Sunday, November 15, 2015

Not So Fundamental When Partners Are Involved

Singerlewak LLP v. Gantman, No. B259722 (D2d8 Jul. 29, 2015*)

Substantive judicial review of the correctness of arbitration decisions is extremely limited. California does, however, recognize a narrow exception to that rule: an award may be vacated as beyond the arbitrator’s power if it contravenes an “explicit legislative expression of public policy.” The rule applies only if the award runs afoul of a very important and very clear public policy of the state that has been codified into statute.

Business & Professions Code § 16600—which prohibits employment non-compete agreements—is probably one of those policies. Ask someone about non-competes. If they know anything at all, they know they are basically not enforceable in California. 

But this case involves the enforcement of a non-compete against a partner departing a partnership. So the merits aren’t controlled by § 16600. They are instead are controlled by a special exception in § 16602, which make non-competes are enforceable against ex-partners, so long as they are reasonable and geographically limited. Given the non-categorical nature of §16602, claims that an arbitrator might have erred in applying § 16602 aren’t so anathema to a state statutory policy to fall within the public policy exception. So the trial court here didn’t have authority to review the substance of the award, and it erred with it decided otherwise.

Reversed.

*This case was decided back in July, by ordered published under Rule of Court 8.1120(c) by the California Supreme Court on Oct. 21, 2015. This is due to a glitch in publication rules, where sometimes the Court of Appeal runs out of time under the rules to order publication while it still technically has jurisdiction over the case. (For instance, if rehearing petitions take a long time before eventually being denied.) Rule 8.1220(c) is a fix. The Court of Appeal sends the decision to the Supreme Court and recommends that they order publication, which is what happened here.

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