be increased or decreased as a result of future appraisals, but in no event will applicant's liability exceed $20,000,000.' It is conceded that this valuation did not include any increase in value due to the guaranty provisions of the sublease.

From this basis, appellant's contention proceeds: Goode's valuation of appellant's leasehold interest in 1969 (without the added increment for the value of the guaranty) was $5,387,000--over $1,000,000 less than the agreed value of the same interest in 1966. Appellant then asks this court to take judicial notice of the fact that virgin coastline land has not decreased in value over the three-year period, or at least not that significantly. ² Based on this premise that the land value could not have decreased that significantly, we are asked to set aside the award as grossly inadequate.

We approach this issue mindful of the 'strong public policy in favor of arbitration, of settling arbitrations speedily and with a minimum of court interference and of making the awards of arbitrators final and conclusive.' (Lesser Towers, Inc. v. Roscoe-Ajax Constr. Co., 271 Cal.App.2d 675, 702, 77 Cal.Rptr. 100, 117.) The Supreme Court has made it clear that: "Neither the merits of the controversy . . . nor the sufficiency of the evidence to support the arbitrator's award are matters for judicial review.' (Citation.) . . . (The court) may not substitute its judgment for that of the arbitrators.' (Morris v. Zuckerman, 69 Cal.2d 686, 691, 72 Cal.Rptr. 880, 884, 446 P.2d 1000, 1004.)

In light of the above, it is questionable whether we could properly overturn the award on the basis of appellant's contention even if we were more impressed with its intrinsic merit than we are. There is some authority, however, for the proposition that an arbitration award can be overturned upon a showing of constructive fraud (e.g., Kinkle v. Fruit Growers Supply Co., 63 Cal.App.2d 102, 108, 146 P.2d 8), and so we will assume, without deciding, that an error in an arbitration award of the nature here asserted might be so gross and palpable that judicial intervention would be proper. ³

Even making this assumption, however, appellant's contention is not persuasive. In the first place, there is a serious question as to whether the commission's statement is a Finding of the value in 1966, in which case the courts of this state (except for the Supreme Court, in certain instances) are bound by that determination (Pub.Util.Code, § 1759; Pratt v. Coast Trucking Inc., 228 Cal.App.2d 139, 39 Cal.Rptr. 332) or Merely a recital of the provisions of the sublease. If the latter, appellant's contention is based upon a false premise. But even assuming that the commission's ruling involved a determination of the value in 1966, it could not be determinative of the value in 1969; and indeed the opinion explicitly recognizes that the amount of respondent's guarantees 'may be increased Or decreased as a result of future appraisals.' (Italics added.)

Nonetheless, appellant urges us to take judicial notice of the fact that California virgin coastal real estate had not decreased this much in value between 1966 and 1969.

Judicial notice is appropriate only with respect to facts and propositions of generalized knowledge that are so universally known that they cannot reasonably be the subject of dispute. (Evid.Code, § 451.) 'If there is any doubt whatever either as to the fact itself or as to its being a matter of common knowledge, evidence should be required.' (Barreiro v. State Bar, 2 Cal.3d 912, 925, 88 Cal.Rptr. 192, 200, 471 P.2d 992, 1000.)

Appellant points primarily to the general inflationary spiral as indicating the impossibility of a decrease in value. Respondent, on the other hand, argues that there were also adverse factors operating at this time, such as the high cost of money and the increasing public pressures for legislative limitations upon the use and development of coastal properties.

While we might properly take judicial notice of the inflationary trend and its effect upon real property values In general, ...