Filed 10/15/13 Helo Energy v. So. Cal. Edison CA2/7
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication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 SEVEN
HELO ENERGY LLC et al., B244263
Plaintiffs and Respondents, (Los Angeles County
v. Super. Ct. No. BC481840)
SOUTHERN CALIFORNIA EDISON
COMPANY,
Defendant and Appellant.
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
agreement to arbitrate, but denied SCE’s petition under Code of Civil Procedure section
1
1281.2, subdivision (c), on the ground those claims arose out of the 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.
FACTUAL AND PROCEDURAL BACKGROUND
1. The Sand Canyon Renewable Energy Project
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.
1 Statutory references are to the Code of Civil Procedure unless otherwise indicated.
2
2. The Helo Parties’ Purchase of the Sand Canyon Project
In August 2010 Helo Energy’s predecessor-in-interest, Sand Canyon Holdco,
2
Inc., bought the Sand Canyon project for $12 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.” 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
2 For ease of reference, we refer to both Sand Canyon Holdco, Inc. and its
successor-in-interest Helo Energy as Helo Energy.
3
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].”
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 Canyon Property
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),
4
contending it was entitled to the refund of the $600,000 development security deposit as a
3
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
3 California Uniform Commercial Code section 9607, subdivision (a), permits a
secured party to “(2) [t]ake any proceeds to which the secured party is entitled under
Section 9315 [of the Commercial Code][;] [¶] [and] [e]nforce the obligations of an
account debtor or other person obligated on collateral and exercise the rights of the debtor
with respect to the obligation of the account debtor or other person obligated on collateral
to make payment or otherwise render performance to the debtor, and with respect to any
property that secures the obligations of the account debtor or other person obligated on
the collateral.”
5
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
4
Canyon of Tehachapi, LLC.
4 While this appeal was pending, Eagle Energy and the Hoggans filed a cross-
complaint against the Helo parties, GLJ and related individuals and entities. The cross-
complaint asserts each of the cross-defendants fraudulently deprived Eagle Energy and
6
7. SCE’s Petition To Compel Arbitration
On May 14, 2012 SCE petitioned the court to compel arbitration of the Helo
5
parties’ claims against it based upon the arbitration provision in the PPA. 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
the Hoggans of their option rights granted to them by Sand Canyon of Tehachapi in 2009
to purchase the Sand Canyon project.
5 Although the petition to compel arbitration mentioned the consent to collateral
assignment agreement, it did not seek arbitration under that agreement.
7
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
6
nonarbitrable claims proceeding against third parties in a judicial forum.
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. . . .”
(§ 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
6 Kann, GLJ and Pitcher had moved to bifurcate the claims against SCE from the
remaining causes of action and stay the prosecution of the claims against SCE until the
fraud claims are resolved. In the same order in which the court denied the petition to
compel arbitration, the court also denied the bifurcation motion.
8
proceeding with a third party and there is a possibility of conflicting rulings thereon’”];
Mercury Ins. Group v. Superior Court (1998) 19 Cal.4th 332, 347 [same]; Fitzhugh v.
Granada Healthcare & 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’”].)
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, DMS Services, Inc.
v. Superior Court (2012) 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. (Mercury Ins. Group v.
Superior Court, supra, 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.’” (Mercury, at p. 349; Birl v. Heritage Care, LLC (2009)
172 Cal.App.4th 1313, 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; Birl, at p. 1318.)
9
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) 213
Cal.App.4th 959, 976-977 [“‘trial court does not have discretion to deny arbitration under
. . . section 1281.2(c), absent the presence of a third party’”]; Rowe v. Exline (2007) 153
Cal.App.4th 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)”].)
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” (Thomas v. Westlake (2012) 204 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
10
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 Cronus Investments, Inc. v. Concierge 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.”].) 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
7
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
7 We review the scope of an arbitration provision de novo when, as here, that
interpretation does not depend on conflicting extrinsic evidence. (RN Solution, Inc. v.
Catholic Healthcare West (2008) 165 Cal.App.4th 1511, 1522; Coast Plaza Doctors
Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 684; Lindemann v.
Hume, supra, 204 Cal.App.4th at p. 571, fn. 11.)
11
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 Lindemann v. Hume, supra, 204 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 advisors”]; 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
8
claims fall outside the scope of the agreement to arbitrate].)
8 Because there are no claims asserted by or against the seller defendants arising out
of the PPA, this is not a case where some claims between the Helo parties and the seller
defendants will be subject to arbitration and some will not. (Cf. Laswell v. AG Seal
Beach LLC, supra, 189 Cal.App.4th at p. 1409 [“[A] plaintiff’s inclusion of a
nonarbitrable cause of action in the complaint is not grounds to deny arbitration under the
third party exception. In other words, the presence of a nonarbitrable cause of action
[asserted against a party who has agreed to arbitrate] is not sufficient by itself to invoke
12
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. The possibility of inconsistent rulings
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 County of Solano v. Vallejo Redevelopment 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
the trial court’s discretion to deny arbitration . . . under section [1281.2, subd. (c)].”]; RN
Solution, Inc. v. Catholic Healthcare West, supra, 165 Cal.App.4th at p. 1522 [when
action against party who has agreed to arbitrate includes both arbitrable and nonarbitrable
claims, court’s discretion under § 1281.2, subd. (c), is limited to delaying the arbitration
if it determines that resolving the nonarbitrable claims in court may make arbitration
unnecessary].)
13
by defendant’s breach]; Nystrom v. First National Bank of Fresno (1978) 81 Cal.App.3d
759, 766 [same].) Those facts will also be at issue in 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
Lewis Jorge Construction Management, Inc. v. 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 sides”]; 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
9
rulings are inevitable but whether they are possible if arbitration is ordered”].)
9 Highlighting allegations in the complaint that the Helo parties discovered the fraud
in May 2011, SCE contends any purported damages incurred after that date in connection
with the fraud causes of action would not be recoverable because no additional payments
could have been made, or acts performed, in justifiable reliance on the fraudulent
representations. SCE’s observation, while legally accurate, narrows the scope of
damages but does nothing to eliminate the theoretical potential for conflicting rulings on
14
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. The Trial Court Abused Its Discretion in 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 Lindemann
v. Hume, supra, 204 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. (Mercury Ins. Group v.
Superior Court, supra, 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 was”].) 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 avoided”].)
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
Helo’s performance under the PPA and reliance on the misrepresentations prior to May
2011.
15
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 reasonable”), 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).
(Lindemann v. Hume, supra, 204 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.
(Mercury Ins. Group v. Superior Court, supra, 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
16
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., Metis Devleopment LLC v. Superior Court, 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
10
claims against Polati”].)
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.*
10 SCE’s request for judicial notice filed January 24, 2013 and the Helo parties’
request for judicial notice filed February 26, 2013 are denied.
* Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
17