Singerlewak, LLP v. Gantman CA2/8
193 Cal. Rptr. 3d 672
Cal. Ct. App.2015Background
- SingerLewak LLP is an accounting partnership; Andrew Gantman became a partner in 2007 and left in 2011.
- The partnership agreement contained Paragraph 21A: a post‑withdrawal payment/liquidation reduction triggered if a departing partner "provides services" to firm clients within four years — effectively a financial restraint tied to servicing former firm clients.
- SingerLewak demanded >$260,000 under Paragraph 21A after Gantman serviced former firm clients; Gantman refused.
- The parties arbitrated the dispute per the partnership agreement; the arbitrator found (1) Gantman qualified as a "partner" under Business & Professions Code §16602 and (2) Paragraph 21A was enforceable (not a covenant not to compete and containing an implicit geographic limitation).
- Gantman sought to vacate the award in superior court arguing Paragraph 21A violated California public policy (§16600) and was invalid under §16602 for lacking an express geographic limitation; the trial court performed de novo review, vacated the award, and found the provision unenforceable.
- The Court of Appeal reversed, holding judicial review was improper under the narrow public‑policy/statutory‑rights exception to arbitral finality and directing the trial court to confirm the arbitration award.
Issues
| Issue | Plaintiff's Argument (SingerLewak) | Defendant's Argument (Gantman) | Held |
|---|---|---|---|
| Whether the arbitration award enforcing Paragraph 21A should be vacated because it enforces an illegal restraint on trade | Award should be enforced; Paragraph 21A is not a covenant not to compete but a permissible cost on departing partners and falls within §16602 exception | Paragraph 21A is an unenforceable restraint under §16600 and fails §16602 because it lacks an express geographic limitation | The award is not judicially reviewable on this public‑policy ground; the arbitrator had power to resolve the issue and the statutory/public‑policy exception to arbitral finality does not apply here; reverse vacatur and confirm award |
| Whether the court should conduct de novo review of the arbitrator’s legal interpretation of §§16600/16602 | Arbitrator’s interpretation is final absent a narrow exception; no explicit legislative bar to arbitrating partner‑restraint issues | De novo judicial review is required because enforcement would violate unwaivable statutory rights and public policy | De novo review was inappropriate; Moncharsh exception (protecting statutory rights) did not apply because §16602 is an explicit exception to §16600 and the issue was squarely submitted to arbitrator |
| Whether §16602’s rule‑of‑reason/geographic‑limitation requirement makes the award non‑arbitrable | §16602 permits partner agreements; arbitrator reasonably found an implicit geographic limitation and applied rule of reason | §16602 requires an express geographic limitation and Paragraph 21A is therefore void | Court will not substitute its view for arbitrator’s interpretation; even if arbitrator erred, error alone is not a basis to vacate the award |
| Whether reformation of Paragraph 21A was required or proper | Implicit geographic limitation and remedy outcomes validated enforcement | Gantman opposed enforcement and reformation; argued clause invalid as written | Court declined to address reformation because it held award must be confirmed; arbitrator’s remedial decision stands unless vacatur permissible |
Key Cases Cited
- Moncharsh v. Heily & Blase, 3 Cal.4th 1 (Cal. 1992) (arbitral awards generally insulated from judicial review; narrow exception where finality would conflict with protection of statutory rights)
- Board of Education v. Round Valley Teachers Assn., 13 Cal.4th 269 (Cal. 1996) (exception applies where statutory scheme bars arbitration of the issue)
- Aguilar v. Lerner, 32 Cal.4th 974 (Cal. 2004) (arbitrator exceeds power if enforcement of arbitration agreement contravenes statutory rights under a mandatory statutory arbitration scheme)
- Pearson Dental Supplies, Inc. v. Superior Court, 48 Cal.4th 665 (Cal. 2010) (arbitrator’s legal error that bars an employee from vindicating unwaivable statutory rights can justify vacatur)
- Richey v. AutoNation, Inc., 60 Cal.4th 909 (Cal. 2015) (limits on review for legal error; narrow scope of Pearson rule)
- Edwards v. Arthur Andersen LLP, 44 Cal.4th 937 (Cal. 2008) (discusses §16600 policy favoring employee mobility and §16602 exception applying rule of reason)
- Swenson v. File, 3 Cal.3d 389 (Cal. 1970) (upholding partnership restraints to the extent consistent with §16602; invoking severability and rule of reason)
- Jones v. Humanscale Corp., 130 Cal.App.4th 401 (Cal. Ct. App. 2005) (refusing to vacate arbitrator’s award where arbitrator was authorized to decide applicable law and enforceability of covenant)
- Ahdout v. Hekmatjah, 213 Cal.App.4th 21 (Cal. Ct. App. 2013) (courts may review awards that contradict an explicit legislative public policy such as contractor licensing statutes)