Russel S. Bernard appeals from the trial court’s judgment confirming an arbitration award against him. We affirm.
FACTS AND PROCEEDINGS
Respondents Howard Marks and Bruce Karsh and others formed respondent Oaktree Capital Management, L.R (Oaktree), in 1995, a real estate investment hedge fund. Oaktree established limited partnerships called “funds,” which it marketed to outside investors. A few months after Oaktree’s creation, appellant Russel S. Bernard joined it to manage its funds.
Oaktree charged its investors two types of fees: management fees and incentive fees. Oaktree calculated its management fees as a percentage of total assets under the control of each of its funds. A second fee Oaktree charged its investors was an incentive fee, also called “carried interest.” Oaktree collected an incentive fee when a particular fund reached a specified performance benchmark calibrated to encourage managers such as appellant, who received a share of the fee, to achieve superior returns for Oaktree’s investors.
In November 2005, appellant resigned from Oaktree. Shortly afterward, he announced his formation of a private equity real estate fund named Westport Capital Partners (Westport). After its establishment, Westport bought 60 Main Street, a commercial building in Connecticut. As later found by the arbitrator, appellant had identified 60 Main Street as an investment opportunity during his employment at Oaktree but had not disclosed its existence to Oaktree’s principals. Instead, appellant breached his fiduciary duty to Oaktree by delaying Oaktree’s launching of a new fund—“Fund IV”—so that he could buy himself time to present 60 Main Street as a substitute investment for potential Fund IV investors to invest their money with Westport. Among appellant’s stalling tactics at Oaktree were misstating Fund IV’s intended launch date, declining to meet with potential new investors, and failing to respond to those investors’ inquiries. Based on his breach of fiduciary duty, Oaktree formally discharged appellant in December 2005, one month after he had resigned, and refused to pay him incentive fees to which he claimed he was entitled.
Appellant demanded arbitration of his fee dispute with Oaktree. Arbitration began in January 2007. In July, the arbitrator issued her award in respondents’ favor. She rejected appellant’s claim that his incentive fees vested upon a fund’s reaching its performance benchmarks. She found instead that the fees vested only if Oaktree employed appellant when Oaktree distributed the fees.
DISCUSSION
Appellant contends the court committed two principal errors in confirming the arbitration award. First, the court adopted the arbitrator’s findings, which in appellant’s view, divested appellant of fees he claims he had already earned, a forfeiture that, among other sins, violates the public policy protecting an employee’s compensation. Second, the court adopted the arbitrator’s findings making appellant liable for the profits Oaktree lost from its delayed management fees in Fund IV, a liability that violates the public policy prohibiting an employee from being responsible for his employer’s ordinary business losses. Respondents counter that we need not address the merits of appellant’s contentions because appellant’s response to their petition to confirm the arbitration award was untimely. Appellant’s untimeliness, according to respondents, waived his right to contest the petition’s allegations and the court’s confirmation of the arbitrator’s award. We hold appellant’s response was timely, but we nevertheless affirm the award because it did not satisfy the narrow grounds for judicial review of an arbitration award.
“When [a] party petitions the court to confirm the award . . . , [the opposing party] may seek vacation ... of the award by way of response only if he serves and files his response within 10 days after the service of the petition ([Code of Civ. Proc.,] § 1290.6).[
1
] Unless the response is duly served and filed, under section 1290 the allegations of the petition are deemed to be admitted by [the other side].”
(DeMello v. Souza
(1973)
The day appellant received notice of the remand to state court, he filed a “Notice of Further Response to Petition to Confirm Arbitration Award.” Appellant contends this notice came within the 12 days he had to respond, which had been suspended while the case was pending in federal court.
(Dauenhauer v. Superior Court
(1957)
Appellant contends he complied with the appropriate time limits imposed by the statutory framework for vacating an arbitration award. According to him, his “Notice of Further Response” to file a petition to vacate the award, followed by filing of the petition itself within 100 days of the award’s service, was the proper procedure for challenging the award’s confirmation. He derives a window of 100 days from Code of Civil Procedure section 1288, which states: “A petition to vacate an award . . . shall be served and filed not later than 100 days after the date of the service of a signed copy of the award on the petitioner.” (§ 1288; see also § 1288.2 [“A response requesting that an award be vacated . . . shall be served and filed not later than 100 days after the date of service of a signed copy of the award . . .”].)
We agree appellant’s response was timely, but not for the precise reasons he advances. Respondents’ filing a petition to confirm an arbitration award changed the timing of events. When one side files a petition to confirm the award, the other side must respond within 10 days. “The parties to an arbitration may petition the court to confirm, correct or vacate the award. (Code Civ. Proc., § 1285.) However, such a petition must be served and filed ‘not later than 100 days after the date of the service of a signed copy of the award.’ (Code Civ. Proc., § 1288.) If a party requests confirmation, within the 100 days specified in section 1288, a response may be filed seeking vacation of the award.
Any such response must, however, he filed within 10 days of the date the petition to confirm is served.
(Code Civ. Proc., § 1290.6.)”
(Elden v. Superior Court
(1997)
The “well delineated statutory scheme” giving a party who opposes a petition to confirm only 10 days to file a response spans several decades.
(DeMello v. Souza, supra,
For several decades, various Courts of Appeal have wrestled with squaring the 10-day deadline for filing a response and the 100-day deadline for filing a petition to vacate. The consensus is the 10-day deadline applies if the other side files a petition, but that consensus emerges from decisions that seemingly struggle with explaining why that rule prevails. Recently, for example,
Eternity Investments, Inc. v. Brown
(2007)
Even though appellant’s response was timely, we nevertheless affirm the arbitration award because it was not subject to judicial challenge. The law narrowly circumscribes judicial review of an arbitration award. Proper grounds for vacating an arbitrator’s award are statutory and limited.
(Jordan v. Department of Motor Vehicles
(2002)
Appellant contends the arbitrator exceeded her powers, thus triggering section 1286.2, subdivision (a)(4), one of the statutory grounds for vacating an award. That statute permits a court to vacate an arbitration award when “The arbitrator[] exceeded [her] powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted.” (§ 1286.2, subd. (a)(4).) Appellant asserts the arbitrator exceeded her powers in three broad respects. First, the award rejected appellant’s claim for direct incentive fees that he earned for Oaktree’s financial performance before his departure. Thus, according to him, the award violated the public policy against forfeiture of earned compensation. (See
Smith
v.
Superior Court
(2006)
We will assume for the sake of discussion that an arbitrator’s decision erroneously forfeiting earned compensation as a penalty to a departing employee may be corrected on judicial review of the arbitrator’s decision. We also will assume that fashioning a remedy not expressly called for in the arbitration agreement may also be corrected by a motion to vacate. We nevertheless reject appellant’s contentions because each rests on an unsupported premise: Appellant’s unpaid direct incentive fees vested before he left Oaktree. To the contrary, the arbitrator found as a factual matter that appellant before leaving Oaktree had not earned the direct incentive fees that he demanded. The arbitrator’s award stated: “Based on all of the evidence presented, the Arbitrator finds that there was no . . . agreement governing the vesting of Claimant’s direct incentive fees . . . .” The arbitrator found appellant “only share[d] in incentive fees actually paid to and received by Oaktree while [he was] at Oaktree.” (See
Lucian v. All States Trucking Co.
(1981)
Appellant also contends the arbitrator’s $12 million damages award against him exceeded her powers because it made him liable to his employer, Oaktree, for his misfeasance as an employee. Appellant characterizes the award as making him liable for his purportedly not having “adequately discharged one of his employment obligations prior to his lawful departure to start a competing business.” He notes public policy bars making employees responsible for an employer’s business losses.
(Hudgins v. Neiman Marcus Group, Inc.
(1995)
Appellant’s characterization of the damages award as an unlawful restraint on his right to seek employment elsewhere similarly fails. He asserts the arbitrator assessed him a $12 million breach of contract “penalty” for leaving Oaktree to work for a competitor. But that was not the nature of the $12 million award. The arbitrator issued the award to compensate Oaktree for appellant’s tortious delay in launching Fund IV in order to redirect potential investors to his new company. Tort damages for breach of fiduciary duty are not what case law envisions as unlawful restraints on labor mobility. (See, e.g.,
Edwards v. Arthur Andersen LLP
(2008)
Appellant cites
Lazara Debt Recovery GP, LLC
v.
Weinstock
(Del.Ch. 2004)
Appellant contends the customary limits on judicial review of an arbitration award do not apply here because the arbitration agreement stated the
Courts have not, however, interpreted similarly worded clauses in other arbitration agreements as permitting judicial review. “[I]t is clear that the parties to an arbitration agreement could not render an arbitrator’s decision reviewable for errors of law merely by providing in the agreement that the arbitrator must apply California law. Instead, the parties could obtain court review of the merits of the arbitrator’s decision only if the arbitration agreement
expressly provided
that the arbitrator’s errors of law were reviewable in court.”
(Baize
v.
Eastridge Companies, LLC
(2006)
Our Supreme Court recently reiterated that the arbitration agreement must explicitly state judicial review shall be available. In
Cable Connection, Inc. v. DIRECTV, Inc., supra,
In any case, the arbitration agreement here barred judicial review. It stated that the arbitrator’s award will be “binding” and that “[a]ll decisions of the arbitrator . . . shall not be subject to appeal.” In light of this unambiguous language to the contrary, and in the absence of an explicit provision allowing judicial review, Moncharsh’s rule barring judicial review of an arbitration award applies.
(Baize, supra,
The judgment confirming the arbitration award in favor of respondents is affirmed. Respondents to recover their costs on appeal.
Bigelow, P. J., and Flier, J., concurred.
Notes
All further undesignated section references are to the Code of Civil Procedure.
See also
Evans Products Co. v. Millmen’s Union No. 550
(1984)
Appellant filed his motion on Friday, August 10, 2007, but respondents and appellant agree that service on the trial court on August 13 of notice of the motion effected removal.
In
Baize
the court found the following language to be inadequate to preserve judicial review: “(1) ‘The Arbitrator shall have the authority of a sitting judge with respect to handling this matter and shall apply California law’; (2) ‘The Arbitrator shall apply the substantive law (and the law of remedies, if applicable) of the state of California, as applicable to the issues presented in this case. The Arbitrator is without jurisdiction to apply any different substantive law or the law of remedies’; and (3) ‘Notwithstanding any provision to the contrary that may be contained in the Rules the Arbitrator shall be constrained by the rule of law and any arbitration award shall be based thereon.’ ”
(Baize, supra,