Arbitrator's Order Enforcing Comedy Club Restrictions In Trademark Agreement Violated California Non-Compete Rules

Case: Comedy Club, Inc. v. Improv W. Assocs., 9th Cir. No. 05-55739, 05-56100 (9/7/07)

The One Sentence Summary: Section 16600 of California's Business and Professions Code that prohibits restraints on competition precluded an arbitrator from enjoining the opening of comedy clubs in counties other than where the parties had opened an "Improv" club pursuant to a trademark license agreement.

What They Were Fighting About: An arbitrator had found that CCI had breached a contract that allowed it to use the "Improv" trademark for opening comedy clubs.


Ninth Circuit Holdings:

• The court lacked jurisdiction to review the district court order compelling arbitration because an appeal was not taken in time.
• The arbitration agreement was ambiguous as to whether the arbitrator could arbitrate equitable claims, so the policy favoring arbitration led the panel to interpret the agreement as allowing arbitration of equitable claims.
• California Business and Professions Code section 16600 and its prohibitions on non-competes allowed "in-term" prohibitions against opening comedy clubs in areas where CCI had opened an Improv club under the parties' contract.
  
• The arbitrator lacked authority to bind non-parties that were not in privity with CCI in its injunction against operating comedy clubs.
  
• The arbitrator's award violated California's Business and Professions Code section 16600 by prohibiting CCI from opening comedy clubs in counties where it does not operate a comedy club.