Tuesday, July 30, 2015
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C.A. Says Arbitration Award Was Improperly Vacated
By a MetNews Staff Writer
The Court of Appeal for this district yesterday held that a judge improperly vacated an arbitration award on the ground that it gave effect to a provision of a contract that is, under statutory law, void.
That’s ordinarily not enough to justify a refusal to confirm an award, Presiding Justice Tricia A. Bigelow said in her unpublished opinion for Div. Eight, declaring that the present case doesn’t come under an exception.
The legal issue decided by an arbitrator was whether a covenant not to compete was enforceable.
The statute in issue was B16602 which provides an exception to the ban in §16600 on noncompetition agreements.
Business and Professions Code §16600 provides:
“Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”
However, §16602 of that code permits such a covenant in a partnership agreement where it is limited to competition “within a specified geographic area where the partnership business has been transacted.”
The agreement between plaintiff SingerLewak LLP, an accounting firm, and defendant Andrew Gantman, who competed with the firm after he resigned as a partner, contained a covenant not to compete that was not limited to a specified geographical area.
Los Angeles Superior Court Judge Barbara M. Scheper, in denying SingerLewak’s petition to confirm a monetary award in its favor, and vacating the award, declared that the covenant was “void under Business and Professions Code Section 16602 for lack of a specific geographic limitation….”
She said in her written decision:
“[T]he court must determine whether a geographic limitation can be implied into the agreement, as the arbitrator found, or written into the agreement after the fact. The court finds that it cannot.”
Bigelow’s Opinion
Bigelow said that circumstances are rare when an arbitration award will be nullified based on a violation of statute. 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.”
The jurist wrote:
“The threshold question here, then, is whether according the arbitration award finality would be inconsistent with protecting Gantman’s statutory rights. We must consider whether, if Gantman is correct concerning his rights under section 16600 and 16602, the award would contravene an explicit legislative expression of public policy that undermines the strong presumption in favor of private arbitration. We conclude it would not, and judicial review is therefore not appropriate.”
Bigelow explained:
“While there is undeniably an explicit legislative expression of public policy embodied in section 16600, section 16602 creates an exception to this policy, and that provision governed this case. There is no absolute public policy against the enforcement of a non-competition provision entered into by partners, consistent with section 16602. And the issue of whether or to what extent [the covenant] was enforceable under the section 16602 exception was the only question submitted to the arbitrator for a decision.”
Question Not Reached
She said in a footnote:
“We do not reach the question of whether, under the guise of the rule of reasonableness, a court or arbitrator may imply a geographic limitation in a partnership covenant not to compete when the parties did not include one. Our only conclusion is that in light of the lack of an absolute prohibition on restraints on competition for partners, and the latitude of courts to enforce agreements under section 16602 to the extent they are valid, the arbitrator’s issuance of an award enforcing the partnership agreement’s restraint on competition did not violate Gantman’s unwaivable statutory rights or contravene an explicit legislative expression of public policy, as those terms have been interpreted and applied by the courts in this state.”
The case is SingerLewak, LLP v. Gantman, B259722.
Theodore E. Bacon, William M. Hensley, and Timothy Matthew Hansen of AlvaradoSmith represented SingerLewak and David C. Wheeler of Wheeler & Associates acted for Gantman.
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