Judge: Maurice A. Leiter, Case: 22STCP01195, Date: 2022-08-11 Tentative Ruling

Case Number: 22STCP01195    Hearing Date: August 11, 2022    Dept: 54

Hearing Date: August 11, 2022

Department 54, Judge Maurice A. Leiter

Petition to Correct Arbitration Award

Moving Party: Petitioners James R. Boothe, John Gomez and Hai Vu

Responding Party: Nuveen Investments, Inc. and Santa Barbara Asset Management, LLC

T/R:    THE PETITION TO CORRECT ARBITRATION AWARD IS GRANTED.

            PETITIONERS TO NOTICE.

If the parties wish to submit on the tentative, please email the courtroom at¿SMCdept54@lacourt.org¿with notice to opposing counsel (or self-represented party) before 8:00 am on the day of the hearing.

The Court considers the moving papers, opposition, and reply.

BACKGROUND

Petitioners are former executives and members of Santa Barbara Asset Management, LLC. The action arises from Petitioners’ creation of a competing asset management company.

Petitioner Boothe sued Respondents in June 2019 seeking (1) declaratory relief regarding the LLC Agreement’s unlawful restrictive covenants (non-compete); (2) declaratory relief regarding the Employment Agreement’s employee non-solicit restriction; (3) violation of the UCL through imposition of unlawful noncompetition and non-solicitation covenants; and (4) breach of the Employment Agreement for failure to pay Boothe the severance and prorated bonus he was owed.

Respondents filed an arbitration demand against Petitioners and moved to compel arbitration of Boothe’s claims, based on an arbitration clause in the LLC agreement. The trial court granted the motion and ordered all of Boothe’s claims to arbitration.

After a several-day hearing, the arbitrator issued an award on December 24, 2021, finding in favor of Petitioners on the LLC restrictive covenants causes of action and in favor of Respondents on Boothe’s employment claim. The arbitrator found that Boothe had not resigned for “Good Reason,” as required by the employment contract to receive severance.

ANALYSIS

Any party to an arbitration in which an award has been made may petition the court to confirm, correct or vacate the award.  (CCP § 1285.)  “Except for the very limited grounds set forth in section 1286.2 and 1286.6, awards are immune from judicial review.”  (Cinel v. Christopher (2012) 203 Cal. App. 4th 759, 767, n.5 [citing Moncharsh v. Heily & Blase (1992) 3 Cal. 4th 1, 12–13].) CCP § 1286.6 permits the Court to correct an arbitration award for any of the following reasons: 

(a) There was an evident miscalculation of figures or an evident mistake in the description of any person, thing or property referred to in the award;

(b) The arbitrators exceeded their powers but the award may be corrected without affecting the merits of the decision upon the controversy submitted; or

(c) The award is imperfect in a matter of form, not affecting the merits of the controversy.

            Petitioner Boothe asks the Court to correct the arbitrator’s award by striking the arbitrator’s findings regarding the employment claim. Boothe asserts that this claim should not have been sent to arbitration because the employment agreement does not contain an arbitration clause. Boothe argues that the arbitrator exceeded his authority by adjudicating Boothe’s claim for breach of the employment agreement.

Boothe’s employment agreement states:

This Agreement shall be governed by and construed in accordance with the laws of the State of California, without reference to any state’s principles of conflict of laws. The parties hereto irrevocably agree to submit to the jurisdiction and venue of the courts of the State of California, in any action or proceeding brought with respect to or in connection with this Agreement.

(Decl. Boothe, Exh. 2, Paragraph 8(a).) But Section 10.15 of the LLC agreement requires the parties to arbitrate “[a]ny dispute of any type whatsoever arising out of or relating to this Agreement.” (Decl. Seigel, Exh. F.) The issue here is which agreement governs Boothe’s employment dispute.

            In the motion to compel arbitration, Respondents argued that the LLC agreement’s arbitration clause encompassed the employment agreement because the employment agreement stated: “nothing in this [Employment] Agreement shall amend, supersede or otherwise modify in any way (i) [the SBAM LLC Agreement].” (Decl. Boothe, Exh. 2.) The trial court granted Respondents’ motion:

Defendants move to compel arbitration on the grounds that the Employment Agreement contains an arbitration clause. GRANTED. Page 43, Section 10.15 of the Fourth Amended and Restated Limited Liability Company Agreement entered into by SBAM, Nuveem and all the Members (including plaintiff) calls for the Arbitration of Disputes. Boothe signed this Agreement on 25 September 2013. This covers all causes of action brought by Boothe individually. Boothe’s company did not sign the agreement.

(Decl. Siegel, Exh. E.)

            This Court, in its July 13, 2022 Order, noted that the arbitrator adjudicated the employment claim because the trial court ordered that claim to arbitration. Deciding whether the arbitrator exceeded his authority would require deciding whether the employment claim should have been sent to arbitration. In ruling on a petition to correct an arbitration award, this Court has authority to decide whether the arbitrator exceeded their power by addressing a claim that is not arbitrable. But it is unclear whether this Court, in making that decision, is bound by the ruling of the court in the underlying case. The Court asked the parties to provide supplemental briefing on this issue.

Neither party provided authority directly on point, and the Court has found none. Petitioners directed the Court to an appellate decision in which one trial court compelled all claims to arbitration and another trial court later confirmed the arbitration award. (Ahern v. Asset Management Consultants, Inc. (2022) 74 Cal.App.5th 675.) The Court of Appeal found that the arbitrator exceeded their authority by ruling on claims the parties did not agree to arbitrate, and the first trial court erred in ordering those claims to arbitration. The Court then reversed the order of the second trial court confirming the arbitration award. (Id. at 696.) The Court of Appeal’s decision was based on its de novo review of the arbitration agreement (where the trial court’s decision was not based on conflicting extrinsic evidence). (Id. at 687.)

Generally, a trial court judge may not reconsider a ruling of another trial court judge. (In re Marriage of Oliverez (2015) 238 Cal. App. 4th 1242, 1248; Morite of California v. Superior Court (1993) 19 Cal.App.4th 485, 493.) There are narrow exceptions, including where the original judge is unavailable, or where there are new facts or law. (Ziller Electronics Lab GmbH v. Superior Court (1988) 206 Cal.App.3d 1222, 1232.)

But before this Court is not a motion for reconsideration under Code of Civil Procedure § 1008; it is a separate petition asking this Court to determine whether the arbitrator exceeded his authority. Under Code of Civil Procedure § 1286.6, the Court “shall” correct an arbitration award where “[t]he arbitrators exceeded their powers but the award may be corrected without affecting the merits of the decision….” As Ahern illustrates, the Court of Appeal, in deciding whether the arbitrator exceeded their authority, obviously may review the underlying trial court order sending the claims to arbitration. A trial court considering the same question on a petition to correct an award, but unable to evaluate whether a claim was properly arbitrable, would be handcuffed in performing its duties under CCP § 1286.6. Here, that would amount to the Court’s failing to address the key matter in dispute. The Court will address the issue in this petition on the merits.

 The employment agreement specifically states that disputes arising from that agreement will be adjudicated in California state court. There is no arbitration provision in the employment agreement.

The LLC contract’s arbitration clause on its face does not supersede the requirement of the employment contract to adjudicate employment disputes in court; the LLC’s arbitration clause merely requires arbitration of disputes arising from or related to the LLC contract. It does not require arbitration of disputes under the employment agreement.

The employment contract does not purport to amend, modify, or supersede the LLC contract; it applies only to disputes under the employment contract. And the LLC contract defers to the employment contract on matters under the employment contract. Section 10.11 of the LLC agreement provides:

[I]n the event of any conflict between this Agreement and an employment agreement between a Member and the Company, the terms of such employment agreement shall control with respect to such Member.

(Decl. Seigel, Exh. F.) The parties did not agree to arbitrate Boothe’s employment claims. Even if there are some overlapping facts, the employment claims are segregable from the claims under the LLC agreement.

            “[A] party cannot be compelled to arbitrate a dispute he has not agreed to submit.” (Lawrence v. Walzer & Gabrielson (1989) 207 Cal.App.3d 1501, 1505 (1989) (citation omitted).) “Arbitrators may exceed their powers when they act in a manner not authorized by the contract or by law, act without subject matter jurisdiction, decide an issue that was not submitted to arbitration, arbitrarily remake the contract, uphold an illegal contract, issue an award that violates a well-defined public policy, issue an award that violates a statutory right, fashion a remedy that is not rationally related to the contract, or select a remedy not authorized by law.” (Cohen v. TNP 2008 Participating Notes Program, LLC (2019) 31 Cal.App.5th 840, 868.)

The arbitrator here exceeded his powers by deciding an issue that was not subject to arbitration.

“Where a part of an arbitration award cannot be confirmed due to the arbitrator’s error of law, the award may be corrected by striking the erroneous part if doing so does not affect the merits of the part that remains.” (Sargon Enterprises, Inc. v. Browne George Ross LLP (2017) 15 Cal.App.5th 749, 771.) As discussed, Boothe’s employment claims are distinct. The award may be corrected without affecting the merits of the LLC claims.

Petitioners’ motion is GRANTED.