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19CV349042
Santa Clara — Civil
JOHN M. NEUKOM (SBN 275887)
john.neukom@skadden.com
ABRAHAM A. TABAIE (SBN 260727)
abraham.tabaie@skadden.com
CAROLINE VAN NESS (SBN 281675)
caroline.vanness@skadden.com
MICHELLE KAO (SBN 322758)
michelle.kao@skadden.com
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
525 University Avenue, Suite 1400
Palo Alto, California 94301
Telephone: (650) 470-4500
Facsimile: (650) 470-4570
RAZA RASHEED (SBN 306722)
raza.rasheed@skadden.com
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071-3144
Telephone: (213) 687-5000
Facsimile: (213) 687-5600
Attorneys for Defendants/Cross-Complainants
M.S
Electronically Filed
by Superior Court of CA,
County of Santa Clara,
on 8/19/2020 8:21 PM
Reviewed By: M. Sorum
Case #19CV349042
Envelope: 4795742
STANDARD INDUSTRIES INC. and GAF ENERGY LLC
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF SANTA CLARA
SUNPOWER CORPORATION, CASE NO.: 19CV349042
Plaintiff, STANDARD INDUSTRIES INC.’S
OPPOSITION TO SUNPOWER’S
v. DEMURRER
MARTIN DEBONO; STANDARD
INDUSTRIES INC.; GAF ENERGY LLC; Date: September 1, 2020
and DOES 1-100, Time:
Dept.:
Defendants, Judge:
AND RELATED CROSS-ACTION.
9:00 am
21
Hon. Thang N. Barrett
Cross-Complaint Filed: March 30, 2020
STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER
CASE NO.: 19CV349042
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TABLE OF CONTENTS
Page
MEMORANDUM OF POINTS AND AUTHORITIES ........cccsssssssessssessssssesesscsesnssesessesssnenesesreneanene 1
PRELIMINARY STATEMENT . 1
BACKGROUND .....ceccssessesseesessessessesnsssessesessessesseessesesssssssnssessesseeseesesseessenssussesssseesesseesseesseeanseessenseese 3
I. SunPower’s Unlawful Non-Solicitation Provisions...........c:sssessseeseeessesseereseeseeseees 3
IL. SunPower Alleges Violation of Its Non-Solicitation Provisions..........:.:ssessesseseseeee 4
Til. Standard’s Cross-Complaint ..0........cccssssesseseseeseseseesssesesseeeecsessacsneneaeeneasaneneneeneeeaeenene )
IBIRX@.0.88) (0). ecrorcererre cere recencr rere corer rere rere reerececre reece correc reece 6
I. Standard Of REVIOW.........c.cssecseseesesseeseesestessesesesseesesseesessesssssssessesseeseesesseaseensseeaeeneaee 6
IL. SunPower’s Unclean Hands Defense Cannot Be Resolved at the Pleading
Stage... eeseseseccessseteseessessessecseeessenssecseeesssnsesnsescssscseensesessecssensessscscesecscessescerecseaseees 6
Il. Preventing SunPower’s Use of Illegal Covenants Would Not Violate Due
LOCOS re ee ree 8
IV. Standard Has Standing to Seek UCL Relief ......ceeceeesesesseseseeeeeseeneeeeeeeseeneeeeeeaeeee 12
A. Standard Has Pled Violations of Section 16600 .0.......cccccsessesesees essences 12
B. Standard Has Pled an Economic Injury ...........csseessesesesseesesesesseneeesseneeneneee 13
Cc. Standard Has Pled Ongoing Harm That Merits Injunctive Relief.. 14
COIN CSN ee 15
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TABLE OF AUTHORITIES
Page(s
CASES
AMN Healthcare, Inc. v. Aya Healthcare Services, Inc.,
28 Cal. App. 5th 923 (2018)... socsveseaencacarencacarcacarencacarencarsnsacarensscarsesaraneecaveessrseees PASSIM
Bearden v. U.S. Borax, Inc.,
138 Cal. App. 4th 429 (2006) . - 10, 11
Chavez v. Indymac Mortgage Servs.,
219 Cal. App. 4th 1052 (2013) .....eescesscessecsseesesssssseessesssssessnessesnecsesseesnessuesseessessesseseeseaneene 6
Corenbaum v. Lampkin,
215 Cal. App. 4th 1308 (2013) .....eesceeseesssesseessesseesseesnesscssesseesseessessesseesnesseesseessesseesseeseseaees 10
CrossTalk Productions, Inc. v. Jacobson,
65 Cal. App. 4th 631 (1998) ....ceseesesseecsesseessessesseessesssessessnessessecsessessuesseesenesneeseess 2, 6, 7,8
Edwards v. Arthur Andersen LLP,
44 Cal. 4th 937 (2008) ......eesceeseecssesseessesseessessnessessesssessessecsuesseesseessessessesseesseeesesssesses 1,9, 11
Flores v. Kmart Corp.,
202 Cal. App. 4th 1316 (2012) ..e.eeeeseecessecsessesseessesssessessnessessecsessessuessessnesessessessesesneene 6
Fraser v. Bogucki,
DOs CalsApp sd O04 (108S)p ee eee eee eee eee 8
Gutierrez v. CarMax Auto Superstores California,
1O(Cal Appi sth 1234 (0018) 80 es 8 eee eee eee ee 12
Insurance Co. of North America v. Liberty Mutual Insurance Co.,
128 CalyApp sd 20 (10s2\p ee ee ee eee 8
International Brotherhood of Teamsters, Local 848 v. City of Monterey Park,
30 Cal. App. Sth 1105 (2019) voscccsssscsssssssssssssscvssosssssessssssssssstssnstisesstesssienseeete 14, 15
Ixchel Pharma, LLC y. Biogen, Inc.,
No. $256927, 2020 WL 4432623 (Cal. Aug. 3, 2020) .....cecscscescescessesteseesesseesesnesessesnesesneee 9
Janis v. California State Lottery Commission,
68 Cal App y4this24 (1998) oe tee ee 11
JPI Westcoast Construction, L.P. v. RJS & Associates, Inc.,
156 Cal. App. 4th 1448 (2007)...
Kwikset Corp. v. Superior Ct.,
pole Calera tes (20 BU) Rieter crc errr ee 12
Loral Corp. v. Moyes,
174 Cal. App. 3d 268 (1985) ....ssssssssessssssssssssssvesssccsscsnscsssrsecsssesesesscsesesessasanssavsescsncsssease Oy F
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Maguire v. Hibernia Savings & Loan Society,
23 Cal. 2d 719 (1944) .o.eeeceesseessecssessesssessecssssesssnssscsscssssssessnsesucssessnessuesneesuesssssessnsessseseaeeese 7
Marin County Board of Realtors, Inc. v. Palsson,
16 Cal. 3d 920 (1976) .o.seecseessesssesssesseessesseessessscssesssessuessessueesessesssessrsssessssssesseessnssneesseeseesesese 15
Miller v. Collectors Universe, Inc.,
159 Cal. App. 4th 988 (2008) .......cescsescesssesseessessessesssessessesssessesseessessnessessnessessassaseeneesse 10, 11
Newman v. Emerson Radio Cor
48 Cal. 3d 973 (1989)...
2, 10
Olszewski v. Scripps Health,
30 Cal. 4th 798 (2003) .....ceecessecssseseeesesecesesesscsesesesesneseseessesneaesnsesesseensensesacseensenseneeneeseeeee 11
People ex rel. Feuer v. Superior Ct.,
DA CalAppaihGGOQ01S)pe tt te eee eee 15
People v. Superior Ct.,
34 Cal. App. 5th 376 (2019) cccccssssssssssssssssssssssscssssessessessssssssssssssssssssnsessessssesusesseeteesisssess 6,7
Professional Fire Fighters, Inc. v. City of Los Angeles,
60 Cal. 2d 276 (1963) ..o.eecsesscssesessesseeseeseesesesessesesesesesnesesesassesssesnsasaesnsssensusasseensatseaeeneneaeeee 14
Quelimane Co. v. Stewart Title Guaranty Co.
19 Cal. 4th 26 (1998)
3, 12, 14
Robinson v. U-Haul Co. of California,
4 Cal. App. Sth 304 (2016) escsccssssesssscssssssssssssssssssasssssssssassssesssiessssessiessssesssesssies 15
Roger v. County of Riverside,
Aa Cale App tno 0(2020) 13, 14
Schifando v. City of Los Angeles,
i) ale Ati 7 4(2003) tt 6,15
Silas v. Arden,
213 Gal App. Au (12012) steerer eee ene eee tll
In re Singh,
Case No. 10-42050-D-7, Adv. Pro. Nos. 12—2312D et al.,
2015 WL 1887939 (Bankr. E.D. Cal. Apr. 22, 2015) ....e.cecscessessessesteseeseesesseesessesseesestessessesee 7
Stine v. Dell’Osso,
230 Cal. App. 4th 834 (2014) oo... eeceeceecseecseessessnessnessessussassneesnessssssesnssseessesssessecssessseseeees Oy 7
Valbuena v. Ocwen Loan Servicing, LLC,
237 Cal. App. 4th 1267 (2015) ...sscecsessseessseesssecssesssessssssssecssueessesssesssecsseessssessseessseessseesseess O
Waller v. Truck Insurance Exchange, Inc.,
11 Cal. 4th 1 (1995) oe eeceecseecseesecsesssessnesssesessnessesssessneesessneesessecssessesssnssnesseessesseseseessesseses LO
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STATUTES
alBus! Gc erol Code 91204 eee
Cal. Bus. & Prof. Code § 16600 .....cccesesecesesssesesteeseesseeesteeeeesseeeereeeeene
OTHER AUTHORITIES
4 Witkin, Cal. Proc. 5th Pleading § 398 (2020)... secseeseseeeeeeteteeetenes
iv
eee ee 12
Freer rere eee 1
ere 13
STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER
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MEMORANDUM OF POINTS AND AUTHORITIES
Cross-Complainant Standard Industries Inc. (“Standard”) respectfully submits this
memorandum of points and authorities in opposition to Cross-Defendant SunPower Corporation’s
(“SunPower”) demurrer to Standard’s Cross-Complaint (sometimes, “CC”).!
PRELIMINARY STATEMENT
It is well established under California law that contractual covenants that purport to restrict
an employee’s ability to offer employment opportunities to her current or former colleagues (“non-
solicitation covenants”) are invalid and unenforceable. Under California Business and Professions
Code section 16600 (“Section 16600”), “every contract by which anyone is restrained from engaging
in a lawful profession, trade, or business of any kind is to that extent void.” Cal. Bus. & Prof. Code
§ 16600. In 2008, the California Supreme Court affirmatively upheld this principle of employee
mobility by prohibiting employee non-competition agreements in any form unless a statutory
exception applies. See Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937, 942 (2008) (“We conclude
that section 16600 prohibits employee noncompetition agreements unless the agreement falls within
a statutory exception... .”). And in 2018, the California Court of Appeal in AMN Healthcare, Inc.
y. Aya Healthcare Services, Inc., 28 Cal. App. 5th 923 (2018), recognized that non-solicitation
covenants are a form of non-competition agreement and are therefore subject to Section 16600’s
general prohibition. See id. at 936-39.
Notwithstanding this authority, in 2019, SunPower brought suit against Martin DeBono, a
former SunPower employee and a current employee of GAF Energy (one of Standard’s subsidiaries),
for allegedly violating a non-solicitation covenant DeBono signed while employed with SunPower.
CC {fj 16-17. SunPower’s theory was that DeBono had somehow acted wrongfully by offering well-
paying job opportunities to SunPower employees with valuable skills. /d.
This Court rejected SunPower’s claim as a matter of law, holding that the non-solicitation
covenant it had forced DeBono to accept was illegal and unenforceable. /d. Ex. A. However, the
Court’s Order does not address the non-solicitation covenants SunPower has foisted upon its other
1 References to SunPower’s memorandum of points and authorities in support of its demurrer
are denoted as “Mem.” followed by the page and line number. Unless otherwise noted, all emphases
are added, and all citations, brackets, original alterations, footnotes, and quotation marks are omitted
from all quotations for ease of reading. Please see the table of authorities for subsequent case history.
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current and former employees. /d. 4] 15. By bringing suit against DeBono in spite of AMN Healthcare,
SunPower has shown that it will make every effort to leverage its non-solicitation covenants to
restrict employee mobility unless and until a court tells it to stop, harming competitors like Standard
who must incur increased recruiting costs and accept less desirable candidates due to SunPower’s
conduct. /d. § 21. Standard thus brought this action to prevent SunPower from using its non-
solicitation covenants to bully other employees—and thus depress the employment market for the
solar industry—as it did with DeBono.
Rather than make proactive efforts to release its employees from the illegal covenants in their
contracts, SunPower now brings this demurrer, using a hodgepodge of legal arguments to avoid
injunctive relief that would interfere with its wrongful campaign to limit employee mobility. All of
these arguments fail.
First, the Cross-Complaint cannot be dismissed based on SunPower’s “unclean hands”
defense, because SunPower has not shown that Standard has unclean hands at all, and this fact-
specific defense cannot be resolved at the pleading stage in any event. See CrossTalk Prods., Inc. v.
Jacobson, 65 Cal. App. 4th 631, 635, 641 (1998) (holding that “the doctrine of unclean hands is
heavily fact dependent,” and “a uniquely poor candidate to support a demurrer”; and that a demurrer
“cannot properly be sustained where the action might be barred by the defense, but is not necessarily
barred” (emphasis in original)).
Second, SunPower’s argument that preventing the use of its illegal covenants would violate
due process because the covenants were supposedly legal at the time they were drafted is faulty,
because (i) contrary to SunPower’s revisionist legal history, non-solicitation provisions have been
unlawful under binding California law since at least since 2008, see AMN Healthcare, 28 Cal. App.
5th at 938-39 (holding that prior judicial authority approving non-solicitation covenants was
overruled by the Supreme Court in 2008); (ii) Standard is seeking prospective injunctive relief, so it
is not simply seeking to hold SunPower “retroactively” liable for its unlawful conduct; and
(iii) SunPower failed to make any argument sufficient to defeat the presumption that judicial
decisions apply retroactively. See Newman v. Emerson Radio Corp., 48 Cal. 3d 973, 978 (1989).
Third, Standard has adequately pled violations of Section 16600, economic injury, and
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ongoing harm that merit injunctive relief—SunPower cannot twist the standard on demurrer to
demand more specificity than is required. See Quelimane Co. v. Stewart Title Guar. Co., 19 Cal. 4th
26, 46-47 (1998) (holding that UCL claims do not require “fact-specific pleading”). For all of these
reasons, and as further explained below, the Court should overrule SunPower’s demurrer.
BACKGROUND
I. SunPower’s Unlawful Non-Solicitation Provisions
Standard alleges that, despite the repeatedly-held unlawfulness of non-solicitation provisions
under California law, SunPower regularly includes these provisions throughout several of its
employment agreements—a tactic SunPower wields to discourage employee mobility. CC § 15.
Indeed, upon becoming a SunPower employee in 2013, former SunPower Executive Vice President
of Global Channels Martin DeBono (now President of GAF Energy) signed a confidentiality
agreement titled “Agreement Concerning Proprietary Information and Inventions” (“Inventions
Agreement”). CC ¥ 10. This Inventions Agreement included the following non-solicitation provision:
During the term of my employment with SunPower and for a period of two (2) years
thereafter, I agree that I will not solicit or encourage, or cause, or enable others to
solicit or encourage, any employees of SunPower to terminate their employment with
SunPower.
CC § 11 (citing Inventions Agreement § 9).
And upon becoming Executive Vice President and General Manager, Global Channels,
DeBono was required to sign an Employment Agreement on August 28, 2017. CC § 12. Again, this
Employment Agreement contains the following non-solicitation provision:
. .. Executive agrees that during the one (1) year period following the Termination
Date, Executive, directly or indirectly, . . . will (i) not solicit, induce, or influence any
person to modify his or her employment or consulting relationship with [SunPower]
or its Affiliates... .
Id. (citing Employment Agreement § 9(b)).
Not only do these kinds of invalid non-solicitation provisions in its employment agreements
appear to be common practice for SunPower, SunPower further seems to regularly include a non-
solicitation provision in its post-termination agreements with high-level employees. For example,
the Separation Agreement and Release (“Separation Agreement”) that SunPower signed with
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DeBono at the time of his departure states:
J. Post-Termination Obligations. . . .You acknowledge and agree as part of your
responsibility to maintain the confidentiality of such information, for a period of
twelve (12) months following your Separation Date, you shall not (i) solicit, induce,
or influence, or attempt to solicit, induce or influence any person to terminate his or
her employment or other contractual relationship with any of the Released Parties. . . .
CC § 14 (citing Separation Agreement § 4(J)).
Il. SunPower Alleges Violation of Its Non-Solicitation Provisions
In spite of the unlawfulness of non-solicitation provisions, SunPower has repeatedly tried to
enforce non-solicitations provisions against at least one employee.
In SunPower’s first Complaint in this action, filed June 14, 2019 (after AMN Healthcare),
SunPower alleged that DeBono had an obligation to “not solicit SunPower employees for twelve
(12) months” after his termination. Ex. 1 87, 145.2 SunPower further asserted a breach of contract
claim against DeBono because, allegedly, “DeBono breached the Separation Agreement by . . . using
SunPower’s proprietary and confidential information to solicit other SunPower employees causing
them to terminate their employment with SunPower within twelve (12) months of April 6, 2018.”
Id. § 148. On November 7, 2019, in SunPower’s First Amended Complaint (“FAC”), SunPower
alleged and asserted the same theory. Ex. 2 J 96, 158, 161.
This Court has already found these particular non-solicitation provisions against DeBono to
be unenforceable. On December 9, 2019, DeBono moved to strike allegations in SunPower’s FAC
that purported to bar DeBono from soliciting his former SunPower colleagues. CC § 16. This Court
(the Honorable Thang N. Barrett) rightly held on February 14, 2020 that SunPower’s non-solicitation
provision, purporting to bar DeBono’s ability to solicit, was invalid as a matter of law. CC Ex. A at
8. More specifically, the Court held that:
SunPower alleges DeBono breached his separation agreement by “using SunPower’s
proprietary, confidential and trade secret information to solicit other SunPower
employees causing them to terminate their employment with SunPower within twelve
(12) months of April 6, 2018.” (FAC, 7 161.)....
Regarding the issue of nonsolicitation, the Court agrees with the federal opinions that
have considered the issue that AMN, read in connection with Edwards, stands for the
proposition that employee non-solicitation provisions are generally no longer valid
2 Note that unless otherwise indicated, all numbered exhibits are attached to the Declaration
of Michelle Kao.
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under California law, at least insofar as they would prohibit former employees from
solicitation after their employment has terminated. While AMN is factually
distinguishable from this case in that recruiting was itself the profession at issue there,
it expressly called into doubt the older case of Loral, upon which SunPower relies.
Noting that Loral was decided several years before Edwards, AMN reasoned that
Edwards rejected the employer’s argument that the Legislature meant
the word “ ‘restrain’ ” in section 16600 to mean “ ‘prohibit,’ ” such that
a “mere limitation on an employee’s ability to practice his or her
vocation would be permissible under section 16600, as long as it was
reasonably based.” [Citation.] [Loral’s] use of a reasonableness
standard in analyzing the non-solicitation clause there at issue thus
appears to conflict with Edward’s interpretation of section 16600,
which, under the plain language of the statute, prevents a former
employer from restraining a former employee from engaging in his or
her “ ‘lawful profession, trade, or business of any kind,’ ” absent
statutory exceptions not applicable here. [Citation.]
(AMN, supra, 28 Cal. App. Sth at p. 938.) As noted by the federal courts that have
subsequently considered the issue, the AMN court cited factual differences with the
circumstances in Loral as a secondary basis for its holding based on this reasoning.
(See Weride, supra, 2019 WL 1439394, at *11; see also Varshock v. California Dept.
of Forestry and Fire Protection (2011) 194 Cal. App. 4th 635, 646, fn. 7 [“when a
decision is based on two separate grounds, neither is dictum”].)
The Court accordingly follows AMN and finds that the non-solicitation provision at
issue here is invalid as applied to DeBono’s alleged post-resignation recruitment of
SunPower employees.
CC Ex. A at 7-8.
Ill. Standard’s Cross-Complaint
As a result of SunPower’s Court-held unlawful actions, Standard has suffered cognizable
harm. Standard has: (i) suffered from the inability to use its executives (like DeBono) to recruit
candidates to build out its solar team; (ii) been forced to retain the services of a recruiting firm to
recruit potential candidates at SunPower, despite personal connections between those candidates and
former SunPower employees like DeBono; (iii) faced increased recruiting costs; (iv) been forced to
use Standard employees with less solar experience to recruit candidates; (v) lost out on qualified
SunPower candidates that would have otherwise been interested in coming to Standard had DeBono
and other executives been allowed to recruit; and (vi) been hindered in its efforts to build out its solar
team. CC 21. To address this (and future) harm, Standard filed its Cross-Complaint.
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DISCUSSION
1. Standard of Review
When reviewing a demurrer, the Court must “assume the truth of the properly pleaded factual
allegations, facts that reasonably can be inferred from those expressly pleaded and matters of which
judicial notice has been taken.” Valbuena v. Ocwen Loan Servicing, LLC, 237 Cal. App. 4th 1267,
1271 (2015). The Court further “construe[s] the pleading in a reasonable manner and read[s] the
allegations in context.” Jd.
Indeed, a complaint will be construed “liberally.” Chavez v. Indymac Mortg. Servs., 219 Cal.
App. 4th 1052, 1057 (2013). Thus, “[i]f the complaint states any possible legal theory,” the Court
must overrule the demurrer. See id. Further, a court abuses its discretion if it grants a demurrer
without leave to amend where there is “a reasonable possibility the plaintiff could cure the defect
with an amendment.” Schifando v. City of Los Angeles, 31 Cal. 4th 1074, 1081 (2003).
Il. SunPower’s Unclean Hands Defense Cannot Be Resolved at the Pleading Stage
In its lead attack on the Cross-Complaint, SunPower argues that the Cross-Complaint should
be dismissed based on an affirmative defense—the “unclean hands” doctrine—because Standard has
included non-solicitation covenants in some past contracts. Mem. 6:4-7:4. The Court should reject
this argument out of hand.
Demurrers based on affirmative defenses are highly disfavored. Indeed, a “demurrer based
on an affirmative defense cannot properly be sustained where the action might be barred by the
defense, but is not necessarily barred.” See People v. Superior Ct., 34 Cal. App. Sth 376, 399 (2019)
(J.C. Penny’) (second and third emphases in original); Flores v. Kmart Corp., 202 Cal. App. 4th
1316, 1324 (2012). Thus, in order to prevail on its unclean hands defense at the pleading stage,
SunPower would have to show that the defense “is conclusively demonstrated by the facts pleaded
in the complaints or subject to judicial notice.” J.C. Penny, 34 Cal. App. Sth at 399. This burden is
particularly onerous in this case because “the doctrine of unclean hands is heavily fact dependent,”
and is thus “a uniquely poor candidate to support a demurrer.” See CrossTalk, 65 Cal. App. 4th at
641 (reversing demurrer based on unclean hands); Stine v. Dell’Osso, 230 Cal. App. 4th 834, 844
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(2014) (same).?
Here, the demurrer must be overruled because SunPower has not “conclusively
demonstrated” that the Cross-Complaint is barred by the unclean hands doctrine. J.C. Penny, 34 Cal.
App. Sth at 399. SunPower argues that, because Standard has included non-solicitation covenants in
past contracts, its conduct is as equally bad as SunPower’s, and thus it should not be able to assert
claims related to SunPower’s non-solicitation covenants. Mem. 6:16-7:4. But, unlike SunPower,
Standard has never sued an employee seeking to enforce an unlawful non-solicitation covenant. See
CC §f 16-17 & Ex. A. And, unlike SunPower, Standard has not leveraged illegal non-solicitation
covenants to prevent former employees from recruiting current Standard employees for other
employment opportunities. See id. § 21. SunPower’s attempt to equate its wrongful conduct with
Standard’s thus fails on its face. See CrossTalk, 65 Cal. App. 4th at 639 (demurrer on unclean hands
grounds inappropriate where an “examination of the facts alleged . . . leaves ample room for a verdict
in favor of plaintiffs”).
Moreover, the evidence developed in this action will show that Standard acknowledged that
its non-solicitation covenants with California-based employees may not be enforceable and,
therefore, agreements with such terms would not be used. To Standard’s knowledge, SunPower has
never taken any such steps, and continues to leverage its non-solicitation covenants to reduce
employee mobility. CC § 21. In fact, even after the Court’s order on SunPower’s non-solicitation
allegations, SunPower appears to be full-steam ahead with enforcing non-solicitation provisions,
telling the arbitrator adjudicating another dispute between SunPower and a different GAF Energy
employee that: “In the DeBono case, the Superior Court interpreted recent case law as making
Mr. DeBono’s non-solicitation provision void. SunPower believes the Superior Court was wrong and
extended California law into uncharted waters.” Ex. 3 at 3 n.4.
Z Neither Jn re Singh, 2015 WL 1887939, at *10 n.9 (Bankr. E.D. Cal. Apr. 22, 2015), nor
Maguire v. Hibernia Savings & Loan Society, 23 Cal. 2d 719, 730 (1944), the cases cited by
SunPower, support SunPower’s argument that its demurrer on this issue is appropriate. In Singh, the
court there judicially noticed that the plaintiff had pled guilty to the ponzi scheme that supported
defendants’ in pari delicto/unclean hands defense, 2015 WL 1887939, at *8-9. And, remarkably,
Maguire actually reversed the demurrer at issue in that case, holding with respect to the unclean
hands doctrine that “the fact that the party seeking to set the judicial machinery in motion is on the
wrong side of a controversy cannot be ascertained prior to the court’s consideration and
determination thereof.” 23 Cal. 2d at 731.
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The fact that the Court does not have these and other facts before it only underscores how
inappropriate it would be to resolve this action based on an unclean hands affirmative defense
doctrine at the pleading stage. See CrossTalk, 65 Cal. App. 4th at 639 (collecting cases for the
proposition that “the general rule” is “that application of the doctrine of unclean hands is a question
of fact”); Ins. Co. of N. Am. v. Liberty Mut. Ins. Co., 128 Cal. App. 3d 297, 307 (1982) (holding that
trial court correctly overruled demurrer on unclean hands grounds where the “complaint and other
matters before the trial court on demurrer [did] not establish as a matter of law that [plaintiff's]
conduct was so tainted with inequitableness or bad faith as to bar relief”).
Ill. Preventing SunPower’s Use of Illegal Covenants Would Not Violate Due Process
SunPower next argues that: (i) its non-solicitation covenants were legal at the time they were
drafted; (ii) the Court of Appeal’s 2018 AMN Healthcare decision altered settled law establishing
the legality of such covenants; and therefore (iii) it would violate due process to apply AMN
Healthcare retroactively to hold SunPower accountable for its leveraging of illegal non-solicitation
covenants to limit employee mobility. Mem. 7:8-9:12. This argument fails for a litany of reasons.
First, as a threshold matter, a core premise of SunPower’s argument—that its non-solicitation
covenants were legal until recently—is faulty. SunPower argues that AMN Healthcare abrogated
Loral Corp. v. Moyes, 174 Cal. App. 3d 268 (1985), a decision upholding certain non-solicitation
covenants under Section 16600, and thus AMN Healthcare changed California law by making
previously-valid non-solicitation covenants illegal. But AMN Healthcare did no such thing, nor could
it have. Because all districts and divisions of the Court of Appeal are “of equal dignity,” no single
panel of the Court of Appeal can overrule a prior panel’s published decision. See, e.g., Fraser v.
Bogucki, 203 Cal. App. 3d 604, 606 n.1 (1988). Indeed, SunPower implicitly acknowledges that
AMN Healthcare did not change the law or overrule Loral Corp. by arguing that “even after the AMN
Healthcare decision, many courts continue to enforce non-solicitation provisions” under certain
(distinguishable) circumstances. Mem. 8:2-11.
Rather, AMN Healthcare merely recognized that Loral Corp. (1985) was inconsistent with a
later-in-time Supreme Court decision, Edwards (2008). The court in Loral Corp. upheld the non-
solicitation covenants at issue in that case because it determined that they only “slightly affect[ed]
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[the plaintiff s] employees”—or in other words, because the court felt the covenants were reasonable.
See 174 Cal. App. 3d at 279 (“[E]nforceability [of a restrictive covenant] depends upon its
reasonableness, evaluated in terms of the employer, the employee, and the public.”). However, in
Edwards, the Supreme Court expressly rejected the idea that Section 16600 contains an implicit
exception for limited or reasonable restraints on employee mobility. See 44 Cal. 4th at 950 (“Section
16600 is unambiguous, and if the Legislature intended the statute to apply only to restraints that were
unreasonable or overbroad, it could have included language to that effect.”). AMN Healthcare
recognized that Loral Corp.’s reasonableness analysis was irreconcilable with Edwards, and declined
to follow it. AMN Healthcare, 28 Cal. App. 5th at 938-39. It did not make new law.
In other words, SunPower’s non-solicitation covenants did not suddenly become void in 2018
when AMN Healthcare was issued; those covenants have been void since at least 2008 when the
Supreme Court made clear that Section 16600 invalidates all restraints on employee mobility (except
those carved out by statute), and not just unreasonable restraints. See Edwards, 44 Cal. 4th at 950.
This reality is starkly illustrated by the fact that the trial court in AMN Healthcare invalidated non-
solicitation covenants on the exact same theory that Standard is asserting here, and in affirming the
trial court’s decision, the Court of Appeal never once suggested that the trial court had broken new
ground or acted contrary to existing law. See 28 Cal. App. 5th at 933, 938-39. Accordingly, contrary
to SunPower’s position, no aspect of the Cross-Complaint seeks to retroactively impose liability for
conduct that was legal at the time it occurred.*
Second, even if AMN Healthcare had suddenly rendered SunPower’s non-solicitation
covenants invalid for the first time (it did not), SunPower’s retroactivity argument would still fail
because Standard is not seeking restitution (or any other form of damages) for SunPower’s past
conduct. Rather, the Cross-Complaint seeks purely prospective injunctive relief to stop SunPower
from wrongfully leveraging its non-solicitation covenants to stifle employee mobility in the future.
See CC at 9 (prayer for relief). This relief is justified because SunPower demonstrated its willingness
; Ixchel Pharma, LLC v. Biogen, Inc., 2020 WL 4432623 (Cal. Aug. 3, 2020), does not alter
the holding in Edwards that Section 16600 does not contain a reasonableness exception when applied
to covenants in employment agreements. See id. at *16 (“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.”).
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to attempt to enforce its non-solicitation covenants even after AMN Healthcare was decided by suing
Martin DeBono in 2019 for violating one such covenant. See CC ff] 16-17 & Ex. A. SunPower thus
cannot complain that Standard is seeking relief for conduct that entirely predates AMN Healthcare.
Third, even if SunPower’s liability did somehow turn on applying AMN Healthcare
retroactively to invalid covenants that were legal when drafted (it does not), SunPower fails to
overcome the presumption that judicial decisions apply retroactively. “The general rule that judicial
decisions are given retroactive effect is basic in our legal tradition.” Newman, 48 Cal. 3d at 978;
accord Waller v. Truck Ins, Exch., Inc., 11 Cal. 4th 1, 24 (1995). To that end, California courts have
“consistently” applied appellate decisions retroactively “even when those decisions declared new
causes of action or expanded the scope of existing [liability] in ways defendants could not have
anticipated.” Newman, 48 Cal. 3d at 981-82. Courts depart from this rule only in rare cases where
“considerations of fairness and public policy . . . justify an exception.” Corenbaum v. Lampkin, 215
Cal. App. 4th 1308, 1334 (2013). “Several factors must be considered in determining whether a
decision should be given retroactive application” including: “the reasonableness of the parties’
reliance on the former rule, the nature of the change as substantive or procedural, retroactivity’s
effect on the administration of justice, and the purposes to be served by the new rule.” Bearden v.
U.S. Borax, Inc., 138 Cal. App. 4th 429, 443 (2006).
SunPower fails to mention, much less apply this test, likely because the relevant factors show
that AMN Healthcare would be given full retroactive effect. Most importantly, SunPower did not
reasonably rely on prior judicial authority in forcing its non-solicitation covenants on employees.
See Bearden, 138 Cal. App. 4th at 442 (noting that justifiable reliance is the most important factor).
SunPower did not reasonably rely on Loral Corp. because that case’s holding that restrictive
covenants are valid if “reasonable” was clearly inconsistent with Edwards’ rejection of any
exceptions to Section 16600 beyond those provided by statute, as explained above. See AMN
Healthcare, 28 Cal. App. 5th at 938-39. SunPower also did not reasonably rely on the string of
federal district court decisions cited in its brief, Mem. 7:14-8:1, because federal cases applying
California law are just guesses about how the California Supreme Court might rule on the issue, and
are not binding authority. See, e.g., Miller v. Collectors Universe, Inc., 159 Cal. App. 4th 988, 1001
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n.10 (2008) (“[F]ederal decisions on matters of California law . . . are not binding or conclusive on
the courts of this state.”); JPI Westcoast Constr., L.P. v. RJS & Assocs., Inc., 156 Cal. App. 4th 1448,
1465 n.2 (2007) (similar). Put differently, SunPower’s decision to rely on a 35-year-old case whose
analytical foundations had been swept away by subsequent Supreme Court authority, and a line of
nonbinding federal decisions, was self-serving and unreasonable, and is not entitled to any weight.
Moreover, declining to apply AMN Healthcare retroactively would thwart “the purposes to
be served” by its holding—namely the protection of employee mobility and free competition
embodied by Section 16600. See Bearden, 138 Cal. App. 4th at 443. California courts “have
consistently affirmed that section 16600 evinces a settled legislative policy in favor of open
competition and employee mobility.” Edwards, 44 Cal. 4th at 946. The court in AMN Healthcare
honored this public policy by striking down non-solicitation covenants under Section 16600 as
restrictions on employee mobility and competition. See 28 Cal. App. 5th at 936-39. Here, SunPower
has already shown that, notwithstanding AMN Healthcare, it is willing to use its non-solicitation
covenants to intimidate former employees like DeBono into not recruiting current SunPower
employees, depriving its current employees of legitimate career opportunities. See CC {J 16-17 &
Ex. A. Declining to apply AMN Healthcare retroactively would permit SunPower to threaten its
employees with enforcement of covenants it knows to be illegal, in violation of AMN Healthcare and
Section 16600. SunPower has no vested right to continue this illegal conduct.
Finally, SunPower’s cases are distinguishable and do not support its argument. In each of
SunPower’s cases, the party resisting retrospective application of judicial precedent relied on
controlling authority that was not called into doubt until it was too late to take corrective action. See
Olszewski v. Scripps Health, 30 Cal. 4th 798, 829 (2003) (declining to apply holding invalidating
statutory safe harbor provisions retroactively where defendants had relied on then-controlling
statutory authority in issuing liens); Janis v. Cal. State Lottery Comm’n, 68 Cal. App. 4th 824, 832
(1998) (finding lottery commission was not liable for false advertising when game it was advertising
was not illegal at the time statements were made); Silas v. Arden, 213 Cal. App. 4th 75, 89 (2012)
(declining to apply one-year statute of limitations to plaintiff when at the time she commenced her
action, the only published decision on point held that claim was subject to two-year limitations
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period). In contrast here, by 2008, Edwards had already rendered SunPower’s reliance on Loral
Corp. unreasonable and speculative. And even after AMN Healthcare left no doubt that SunPower’s
covenants were void, SunPower still tried to enforce one of them. See CC ff 16-17 & Ex. A.
IV. Standard Has Standing to Seek UCL Relief
Private UCL claims may be brought by any “person who has suffered injury in fact and has
lost money or property as a result of the unfair competition.” Cal. Bus. & Prof. Code § 17204. As
pled in the Cross-Complaint, Standard meets these undemanding standing requirements because
“SunPower’s unlawful non-solicitation provisions have resulted in increased recruiting costs for
Standard and GAF Energy, forced Standard and GAF Energy . . . to lose out on qualified SunPower
candidates [who] would have otherwise been interested in coming to Standard/GAF Energy had
DeBono and other executives been allowed to recruit, and otherwise hindered Standard’s and GAF
Energy’s lawful efforts to build out their solar team.” CC § 21. These allegations are sufficient to
establish standing under the law. See, e.g., Kwikset Corp. v. Superior Ct., 51 Cal. 4th 310, 323 (2011)
(listing being “required to enter into a transaction, costing money or property, that would otherwise
have been unnecessary” as one of the “innumerable ways in which economic injury from unfair
competition may be shown’).
SunPower nevertheless offers an assortment of arguments challenging Standard’s standing
to seek UCL relief. None has merit.
A. Standard Has Pled Violations of Section 16600
SunPower’s primary argument is that Standard cannot maintain a claim premised on
SunPower’s violations of Section 16600 because Standard failed to identify the specific SunPower
employees with non-solicitation covenants and quote those covenants in the Cross-Complaint. See,
e.g., Mem. 11:7-15; 12:12-15. However, none of this detail is required under the liberal pleading
standard for a UCL claim. To the contrary, the law requires only that the elements of the claim be
stated with reasonable particularity, and does not require specific factual allegations for each
element. See Quelimane, 19 Cal. 4th at 46-47 (holding that UCL claims do not require “fact-specific
pleading”); Gutierrez v. CarMax Auto Superstores Cal., 19 Cal. App. 5th 1234, 1261 (2018) (holding
that UCL claims need only be pled with “reasonable particularity”). The Cross-Complaint meets this
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standard by providing a specific example of an illegal covenant SunPower recently tried to enforce
in this very litigation, and alleging on information and belief that SunPower has included such
provisions in other employee contracts. See CC §§ 10-17.
Notably, the relevant pleading standard does not require Standard to allege facts that only
SunPower would know prior to discovery. See Roger v. County of Riverside, 44 Cal. App. 5th 510,
533 (2020) (“/L]ess particularity is required where the defendant may be assumed to have knowledge
of the facts equal to that possessed by the plaintiff... . There is no need to require specificity in the
pleadings because modern discovery procedures necessarily affect the amount of detail that should
be required in a pleading.” (emphasis in original)); 4 Witkin, Cal. Proc. Sth Pleading § 398 (2020)
(when the plaintiff “lacks knowledge and the means of obtaining knowledge of facts material to his
or her cause of action or defense” because “the matters are peculiarly within the knowledge of the
adverse party,” the “pleader may plead what he or she believes to be true as a result of information
(hearsay) the pleader has received”). Months ago, Standard served discovery requests asking
SunPower to identify employees and contracts with non-solicitation covenants, but SunPower has
thus far (wrongfully) refused to provide any discovery. Ex. 4. It would be perverse (and contrary to
California law) to dismiss the Cross-Complaint because Standard has not pled information that only
SunPower would know, when SunPower has thus far stonewalled all attempts to obtain discovery.
SunPower cites no cases supporting its argument that the Cross-Complaint cannot be
maintained without identifying ex ante every SunPower employee with a non-solicitation covenant,
and, in fact, relies on cases discussing the pleading standard for breach of contract claims and
challenges to the validity of regulations. See Mem. 11:26-12:23 (citing Acoustics, Inc. v. Trepte
Constr. Co., 14 Cal. App. 3d 887, 913 (1971), Jackson v. Rogers & Wells, 210 Cal. App. 3d 336,
349-50 (1989), and People v. McKale, 25 Cal. 3d 626, 635 (1979)). Standard however, is not alleging
a breach of contract claim, or challenging a regulation. It is not even alleging a UCL claim based on
a breach of contract or a regulatory violation—tt is alleging a UCL claim for breach of Section 16600.
See CC F¥ 25-30. SunPower’s cases are thus irrelevant and should be disregarded.
B. Standard Has Pled an Economic Injury
SunPower next claims that Standard has failed to show any economic injury, or that
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SunPower’s unlawful acts caused this injury. See Mem. § III.D.2. These arguments fare no better.
Ignoring the cogent theory of economic harm pled in the Cross-Complaint—that Standard
was harmed by being forced to incur increased recruitment costs as a result of SunPower’s illegal
covenants, see CC § 21—SunPower argues that “Standard cannot show that it has suffered an
economic injury” because it did not “identify what agreements” with “SunPower former employees
are at issue.” Mem. 13:17-19. But, as explained above, the UCL does not require “fact-specific
pleading,” Quelimane, 19 Cal. 4th at 46-47, and Standard is not required to allege facts that only
SunPower would know, see Roger, 44 Cal. App. 5th at 533, particularly because SunPower has
wrongfully withheld all discovery on these precise issues. See Ex. 4. Once again, SunPower fails to
cite any authority holding, or even suggesting, that Standard cannot show economic harm without
identifying every SunPower employee subject to a non-solicitation covenant.
SunPower next claims that Standard cannot show economic injury because its non-
solicitation covenants were purportedly “not unlawful at the time they were agreed to.” Mem. 14:5-
6. However, as explained above, SunPower’s non-solicitation covenants did not suddenly become
unlawful in 2018 when AMN Healthcare was decided, but have been barred at least since 2008 when
Edwards made clear that there is no reasonableness exception to Section 16600 in the employment
context. In any event, SunPower does not, because it cannot, explain how the prior legal status of its
non-solicitation covenants is in any way connected to, or undermines, Standard’s theory of economic
harm (harm which occurred both before and after AMN Healthcare).
Cc. Standard Has Pled Ongoing Harm That Merits Injunctive Relief
SunPower’s final argument is that Standard cannot obtain injunctive relief because it
purportedly had not pled “any facts showing that SunPower will attempt to enforce” its non-
solicitation covenants in the future. Mem, 14:15-28.
As a legal matter, whether SunPower will continue to attempt to enforce its unlawful non-
solicitation provisions is a disputed question of fact not suitable for resolution on the pleadings. See
Prof'l Fire Fighters, Inc. v. City of Los Angeles, 60 Cal. 2d 276, 286 (1963) (“Whether or not there
is a reasonable probability that defendant will continue its [unlawful] activities in the future is a
question of fact.”); see also Int'l Brotherhood of Teamsters, Local 848 v. City of Monterey Park, 30
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Cal. App. 5th 1105, 1114 (2019) (“[A] question of fact . . . is not properly decided on demurrer.”).
As a factual matter, SunPower’s assertion is not true. Standard has pled that SunPower has
already tried to enforce an illegal non-solicitation covenant against one employee (DeBono) even
after the AMN Healthcare decision, and that Standard would suffer future harm if SunPower
continued to leverage its illegal covenants against other current and former employees in the future.
See CC fff 10-18, 21, 32-33.
Notably, SunPower fails to confirm that it does not have non-solicitation covenants in other
employee agreements, or that it will not attempt to leverage them in the future. Instead, SunPower
appears to be implying that because this Court invalidated the non-solicitation covenant in DeBono’s
contract, it is unreasonable to think that SunPower would ever try to enforce such a covenant in the
future. In fact, in a separate arbitration, SunPower has recently said this Court’s order “was wrong.”
Supra Ex. 3 at 3 n.4. It’s clear to at least Standard, therefore, that this Court’s order invalidating the
DeBono covenant will not preclude SunPower from asserting the validity of covenants in other
employee contracts in the future. Moreover, a defendant’s self-serving assurances that it will not
repeat its wrongful conduct are insufficient to moot claims for injunctive relief as a matter of law.
See, e.g., Robinson v. U-Haul Co. of Cal., 4 Cal. App. 5th 304, 316 (2016) (“Where, as here, a
company has not taken action to bind itself legally to a [UCL] violation-free future, there may be
reason to doubt the bona fides of its newly established law-abiding policy.”); People ex rel. Feuer v.
Superior Ct., 234 Cal. App. 4th 1360, 1385 (2015) (“[V]Joluntary cessation of conduct” is “not
determinative” in determining whether injunctive relief should issue); see also Marin County Bd. of
Realtors, Inc. v. Palsson, 16 Cal. 3d 920, 929 (1976) (“It is settled that the voluntary discontinuance
of alleged illegal practices does not . . . relieve the court of the duty of determining the validity of
such charges where by the mere volition of a party the challenged practices may be resumed.”).°
CONCLUSION
For these reasons, the Court should overrule SunPower’s demurrer. If the Court sustains the
demurrer in any respect, Standard requests leave to amend. See Schifando, 31 Cal. 4th at 1081.
5 SunPower also argues that Standard cannot obtain injunctive relief based solely on the
unlawful clauses in DeBono’s contracts. Mem. 9:15-11:4. This argument is irrelevant. While the
unlawful covenants in DeBono’s agreements are illustrative of the covenants SunPower has included
in other employee contracts, Standard is not seeking relief based on DeBono’s contracts alone.
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DATED: August 19, 2020 SKADDEN, ARPS,
By:
SLATE, MEAGHER & FLOM LLP
/s/ John M. Neukom
JOHN M. NEUKOM
Attorneys for Standard Industries Inc.
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STANDARD’S OPPOSITION TO SUNPOWER
Preview
ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS 19CV349042 Santa Clara — Civil JOHN M. NEUKOM (SBN 275887) john.neukom@skadden.com ABRAHAM A. TABAIE (SBN 260727) abraham.tabaie@skadden.com CAROLINE VAN NESS (SBN 281675) caroline.vanness@skadden.com MICHELLE KAO (SBN 322758) michelle.kao@skadden.com SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 525 University Avenue, Suite 1400 Palo Alto, California 94301 Telephone: (650) 470-4500 Facsimile: (650) 470-4570 RAZA RASHEED (SBN 306722) raza.rasheed@skadden.com SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071-3144 Telephone: (213) 687-5000 Facsimile: (213) 687-5600 Attorneys for Defendants/Cross-Complainants M.S Electronically Filed by Superior Court of CA, County of Santa Clara, on 8/19/2020 8:21 PM Reviewed By: M. Sorum Case #19CV349042 Envelope: 4795742 STANDARD INDUSTRIES INC. and GAF ENERGY LLC SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SANTA CLARA SUNPOWER CORPORATION, CASE NO.: 19CV349042 Plaintiff, STANDARD INDUSTRIES INC.’S OPPOSITION TO SUNPOWER’S v. DEMURRER MARTIN DEBONO; STANDARD INDUSTRIES INC.; GAF ENERGY LLC; Date: September 1, 2020 and DOES 1-100, Time: Dept.: Defendants, Judge: AND RELATED CROSS-ACTION. 9:00 am 21 Hon. Thang N. Barrett Cross-Complaint Filed: March 30, 2020 STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER CASE NO.: 19CV349042 rum,ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS TABLE OF CONTENTS Page MEMORANDUM OF POINTS AND AUTHORITIES ........cccsssssssessssessssssesesscsesnssesessesssnenesesreneanene 1 PRELIMINARY STATEMENT . 1 BACKGROUND .....ceccssessesseesessessessesnsssessesessessesseessesesssssssnssessesseeseesesseessenssussesssseesesseesseesseeanseessenseese 3 I. SunPower’s Unlawful Non-Solicitation Provisions...........c:sssessseeseeessesseereseeseeseees 3 IL. SunPower Alleges Violation of Its Non-Solicitation Provisions..........:.:ssessesseseseeee 4 Til. Standard’s Cross-Complaint ..0........cccssssesseseseeseseseesssesesseeeecsessacsneneaeeneasaneneneeneeeaeenene ) IBIRX@.0.88) (0). ecrorcererre cere recencr rere corer rere rere reerececre reece correc reece 6 I. Standard Of REVIOW.........c.cssecseseesesseeseesestessesesesseesesseesessesssssssessesseeseesesseaseensseeaeeneaee 6 IL. SunPower’s Unclean Hands Defense Cannot Be Resolved at the Pleading Stage... eeseseseccessseteseessessessecseeessenssecseeesssnsesnsescssscseensesessecssensessscscesecscessescerecseaseees 6 Il. Preventing SunPower’s Use of Illegal Covenants Would Not Violate Due LOCOS re ee ree 8 IV. Standard Has Standing to Seek UCL Relief ......ceeceeesesesseseseeeeeseeneeeeeeeseeneeeeeeaeeee 12 A. Standard Has Pled Violations of Section 16600 .0.......cccccsessesesees essences 12 B. Standard Has Pled an Economic Injury ...........csseessesesesseesesesesseneeesseneeneneee 13 Cc. Standard Has Pled Ongoing Harm That Merits Injunctive Relief.. 14 COIN CSN ee 15 i STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER CASE NO.: 19CV349042ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS TABLE OF AUTHORITIES Page(s CASES AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., 28 Cal. App. 5th 923 (2018)... socsveseaencacarencacarcacarencacarencarsnsacarensscarsesaraneecaveessrseees PASSIM Bearden v. U.S. Borax, Inc., 138 Cal. App. 4th 429 (2006) . - 10, 11 Chavez v. Indymac Mortgage Servs., 219 Cal. App. 4th 1052 (2013) .....eescesscessecsseesesssssseessesssssessnessesnecsesseesnessuesseessessesseseeseaneene 6 Corenbaum v. Lampkin, 215 Cal. App. 4th 1308 (2013) .....eesceeseesssesseessesseesseesnesscssesseesseessessesseesnesseesseessesseesseeseseaees 10 CrossTalk Productions, Inc. v. Jacobson, 65 Cal. App. 4th 631 (1998) ....ceseesesseecsesseessessesseessesssessessnessessecsessessuesseesenesneeseess 2, 6, 7,8 Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937 (2008) ......eesceeseecssesseessesseessessnessessesssessessecsuesseesseessessessesseesseeesesssesses 1,9, 11 Flores v. Kmart Corp., 202 Cal. App. 4th 1316 (2012) ..e.eeeeseecessecsessesseessesssessessnessessecsessessuessessnesessessessesesneene 6 Fraser v. Bogucki, DOs CalsApp sd O04 (108S)p ee eee eee eee eee 8 Gutierrez v. CarMax Auto Superstores California, 1O(Cal Appi sth 1234 (0018) 80 es 8 eee eee eee ee 12 Insurance Co. of North America v. Liberty Mutual Insurance Co., 128 CalyApp sd 20 (10s2\p ee ee ee eee 8 International Brotherhood of Teamsters, Local 848 v. City of Monterey Park, 30 Cal. App. Sth 1105 (2019) voscccsssscsssssssssssssscvssosssssessssssssssstssnstisesstesssienseeete 14, 15 Ixchel Pharma, LLC y. Biogen, Inc., No. $256927, 2020 WL 4432623 (Cal. Aug. 3, 2020) .....cecscscescescessesteseesesseesesnesessesnesesneee 9 Janis v. California State Lottery Commission, 68 Cal App y4this24 (1998) oe tee ee 11 JPI Westcoast Construction, L.P. v. RJS & Associates, Inc., 156 Cal. App. 4th 1448 (2007)... Kwikset Corp. v. Superior Ct., pole Calera tes (20 BU) Rieter crc errr ee 12 Loral Corp. v. Moyes, 174 Cal. App. 3d 268 (1985) ....ssssssssessssssssssssssvesssccsscsnscsssrsecsssesesesscsesesessasanssavsescsncsssease Oy F ii STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER CASE NO.: 19CV349042ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS Maguire v. Hibernia Savings & Loan Society, 23 Cal. 2d 719 (1944) .o.eeeceesseessecssessesssessecssssesssnssscsscssssssessnsesucssessnessuesneesuesssssessnsessseseaeeese 7 Marin County Board of Realtors, Inc. v. Palsson, 16 Cal. 3d 920 (1976) .o.seecseessesssesssesseessesseessessscssesssessuessessueesessesssessrsssessssssesseessnssneesseeseesesese 15 Miller v. Collectors Universe, Inc., 159 Cal. App. 4th 988 (2008) .......cescsescesssesseessessessesssessessesssessesseessessnessessnessessassaseeneesse 10, 11 Newman v. Emerson Radio Cor 48 Cal. 3d 973 (1989)... 2, 10 Olszewski v. Scripps Health, 30 Cal. 4th 798 (2003) .....ceecessecssseseeesesecesesesscsesesesesneseseessesneaesnsesesseensensesacseensenseneeneeseeeee 11 People ex rel. Feuer v. Superior Ct., DA CalAppaihGGOQ01S)pe tt te eee eee 15 People v. Superior Ct., 34 Cal. App. 5th 376 (2019) cccccssssssssssssssssssssssscssssessessessssssssssssssssssssnsessessssesusesseeteesisssess 6,7 Professional Fire Fighters, Inc. v. City of Los Angeles, 60 Cal. 2d 276 (1963) ..o.eecsesscssesessesseeseeseesesesessesesesesesnesesesassesssesnsasaesnsssensusasseensatseaeeneneaeeee 14 Quelimane Co. v. Stewart Title Guaranty Co. 19 Cal. 4th 26 (1998) 3, 12, 14 Robinson v. U-Haul Co. of California, 4 Cal. App. Sth 304 (2016) escsccssssesssscssssssssssssssssssasssssssssassssesssiessssessiessssesssesssies 15 Roger v. County of Riverside, Aa Cale App tno 0(2020) 13, 14 Schifando v. City of Los Angeles, i) ale Ati 7 4(2003) tt 6,15 Silas v. Arden, 213 Gal App. Au (12012) steerer eee ene eee tll In re Singh, Case No. 10-42050-D-7, Adv. Pro. Nos. 12—2312D et al., 2015 WL 1887939 (Bankr. E.D. Cal. Apr. 22, 2015) ....e.cecscessessessesteseeseesesseesessesseesestessessesee 7 Stine v. Dell’Osso, 230 Cal. App. 4th 834 (2014) oo... eeceeceecseecseessessnessnessessussassneesnessssssesnssseessesssessecssessseseeees Oy 7 Valbuena v. Ocwen Loan Servicing, LLC, 237 Cal. App. 4th 1267 (2015) ...sscecsessseessseesssecssesssessssssssecssueessesssesssecsseessssessseessseessseesseess O Waller v. Truck Insurance Exchange, Inc., 11 Cal. 4th 1 (1995) oe eeceecseecseesecsesssessnesssesessnessesssessneesessneesessecssessesssnssnesseessesseseseessesseses LO iii STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER CASE NO.: 19CV349042ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS STATUTES alBus! Gc erol Code 91204 eee Cal. Bus. & Prof. Code § 16600 .....cccesesecesesssesesteeseesseeesteeeeesseeeereeeeene OTHER AUTHORITIES 4 Witkin, Cal. Proc. 5th Pleading § 398 (2020)... secseeseseeeeeeteteeetenes iv eee ee 12 Freer rere eee 1 ere 13 STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER CASE NO.: 19CV349042ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS MEMORANDUM OF POINTS AND AUTHORITIES Cross-Complainant Standard Industries Inc. (“Standard”) respectfully submits this memorandum of points and authorities in opposition to Cross-Defendant SunPower Corporation’s (“SunPower”) demurrer to Standard’s Cross-Complaint (sometimes, “CC”).! PRELIMINARY STATEMENT It is well established under California law that contractual covenants that purport to restrict an employee’s ability to offer employment opportunities to her current or former colleagues (“non- solicitation covenants”) are invalid and unenforceable. Under California Business and Professions Code section 16600 (“Section 16600”), “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Cal. Bus. & Prof. Code § 16600. In 2008, the California Supreme Court affirmatively upheld this principle of employee mobility by prohibiting employee non-competition agreements in any form unless a statutory exception applies. See Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937, 942 (2008) (“We conclude that section 16600 prohibits employee noncompetition agreements unless the agreement falls within a statutory exception... .”). And in 2018, the California Court of Appeal in AMN Healthcare, Inc. y. Aya Healthcare Services, Inc., 28 Cal. App. 5th 923 (2018), recognized that non-solicitation covenants are a form of non-competition agreement and are therefore subject to Section 16600’s general prohibition. See id. at 936-39. Notwithstanding this authority, in 2019, SunPower brought suit against Martin DeBono, a former SunPower employee and a current employee of GAF Energy (one of Standard’s subsidiaries), for allegedly violating a non-solicitation covenant DeBono signed while employed with SunPower. CC {fj 16-17. SunPower’s theory was that DeBono had somehow acted wrongfully by offering well- paying job opportunities to SunPower employees with valuable skills. /d. This Court rejected SunPower’s claim as a matter of law, holding that the non-solicitation covenant it had forced DeBono to accept was illegal and unenforceable. /d. Ex. A. However, the Court’s Order does not address the non-solicitation covenants SunPower has foisted upon its other 1 References to SunPower’s memorandum of points and authorities in support of its demurrer are denoted as “Mem.” followed by the page and line number. Unless otherwise noted, all emphases are added, and all citations, brackets, original alterations, footnotes, and quotation marks are omitted from all quotations for ease of reading. Please see the table of authorities for subsequent case history. 1 STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER, CASE NO.: 19CV349042ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS current and former employees. /d. 4] 15. By bringing suit against DeBono in spite of AMN Healthcare, SunPower has shown that it will make every effort to leverage its non-solicitation covenants to restrict employee mobility unless and until a court tells it to stop, harming competitors like Standard who must incur increased recruiting costs and accept less desirable candidates due to SunPower’s conduct. /d. § 21. Standard thus brought this action to prevent SunPower from using its non- solicitation covenants to bully other employees—and thus depress the employment market for the solar industry—as it did with DeBono. Rather than make proactive efforts to release its employees from the illegal covenants in their contracts, SunPower now brings this demurrer, using a hodgepodge of legal arguments to avoid injunctive relief that would interfere with its wrongful campaign to limit employee mobility. All of these arguments fail. First, the Cross-Complaint cannot be dismissed based on SunPower’s “unclean hands” defense, because SunPower has not shown that Standard has unclean hands at all, and this fact- specific defense cannot be resolved at the pleading stage in any event. See CrossTalk Prods., Inc. v. Jacobson, 65 Cal. App. 4th 631, 635, 641 (1998) (holding that “the doctrine of unclean hands is heavily fact dependent,” and “a uniquely poor candidate to support a demurrer”; and that a demurrer “cannot properly be sustained where the action might be barred by the defense, but is not necessarily barred” (emphasis in original)). Second, SunPower’s argument that preventing the use of its illegal covenants would violate due process because the covenants were supposedly legal at the time they were drafted is faulty, because (i) contrary to SunPower’s revisionist legal history, non-solicitation provisions have been unlawful under binding California law since at least since 2008, see AMN Healthcare, 28 Cal. App. 5th at 938-39 (holding that prior judicial authority approving non-solicitation covenants was overruled by the Supreme Court in 2008); (ii) Standard is seeking prospective injunctive relief, so it is not simply seeking to hold SunPower “retroactively” liable for its unlawful conduct; and (iii) SunPower failed to make any argument sufficient to defeat the presumption that judicial decisions apply retroactively. See Newman v. Emerson Radio Corp., 48 Cal. 3d 973, 978 (1989). Third, Standard has adequately pled violations of Section 16600, economic injury, and 2 STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER, CASE NO.: 19CV349042ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS ongoing harm that merit injunctive relief—SunPower cannot twist the standard on demurrer to demand more specificity than is required. See Quelimane Co. v. Stewart Title Guar. Co., 19 Cal. 4th 26, 46-47 (1998) (holding that UCL claims do not require “fact-specific pleading”). For all of these reasons, and as further explained below, the Court should overrule SunPower’s demurrer. BACKGROUND I. SunPower’s Unlawful Non-Solicitation Provisions Standard alleges that, despite the repeatedly-held unlawfulness of non-solicitation provisions under California law, SunPower regularly includes these provisions throughout several of its employment agreements—a tactic SunPower wields to discourage employee mobility. CC § 15. Indeed, upon becoming a SunPower employee in 2013, former SunPower Executive Vice President of Global Channels Martin DeBono (now President of GAF Energy) signed a confidentiality agreement titled “Agreement Concerning Proprietary Information and Inventions” (“Inventions Agreement”). CC ¥ 10. This Inventions Agreement included the following non-solicitation provision: During the term of my employment with SunPower and for a period of two (2) years thereafter, I agree that I will not solicit or encourage, or cause, or enable others to solicit or encourage, any employees of SunPower to terminate their employment with SunPower. CC § 11 (citing Inventions Agreement § 9). And upon becoming Executive Vice President and General Manager, Global Channels, DeBono was required to sign an Employment Agreement on August 28, 2017. CC § 12. Again, this Employment Agreement contains the following non-solicitation provision: . .. Executive agrees that during the one (1) year period following the Termination Date, Executive, directly or indirectly, . . . will (i) not solicit, induce, or influence any person to modify his or her employment or consulting relationship with [SunPower] or its Affiliates... . Id. (citing Employment Agreement § 9(b)). Not only do these kinds of invalid non-solicitation provisions in its employment agreements appear to be common practice for SunPower, SunPower further seems to regularly include a non- solicitation provision in its post-termination agreements with high-level employees. For example, the Separation Agreement and Release (“Separation Agreement”) that SunPower signed with 3 STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER, CASE NO.: 19CV349042ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS DeBono at the time of his departure states: J. Post-Termination Obligations. . . .You acknowledge and agree as part of your responsibility to maintain the confidentiality of such information, for a period of twelve (12) months following your Separation Date, you shall not (i) solicit, induce, or influence, or attempt to solicit, induce or influence any person to terminate his or her employment or other contractual relationship with any of the Released Parties. . . . CC § 14 (citing Separation Agreement § 4(J)). Il. SunPower Alleges Violation of Its Non-Solicitation Provisions In spite of the unlawfulness of non-solicitation provisions, SunPower has repeatedly tried to enforce non-solicitations provisions against at least one employee. In SunPower’s first Complaint in this action, filed June 14, 2019 (after AMN Healthcare), SunPower alleged that DeBono had an obligation to “not solicit SunPower employees for twelve (12) months” after his termination. Ex. 1 87, 145.2 SunPower further asserted a breach of contract claim against DeBono because, allegedly, “DeBono breached the Separation Agreement by . . . using SunPower’s proprietary and confidential information to solicit other SunPower employees causing them to terminate their employment with SunPower within twelve (12) months of April 6, 2018.” Id. § 148. On November 7, 2019, in SunPower’s First Amended Complaint (“FAC”), SunPower alleged and asserted the same theory. Ex. 2 J 96, 158, 161. This Court has already found these particular non-solicitation provisions against DeBono to be unenforceable. On December 9, 2019, DeBono moved to strike allegations in SunPower’s FAC that purported to bar DeBono from soliciting his former SunPower colleagues. CC § 16. This Court (the Honorable Thang N. Barrett) rightly held on February 14, 2020 that SunPower’s non-solicitation provision, purporting to bar DeBono’s ability to solicit, was invalid as a matter of law. CC Ex. A at 8. More specifically, the Court held that: SunPower alleges DeBono breached his separation agreement by “using SunPower’s proprietary, confidential and trade secret information to solicit other SunPower employees causing them to terminate their employment with SunPower within twelve (12) months of April 6, 2018.” (FAC, 7 161.).... Regarding the issue of nonsolicitation, the Court agrees with the federal opinions that have considered the issue that AMN, read in connection with Edwards, stands for the proposition that employee non-solicitation provisions are generally no longer valid 2 Note that unless otherwise indicated, all numbered exhibits are attached to the Declaration of Michelle Kao. 4 STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER, CASE NO.: 19CV349042ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS under California law, at least insofar as they would prohibit former employees from solicitation after their employment has terminated. While AMN is factually distinguishable from this case in that recruiting was itself the profession at issue there, it expressly called into doubt the older case of Loral, upon which SunPower relies. Noting that Loral was decided several years before Edwards, AMN reasoned that Edwards rejected the employer’s argument that the Legislature meant the word “ ‘restrain’ ” in section 16600 to mean “ ‘prohibit,’ ” such that a “mere limitation on an employee’s ability to practice his or her vocation would be permissible under section 16600, as long as it was reasonably based.” [Citation.] [Loral’s] use of a reasonableness standard in analyzing the non-solicitation clause there at issue thus appears to conflict with Edward’s interpretation of section 16600, which, under the plain language of the statute, prevents a former employer from restraining a former employee from engaging in his or her “ ‘lawful profession, trade, or business of any kind,’ ” absent statutory exceptions not applicable here. [Citation.] (AMN, supra, 28 Cal. App. Sth at p. 938.) As noted by the federal courts that have subsequently considered the issue, the AMN court cited factual differences with the circumstances in Loral as a secondary basis for its holding based on this reasoning. (See Weride, supra, 2019 WL 1439394, at *11; see also Varshock v. California Dept. of Forestry and Fire Protection (2011) 194 Cal. App. 4th 635, 646, fn. 7 [“when a decision is based on two separate grounds, neither is dictum”].) The Court accordingly follows AMN and finds that the non-solicitation provision at issue here is invalid as applied to DeBono’s alleged post-resignation recruitment of SunPower employees. CC Ex. A at 7-8. Ill. Standard’s Cross-Complaint As a result of SunPower’s Court-held unlawful actions, Standard has suffered cognizable harm. Standard has: (i) suffered from the inability to use its executives (like DeBono) to recruit candidates to build out its solar team; (ii) been forced to retain the services of a recruiting firm to recruit potential candidates at SunPower, despite personal connections between those candidates and former SunPower employees like DeBono; (iii) faced increased recruiting costs; (iv) been forced to use Standard employees with less solar experience to recruit candidates; (v) lost out on qualified SunPower candidates that would have otherwise been interested in coming to Standard had DeBono and other executives been allowed to recruit; and (vi) been hindered in its efforts to build out its solar team. CC 21. To address this (and future) harm, Standard filed its Cross-Complaint. 5 STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER, CASE NO.: 19CV349042ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS DISCUSSION 1. Standard of Review When reviewing a demurrer, the Court must “assume the truth of the properly pleaded factual allegations, facts that reasonably can be inferred from those expressly pleaded and matters of which judicial notice has been taken.” Valbuena v. Ocwen Loan Servicing, LLC, 237 Cal. App. 4th 1267, 1271 (2015). The Court further “construe[s] the pleading in a reasonable manner and read[s] the allegations in context.” Jd. Indeed, a complaint will be construed “liberally.” Chavez v. Indymac Mortg. Servs., 219 Cal. App. 4th 1052, 1057 (2013). Thus, “[i]f the complaint states any possible legal theory,” the Court must overrule the demurrer. See id. Further, a court abuses its discretion if it grants a demurrer without leave to amend where there is “a reasonable possibility the plaintiff could cure the defect with an amendment.” Schifando v. City of Los Angeles, 31 Cal. 4th 1074, 1081 (2003). Il. SunPower’s Unclean Hands Defense Cannot Be Resolved at the Pleading Stage In its lead attack on the Cross-Complaint, SunPower argues that the Cross-Complaint should be dismissed based on an affirmative defense—the “unclean hands” doctrine—because Standard has included non-solicitation covenants in some past contracts. Mem. 6:4-7:4. The Court should reject this argument out of hand. Demurrers based on affirmative defenses are highly disfavored. Indeed, a “demurrer based on an affirmative defense cannot properly be sustained where the action might be barred by the defense, but is not necessarily barred.” See People v. Superior Ct., 34 Cal. App. Sth 376, 399 (2019) (J.C. Penny’) (second and third emphases in original); Flores v. Kmart Corp., 202 Cal. App. 4th 1316, 1324 (2012). Thus, in order to prevail on its unclean hands defense at the pleading stage, SunPower would have to show that the defense “is conclusively demonstrated by the facts pleaded in the complaints or subject to judicial notice.” J.C. Penny, 34 Cal. App. Sth at 399. This burden is particularly onerous in this case because “the doctrine of unclean hands is heavily fact dependent,” and is thus “a uniquely poor candidate to support a demurrer.” See CrossTalk, 65 Cal. App. 4th at 641 (reversing demurrer based on unclean hands); Stine v. Dell’Osso, 230 Cal. App. 4th 834, 844 6 STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER, CASE NO.: 19CV349042ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS (2014) (same).? Here, the demurrer must be overruled because SunPower has not “conclusively demonstrated” that the Cross-Complaint is barred by the unclean hands doctrine. J.C. Penny, 34 Cal. App. Sth at 399. SunPower argues that, because Standard has included non-solicitation covenants in past contracts, its conduct is as equally bad as SunPower’s, and thus it should not be able to assert claims related to SunPower’s non-solicitation covenants. Mem. 6:16-7:4. But, unlike SunPower, Standard has never sued an employee seeking to enforce an unlawful non-solicitation covenant. See CC §f 16-17 & Ex. A. And, unlike SunPower, Standard has not leveraged illegal non-solicitation covenants to prevent former employees from recruiting current Standard employees for other employment opportunities. See id. § 21. SunPower’s attempt to equate its wrongful conduct with Standard’s thus fails on its face. See CrossTalk, 65 Cal. App. 4th at 639 (demurrer on unclean hands grounds inappropriate where an “examination of the facts alleged . . . leaves ample room for a verdict in favor of plaintiffs”). Moreover, the evidence developed in this action will show that Standard acknowledged that its non-solicitation covenants with California-based employees may not be enforceable and, therefore, agreements with such terms would not be used. To Standard’s knowledge, SunPower has never taken any such steps, and continues to leverage its non-solicitation covenants to reduce employee mobility. CC § 21. In fact, even after the Court’s order on SunPower’s non-solicitation allegations, SunPower appears to be full-steam ahead with enforcing non-solicitation provisions, telling the arbitrator adjudicating another dispute between SunPower and a different GAF Energy employee that: “In the DeBono case, the Superior Court interpreted recent case law as making Mr. DeBono’s non-solicitation provision void. SunPower believes the Superior Court was wrong and extended California law into uncharted waters.” Ex. 3 at 3 n.4. Z Neither Jn re Singh, 2015 WL 1887939, at *10 n.9 (Bankr. E.D. Cal. Apr. 22, 2015), nor Maguire v. Hibernia Savings & Loan Society, 23 Cal. 2d 719, 730 (1944), the cases cited by SunPower, support SunPower’s argument that its demurrer on this issue is appropriate. In Singh, the court there judicially noticed that the plaintiff had pled guilty to the ponzi scheme that supported defendants’ in pari delicto/unclean hands defense, 2015 WL 1887939, at *8-9. And, remarkably, Maguire actually reversed the demurrer at issue in that case, holding with respect to the unclean hands doctrine that “the fact that the party seeking to set the judicial machinery in motion is on the wrong side of a controversy cannot be ascertained prior to the court’s consideration and determination thereof.” 23 Cal. 2d at 731. 7 STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER, CASE NO.: 19CV349042ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS The fact that the Court does not have these and other facts before it only underscores how inappropriate it would be to resolve this action based on an unclean hands affirmative defense doctrine at the pleading stage. See CrossTalk, 65 Cal. App. 4th at 639 (collecting cases for the proposition that “the general rule” is “that application of the doctrine of unclean hands is a question of fact”); Ins. Co. of N. Am. v. Liberty Mut. Ins. Co., 128 Cal. App. 3d 297, 307 (1982) (holding that trial court correctly overruled demurrer on unclean hands grounds where the “complaint and other matters before the trial court on demurrer [did] not establish as a matter of law that [plaintiff's] conduct was so tainted with inequitableness or bad faith as to bar relief”). Ill. Preventing SunPower’s Use of Illegal Covenants Would Not Violate Due Process SunPower next argues that: (i) its non-solicitation covenants were legal at the time they were drafted; (ii) the Court of Appeal’s 2018 AMN Healthcare decision altered settled law establishing the legality of such covenants; and therefore (iii) it would violate due process to apply AMN Healthcare retroactively to hold SunPower accountable for its leveraging of illegal non-solicitation covenants to limit employee mobility. Mem. 7:8-9:12. This argument fails for a litany of reasons. First, as a threshold matter, a core premise of SunPower’s argument—that its non-solicitation covenants were legal until recently—is faulty. SunPower argues that AMN Healthcare abrogated Loral Corp. v. Moyes, 174 Cal. App. 3d 268 (1985), a decision upholding certain non-solicitation covenants under Section 16600, and thus AMN Healthcare changed California law by making previously-valid non-solicitation covenants illegal. But AMN Healthcare did no such thing, nor could it have. Because all districts and divisions of the Court of Appeal are “of equal dignity,” no single panel of the Court of Appeal can overrule a prior panel’s published decision. See, e.g., Fraser v. Bogucki, 203 Cal. App. 3d 604, 606 n.1 (1988). Indeed, SunPower implicitly acknowledges that AMN Healthcare did not change the law or overrule Loral Corp. by arguing that “even after the AMN Healthcare decision, many courts continue to enforce non-solicitation provisions” under certain (distinguishable) circumstances. Mem. 8:2-11. Rather, AMN Healthcare merely recognized that Loral Corp. (1985) was inconsistent with a later-in-time Supreme Court decision, Edwards (2008). The court in Loral Corp. upheld the non- solicitation covenants at issue in that case because it determined that they only “slightly affect[ed] 8 STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER, CASE NO.: 19CV349042ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS [the plaintiff s] employees”—or in other words, because the court felt the covenants were reasonable. See 174 Cal. App. 3d at 279 (“[E]nforceability [of a restrictive covenant] depends upon its reasonableness, evaluated in terms of the employer, the employee, and the public.”). However, in Edwards, the Supreme Court expressly rejected the idea that Section 16600 contains an implicit exception for limited or reasonable restraints on employee mobility. See 44 Cal. 4th at 950 (“Section 16600 is unambiguous, and if the Legislature intended the statute to apply only to restraints that were unreasonable or overbroad, it could have included language to that effect.”). AMN Healthcare recognized that Loral Corp.’s reasonableness analysis was irreconcilable with Edwards, and declined to follow it. AMN Healthcare, 28 Cal. App. 5th at 938-39. It did not make new law. In other words, SunPower’s non-solicitation covenants did not suddenly become void in 2018 when AMN Healthcare was issued; those covenants have been void since at least 2008 when the Supreme Court made clear that Section 16600 invalidates all restraints on employee mobility (except those carved out by statute), and not just unreasonable restraints. See Edwards, 44 Cal. 4th at 950. This reality is starkly illustrated by the fact that the trial court in AMN Healthcare invalidated non- solicitation covenants on the exact same theory that Standard is asserting here, and in affirming the trial court’s decision, the Court of Appeal never once suggested that the trial court had broken new ground or acted contrary to existing law. See 28 Cal. App. 5th at 933, 938-39. Accordingly, contrary to SunPower’s position, no aspect of the Cross-Complaint seeks to retroactively impose liability for conduct that was legal at the time it occurred.* Second, even if AMN Healthcare had suddenly rendered SunPower’s non-solicitation covenants invalid for the first time (it did not), SunPower’s retroactivity argument would still fail because Standard is not seeking restitution (or any other form of damages) for SunPower’s past conduct. Rather, the Cross-Complaint seeks purely prospective injunctive relief to stop SunPower from wrongfully leveraging its non-solicitation covenants to stifle employee mobility in the future. See CC at 9 (prayer for relief). This relief is justified because SunPower demonstrated its willingness ; Ixchel Pharma, LLC v. Biogen, Inc., 2020 WL 4432623 (Cal. Aug. 3, 2020), does not alter the holding in Edwards that Section 16600 does not contain a reasonableness exception when applied to covenants in employment agreements. See id. at *16 (“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.”). 9 STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER, CASE NO.: 19CV349042ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS to attempt to enforce its non-solicitation covenants even after AMN Healthcare was decided by suing Martin DeBono in 2019 for violating one such covenant. See CC ff] 16-17 & Ex. A. SunPower thus cannot complain that Standard is seeking relief for conduct that entirely predates AMN Healthcare. Third, even if SunPower’s liability did somehow turn on applying AMN Healthcare retroactively to invalid covenants that were legal when drafted (it does not), SunPower fails to overcome the presumption that judicial decisions apply retroactively. “The general rule that judicial decisions are given retroactive effect is basic in our legal tradition.” Newman, 48 Cal. 3d at 978; accord Waller v. Truck Ins, Exch., Inc., 11 Cal. 4th 1, 24 (1995). To that end, California courts have “consistently” applied appellate decisions retroactively “even when those decisions declared new causes of action or expanded the scope of existing [liability] in ways defendants could not have anticipated.” Newman, 48 Cal. 3d at 981-82. Courts depart from this rule only in rare cases where “considerations of fairness and public policy . . . justify an exception.” Corenbaum v. Lampkin, 215 Cal. App. 4th 1308, 1334 (2013). “Several factors must be considered in determining whether a decision should be given retroactive application” including: “the reasonableness of the parties’ reliance on the former rule, the nature of the change as substantive or procedural, retroactivity’s effect on the administration of justice, and the purposes to be served by the new rule.” Bearden v. U.S. Borax, Inc., 138 Cal. App. 4th 429, 443 (2006). SunPower fails to mention, much less apply this test, likely because the relevant factors show that AMN Healthcare would be given full retroactive effect. Most importantly, SunPower did not reasonably rely on prior judicial authority in forcing its non-solicitation covenants on employees. See Bearden, 138 Cal. App. 4th at 442 (noting that justifiable reliance is the most important factor). SunPower did not reasonably rely on Loral Corp. because that case’s holding that restrictive covenants are valid if “reasonable” was clearly inconsistent with Edwards’ rejection of any exceptions to Section 16600 beyond those provided by statute, as explained above. See AMN Healthcare, 28 Cal. App. 5th at 938-39. SunPower also did not reasonably rely on the string of federal district court decisions cited in its brief, Mem. 7:14-8:1, because federal cases applying California law are just guesses about how the California Supreme Court might rule on the issue, and are not binding authority. See, e.g., Miller v. Collectors Universe, Inc., 159 Cal. App. 4th 988, 1001 10 STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER CASE NO.: 19CV349042ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS n.10 (2008) (“[F]ederal decisions on matters of California law . . . are not binding or conclusive on the courts of this state.”); JPI Westcoast Constr., L.P. v. RJS & Assocs., Inc., 156 Cal. App. 4th 1448, 1465 n.2 (2007) (similar). Put differently, SunPower’s decision to rely on a 35-year-old case whose analytical foundations had been swept away by subsequent Supreme Court authority, and a line of nonbinding federal decisions, was self-serving and unreasonable, and is not entitled to any weight. Moreover, declining to apply AMN Healthcare retroactively would thwart “the purposes to be served” by its holding—namely the protection of employee mobility and free competition embodied by Section 16600. See Bearden, 138 Cal. App. 4th at 443. California courts “have consistently affirmed that section 16600 evinces a settled legislative policy in favor of open competition and employee mobility.” Edwards, 44 Cal. 4th at 946. The court in AMN Healthcare honored this public policy by striking down non-solicitation covenants under Section 16600 as restrictions on employee mobility and competition. See 28 Cal. App. 5th at 936-39. Here, SunPower has already shown that, notwithstanding AMN Healthcare, it is willing to use its non-solicitation covenants to intimidate former employees like DeBono into not recruiting current SunPower employees, depriving its current employees of legitimate career opportunities. See CC {J 16-17 & Ex. A. Declining to apply AMN Healthcare retroactively would permit SunPower to threaten its employees with enforcement of covenants it knows to be illegal, in violation of AMN Healthcare and Section 16600. SunPower has no vested right to continue this illegal conduct. Finally, SunPower’s cases are distinguishable and do not support its argument. In each of SunPower’s cases, the party resisting retrospective application of judicial precedent relied on controlling authority that was not called into doubt until it was too late to take corrective action. See Olszewski v. Scripps Health, 30 Cal. 4th 798, 829 (2003) (declining to apply holding invalidating statutory safe harbor provisions retroactively where defendants had relied on then-controlling statutory authority in issuing liens); Janis v. Cal. State Lottery Comm’n, 68 Cal. App. 4th 824, 832 (1998) (finding lottery commission was not liable for false advertising when game it was advertising was not illegal at the time statements were made); Silas v. Arden, 213 Cal. App. 4th 75, 89 (2012) (declining to apply one-year statute of limitations to plaintiff when at the time she commenced her action, the only published decision on point held that claim was subject to two-year limitations ul STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER CASE NO.: 19CV349042ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS period). In contrast here, by 2008, Edwards had already rendered SunPower’s reliance on Loral Corp. unreasonable and speculative. And even after AMN Healthcare left no doubt that SunPower’s covenants were void, SunPower still tried to enforce one of them. See CC ff 16-17 & Ex. A. IV. Standard Has Standing to Seek UCL Relief Private UCL claims may be brought by any “person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” Cal. Bus. & Prof. Code § 17204. As pled in the Cross-Complaint, Standard meets these undemanding standing requirements because “SunPower’s unlawful non-solicitation provisions have resulted in increased recruiting costs for Standard and GAF Energy, forced Standard and GAF Energy . . . to lose out on qualified SunPower candidates [who] would have otherwise been interested in coming to Standard/GAF Energy had DeBono and other executives been allowed to recruit, and otherwise hindered Standard’s and GAF Energy’s lawful efforts to build out their solar team.” CC § 21. These allegations are sufficient to establish standing under the law. See, e.g., Kwikset Corp. v. Superior Ct., 51 Cal. 4th 310, 323 (2011) (listing being “required to enter into a transaction, costing money or property, that would otherwise have been unnecessary” as one of the “innumerable ways in which economic injury from unfair competition may be shown’). SunPower nevertheless offers an assortment of arguments challenging Standard’s standing to seek UCL relief. None has merit. A. Standard Has Pled Violations of Section 16600 SunPower’s primary argument is that Standard cannot maintain a claim premised on SunPower’s violations of Section 16600 because Standard failed to identify the specific SunPower employees with non-solicitation covenants and quote those covenants in the Cross-Complaint. See, e.g., Mem. 11:7-15; 12:12-15. However, none of this detail is required under the liberal pleading standard for a UCL claim. To the contrary, the law requires only that the elements of the claim be stated with reasonable particularity, and does not require specific factual allegations for each element. See Quelimane, 19 Cal. 4th at 46-47 (holding that UCL claims do not require “fact-specific pleading”); Gutierrez v. CarMax Auto Superstores Cal., 19 Cal. App. 5th 1234, 1261 (2018) (holding that UCL claims need only be pled with “reasonable particularity”). The Cross-Complaint meets this 12 STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER CASE NO.: 19CV349042ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS standard by providing a specific example of an illegal covenant SunPower recently tried to enforce in this very litigation, and alleging on information and belief that SunPower has included such provisions in other employee contracts. See CC §§ 10-17. Notably, the relevant pleading standard does not require Standard to allege facts that only SunPower would know prior to discovery. See Roger v. County of Riverside, 44 Cal. App. 5th 510, 533 (2020) (“/L]ess particularity is required where the defendant may be assumed to have knowledge of the facts equal to that possessed by the plaintiff... . There is no need to require specificity in the pleadings because modern discovery procedures necessarily affect the amount of detail that should be required in a pleading.” (emphasis in original)); 4 Witkin, Cal. Proc. Sth Pleading § 398 (2020) (when the plaintiff “lacks knowledge and the means of obtaining knowledge of facts material to his or her cause of action or defense” because “the matters are peculiarly within the knowledge of the adverse party,” the “pleader may plead what he or she believes to be true as a result of information (hearsay) the pleader has received”). Months ago, Standard served discovery requests asking SunPower to identify employees and contracts with non-solicitation covenants, but SunPower has thus far (wrongfully) refused to provide any discovery. Ex. 4. It would be perverse (and contrary to California law) to dismiss the Cross-Complaint because Standard has not pled information that only SunPower would know, when SunPower has thus far stonewalled all attempts to obtain discovery. SunPower cites no cases supporting its argument that the Cross-Complaint cannot be maintained without identifying ex ante every SunPower employee with a non-solicitation covenant, and, in fact, relies on cases discussing the pleading standard for breach of contract claims and challenges to the validity of regulations. See Mem. 11:26-12:23 (citing Acoustics, Inc. v. Trepte Constr. Co., 14 Cal. App. 3d 887, 913 (1971), Jackson v. Rogers & Wells, 210 Cal. App. 3d 336, 349-50 (1989), and People v. McKale, 25 Cal. 3d 626, 635 (1979)). Standard however, is not alleging a breach of contract claim, or challenging a regulation. It is not even alleging a UCL claim based on a breach of contract or a regulatory violation—tt is alleging a UCL claim for breach of Section 16600. See CC F¥ 25-30. SunPower’s cases are thus irrelevant and should be disregarded. B. Standard Has Pled an Economic Injury SunPower next claims that Standard has failed to show any economic injury, or that 13 STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER CASE NO.: 19CV349042ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS SunPower’s unlawful acts caused this injury. See Mem. § III.D.2. These arguments fare no better. Ignoring the cogent theory of economic harm pled in the Cross-Complaint—that Standard was harmed by being forced to incur increased recruitment costs as a result of SunPower’s illegal covenants, see CC § 21—SunPower argues that “Standard cannot show that it has suffered an economic injury” because it did not “identify what agreements” with “SunPower former employees are at issue.” Mem. 13:17-19. But, as explained above, the UCL does not require “fact-specific pleading,” Quelimane, 19 Cal. 4th at 46-47, and Standard is not required to allege facts that only SunPower would know, see Roger, 44 Cal. App. 5th at 533, particularly because SunPower has wrongfully withheld all discovery on these precise issues. See Ex. 4. Once again, SunPower fails to cite any authority holding, or even suggesting, that Standard cannot show economic harm without identifying every SunPower employee subject to a non-solicitation covenant. SunPower next claims that Standard cannot show economic injury because its non- solicitation covenants were purportedly “not unlawful at the time they were agreed to.” Mem. 14:5- 6. However, as explained above, SunPower’s non-solicitation covenants did not suddenly become unlawful in 2018 when AMN Healthcare was decided, but have been barred at least since 2008 when Edwards made clear that there is no reasonableness exception to Section 16600 in the employment context. In any event, SunPower does not, because it cannot, explain how the prior legal status of its non-solicitation covenants is in any way connected to, or undermines, Standard’s theory of economic harm (harm which occurred both before and after AMN Healthcare). Cc. Standard Has Pled Ongoing Harm That Merits Injunctive Relief SunPower’s final argument is that Standard cannot obtain injunctive relief because it purportedly had not pled “any facts showing that SunPower will attempt to enforce” its non- solicitation covenants in the future. Mem, 14:15-28. As a legal matter, whether SunPower will continue to attempt to enforce its unlawful non- solicitation provisions is a disputed question of fact not suitable for resolution on the pleadings. See Prof'l Fire Fighters, Inc. v. City of Los Angeles, 60 Cal. 2d 276, 286 (1963) (“Whether or not there is a reasonable probability that defendant will continue its [unlawful] activities in the future is a question of fact.”); see also Int'l Brotherhood of Teamsters, Local 848 v. City of Monterey Park, 30 14 STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER CASE NO.: 19CV349042ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS Cal. App. 5th 1105, 1114 (2019) (“[A] question of fact . . . is not properly decided on demurrer.”). As a factual matter, SunPower’s assertion is not true. Standard has pled that SunPower has already tried to enforce an illegal non-solicitation covenant against one employee (DeBono) even after the AMN Healthcare decision, and that Standard would suffer future harm if SunPower continued to leverage its illegal covenants against other current and former employees in the future. See CC fff 10-18, 21, 32-33. Notably, SunPower fails to confirm that it does not have non-solicitation covenants in other employee agreements, or that it will not attempt to leverage them in the future. Instead, SunPower appears to be implying that because this Court invalidated the non-solicitation covenant in DeBono’s contract, it is unreasonable to think that SunPower would ever try to enforce such a covenant in the future. In fact, in a separate arbitration, SunPower has recently said this Court’s order “was wrong.” Supra Ex. 3 at 3 n.4. It’s clear to at least Standard, therefore, that this Court’s order invalidating the DeBono covenant will not preclude SunPower from asserting the validity of covenants in other employee contracts in the future. Moreover, a defendant’s self-serving assurances that it will not repeat its wrongful conduct are insufficient to moot claims for injunctive relief as a matter of law. See, e.g., Robinson v. U-Haul Co. of Cal., 4 Cal. App. 5th 304, 316 (2016) (“Where, as here, a company has not taken action to bind itself legally to a [UCL] violation-free future, there may be reason to doubt the bona fides of its newly established law-abiding policy.”); People ex rel. Feuer v. Superior Ct., 234 Cal. App. 4th 1360, 1385 (2015) (“[V]Joluntary cessation of conduct” is “not determinative” in determining whether injunctive relief should issue); see also Marin County Bd. of Realtors, Inc. v. Palsson, 16 Cal. 3d 920, 929 (1976) (“It is settled that the voluntary discontinuance of alleged illegal practices does not . . . relieve the court of the duty of determining the validity of such charges where by the mere volition of a party the challenged practices may be resumed.”).° CONCLUSION For these reasons, the Court should overrule SunPower’s demurrer. If the Court sustains the demurrer in any respect, Standard requests leave to amend. See Schifando, 31 Cal. 4th at 1081. 5 SunPower also argues that Standard cannot obtain injunctive relief based solely on the unlawful clauses in DeBono’s contracts. Mem. 9:15-11:4. This argument is irrelevant. While the unlawful covenants in DeBono’s agreements are illustrative of the covenants SunPower has included in other employee contracts, Standard is not seeking relief based on DeBono’s contracts alone. 15 STANDARD’S OPPOSITION TO SUNPOWER’S DEMURRER, CASE NO.: 19CV349042ec eon nm Ss B&B NY RP R YP YP RP NR NR KR DW we me is Co OS OS OS SS OSS eS DATED: August 19, 2020 SKADDEN, ARPS, By: SLATE, MEAGHER & FLOM LLP /s/ John M. Neukom JOHN M. NEUKOM Attorneys for Standard Industries Inc. 16 STANDARD’S OPPOSITION TO SUNPOWER