Court Opinion

ID: 9841073
Source: CourtListenerOpinion
Date Created: 2023-09-20 21:03:45.500767+00
Date Added: 2024-06-11T08:39:03.944136
License: Public Domain

Filed 9/20/23 Wehrly v. Hawthorne Hangar Operations CA2/1
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         SECOND APPELLATE DISTRICT

                                        DIVISION ONE

 DAVID WEHRLY,                                                        B321452

           Respondent,                                                (Los Angeles County
                                                                      Super. Ct. No. 21STCP00556)
           v.

 HAWTHORNE HANGAR
 OPERATIONS, LP, et al.,

           Appellants.

     APPEAL from a judgment of the Superior Court of
Los Angeles County, Teresa A. Beaudet, Judge. Affirmed.
     The Jamison Law Firm, Guy E. Jamison and
Chelsea M. Clayton for Appellant.
     Beach Cities Law Group, Frank Sandelmann and
Joshua A. Valene for Respondent.
                 ____________________________
       Dan Wolfe appeals from a judgment confirming an
arbitration award in favor of David Wehrly. The arbitrator found
aviation fueling services provided by Wolfe’s company,
Hawthorne Hangar Operations LP (HHO), breached a
noncompetition clause in a purchase agreement executed when
Wehrly sold his interest in HHO to Wolfe.1
       Wolfe contends the arbitrator exceeded his powers in
issuing the award because the award required the arbitrator to
modify the terms of the purchase agreement, which the
arbitration clause expressly prohibited, and the award conflicted
with an earlier declaratory judgment from the trial court. He
further argues the noncompetition clause is illegal and against
public policy, and therefore cannot be enforced by the arbitrator
or the courts.
       We hold the arbitrator’s ruling was based on his
interpretation of the agreement, not a modification of it, and the
ruling did not conflict with the earlier declaratory judgment,
which involved a different agreement and different parties.
Wolfe has forfeited his illegality challenge for failing timely to
raise it before the arbitrator.
       Accordingly, we affirm.

                        BACKGROUND
       We limit our summary to the facts necessary to resolution
of this appeal. Additional background information appears in our
Discussion, post.

      1 HHO originally was an appellant in this case, but
stipulated to dismissal after its bankruptcy trustee settled with
Wehrly.

                                    2
1.    Relevant history of HHO
       At all relevant times herein, Wehrly was a principal in
Advanced Air LLC doing business as Jet Center Los Angeles
(Jet Center), which among other things sold aircraft fuel at
Hawthorne Municipal Airport (the airport).
       In 2009, Wehrly, Wolfe, and others formed HHO to
purchase and operate a property adjacent to the airport
containing an airplane hangar and two underground fuel tanks
(the Northrop property). The seller, MS Kearney Northrop
Avenue, LLC (MS Kearney), entered into a purchase agreement
with HHO on November 12, 2009 (2009 purchase agreement).
The purchase agreement contained a paragraph 10.4, which
stated: “Fuel Tanks. Buyer [i.e., HHO] covenants and agrees
that Buyer shall not use the fuel tanks located on the Real
Property for any purpose other than the fueling and refueling of
(i) airplanes, helicopters and other equipment owned or directly
managed by Buyer, and (ii) other airplanes, helicopters and other
equipment which have been located on and occupied the Real
Property for at least thirty (30) days pursuant to the terms and
provisions of a written lease. The foregoing covenant shall
survive the Close of Escrow.”
       In 2014, Wehrly and the other partners sold their
partnership interests in HHO to Wolfe. The executed purchase
agreement (2014 purchase agreement) contained a paragraph 10,
entitled “Collateral Agreements” (boldface & underscoring
omitted), stating, “In addition to the consideration set forth for
the purchase of Sellers’ Limited Partnership Interest, as a
material consideration for the execution and performance of this
[purchase agreement], the Parties hereby agree that the
following undertakings shall be a condition to the Closing.”

                                   3
        Subparagraph 10.2 under paragraph 10 stated, “Buyers’
[i.e., Wolfe2] hereby acknowledge that [HHO] (the ‘Buyer’
specified therein) acquired the Hawthorne Hangar (the ‘Real
Property’ specified therein) pursuant to a purchase agreement
which contained the following covenant . . . .” Subparagraph 10.2
then quoted paragraph 10.4 from the 2009 purchase agreement
in its entirety.
        The 2014 purchase agreement contained an arbitration
provision stating that “any controversy between the Parties
arising out of this [purchase agreement] shall be submitted to
binding arbitration.” The provision further stated, “The
arbitrator shall not have any power to alter, amend, modify or
change any of the terms of this [purchase agreement] nor to grant
any remedy which is either prohibited by the terms of this
[purchase agreement], or not available in a court of law.” A
separate provision entitled the prevailing party in a dispute to
“reasonable expenses, including attorneys’ fees and related
costs . . . .”
        In 2017, HHO, now fully controlled by Wolfe, entered into a
fuel concession agreement with the City of Hawthorne that
authorized HHO to sell aviation fuel at the airport through the
fuel farm on the Northrop property. HHO began selling fuel to
aircraft at the airport, including aircraft that did not belong to
HHO nor had been located on the Northrop property for 30 or
more days pursuant to a lease.

      2 The agreement refers to “Buyers” in the plural because
the introductory paragraph identified the buyers as Wolfe “and
Nominee.”

                                   4
2.    HHO’s declaratory relief action concerning 2009
      purchase agreement
       Contending that HHO was violating the fueling restriction
in paragraph 10.4 of the 2009 purchase agreement, Wehrly and
his company, Jet Center, challenged HHO’s fueling operations
before the City of Hawthorne. HHO then filed a declaratory
relief action in superior court against MS Kearney (the original
seller of the Northrop property), Jet Center, and others,
challenging the legality and enforceability of paragraph 10.4 in
the 2009 agreement.3
       In a May 1, 2020 statement of decision, the trial court
concluded that paragraph 10.4 was not contrary to federal
regulations or grant assurances applicable to the airport, because
HHO was not a tenant of the airport, but instead provided
services to aircraft via the adjoining Northrop property, and
paragraph 10.4 was part of an agreement between private
parties. The court found no evidence that paragraph 10.4
violated any statute, law, or regulation, and therefore found there
was insufficient evidence to declare paragraph 10.4 illegal. The
court further found, however, that Jet Center could not enforce
paragraph 10.4, because it was not a party to the 2009 purchase
agreement nor was there language in the agreement suggesting
an intention to benefit Jet Center. The court concluded that,
although HHO had not demonstrated that paragraph 10.4 was
unlawful, that paragraph was not valid, enforceable, or relevant
as between HHO and Jet Center. Jet Center therefore was

      3 As noted, Jet Center is also known as Advanced Air, and
was referred to by the latter name in HHO’s declaratory relief
action.

                                    5
“precluded from using Section 10.4 as an instrument to prevent
HHO from providing unrestricted fueling at the Hawthorne
Airport.”

3.    Arbitration concerning 2014 purchase agreement
      Separate from HHO’s declaratory relief action concerning
the 2009 purchase agreement, Wehrly initiated an arbitration
against HHO and Wolfe asserting breach of the 2014 purchase
agreement and other causes of action. After hearing evidence
and argument, the arbitrator issued a binding arbitration award
in Wehrly’s favor.
      Looking to the language of the 2014 purchase agreement
and statements by the parties and their attorneys leading up to
that agreement (largely appearing in e-mails), the arbitrator
concluded “the respective intents of Wolfe and Wehrly was that
[paragraph] 10.4 [of the 2014 purchase agreement] was binding
on both of them, including HHO, without any qualification.”
Rejecting Wolfe’s contentions to the contrary, the arbitrator
wrote, “Wolfe’s concern about the future impact of 10.4 does not
appear in the final agreement. Nor is there language in the
agreement that 10.4 was inserted merely to acknowledge that it
had been a term in the 2009 Northrop transaction or that it is
arguably illegal or unlawful.”4
      The arbitrator further found that “HHO breached the
agreement by fueling aircraft which it did not own or had not

      4  The appellants’ appendix does not contain full transcripts
of the arbitration nor most of the parties’ briefing before the
arbitrator, and thus, apart from the arguments described in the
award itself, we are unable to summarize the parties’ specific
arguments as to the intent behind paragraph 10.4.

                                    6
been located on HHO[’s property] for at least thirty days
pursuant to a lease.”
      The arbitrator calculated damages based on profits
Wehrly’s company Jet Center lost due to competition from HHO’s
fueling operations, which came out to $701,098. The arbitrator
also awarded Wehrly $247,054.10 in attorney fees, and $80,030
in costs.
      The arbitrator granted Wehrly injunctive relief, ordering
the parties to comply with the fueling restriction in paragraphs
10.2 and 10.4 of the 2014 purchase agreement.

4.    Confirmation of arbitration award
       The trial court confirmed the arbitration award over HHO’s
and Wolfe’s opposition. The court rejected the argument that the
award was contrary to statutory authority and public policy
because paragraph 10.4 “restrains competition and monopolizes
trade pursuant to Business & Professions Code §§ 16600, 16720
and 17200.” The court found this argument barred by the statute
of limitations and forfeited because it had not been raised during
arbitration.
       On the merits, the court found paragraph 10.4 was not “an
illegal provision that would necessitate vacating the arbitration
award.” The court reasoned that Business and Professions Code
section 16602 exempted noncompetition agreements from the
prohibition under Business and Professions Code section 16600
in the case of a partner disassociation, and, additionally,
paragraph 10.4 was a lawful restrictive covenant on the use of
the Northrop property.
       The trial court also disagreed with HHO and Wolfe that the
arbitrator had modified the terms of the 2014 purchase
agreement through the arbitrator’s interpretation of paragraph

                                   7
10.4, or had effectively added nonparty Jet Center to the
arbitration by basing damages on Jet Center’s lost profits. The
court found the award did not violate the judgment in HHO’s
declaratory relief action, because the two matters were not
related.
       The trial court entered judgment awarding Wehrly the
damages and injunctive relief obtained in arbitration, as well as
accrued prejudgment interest and attorney fees and costs
incurred bringing the petition to confirm the arbitration award.
The total award was $1,200,439.73.
       HHO and Wolfe timely appealed. As noted, HHO and
Wehrly later stipulated to HHO’s dismissal from the appeal,
leaving Wolfe as sole appellant.

                          DISCUSSION

A.    Governing Law
       When “an arbitrator has issued an award, the decision is
ordinarily final and thus ‘is not ordinarily reviewable for error by
either the trial or appellate courts.’ [Citation.]” (Sheppard,
Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc.
(2018) 6 Cal.5th 59, 72 (Sheppard Mullin).) This is so “ ‘whether
or not such error appears on the face of the award and causes
substantial injustice to the parties.’ ” (SingerLewak LLP v.
Gantman (2015) 241 Cal.App.4th 610, 616, quoting Moncharsh v.
Heily & Blase (1992) 3 Cal.4th 1, 6 (Moncharsh).) The reason for
this rule is that “parties who enter into arbitration agreements
are presumed to know the arbitrator’s decision will be final and
binding; ‘arbitral finality is a core component of the parties’
agreement to submit to arbitration.’ [Citation.]” (SingerLewak,
at p. 616, quoting Moncharsh, at p. 10.)

                                    8
       The Code of Civil Procedure specifies exceptions to this rule
of finality. The exception relied upon by Wolfe, both in the
trial court and in this appeal, is Code of Civil Procedure
section 1286.2, subdivision (a)(4), which allows a court to vacate
an arbitration award if “[t]he arbitrators exceeded their powers
and the award cannot be corrected without affecting the merits of
the decision upon the controversy submitted.”
       “On appeal, we review de novo a trial court’s decision on
undisputed facts to confirm, correct or vacate an arbitration
award.” (Taska v. The RealReal, Inc. (2022) 85 Cal.App.5th 1, 9.)
Like the trial court, “we may not ‘ “review the merits of the
dispute, the sufficiency of the evidence, or the arbitrator’s
reasoning, nor may we correct or review an award because of an
arbitrator’s legal or factual error, even if it appears on the
award’s face. Instead, we restrict our review to whether the
award should be vacated under the grounds listed in [Code of
Civil Procedure] section 1286.2.” ’ [Citation.]” (State Farm
Mutual Automobile Ins. Co. v. Robinson (2022) 76 Cal.App.5th
276, 282.)

B.    The Arbitrator Did Not Modify the 2014 Purchase
      Agreement or Violate the Judgment in the
      Declaratory Relief Action
      Wolfe contends the award effectively modified the terms of
the 2014 purchase agreement, and thus the arbitrator exceeded
his powers under the arbitration clause, which expressly
provided, “The arbitrator shall not have any power to alter,
amend, modify or change any of the terms of this [purchase
agreement] nor to grant any remedy which is either prohibited by
the terms of this [purchase agreement], or not available in a court

                                    9
of law.” Wolfe further argues the award conflicted with the
judgment in the declaratory relief action. We disagree.
       Wolfe interprets paragraph 10.2 of the 2014 agreement as
the parties’ mere acknowledgment of the existence of paragraph
10.4 in the 2009 purchase agreement, not their agreement to be
bound by it. The arbitrator’s contrary conclusion, Wolfe
contends, required the arbitrator to rewrite the 2014 agreement
to omit the acknowledgment language from paragraph 10.2.
       The arbitration award made clear, however, that the
arbitrator was not modifying the agreement, but interpreting its
existing terms, based on the language of the agreement and the
intentions of the parties expressed during their negotiations. The
arbitrator devoted several pages to summarizing e-mails
exchanged during the negotiations, and further concluded, “Nor
is there language in the agreement that 10.4 was inserted merely
to acknowledge that it had been a term in the 2009 Northrop
transaction.” Wolfe’s challenge to this arbitral finding would
oblige us to evaluate the merits of the arbitrator’s interpretation,
which is beyond the permissible scope of our review.
       Wolfe further argues that by calculating Wehrly’s damages
based on Jet Center’s lost profits, the arbitrator effectively
rewrote the 2014 purchase agreement to add Jet Center as a
party. Wolfe also argues the award exceeded the arbitrator’s
powers by granting relief not available in a court of law, that is,
damages to a nonparty.
       This argument fails because the arbitrator did not award
damages to Jet Center. The award, and the trial court’s
judgment confirming the award, gave all damages to Wehrly.
Wolfe’s challenge therefore is not to the recipient of the award,
but to the basis of the calculation of that award. That challenge,

                                   10
once again, is beyond the scope of our review. (Paramount
Unified School Dist. v. Teachers Assn. of Paramount (1994)
26 Cal.App.4th 1371, 1384 [“To the extent that appellant’s
argument is intended to be a challenge to the method or formula
employed by the arbitrator to calculate . . . compensatory
damages, we do not address this issue because it is at most an
error of law, not reviewable by the courts.”].)
       We also reject Wolfe’s contention that the arbitrator’s
basing damages on Jet Center’s lost profits conflicted with the
trial court’s judgment in HHO’s declaratory relief action, which
stated that Jet Center could not enforce paragraph 10.4 against
HHO. We note the declaratory relief action concerned the 2009
purchase agreement, not the 2014 purchase agreement at issue
in the arbitration. Assuming arguendo the trial court’s judgment
as to paragraph 10.4 in the 2009 agreement applies to paragraph
10.4 in the 2014 agreement, a question we do not decide, the
reason the trial court ruled Jet Center could not enforce
paragraph 10.4 was that Jet Center was not party to or an
intended beneficiary of the 2009 agreement. Wehrly, however,
was a party to the 2014 agreement, and it was he, not Jet Center,
that initiated the arbitration to enforce paragraph 10.4. The
arbitration award does not conflict with the declaratory judgment
or the reasoning behind it.
       Wolfe quotes Cohen v. TNP 2008 Participating Notes
Program, LLC (2019) 31 Cal.App.5th 840, which stated, “[T]he
arbitrator ha[s] authority to grant relief he consider[s] ‘just and
fair under the circumstances existing at the time of arbitration,
so long as the remedy may be rationally derived from the contract
and the breach.’ [Citations.]” (Id. at p. 871.) Wolfe argues that
by basing Wehrly’s damages on Jet Center’s losses, the arbitrator

                                   11
issued an award that could not be rationally derived from the
2014 purchase agreement, to which Jet Center was not a party.
It is rational to assume, however, that Jet Center’s lost profits
resulted in financial losses for Wehrly, its principal. Whether
Wehrly sufficiently proved his personal losses, and whether the
arbitrator properly calculated them, is, again, beyond the scope of
our review, but we cannot conclude the award was not
“ ‘rationally derived from the contract and the breach.’ ” (Ibid.)

C.    Wolfe Fails To Show He Properly Raised His Claim of
      Illegality Before the Arbitrator, and Thus Has
      Forfeited it
       Wolfe contends that paragraph 10.4 “is a per se violation of
California statutes forbidding unfair competition,” and
“California courts may not enforce illegal, anticompetitive
agreements that harm the public and are contrary to the public’s
unwaivable statutory rights.” In support, Wolfe cites provisions
of the Business and Professions Code and federal antitrust law.
       Like the trial court, we conclude these arguments were not
properly or timely presented to the arbitrator, and are therefore
forfeited. We express no opinion as to the trial court’s other
bases for rejecting these arguments.

      1.    Relevant law
      In Loving & Evans v. Blick (1949) 33 Cal.2d 603, our
Supreme Court held that “the rules which give finality to the
arbitrator’s determination of ordinary questions of fact or of law
are inapplicable where the issue of illegality of the entire
transaction is raised in a proceeding for the enforcement of the
arbitrator’s award.” (Id. at p. 609.) In that event, “the issue is
one for judicial determination . . . , and any preliminary

                                   12
determination of legality by the arbitrator . . . should not be held
to be binding upon the trial court.” (Ibid.) In Loving & Evans,
the agreement at issue had been executed by unlicensed
contractors, and was entirely illegal and void. The court
therefore held the trial court erred by confirming an arbitration
award based on that illegal agreement. (Id. at pp. 614–625.)
       In Moncharsh, supra, 3 Cal.4th 1, the high court limited
the holding of Loving & Evans to situations “where a party
claimed the entire contract or transaction was illegal.”
(Moncharsh, at p. 32.) “By contrast, when . . . the alleged
illegality goes to only a portion of the contract (that does not
include the arbitration agreement), the entire controversy,
including the issue of illegality, remains arbitrable.” (Id. at
p. 30.) The court rejected the notion that “judicial review of an
arbitrator’s decision is routinely available where one party claims
merely that a portion of a contract is illegal.” (Id. at p. 32, fn. 14;
see Sheppard Mullin, supra, 6 Cal.5th at p. 77 [discussing
Moncharsh].)
       The Supreme Court stated, “[T]here may be some limited
and exceptional circumstances justifying judicial review of an
arbitrator’s decision when a party claims illegality affects only a
portion of the underlying contract. Such cases would include
those in which granting finality to an arbitrator’s decision would
be inconsistent with the protection of a party’s statutory rights.”
(Moncharsh, supra, 3 Cal.4th at p. 32.) “Without an explicit
legislative expression of public policy, however, courts should be
reluctant to invalidate an arbitrator’s award on this ground. The
reason is clear: the Legislature has already expressed its strong
support for private arbitration and the finality of arbitral awards
in title 9 of the Code of Civil Procedure. [Citation.] Absent a

                                     13
clear expression of illegality or public policy undermining this
strong presumption in favor of private arbitration, an arbitral
award should ordinarily stand immune from judicial scrutiny.”
(Moncharsh, at p. 32; see Sheppard Mullin, supra, 6 Cal.5th at
pp. 77–78 [under Moncharsh, courts should “be wary of” claims
that a portion of a contract is illegal “in the absence of a clear
expression of statutory policy”].)
       The court also emphasized that a party must raise the
issue of a contract’s partial illegality before the arbitrator or
forfeit the right to challenge the arbitration award on that basis
in the trial court. (Moncharsh, supra, 3 Cal.4th at p. 30.) The
court gave two reasons for this rule. First, “[a]ny other
conclusion is inconsistent with the basic purpose of private
arbitration, which is to finally decide a dispute between the
parties.” (Ibid.) Second, “we cannot permit a party to sit on his
rights, content in the knowledge that should he suffer an adverse
decision, he could then raise the illegality issue in a motion to
vacate the arbitrator’s award. A contrary rule would condone a
level of ‘procedural gamesmanship’ that we have condemned as
‘undermining the advantages of arbitration.’ [Citations.]” (Ibid.)

      2.    Additional procedural background
       As noted, the record on appeal does not contain full
transcripts of the arbitration nor most of the parties’ written
filings before the arbitrator. Wolfe contends, however, that the
limited record presented to the trial court during the award
confirmation proceeding was sufficient to establish he properly
raised the issue of illegality in the arbitration. We summarize
the relevant portions of that record here.
       Wolfe provided the trial court with a page of the reporter’s
transcript from the arbitration in which the arbitrator asked if

                                    14
HHO and Wolfe were raising any affirmative defenses apart from
unclean hands. Counsel stated, “We are asserting illegality,
unenforceability, and invalidity.” Another attorney asked, “As to
the 2014 contract; correct?” Counsel replied, “Yes, as to 10.4.”
      The arbitrator’s interim award referred to testimony and
evidence indicating that Wolfe in the past had objected to Wehrly
and others that paragraph 10.4 was illegal or improper. The
interim award also summarized the trial court’s declaratory relief
judgment finding insufficient evidence that paragraph 10.4 in the
2009 purchase agreement was illegal. The interim award,
however, did not refer to or indicate that HHO and Wolfe raised
any arguments concerning illegality before the arbitrator, and
the interim award neither discussed nor made rulings on the
issue of illegality. Rather, the interim award summarized the
central issue of the dispute as “the conflicting contentions that
Wolfe agreed or did not agree to abide by paragraph 10.4 in the
sale, whether Wolfe breached 10.4 and, if so, what damages
[Wehrly] incurred as a result of that breach. The issue, then, is
to determine Wehrly’s and Wolfe’s mutual or respective intents
concerning that transaction.” On these issues, the arbitrator
ruled in Wehrly’s favor, finding Wolfe and HHO had breached
paragraph 10.4.
      HHO and Wolfe moved to modify the interim award. That
motion is not in the record on appeal. In his final award, the
arbitrator summarized the arguments in the motion: HHO and
Wolfe contended Wehrly had offered insufficient evidence of
damages; the award conflicted with the trial court’s ruling in the
declaratory relief action, including its conclusion that paragraph
10.4 was unenforceable and invalid; and paragraph 10.2 was only

                                  15
an acknowledgement of the existence of paragraph 10.4 in the
2009 agreement, and not intended to bind HHO.
       Wehrly opposed the motion to modify the interim award.
That opposition also is absent from the record on appeal. As
summarized in the final award, Wehrly argued the modification
motion was “ ‘an attempt to re-arbitrate the matter,’ ” and further
was untimely and exceeded the scope of certain provisions of the
Code of Civil Procedure.
       HHO and Wolfe filed a response to Wehrly’s opposition.
That response is included in the appellate record, and is the first
indication of HHO and Wolfe citing statutory bases for their
claims of illegality. In the response, HHO and Wolfe contended,
inter alia, that they had “noted . . . at the arbitration, in their
briefing and in [the motion to modify the interim award]” that
Wehrly was attempting to enforce paragraph 10.4 for the illegal
purpose of protecting Jet Center’s “aviation fueling monopoly.”
HHO and Wolfe argued this was a “restraint of trade” prohibited
by Business and Professions Code sections 16720 and 16726, and
an unlawful, unfair, and fraudulent business practice in violation
of Business and Professions Code section 17200 et seq., the
Unfair Competition Law. HHO and Wolfe warned that
“[a]rbitrators exceed their powers by issuing an award that
violates a party’s statutory rights or that contravenes an explicit
legislative expression of public policy.” They asked the arbitrator
to modify the interim award “as requested in [the motion to
modify], which would then comport with California law and
relevant public policy regarding unfair, unlawful competition.”
       In the final award, the arbitrator addressed HHO’s and
Wolfe’s response to Wehrly’s opposition. The arbitrator wrote,
“[HHO and Wolfe] . . . argued, as they did throughout the

                                   16
arbitration, that section 10.4 is an illegal, unenforceable
provision of the [2014 purchase agreement] and, as such, should
be modified to comport with California law ‘and assure [t]hat the
anticompetitive, unfair, illegal fueling restrictions set forth in
section 10.4 are not inflicted on the aviation fuel consumers at
Hawthorne Airport.’ ”5
      The arbitrator denied the motion to modify the interim
award, stating the motion exceeded the permissible scope of Code
of Civil Procedure sections 1284 and 1286.6, subdivision (a),
concerning correction of arbitration awards, and further was “an
attempt to reargue the validity of [paragraph] 10.4, which has
already been decided. Additionally, the policy regarding fair,
competitive practices in California can only be established, if
even relevant, by expert testimony, of which there was none.”

      3.    Analysis
       As an initial matter, Moncharsh, not Loving & Evans,
controls here, because Wolfe is not challenging the legality of the
entire 2014 purchase agreement, but only paragraphs 10.2 and
10.4.
       Moncharsh sets forth two principles relevant to this appeal:
(1) a party must raise the issue of a contract’s partial illegality
before the arbitrator or forfeit judicial review of that issue; and

      5  When quoting the arbitration award in his appellate
briefing, Wolfe at times omits the internal quotation marks,
which makes it appear the arbitrator made findings when in fact
he was merely quoting HHO’s and Wolfe’s arguments.
Specifically, the arbitrator did not find that HHO’s participation
in the fueling business was a “ ‘good outcome under California
law and consistent with the policies regarding fair competition by
businesses in the state,’ ” as Wolfe’s briefing suggests.

                                   17
(2) the claim of illegality must be tethered to an explicit
legislative expression of public policy, that is, a “clear expression
of statutory policy.” (Sheppard Mullin, supra, 6 Cal.5th at
pp. 77–78.) The question then is whether Wolfe satisfied these
requirements.
       It is Wolfe’s burden as appellant to overcome the
presumption that the trial court’s forfeiture ruling was correct,
and to provide an adequate record to demonstrate error. (See
Bowser v. Ford Motor Co. (2022) 78 Cal.App.5th 587, 610.) Wolfe
has provided a very limited record from the arbitration itself,
omitting most of the reporter’s transcript and almost all of the
parties’ filings. Given Wolfe’s burden, we assume those omitted
transcripts and filings would not support his claim of error.
       The limited record Wolfe has provided does not establish
that he or HHO properly raised a claim of illegality based on a
clear expression of statutory policy. The one page from the
reporter’s transcript cited by Wolfe establishes his counsel
asserted “illegality” as a defense, but did not state a basis for that
illegality or cite any statutory authority. The interim award
references no arguments concerning illegality and makes no
rulings on that issue, belying Wolfe’s assertion that illegality was
at issue in the arbitration.
       It was not until the arbitrator had issued the interim
award, and Wolfe and HHO filed a response to Wehrly’s
opposition to their motion to modify the award, that Wolfe and
HHO first argued paragraph 10.4 was illegal under provisions of
the Business and Professions Code. The arbitrator in the final
award rejected that argument, finding it went beyond the
permissible scope of a modification request, was an attempt to

                                     18
reopen issues already decided, and lacked expert evidentiary
support.
       Under these circumstances, we cannot conclude Wolfe
satisfied the Moncharsh requirements to preserve the issue of
illegality for judicial review. Again, the two reasons behind the
Moncharsh forfeiture rule are to ensure the arbitrator has an
opportunity to rule on the illegality issue before the courts
address it, and to avoid a party holding an illegality challenge as
a trump card to play if the arbitrator renders an adverse decision.
       Merely asserting a defense of “illegality,” without reference
to any statutory basis for that defense, is not enough to preserve
that issue for judicial review of an arbitration award, because it
does not provide enough information for the arbitrator to reach a
decision. Indeed, it appears from the record that Wolfe and
HHO, after asserting an illegality defense, did not in fact offer
support for that defense prior to the arbitrator issuing a decision,
because the interim award makes no mention of any illegality
claims. Thus, the record does not establish the arbitrator had an
opportunity to rule on the illegality issue prior to rendering a
decision.
       As for Wolfe’s and HHO’s statutory arguments raised in
their response to Wehrly’s opposition to their request to modify
the interim award, we agree with the arbitrator that those
arguments were an untimely attempt to reopen matters that
should have been addressed in Wolfe’s and HHO’s case-in-chief.
Just as it would be improper to vacate an arbitrator’s award
based on a claim of illegality raised for the first time in court, it
would be improper to vacate an award based on last-minute
claims of illegality the arbitrator justifiably declined to address
because they could have been raised earlier. Vacating an award

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on that latter basis would promote the gamesmanship decried in
Moncharsh, encouraging parties to hold certain issues in reserve
until the arbitrator has announced an adverse interim decision,
and then use claims of illegality to undercut that decision and
reopen the proceedings.6
       This is not to say there could not be circumstances in which
an illegality challenge raised late in an arbitration would be
sufficient to preserve the issue for judicial review, for example
when the illegal implications of an award do not appear until the
award is issued. In this case, however, the enforceability of the
fuel restriction in paragraph 10.4 was front and center in the
arbitration, and to the extent Wolfe wished to challenge its
legality on the basis of the Business and Professions Code or
other statutory authority, he could have, and should have done so
from the outset. Instead, he waited to raise this challenge until
after the arbitrator issued his interim award and then only in
reply to Wehrly’s opposition to Wolfe’s and HHO’s motion to
modify that interim award.
       Wolfe notes that in the final award, the arbitrator stated,
“[HHO and Wolfe] . . . argued, as they did throughout the
arbitration, that section 10.4 is an illegal, unenforceable

      6   Wolfe, in contesting forfeiture in his appellate briefing,
fails to cite to, or rely on his and HHO’s response to Wehrly’s
opposition to the modification motion. He instead relies on his
counsel’s assertion of the illegality defense, and the arbitrator’s
statement in the final award that he and HHO “argued, as they
did throughout the arbitration, that section 10.4 is an illegal,
unenforceable provision of the [2014 purchase agreement].”
Wolfe thus never contends that the arguments in his and HHO’s
response are themselves sufficient to preserve the issue of
illegality for judicial review.

                                    20
provision of the [2014 purchase agreement].” (Italics added.)
Wolfe contends this establishes he and HHO raised the issue of
illegality throughout the proceedings, presumably before the
arbitrator had issued the interim award.
       At best, this comment from the arbitrator establishes Wolfe
and HHO made some arguments concerning illegality prior to
issuance of the interim decision, but it does not establish what
arguments they made and particularly, the statutory or public
policy basis for any such claim of illegality. Again, the fact that
the interim award did not refer to or address any illegality
arguments strongly suggests whatever arguments were raised
were as vague as the initial assertion of the illegality defense.
Wolfe has provided no other record to demonstrate the contrary.
       Wolfe argues, “[I]llegality can be raised by any party or the
court even if it is not plead[ed], at any time.” He quotes Tevis v.
Blanchard (1954) 122 Cal.App.2d 731 (Tevis), which stated, “ ‘The
law is very well settled that where the defendant does not set up
the defense of illegality, but the case made by the plaintiff or the
defendant shows illegality, it becomes the duty of the
court, sua sponte, to refuse to entertain the action.’ [Citation.]
Accordingly, ‘if the case presents one of illegality of the contract,
it must be considered by the court whether pleaded or
unpleaded.’ [Citations.]” (Id. at p. 733.) Wolfe also cites Fellom
v. Adams (1969) 274 Cal.App.2d 855 (Fellom), which stated,
“ ‘Whatever the state of the pleadings, when the evidence shows
that the plaintiff in substance seeks to enforce an illegal contract
or recover compensation for an illegal act, the court has both the
power and duty to ascertain the true facts in order that it may
not unwittingly lend its assistance to the consummation or
encouragement of what public policy forbids. [Citations.] It is

                                    21
immaterial that the parties, whether by inadvertence or consent,
even at the trial do not raise the issue. The court may do so of its
own motion when the testimony produces evidence of illegality.
[Citation.] It is not too late to raise the issue . . . even on
appeal.’ [Citation.]” (Id. at p. 863.)
      Tevis and Fellom are distinguishable because they
concerned trials, in which appellate review was the norm, as
opposed to arbitrations, in which appellate review is prohibited
absent limited exceptions. (Tevis, supra, 122 Cal.App.2d at
p. 732; Fellom, supra, 274 Cal.App.2d at p. 857.) They also
involved claims that an entire contract or transaction was illegal,
not a portion of a contract, a distinction important in Moncharsh.
(Moncharsh, supra, 3 Cal.4th 1, 30, 32; see Tevis, at p. 732
[appellant claimed promissory note void as illegally issued
security or illegal advance upon purchase of stock; Fellom, at
p. 857 [defendant claimed plaintiffs could not recover on
promissory note because they had failed to prove they were
licensed real estate salesmen and brokers].) These cases
therefore are not instructive on the matter before us. Further, to
read Tevis and Fellom, as Wolfe urges, to allow parties to obtain
judicial review of an arbitration award based on an untimely
challenge to the legality of a portion of an instrument, would
eviscerate the forfeiture rule of Moncharsh, which requires
claims of partial illegality to be raised properly before the
arbitrator.

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                       DISPOSITION
     The judgment is affirmed. Respondent David Wehrly is
awarded his costs on appeal.
     NOT TO BE PUBLISHED.

                                      BENDIX, J.

We concur:

             ROTHSCHILD, P. J.

             WEINGART, J.

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