Opinion
G060768
12-09-2022
MOSS BROS. AUTO GROUP, Plaintiff and Appellant, v. PETER SHAVER et al., Defendants and Respondents.
Law Offices of Michael Geller and Michael S. Geller for Plaintiff and Appellant. Burkhalter Kessler Clement &George, Alton G. Burkhalter and Rosamund Lockwood for Defendants and Respondents.
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Orange County No. 30-2019-01117420, Stephanie George, Judge. Affirmed.
Law Offices of Michael Geller and Michael S. Geller for Plaintiff and Appellant.
Burkhalter Kessler Clement &George, Alton G. Burkhalter and Rosamund Lockwood for Defendants and Respondents.
OPINION
MOTOIKE, J.
At-will employees of an automobile dealership quit and went to work for a competitor. The former employer sued its former employees and their new employer (collectively defendants) for breach of contract, inducing breach of contract, interference with contractual relations, breach of the employees' duty of loyalty, and unfair business practices. The former employer specifically alleged that the former employees had breached a nonsolicitation clause in their written confidentiality agreements by communicating with other employees and inviting them to join the new employer as well. The trial court found in favor of all defendants and against the former employer on all causes of action, either on demurrer or summary judgment. The former employer appealed; we affirm.
The nonsolicitation clause the former employer required its employees to sign is invalid and unenforceable under Business and Professions Code section 16600 (section 16600); the causes of action for breach of that provision and for inducing its breach therefore fail as a matter of law. Because the employment was at-will, a claim for interference with the employment contracts required evidence of an independent wrongful act; on summary judgment defendants established the lack of a triable issue of material fact. The employees established they did not take any confidential information from the former employer and did not solicit other employees to leave until their employment had ended; therefore, they could not have breached a duty of loyalty to the former employer. The cause of action for unfair business practices was based solely on the alleged wrongful conduct in the other causes of action; when those causes of action were resolved against the former employer, that claim, too, failed.
At oral argument, counsel for both appellant and respondents requested this court to publish this opinion and establish a bright-line rule regarding the enforceability of nonsolicitation clauses. The facts of this case do not warrant publication, however. As will be explained in detail, post, the nonsolicitation clause at issue here is impermissibly overbroad. We need not look beyond the facts of this case to address the issue of the per se invalidity of nonsolicitation provisions in employment agreements.
STATEMENT OF FACTS AND PROCEDURAL HISTORY
Moss Bros. owns seven automobile dealerships. Michael Harrington and Asad Mazhar were at-will employee sales managers of Moss Bros.' dealerships. Like all employees of Moss Bros., Harrington and Mazhar each signed a confidentiality agreement that included a nonsolicitation clause. The confidentiality agreement provided: "'While employed by the Employer and for a period of twelve months from the date of termination of Employee's employment (regardless of reason), Employee agrees not to induce or attempt to influence directly or indirectly through another person any Employee of the Employer to work for you [or] any other person or entity with whom Employee is or may become professionally associated, without the written consent of the President or Owner of the Employer's company.'"
The confidentiality agreement is not a part of the appellate record. The nonsolicitation clause was quoted in Moss Bros.' complaint; we quote from that complaint verbatim here.
Surf City Auto Group (Surf City), owned and operated by Peter Shaver, is a direct competitor of Moss Bros. In October 2018, Harrington resigned from Moss Bros. and accepted a job with Surf City. Harrington took nothing with him when he left Moss Bros. and specifically did not take confidential employee contact information.
Harrington had contact information for employees of Moss Bros., as well as for other automotive sales employees he had worked with over the years, on his personal cell phone. Additionally, contact information for employees of Moss Bros. was made available upon request and was publicly posted in the dealership.
After Harrington left Moss Bros., Mazhar also resigned and Harrington offered him a position at Surf City. Mazhar began working at Surf City, and he let employees of Moss Bros. and other dealerships know there were positions available at Surf City. Like Harrington, Mazhar used his personal cell phone and the contacts he had personally made over the years to communicate with other employees.
In October 2020, Moss Bros. filed its operative complaint, alleging claims for inducing breach of contract (cause of action No. 1), intentional interference with contractual relations (cause of action No. 2), breach of the duty of loyalty against Harrington and Mazhar (cause of action No. 3), unfair business practices in violation of Business and Professions Code section 17200 (cause of action No. 4), and breach of written contract against Harrington and Mazhar (cause of action No. 5). The trial court sustained defendants' demurrer without leave to amend as to the first and fifth causes of action.
Two additional defendants were named in the second amended complaint, but no factual allegations were asserted against them. The trial court sustained the demurrer as to these defendants without leave to amend. Moss Bros. makes no argument on appeal regarding these defendants.
Defendants filed a motion for summary judgment as to the second, third, and fourth causes of action, to which Moss Bros. filed a notice of nonopposition. The trial court granted the motion for summary judgment, and judgment was entered in September 2021. Moss Bros. appealed.
DISCUSSION
I.
THE TRIAL COURT DID NOT ERR IN SUSTAINING THE DEMURRER TO THE FIRST AND FIFTH CAUSES OF ACTION WITHOUT LEAVE TO AMEND
"'In reviewing an order sustaining a demurrer, we examine the operative complaint de novo to determine whether it alleges facts sufficient to state a cause of action under any legal theory.' [Citation.] '"'"We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.... We also consider matters which may be judicially noticed." . . . Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.'"' [Citation.]" (Mathews v. Becerra (2019) 8 Cal.5th 756, 768.)
"'"[I]t is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment. [Citation.]" [Citation.]' [Citation.]" (Smith v. BP Lubricants USA Inc. (2021) 64 Cal.App.5th 138, 145.) Moss Bros. did not request leave to amend in the trial court or on appeal, and did not raise the possibility that the defects in the complaint could be cured by amendment.
The trial court found the confidentiality agreement Moss Bros. required its employees to sign was void as a matter of law as an invalid restraint on trade in violation of public policy, quoting section 16600: "'Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.'" The court therefore determined the causes of action for inducing breach of contract and breach of contract failed as a matter of law.
California law supports the trial court's order sustaining the demurrer on these causes of action. "'Section 16600 expresses California's strong public policy of protecting the right of its citizens to pursue any lawful employment and enterprise of their choice. [Citations.] California courts "have consistently affirmed that section 16600 evinces a settled legislative policy in favor of open competition and employee mobility." [Citation.] "The interests of the employee in his [or her] own mobility and betterment are deemed paramount to the competitive business interests of the employers, where neither the employee nor his [or her] new employer has committed any illegal act accompanying the employment change." [Citations.]' [Citation.]" (AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018) 28 Cal.App.5th 923, 935-936 (AMN).)
In Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937 (Edwards), employer Arthur Andersen required the employee to sign a noncompetition agreement which prohibited the employee from (1) providing professional services to a client the 3 employee worked for at Arthur Andersen for 18 months after the end of employment, (2) soliciting clients from Arthur Andersen for 12 months after the end of employment, and (3) soliciting Arthur Andersen personnel to work elsewhere for 18 months after the end of employment. (Id. at p. 942.) The Supreme Court held the noncompetition provision was invalid (id. at p. 948), rejecting the employer's arguments that the term "restrain" means "prohibit," and that a reasonably based noncompetition agreement which merely limits an employee's ability to practice his or her vocation would be permissible. (Id. at pp. 946-948.) The Edwards court did not address the portion of the noncompetition agreement prohibiting the employee from recruiting Arthur Andersen's current employees. (Id. at p. 946, fn. 4.)
In AMN, supra, 28 Cal.App.5th 923, both the plaintiff and the defendants were in the business of recruiting and placing temporary health care professionals, including travel nurses. (Id. at p. 927.) The individual defendants, who were travel nurse recruiters for plaintiff AMN, were required to sign an agreement providing in part that they would not solicit any employees from AMN to work elsewhere for at least one year after the termination of their employment. (Id. at p. 929.) After resigning from AMN, several employees went to work as travel nurse recruiters for defendant Aya, and were alleged to have induced other AMN employees to do so as well. (Id. at p. 930.) AMN sued these former employees for breaching the nonsolicitation clause of their employment agreement. (Id. at pp. 930-931.) The trial court granted summary judgment in favor of the former employees, concluding the nonsolicitation clause was an unlawful restraint on trade under section 16600. (AMN, at p. 933.) The appellate court affirmed.
The court first reiterated California's public policy rejecting restraints on trade. "'"[A]t common law and in many states, a restraint on the practice of a trade or occupation, even as applied to a former employee, is valid if reasonable[.]" [Citation.] However, California long ago rejected the so-called "rule of reasonableness" when it enacted Civil Code former sections 1673 through 1675, the predecessor sections to
Business and Professions Code sections 16600 through 16602. "At least since 1872, a noncompetition agreement has been void unless specifically authorized by sections 16601 or 16602." [Citation.] These legislative enactments "settled public policy in favor of open competition, and rejected the common law 'rule of reasonableness,' [and] [t]oday in California, covenants not to compete are void, subject to several exceptions ...." [citation].' [Citation.]" (AMN, supra, 28 Cal.App.5th at p. 935.) The court then determined that because the nonsolicitation provision prevented the individual defendants from practicing their chosen profession, it was invalid under section 16600. (AMN, at p. 936.)
Two recent federal cases have interpreted AMN to apply to all nonsolicitation provisions, not only where the job itself involved solicitation and hiring of other employees. In Barker v. Insight Global, LLC (N.D.Cal. Jan. 11, 2019) 2019 U.S. Dist. LEXIS 6523 (Barker), an employee sued his former employer, inter alia, for enforcing an unlawful employment agreement. (Id. at pp. *2-*3.) The defendant company provided staffing services in information technology, finance, accounting, engineering, and government work. The plaintiff had been an account manager, a sales manager, and the director of operations for the defendant company. The employment agreement contained a provision the employee would not solicit any employees to work for a competing business for one year after the termination of the employee's employment. (Barker v. Insight Global, LLC. (N.D.Cal. July 24, 2018) 2018 U.S. Dist. LEXIS 123896, at pp. *4-*5.)
Relying on the recently decided opinion in AMN, the district court granted a motion to reconsider its earlier order granting a motion to dismiss the claim regarding enforcement of the unlawful provision in the agreement. (Barker, supra, 2019 U.S. Dist. LEXIS 6523, at p. *10.) The court held: "California law is properly interpreted postEdwards to invalidate employee nonsolicitation provisions." (Id. at p. *8.)
WeRide Corp. v. Huang (N.D.Cal. 2019) 379 F.Supp.3d 834 (WeRide) applied section 16600 to invalidate a nonsolicitation provision in an employment agreement involving a nonhiring job. The plaintiff employer was a developer of autonomous driving technology. The defendant employee was its hardware engineering director, who quit to work at a competitor. The provision in that employment agreement provided: "'Until one year after the term of my employment, I will not encourage or solicit any employee or consultant of Company to leave Company for any reason (except for the bona fide firing of Company personnel within the scope of my employment).'" (WeRide, supra, at p. 852.) Based on Edwards, AMN, and Barker, the court found the nonsolicitation provision to be an invalid restraint on employment. (WeRide, at p. 852.)
While the federal courts applying California law have held all nonsolicitation provisions violate section 16600, no California court has yet to do so. Although the policies underlying section 16600 might suggest we accept and apply this rule of law, this is not the case in which to do so. We need not address the per se invalidity of nonsolicitation provisions in general because the specific nonsolicitation provision Moss Bros. required its employees to sign is impermissibly overbroad. It purports to prohibit the employees from inducing or attempting to influence any other employee of Moss Bros. to work for any other employer, whether or not that new employer is a competitor of Moss Bros. or even in the same industry. It also purports to apply whether the "soliciting" employee currently works for or may at some point in the future work for the new employer. The nonsolicitation provision would also apply whether an employee used confidential information, or whether the solicitation was made using only publicly available information, information in the employee's possession before coming to work at Moss Bros., or information obtained after leaving their employment. This nonsolicitation provision violates section 16600 and is therefore invalid. The trial court did not err in sustaining the demurrer to the first and fifth causes of action in the second amended complaint. Whether a more narrowly tailored nonsolicitation clause might survive judicial review is a question for another day.
Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130 (Ixchel), on which Moss Bros. relies, is inapposite. The case involved a noncompetition clause in a business contract, not an employment contract. The Ixchel court emphasized the rule of reason that applies to noncompetition provisions in business contracts does not apply to employment contracts. "In sum, a survey of our precedent construing section 16600 and its predecessor statute reveals that we have long applied a reasonableness standard to contractual restraints on business operations and commercial dealings. We do not disturb the holding in Edwards and other decisions strictly interpreting section 16600 to invalidate noncompetition agreements following the termination of employment or sale of interest in a business. But those cases do not call into doubt the applicability of a reasonableness standard to contractual restraints on business operations and commercial dealings." (Id. at p. 1159.) We reject the contention put forward by Moss Bros. that a reasonableness standard applies to our review and interpretation of the nonsolicitation clause at issue here in the employment context.
Moss Bros. also relies on Loral Corp. v. Moyes (1985) 174 Cal.App.3d 268 and International Business Machines Corp. v. Bajorek (9th Cir. 1999) 191 F.3d 1033, neither of which is on point. In both, the courts were considering the validity of a noncompetition clause, rather than a nonsolicitation clause. Further, both opinions applied the rule of reasonableness to determine that a provision restraining the former employee from employment with a competitor is valid as long as the employee has the ability to engage in some future employment. (Loral Corp. v. Moyes, supra, 174 Cal.App.3d at p. 279 ["enforceability depends upon its reasonableness, evaluated in terms of the employer, the employee, and the public"]; International Business Machines Corp. v. Bajorek, supra, 191 F.3d at pp. 1040-1041 ["a contract is valid, despite a restriction on competition, if the promissor is 'barred from pursuing only a small or limited part of the business, trade or profession'"].) The rule of reasonableness does not apply in analyzing a noncompetition clause in a "basic" employment situation. (See AMN, supra, 28 Cal.App.5th at p. 939 ["We thus doubt the continuing viability of Moyes postEdwards"].)
II.
THE TRIAL COURT DID NOT ERR IN GRANTING THE MOTION FOR SUMMARY JUDGMENT AS TO THE SECOND, THIRD, AND FOURTH CAUSES OF ACTION
In the trial court, Moss Bros. filed a notice of nonopposition to the motion for summary judgment. On appeal, Moss Bros. does not make any separate arguments regarding summary judgment of the second, third, and fourth causes of action.
In an appeal from an order granting a motion for summary judgment, "'"'[w]e review the trial court's decision de novo, considering all the evidence set forth in the moving and opposing papers except that to which objections were made and sustained.'" [Citation.] We liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party. [Citation.]' [Citation.]" (Gonzalez v. Mathis (2021) 12 Cal.5th 29, 39.) Because Moss Bros. did not oppose the motion for summary judgment, as long as defendants' motion papers establish the lack of a disputed material fact, we will affirm.
In the second cause of action for intentional interference with contractual relations, Moss Bros. alleged that defendants intentionally interfered with its employment contracts with Harrington and Mazhar. Moss Bros. further alleged that Harrington and Mazhar took confidential information when they left Moss Bros., namely the contact information for its employees.
This cause of action requires proof of "'(1) the existence of a valid contract between the plaintiff and a third party; (2) the defendant's knowledge of that contract; (3) the defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.' [Citations.]" (Ixchel, supra, 9 Cal.5th at p. 1141.) Additionally, in the case of interference with an at-will employment contract, "a plaintiff must [also] plead and prove that the defendant engaged in an independently wrongful act-i.e., an act 'proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard' [citation]-that induced the at-will employee to leave the plaintiff." (Reeves v. Hanlon (2004) 33 Cal.4th 1140, 1145.) "[C]ase law in analogous contexts shields those employers who hire a competitor's at-will employees without engaging in unlawful conduct. [Citations.] By recognizing similar restrictions in interference actions, we respect both the right of at-will employees to pursue opportunities for economic betterment and the right of employers to compete for talented workers, and in doing so strike the proper balance between society's interest in fostering robust competition in the job market and its interest in protecting against unlawful methods of competition." (Id. at p. 1154.)
In the motion for summary judgment, defendants offered admissible evidence that Harrington and Mazhar were at-will employees of Moss Bros.; Harrington and Mazhar did not take proprietary information from Moss Bros. or make a deal with Shaver to use confidential information from Moss Bros. to raid its employees; contact information for employees of Moss Bros. was posted at the dealership, provided on request, and freely exchanged among employees; the advertising, promotional, and sales techniques used by these defendants while employed by Moss Bros. was not different or unique from other car dealerships; and the talent pool for automobile dealership sales and management employees is well known and these employees frequently move to other dealerships when offered more lucrative opportunities.
There is nothing proprietary or confidential regarding the identities or contact information of individuals if this information can be easily discovered. (AMN, supra, 28 Cal.App.5th at pp. 944-945.) Similarly, the sales and marketing strategies of
Moss Bros. were not confidential. Therefore, the use of this information by Harrington and Mazhar was not an independently wrongful act. The trial court did not err in granting the motion for summary judgment on the second cause of action.
In the third cause of action for breach of the duty of loyalty, Moss Bros. alleged that Harrington and Mazhar made a deal with Shaver to take Moss Bros.' employee contact information and use it to recruit employees from Moss Bros. The elements of this cause of action are (1) the existence of a relationship giving rise to a duty of loyalty, (2) a breach of that duty, and (3) damages proximately caused by the breach. (Wittenberg v. Bornstein (2020) 50 Cal.App.5th 303, 312, fn. 7.) "'While California law does permit an employee to seek other employment and even to make some "preparations to compete" before resigning [citation], California law does not authorize an employee to transfer his loyalty to a competitor. During the term of employment, an employer is entitled to its employees' "undivided loyalty." [Citation.]' [Citation.]" (Angelica Textile Services, Inc. v. Park (2013) 220 Cal.App.4th 495, 509.)
Defendants offered admissible evidence that Moss Bros. took no steps to keep its employees' contact information confidential, and neither Mazhar nor Harrington contacted any employees of Moss Bros. about opportunities with Surf City until they stopped working for Moss Bros. and began working at Surf City. The trial court did not err in granting the motion for summary judgment as to this cause of action.
The fourth cause of action for unfair business practices in violation of Business and Professions Code section 17200 alleged: "39. The actions of inducing former employees to break their confidentiality agreements to solicit employees from a competitor and, the systematic raiding of employees of a competitor to harm the competitor certainly harms competition. [¶] 40. The actions of Defendants in acting in concert to obtain plaintiff's employees constitute at least unfair practices as defined by the statute and its associated case law." "'"'[S]ection 17200 "borrows" violations of other laws and treats them as unlawful practices' that the unfair competition law makes independently actionable."' [Citation.] . . . Thus, when the underlying legal claim fails, so too will a derivative [unfair competition law] claim. [Citation.]" (AMN, supra, 28 Cal.App.5th at p. 950.) As noted ante, all of Moss Bros. other causes of action were properly resolved in favor of defendants, either on demurrer or on summary judgment. Therefore, summary judgment on this cause of action was also proper.
DISPOSITION
The judgment is affirmed. Respondents to recover costs on appeal.
WE CONCUR: MOORE, ACTING P. J. GOETHALS, J.