## Facts

- Improv West licensed Comedy Club, Inc. (CCI) an exclusive nationwide right to use the “Improv” trademarks to develop new comedy clubs, subject to a development schedule.
- The license agreement included a covenant barring CCI, during the agreement’s term, from opening any non-“Improv” comedy clubs.
- CCI did not meet the development schedule; Improv West revoked the license and began opening its own “Improv” clubs.
- CCI sued for declaratory relief, including that the noncompetition covenant was void under California Business and Professions Code § 16600; the district court compelled arbitration under the agreement.
- The arbitrator upheld the noncompetition covenant as enforceable, and the district court largely confirmed the award.
- CCI appealed both the order compelling arbitration and the order confirming the arbitration award; the Ninth Circuit’s earlier decision was vacated by the Supreme Court and remanded for reconsideration in light of Hall Street Associates, L.L.C. v. Mattel, Inc.

## Issues

1. After Hall Street, whether “manifest disregard of the law” remains a viable basis to vacate an arbitration award in the Ninth Circuit, and how it fits within the Federal Arbitration Act.
2. Whether enforcing a nationwide, term-long ban on CCI opening non-“Improv” comedy clubs violates California Business and Professions Code § 16600 such that the arbitrator exceeded arbitral authority under FAA § 10(a)(4).
3. If the restraint is unlawful as written, whether any narrower restraint may be enforced consistent with § 16600.
4. Whether the court had jurisdiction to review the district court’s order compelling arbitration.

## Decision

- The court dismissed the appeal from the order compelling arbitration for lack of appellate jurisdiction.
- The court held that, in the Ninth Circuit, “manifest disregard of the law” remains a basis for vacatur as a gloss on FAA § 10(a)(4) (arbitrators exceeding their powers), notwithstanding Hall Street.
- The court affirmed in part and vacated in part the order confirming the arbitration award.
- The court vacated the award to the extent it enforced the noncompetition covenant as a nationwide prohibition on operating non-“Improv” comedy clubs for the agreement’s duration, concluding that enforcement reflected manifest disregard of California’s § 16600 policy.
- The case was remanded to conform the judgment to a narrowed, permissible restraint rather than to enforce a blanket prohibition.

## Legal Principles

- FAA §§ 10 and 11 provide the exclusive statutory grounds for vacating or modifying arbitration awards; Hall Street bars contractual expansion of judicial review beyond those provisions.
- In the Ninth Circuit, “manifest disregard of the law” survives post-Hall Street as a method of applying FAA § 10(a)(4), where an arbitrator knowingly refuses to apply controlling law and thereby exceeds arbitral powers.
- California Business and Professions Code § 16600 generally renders void contractual restraints on engaging in a lawful profession, trade, or business, subject to limited statutory exceptions.
- An arbitration award enforcing a covenant that operates as a broad restraint on competition in California may be vacated under FAA § 10(a)(4) when the arbitrator enforces the restraint despite clearly applicable § 16600 principles.
- Courts may sever or limit an overbroad restraint to avoid an unlawful total prohibition, while refusing to enforce the restraint to the extent it contravenes § 16600.

## Conclusion

The Ninth Circuit held that Hall Street did not eliminate “manifest disregard” review in the circuit because it functions as part of FAA § 10(a)(4), and it partially vacated an arbitration award that enforced a sweeping noncompetition covenant barred by California’s § 16600, while leaving other portions of the award intact and remanding for a narrower, lawful disposition.


Comedy Club, Inc. v. Improv W. Assocs., 553 F.3d 1277 (9th Cir. 2009)