Friday, October 23, 2015
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S.C. Orders Opinion Reviving Arbitration Award Published
C.A. Said Decision Allowing Enforcement of Non-Competition Clause Not Subject to Judicial Review
By KENNETH OFGANG, Staff Writer
An arbitrator’s award enforcing a non-competition agreement between a professional firm and a former partner is not subject to judicial review, the Court of Appeal for this district has ruled.
The state Supreme Court, at its weekly conference in San Francisco on Wednesday, ordered publication of the July 29 opinion in SingerLewak LLP v. Gantman, 15 S.O.S. 5013. Div. Eight of the Court of Appeal recommended publication after its own jurisdiction over the case had expired, pursuant to Rule 8.1120(c) of the California Rules of Court.
The panel reversed the ruling of Los Angeles Superior Court Judge Barbara Scheper, and ordered confirmation of an award in favor of SingerLewak, an accounting firm, against ex-partner Andrew Gantman. Scheper ruled that the arbitration award could not be enforced because the agreement illegally restrained Gantman’s ability to practice his profession.
History of the Case
Gantman became a partner in the firm in 2007, and either withdrew or was terminated in 2011.
The partnership agreement provided that an ex-partner could not work for any of the firm’s clients for four years after withdrawal or termination. If a partner did so, the clause said, the partnership was entitled to 150 percent of the amount the firm had billed that client during the partner’s last 12 months at the firm, or the total amount the firm had billed the client during the last 12 months that it did work for the client, whichever was greater.
The agreement allowed the firm to withhold those amounts from whatever it owed the ex-partner, and required the ex-partner to pay the firm any excess amounts within 60 days.
After Gantman did work for several of the firm’s former clients, SingerLewak demanded he pay over $260,000 under the clause. When he didn’t pay, the firm demanded arbitration under the partnership agreement.
The arbitrator concluded that Gantman was a partner within the meaning of Business and Professions Code §16602, which provides that a partnership agreement may, subject to certain conditions, restrain a former partner’s right to compete against the firm.
The arbitrator also concluded that the clause objected to by Gantman was enforceable because it allowed departing partners to service former clients of the firm, albeit at a price, and that the statute’s requirement that a non-competition clause have an “express geographical limitation” was implicitly satisfied by the fact that the firm’s clients only did business in certain areas and the accountants would necessarily service them from locations accessible to those of the clients.
Scheper denied the petition to confirm, rejecting the arbitrator’s conclusion regarding the lack of a geographical limitation, and vacated the award.
‘Extremely Limited Circumstances’
Presiding Justice Tricia Bigelow, writing for the Court of Appeal, however, said the award should have been confirmed under the rule that arbitration awards are not reviewable for factual or legal error, except in “extremely limited circumstances.”
The case, she said, does not fall under the “statutory right/public policy” exception to the general rule.
She pointed to the California Supreme Court’s 1992 opinion in Moncharsh v. Heily & Blase which says:
“[T]he normal rule of limited judicial review may not be avoided by a claim that a provision of the contract, construed or applied by the arbitrator, is ‘illegal,’ except in rare cases when according finality to the arbitrator’s decision would be incompatible with the protection of a statutory right.”
Since the statute allows enforcement of non-competition clauses in some circumstances, Bigelow said, the determination of whether a specific case falls under those circumstances is within the scope of arbitration under the general rule.
She distinguished cases cited by Gantman, including Board of Education v. Round Valley Teachers Assn. (1996) 13 Cal.4th 269, in which the court tossed out an arbitrator’s award of reinstatement to a probationary teacher, based on contract provisions requiring the employer to give an explanation as to why it did not retain the employee.
That case “involved a party’s statutory rights that directly affected the he propriety of the arbitration itself,” Bigelow wrote, saying the case at hand was more like Jones v. Humanscale Corp. (2005) 130 Cal.App.4th 401, which held that an arbitrator was within his rights in applying New Jersey law permitting a non-competition clause, rather than California law relied on by the opposing party to attack the clause.
Theodore E. Bacon, William M. Hensley, and Timothy Matthew Hansen of AlvaradoSmith represented SingerLewak and David C. Wheeler of Wheeler & Associates acted for Gantman.
Copyright 2015, Metropolitan News Company