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PANKIT J. DOSHI (SBN 231369)
1 pdoshi@mwe.com
KATE SAGERS DE LA CRUZ (SBN 317747)
2 ELECTRONICALLY
kdelacruz@mwe.com
MCDERMOTT WILL & EMERY LLP F I L E D
3 415 Mission St Suite 5600 Superior Court of California,
County of San Francisco
San Francisco, CA 94105-2533
4 Telephone: +1 628 218 3800 11/26/2019
Facsimile: +1 628 877 0107 Clerk of the Court
5 BY: DAVID YUEN
Deputy Clerk
Attorneys for Plaintiff
6 KENNETH A. GOULD
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SUPERIOR COURT OF THE STATE OF CALIFORNIA
8
COUNTY OF SAN FRANCISCO
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KENNETH A. GOULD, an individual, CASE NO. CGC-19-580784
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MEMORANDUM OF POINTS AND
MCDERMOTT WILL & EMERY LLP
11 Plaintiff,
AUTHORITIES IN SUPPORT OF
v. PLAINTIFF’S MOTION FOR
ATTORNEYS AT LAW
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SAN FRANCISCO
PRELIMINARY INJUNCTION
13 LANCASTER POLLARD & CO., a Delaware [Notice of Motion; Declarations of Kenneth A.
limited liability company, ORIX REAL ESTATE Gould and Pankit J. Doshi; Request for Judicial
14 CAPITAL HOLDINGS, LLC, a Delaware limited Notice; [Proposed] Order Granting Motion for
liability company, and DOES 1-10, inclusive, Preliminary Injunction, filed concurrently
15 herewith]
16 Defendants.
Hearing:
DATE: December 20, 2019
17 TIME: 9:30 a.m PST
Reservation No. 011211220-10
18 JUDGE: Hon. Ethan P. Schulman
DEPT: 302
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MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFF’S MOTION FOR
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1 TABLE OF CONTENTS
2 Page
I. Introduction ................................................................................................................................1
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II. Facts ...........................................................................................................................................2
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5 III. Plaintiff is Entitled to a Preliminary Injunction .........................................................................3
6 A. Legal Standard ...............................................................................................................3
7 B. Plaintiff is Likely to Prevail on the Merits.....................................................................4
8 1. This Motion is Properly Decided by this Court .................................................4
9 2. The Restrictive Covenants Are Void Under California Law .............................5
10 (a) The Non-Competition Clause is Unenforceable ....................................5
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(b) The Non-Solicitation Clauses are Unenforceable ..................................6
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3. California Law Governs This Dispute ...............................................................7
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(a) Legal Framework ...................................................................................7
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(b) California Has a Materially Greater Interest than Ohio .........................8
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(c) Defendants’ Remaining Arguments are Unpersuasive ........................10
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C. The Balance of Harms Weighs Significantly in Plaintiff’s Favor ...............................11
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IV. Conclusion ...............................................................................................................................13
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1 TABLE OF AUTHORITIES
2 Page(s)
3 Cases
4 Advanced Bionics Corp. v. Medtronic, Inc.
29 Cal.4th 697 (2002) ..................................................................................................................4, 5
5
American Motorcyclist Ass’n v. Watt,
6 714 F.2d 962 (9th Cir. 1983) .........................................................................................................11
7 AMN Healthcare, Inc. v. Aya Healthcare Services, Inc.,
28 Cal.App.5th 923 (Cal. Ct. App. 2018) ........................................................................................6
8
Application Group, Inc. v. Hunter Group, Inc,
9 61 Cal. App. 4th 881 (1998) ..............................................................................................6, 8, 9, 10
10 Arthur J. Gallagher & Co. v. Lang,
No. C 14-0909 CW, 2014 WL 2195062 (N.D. Cal. May 23, 2014)................................................8
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Barker v. Insight Glob., LLC,
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12 2019 WL 176260 (N.D. Cal. Jan. 11, 2019) ....................................................................................7
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13 Church of Christ in Hollywood v. Superior Court,
99 Cal. App. 4th 1244 (2002) ..........................................................................................................3
14
Common Cause v. Board of Supervisors,
15 49 Cal. 3d 432 (1989) ................................................................................................................4, 11
16 Contech Constr. Prod., Inc. v. Blumenstein,
No. 1:11-cv-878, 2012 WL 2871425 (S.D. Ohio July 12, 2012) ..................................................11
17
Continental Car-Na-Var Corp. v. Moseley,
18 24 Cal. 2d 104 (1944) ......................................................................................................................6
19 Diodes, Inc. v. Franzen
260 Cal. App. 2d 244 (1968) .........................................................................................................10
20
Edwards v. Arthur Andersen LLP,
21 44 Cal. 4th 937 (2008) .................................................................................................................5, 6
22 Frame v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
20 Cal. App. 3d 668 (1971) .............................................................................................................9
23
Gatsinaris v. ART Corp. Sols. Inc.,
24 No. SA CV 15-0741-DOC, 2015 WL 4208595 (C.D. Cal. July 10, 2015) .....................................9
25 Hilb, Rogal & Hamilton Ins. Servs. v. Robb,
33 Cal. App. 4th 1812 (1995) ........................................................................................................13
26
Hill Med. Corp. v. Wycoff,
27 86 Cal. App. 4th 895 (2001) ............................................................................................................5
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IT Corp. v. County of Imperial
1 35 Cal.3d 63 (1983) .......................................................................................................................11
2 Kolani v. Gluska,
64 Cal. App. 4th 402 (1998) ............................................................................................................6
3
Latona v. Aetna U.S. Healthcare Inc.,
4 82 F. Supp. 2d 1089 (C.D. Cal. 1999) .........................................................................................6, 8
5 Lifestyle Improvement Centers, LLC v. East Bay Health, LLC,
2013 WL 5564144 (S.D. Ohio Oct. 7, 2013) .................................................................................11
6
Lilith Games (Shanghai) Co. v. uCool, Inc.,
7 No. 15-CV-01267-SC, 2015 WL 5591612 (N.D. Cal. Sept. 23, 2015) .........................................11
8 Nedlloyd Lines B.V. v. Superior Court,
3 Cal.4th 459 (1992) ....................................................................................................................7, 8
9
Raimonde v. Van Vlerah,
10 42 Ohio St. 2d 21 (1975) .................................................................................................................7
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11 Right Site Coalition v. Los Angeles Unified School Dist.,
160 Cal. App. 4th 336 (2008) ..........................................................................................................4
ATTORNEYS AT LAW
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Robbins v. Superior Court
13 38 Cal. 3d 199 (1985) ....................................................................................................................12
14 Robinson v. Jardine Ins. Brokers Int’l Ltd.,
856 F. Supp. 554 (N.D. Cal. 1994) ................................................................................................13
15
Rockefeller Capital Management, LLC et al. v. Focus Financial Partners, LLC et al.,
16 Case No. CGC-18- 568832 (Cal. Sup. Ct., County of San Francisco, October 31,
2018) ....................................................................................................................................5, 11, 13
17
Ruiz v. Affinity Logistics Corporation,
18 667 F.3d 1318 (9th Cir. 2012) .........................................................................................................8
19 Scott v. Snelling & Snelling, Inc.,
732 F. Supp. 1034 (N.D. Cal. 1990) ............................................................................................6, 8
20
Stryker Sales Corp. v. Zimmer Biomet, Inc.,
21 231 F. Supp. 3d 606 (E.D. Cal. 2017)..............................................................................................8
22 Verdugo v. Alliantgroup, L.P.
237 Cal.App.4th 141 (2015) ............................................................................................................8
23
WeRide Corp. v. Kun Huang,
24 379 F. Supp. 3d 834 (N.D. Cal. 2019) .............................................................................................7
25 Winter v. Nat. Res. Def. Council, Inc.,
555 U.S. 7 (2008) ...........................................................................................................................11
26
Statutes
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California Business & Professions Code Section 16600 ............................................................. passim
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Civ. Code § 3426.1(d) ..........................................................................................................................12
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1 I. INTRODUCTION
2 Plaintiff Kenneth Gould (“Plaintiff” or “Gould”) brings this motion for a preliminary
3 injunction against Defendants Lancaster Pollard & Co. (“Lancaster Pollard”) and Orix Real Estate
4 Capital Holdings, LLC (“ORIX”) (collectively, “Defendants”) seeking an injunction against the
5 enforcement, in California, of unlawful restrictive employment covenants that violate California law.
6 The non-compete and non-solicit covenants in Gould’s employment agreement with
7 Defendants are void under California Business & Professions Code Section 16600. Thus, the ultimate
8 question presented by this motion is whether the covenants are subject to Section 16600 in the first
9 place, or are instead governed by Ohio law. If California law applies, there is no genuine doubt that
10 the covenants are void.
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11 Gould has a high likelihood of prevailing on the merits on the issue of the applicability of
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12 California law, because California has a materially greater interest than Ohio in the subject matter of
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13 the covenants. This case is about a California citizen and resident’s freedom to work in California for
14 a new California-based employer, not the internal affairs or management of the out of state defendants.
15 Gould will suffer irreparable harm if Defendants are allowed, pending summary judgment or
16 trial, to enforce the covenants. It may be at least six months to a year before a final judgment is entered
17 in this case. If the unlawful covenants are enforced in the interim—which they will be, even absent
18 Defendants’ legal action, simply by threat to proceed—Gould will have no adequate remedy to
19 compensate for opportunities lost during that period. As long as the restrictive covenants remain
20 enforceable against Gould and Defendants continue to threaten enforcement of the covenants, both
21 Gould and his future employer will face the choice to either permit enforcement by inaction or to
22 breach the covenants and simply await Defendants’ actions—the precise choice California law
23 prevents employees from being forced to make. The foregone opportunities that Gould will miss out
24 on if he cannot undertake the full scope of his duties cannot be quantified in monetary terms, making
25 injunctive relief appropriate and necessary. Absent an injunction, Gould faces an untenable option:
26 forego fulfilling his duties for his new employer until this Court enters a final judgment on the merits
27 (by which time the restrictive covenants may have already expired and the opportunities for which
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1 Gould sought new employment long since defunct), or begin his new job under the oppressive and
2 distracting shadow of litigation over his right to work in California. Either way, both Gould and his
3 new employer will be harmed. Conversely, Defendants will suffer little, if any, harm if the covenants
4 are suspended: they can hardly be said to be harmed by this Court for simply following applicable
5 law.
6 Because Gould is likely to succeed on the merits and will suffer irreparable harm absent an
7 injunction, the Court should grant his motion for preliminary injunction. Only this Court, on this
8 motion, can vindicate the clearly-held rights of both a California resident and a California-based
9 employer via this motion. Gould urges this Court to do so before it is too late.
10 II. FACTS
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11 Gould was hired by Defendant Lancaster Pollard in June of 2004 subject to an employment
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12 agreement (the “Agreement”) which provides, inter alia a noncompetition clause restricting him for a
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13 period of two years from termination from being “employed by, or participate in the ownership,
14 management, operation of, or be associated in any manner with, any business of the type and character
15 of business engaged in by the Corporation at the time of such termination which competes with
16 [Lancaster Pollard].” (the “Non-Competition Clause”). Declaration of Kenneth Gould (“Gould
17 Decl.”), ¶ 5. During the original two-year period, he is also subject to a restriction against
18 communicating with any client for the purpose of soliciting business and soliciting any then-current
19 Lancaster Pollard employees (collectively, the “Non-Solicitation Clause”). Id. While Lancaster
20 Pollard has unilaterally amended the length of the policies, such that the Non-Competition Clause now
21 expires three months post-termination, and the Non-Solicitation Clauses expire 12 months post-
22 termination, it has refused to alter them further.
23 Gould has had a successful career originating loans under Housing and Urban Development
24 (“HUD”) loan programs, which guarantee the loans made to for-profit and non-profit entities.
25 Recently, however, the market has shifted and to remain competitive in the HUD loan market, an
26 originator needs to provide “bridge” loans which provide financing until the approval, usually six to
27 nine months later, by HUD of the HUD loan. The bridge loans, often for acquisition purposes, require
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1 taking a balance sheet position, and hence, risk. Lancaster Pollard has refused to provide bridge loans
2 for most of Gould’s opportunities, rendering Lancaster Pollard uncompetitive with the companies that
3 do provide such bridge loans. Gould Decl., ¶¶ 11-12. Gould has accordingly been stifled in his
4 profession and has been unable to secure deals which have instead gone to other companies due to
5 Lancaster Pollard’s decision not to move with the market shift. This led to Gould resigning his
6 employment with Lancaster Pollard and seeking opportunities elsewhere with other employers. Gould
7 Decl., ¶ 14.
8 Gould relocated to California on September 25, 2019. He maintains his residence at 725 7th
9 Avenue, Santa Monica, California. Gould has an offer to begin employment at a California-based
10 company, working from California, which has informed Gould it will operate a business model distinct
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11 from Lancaster Pollard by taking balance sheet positions on bridge loans. Gould Decl., ¶ 16. Thus,
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12 Gould’s work for this new employer would be different than his work for Lancaster Pollard. However,
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13 despite Gould’s notice of resignation effective October 11, 2019, and notification that he sought a
14 waiver of the Non-Competition and Non-Solicitation Clause, Lancaster Pollard has steadfastly refused
15 to alter either the Non-Competition or Non-Solicitation Clause and has repeatedly dangled the threat
16 of enforcement against Gould. Gould Decl., ¶¶ 16-21.
17 Gould needs to move on with his career and get started with his new employer in California,
18 and just as importantly, be able to solicit those clients and employees necessary to proceed with the
19 business. Yet Gould cannot move forward with his offer absent this Court’s action. Gould Decl., ¶¶
20 26-27.
21 III. PLAINTIFF IS ENTITLED TO A PRELIMINARY INJUNCTION
22 A. Legal Standard
23 To determine whether a preliminary injunction will issue, courts must assess “two interrelated
24 factors”: (1) “the likelihood that the plaintiff will prevail on the merits at trial”; and (2) “the interim
25 harm that the plaintiff is likely to sustain if the [injunctive relief] were denied as compared to the harm
26 that the defendant is likely to suffer if the [injunction] were issued.” Church of Christ in Hollywood v.
27 Superior Court, 99 Cal. App. 4th 1244, 1251 (2002) (citations omitted). These factors are
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1 “interrelated” in that “[t]he more likely it is that plaintiffs will ultimately prevail, the less severe must
2 be the harm that they allege will occur if the injunction does not issue.” Right Site Coalition v. Los
3 Angeles Unified School Dist., 160 Cal. App. 4th 336, 338-339 (2008). Furthermore, “if the party
4 seeking the injunction can make a sufficiently strong showing of likelihood of success on the merits,
5 the trial court has discretion to issue the injunction notwithstanding that party’s inability to show that
6 the balance of harms tips in his favor.” Common Cause v. Board of Supervisors, 49 Cal. 3d 432, 441-
7 442 (1989).
8 B. Plaintiff is Likely to Prevail on the Merits
9 1. This Motion is Properly Decided by this Court
10 Defendants opposed Gould’s motion for a temporary restraining order, and indeed this entire
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11 action, as improper based on the argument that Plaintiff’s action constitutes an anti-suit injunction.
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12 However, nothing in this action (including this motion) seeks to enjoin any foreign court’s proceeding
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13 and accordingly violates no principle of comity. There was, as of the filing of this action, no filing in
14 any other court regarding this dispute. Nor has one been filed as of the date of this motion. Even if
15 such a case was filed, in no way would this Court be required by any principle of law to abstain from
16 ruling in this matter. See, e.g. Advanced Bionics Corp. v. Medtronic, Inc. 29 Cal.4th 697, 708, 709
17 (2002) (holding that where litigants ask two courts to rule on the same subject matter, neither court
18 should oust the other, and the two actions should proceed on parallel tracks: “The possibility that that
19 one action may lead to a judgment first and then be applied as res judicata in another action ‘is a natural
20 consequence of judicial proceedings in courts of concurrent jurisdiction.”’ (citation omitted)).
21 Defendants are well-aware of Advanced Bionics, having cited it in their Opposition to
22 Plaintiff’s ex parte application for a temporary restraining order (“Opposition”). Yet Defendants’ own
23 characterization of Advanced Bionics’ holding—“a California trial court could not issue a TRO
24 enjoining a Minnesota corporation (Medtronic) from proceeding in a parallel action filed in
25 Minnesota” (see Opposition at 5:3-5)—shows precisely why the case is irrelevant to Gould’s suit.
26 Gould is not asking this Court to stop any party nor any other court from taking any other action.
27 Rather, Gould is simply asking for an injunction precluding Defendants from enforcing restrictive
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1 covenants which are unenforceable in the State of California pending final resolution on the merits.
2 Given his California residence, pending California employment and the lack of any pending claim in
3 any other jurisdiction, if this Court stays its hand, there is no other forum which can currently provide
4 Gould the relief he seeks and, as shown infra, both entitled to and needs. Indeed, Defendants have
5 acknowledged in their Opposition that no action currently exists to vindicate Gould’s rights anywhere
6 else.1 Gould will have his claim heard here, or he will not have it heard at all.
7 There is no controlling authority for Defendants’ argument that any action in this Court
8 necessarily constitutes an anti-suit injunction: in fact, quite the contrary is true, even when a suit is
9 pending already in another jurisdiction. For example, in Rockefeller v. Focus et al., Judge Harold
10 Kahn granted plaintiffs’ motion for a preliminary injunction filed, as here, by a California resident
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11 seeking to start to work in California for a California-based company, finding that the old employer
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12 was “restrained and enjoined from directly or indirectly seeking to enforce its non-competition and
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13 non-solicitation restrictive covenants as to [employee] in California.” See Request for Judicial Notice,
14 Exh. 1 [Order Granting in Substantial Part Plaintiffs’ Motion for Preliminary Injunction] (“RNJ”).
15 Importantly, Judge Kahn’s finding held that the plaintiffs were not seeking an anti-suit injunction
16 against a concurrent Delaware lawsuit filed by the former employer, and specifically found that the
17 defendants could continue to litigate their case in a Delaware court should they choose to do so. Ibid.
18 Similarly, Defendants here are not be precluded from any action in any foreign court by a decision on
19 this motion, and their reliance on Advanced Bionics is meritless.
20 2. The Restrictive Covenants Are Void Under California Law
21 (a) The Non-Competition Clause is Unenforceable
22 As determined under California law, the Non-Competition Clause is flagrantly unenforceable
23 under Cal. Bus. & Prof. Code §16600; see Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937, 945
24 (2008). California has a strong public policy of protecting its citizens’ rights to pursue lawful
25 employment. See Hill Med. Corp. v. Wycoff, 86 Cal. App. 4th 895, 901 (2001) (“covenants not to
26 compete are void. . . to ensure that every citizen shall retain the right to pursue any lawful employment
27 1
See Opposition at 1:17-18. (“To be clear, Defendants do not know if they will seek to enforce their lawful contractual
rights outside of California.”).
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1 and enterprise of their choice”); see also Latona v. Aetna U.S. Healthcare Inc., 82 F. Supp. 2d 1089,
2 1093-94 (C.D. Cal. 1999) (collecting cases; employee non-compete agreement was facially invalid
3 and unenforceable). The purpose of Section 16600 is to “ensure that every citizen shall have the right
4 to pursue any lawful employment and enterprise of their choice.” Application Grp., Inc. v. Hunter
5 Grp., Inc., 61 Cal. App. 4th 881, 890 (1998).
6 Under Section 16600, “[a] former employee has the right to engage in a competitive business
7 for himself and to enter into competition with his employer, even for the business of those who have
8 been the customers of his former employer, provided such competition is fairly and legally
9 conducted.” See Scott v. Snelling & Snelling, Inc., 732 F. Supp. 1034, 1045-46 (N.D. Cal. 1990)
10 (granting partial motion for summary judgment where contractual covenants restricting competition
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11 were void as a matter of law; quoting Continental Car-Na-Var Corp. v. Moseley, 24 Cal. 2d 104, 110
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12 (1944)).
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13 Here, Gould resides within the state of California and will be directly involved in California-
14 based services for a California-based entity. Prohibiting his service is precisely what Section 16600
15 was intended to prevent.
16 (b) The Non-Solicitation Clauses are Unenforceable
17 In California, client non-solicitation clauses are similarly unenforceable. See Edwards, 44 Cal.
18 4th at 937 (holding customer non-solicitation clause invalid). Defendants’ Non-Solicitation Clause
19 violates California law by restricting Plaintiff’s ability to work with his clients and is unenforceable.
20 In Edwards, the court found the non-solicitation clause unenforceable where it “prohibited Edwards,
21 for a year after termination, from ‘soliciting,’ defined by the agreement as providing professional
22 services to any client of Andersen's Los Angeles office.” 44 Cal. 4th at 937. In Kolani v. Gluska, a
23 clause requiring an employee to not “solicit, interfere with, compete with in any manner or endeavor
24 to entice away . . . [any entity the company] actively engaged in sales promotion efforts” was
25 unenforceable as a prohibition on competition. 64 Cal. App. 4th 402, 405, 407 (1998).
26 Similarly, restrictions against non-solicitation of employees violate Section 16600. See, e.g.
27 AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., 28 Cal.App.5th 923 (Cal. Ct. App. 2018)
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1 (holding that employee non-solicitation covenants are generally void under Section 16600); Barker v.
2 Insight Glob., LLC, 2019 WL 176260, at *3 (N.D. Cal. Jan. 11, 2019) (holding that “California law is
3 properly interpreted post-Edwards to invalidate employee non-solicitation provisions”); WeRide Corp.
4 v. Kun Huang, 379 F. Supp. 3d 834 (N.D. Cal. 2019) (finding that a one-year post-employment
5 employee nonsolicitation clause is “is void under California law. Cal. Bus. & Prof. Code § 16600”).
6 The Non-Solicitation Clauses at issue in this matter are directly within the scope of those
7 proscribed by Section 16600. They cannot be enforced without running afoul of California law, and,
8 accordingly, are barred from enforcement.
9 3. California Law Governs This Dispute
10 Because the restrictive covenants are void under California law, the primary question is
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11 whether California law applies in the first place. Although the Non-Competition and Non-Solicitation
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12 Clauses from the Agreement signed in 2004 are ostensibly governed by Ohio law, Gould is now a
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13 California resident seeking to work in California for a California-based employer. Were Ohio law to
14 govern, the test applied by the Court would be one of reasonableness: “A covenant not to compete
15 which imposes unreasonable restrictions upon an employee will be enforced to the extent necessary
16 to protect the employer’s legitimate interests. A covenant restraining an employee from competing
17 with his former employer upon termination of employment is reasonable if it is no greater than is
18 required for the protection of the employer, does not impose undue hardship on the employee, and is
19 not injurious to the public.” Raimonde v. Van Vlerah, 42 Ohio St. 2d 21 (1975).
20 (a) Legal Framework
21 California courts ordinarily give effect to contractual choice of law provisions, unless they find
22 that such enforcement would be contrary to California’s fundamental policy, after determining: (1)
23 whether the chosen state has a “substantial relationship” to the parties or their transaction, and, if so,
24 (2) whether the chosen state’s law is contrary to a fundamental California policy and, if there is such
25 a conflict, (3) whether California has a materially greater interest in the dispute than the chosen state.
26 See Nedlloyd Lines B.V. v. Superior Court, 3 Cal.4th 459, 466 (1992) (citing Restatement (Second) of
27 Conflicts of Law, section 187). “If California has a materially greater interest than the chosen state,
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1 the choice of law shall not be enforced, for the obvious reason that we will decline to enforce a law
2 contrary to this state’s fundamental policy.” Id.; see also Verdugo v. Alliantgroup, L.P. 237
3 Cal.App.4th 141, 147-48 (2015) (declining to enforce Texas forum-selection clause in employment
4 agreement where Texas’s substantive law was contrary to California’s); Ruiz v. Affinity Logistics
5 Corporation, 667 F.3d 1318, 1323 (9th Cir. 2012).
6 (b) California Has a Materially Greater Interest than Ohio
7 Ohio law is contrary to California’s fundamental public policy in favor of employee mobility
8 and against restrictive covenants, as articulated in Section 16600 and elsewhere. Therefore, this
9 Court’s focus should be on California’s much stronger interest in the restrictive covenants. As stated
10 above, California rejects all non-competition clauses as a matter of public policy. See Cal. Bus. &
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11 Prof. Code §16600 (providing that “every contract by which anyone is restrained from engaging in a
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12 lawful profession, trade, or business of any kind is to that extent void.”). Indeed, California courts
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13 have decisively determined that § 16600 represents a fundamental public policy interest in California
14 that overrides contractual choice of law provisions. See, e.g., Scott, 732 F. Supp. at 1041 (applying
15 Section 16600 despite parties' contractual choice of Pennsylvania law); Application Grp., 61 Cal. App.
16 4th at 900 (applying Section 16600 despite parties' contractual choice of Maryland law); Stryker Sales
17 Corp. v. Zimmer Biomet, Inc., 231 F. Supp. 3d 606, 621 (E.D. Cal. 2017) (concluding that Michigan
18 law is "contrary to a fundamental policy of California, with respect to . . . the non-solicitation and non-
19 competition provisions . . . , to the extent such provisions restrain an individual from pursuing
20 employment or businesses of his choosing."); Arthur J. Gallagher & Co. v. Lang, No. C 14-0909 CW,
21 2014 WL 2195062, at *3 (N.D. Cal. May 23, 2014) (“Applying Illinois law to the parties' contract
22 would contravene California's fundamental public policy against the enforcement of non-competition
23 and non-solicitation agreements.”); Latona v. Aetna U.S. Healthcare Inc., 82 F. Supp. 2d 1089, 1093
24 (C.D. Cal. 1999).
25 As the court explained in Scott, California choice of law principles compel this result “because
26 of the strong public policy of California embodied in section 16600, the lack of an applicable statutory
27 exception to section 16600, and the broadly inclusive language of the statute.” Scott, 732 F. Supp. at
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MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFF’S MOTION FOR
PRELIMINARY INJUNCTION
1 1041; see also Gatsinaris v. ART Corp. Sols. Inc., No. SA CV 15-0741-DOC, 2015 WL 4208595, at
2 *12 (C.D. Cal. July 10, 2015) ("California public policy dictates that § 16600 applies" to a contract
3 despite the presence of a Colorado choice-of-law provision); Frame v. Merrill Lynch, Pierce, Fenner
4 & Smith, Inc., 20 Cal. App. 3d 668, 673 (1971) ("We conclude from the California Supreme Court's
5 treatment of the problem that section 16600 does represent a 'strong public policy' of this state.
6 Therefore, the agreement for application of New York law must not be allowed to defeat that policy.").
7 California's interest in enforcing section 16600 is so strong that in Application Group, Inc. v.
8 Hunter Group, Inc., the California Court of Appeals found, under a similar fact pattern, that California
9 law to governed an out-of-state non-compete agreement signed by an out-of-state employee who took
10 a new job with a California company, finding the contract invalid under section 16600. See
MCDERMOTT WILL & EMERY LLP
11 Application Grp., 61 Cal. App. 4th at 894-905.
ATTORNEYS AT LAW
12 Application Group is decisive with regard to the instant matter. In Application Group, the
SAN FRANCISCO
13 plaintiff, an individual who had no prior connection to California, sought declaratory judgment that a
14 covenant not to compete contained in an employment contract she signed with her former employer
15 while employed in Maryland was illegal in California and could not be enforced against her if she took
16 a job with a competitor in California. 61 Cal. App. 4th 881, 885 (1998). The parties disputed whether
17 the contract should be interpreted under Maryland law (per the choice of law provision in the cont
Preview
PANKIT J. DOSHI (SBN 231369) 1 pdoshi@mwe.com KATE SAGERS DE LA CRUZ (SBN 317747) 2 ELECTRONICALLY kdelacruz@mwe.com MCDERMOTT WILL & EMERY LLP F I L E D 3 415 Mission St Suite 5600 Superior Court of California, County of San Francisco San Francisco, CA 94105-2533 4 Telephone: +1 628 218 3800 11/26/2019 Facsimile: +1 628 877 0107 Clerk of the Court 5 BY: DAVID YUEN Deputy Clerk Attorneys for Plaintiff 6 KENNETH A. GOULD 7 SUPERIOR COURT OF THE STATE OF CALIFORNIA 8 COUNTY OF SAN FRANCISCO 9 KENNETH A. GOULD, an individual, CASE NO. CGC-19-580784 10 MEMORANDUM OF POINTS AND MCDERMOTT WILL & EMERY LLP 11 Plaintiff, AUTHORITIES IN SUPPORT OF v. PLAINTIFF’S MOTION FOR ATTORNEYS AT LAW 12 SAN FRANCISCO PRELIMINARY INJUNCTION 13 LANCASTER POLLARD & CO., a Delaware [Notice of Motion; Declarations of Kenneth A. limited liability company, ORIX REAL ESTATE Gould and Pankit J. Doshi; Request for Judicial 14 CAPITAL HOLDINGS, LLC, a Delaware limited Notice; [Proposed] Order Granting Motion for liability company, and DOES 1-10, inclusive, Preliminary Injunction, filed concurrently 15 herewith] 16 Defendants. Hearing: DATE: December 20, 2019 17 TIME: 9:30 a.m PST Reservation No. 011211220-10 18 JUDGE: Hon. Ethan P. Schulman DEPT: 302 19 20 21 22 23 24 25 26 27 28 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION 1 TABLE OF CONTENTS 2 Page I. Introduction ................................................................................................................................1 3 II. Facts ...........................................................................................................................................2 4 5 III. Plaintiff is Entitled to a Preliminary Injunction .........................................................................3 6 A. Legal Standard ...............................................................................................................3 7 B. Plaintiff is Likely to Prevail on the Merits.....................................................................4 8 1. This Motion is Properly Decided by this Court .................................................4 9 2. The Restrictive Covenants Are Void Under California Law .............................5 10 (a) The Non-Competition Clause is Unenforceable ....................................5 MCDERMOTT WILL & EMERY LLP 11 (b) The Non-Solicitation Clauses are Unenforceable ..................................6 ATTORNEYS AT LAW 12 SAN FRANCISCO 3. California Law Governs This Dispute ...............................................................7 13 (a) Legal Framework ...................................................................................7 14 (b) California Has a Materially Greater Interest than Ohio .........................8 15 (c) Defendants’ Remaining Arguments are Unpersuasive ........................10 16 C. The Balance of Harms Weighs Significantly in Plaintiff’s Favor ...............................11 17 IV. Conclusion ...............................................................................................................................13 18 19 20 21 22 23 24 25 26 27 28 -i- MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION 1 TABLE OF AUTHORITIES 2 Page(s) 3 Cases 4 Advanced Bionics Corp. v. Medtronic, Inc. 29 Cal.4th 697 (2002) ..................................................................................................................4, 5 5 American Motorcyclist Ass’n v. Watt, 6 714 F.2d 962 (9th Cir. 1983) .........................................................................................................11 7 AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., 28 Cal.App.5th 923 (Cal. Ct. App. 2018) ........................................................................................6 8 Application Group, Inc. v. Hunter Group, Inc, 9 61 Cal. App. 4th 881 (1998) ..............................................................................................6, 8, 9, 10 10 Arthur J. Gallagher & Co. v. Lang, No. C 14-0909 CW, 2014 WL 2195062 (N.D. Cal. May 23, 2014)................................................8 MCDERMOTT WILL & EMERY LLP 11 Barker v. Insight Glob., LLC, ATTORNEYS AT LAW 12 2019 WL 176260 (N.D. Cal. Jan. 11, 2019) ....................................................................................7 SAN FRANCISCO 13 Church of Christ in Hollywood v. Superior Court, 99 Cal. App. 4th 1244 (2002) ..........................................................................................................3 14 Common Cause v. Board of Supervisors, 15 49 Cal. 3d 432 (1989) ................................................................................................................4, 11 16 Contech Constr. Prod., Inc. v. Blumenstein, No. 1:11-cv-878, 2012 WL 2871425 (S.D. Ohio July 12, 2012) ..................................................11 17 Continental Car-Na-Var Corp. v. Moseley, 18 24 Cal. 2d 104 (1944) ......................................................................................................................6 19 Diodes, Inc. v. Franzen 260 Cal. App. 2d 244 (1968) .........................................................................................................10 20 Edwards v. Arthur Andersen LLP, 21 44 Cal. 4th 937 (2008) .................................................................................................................5, 6 22 Frame v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 20 Cal. App. 3d 668 (1971) .............................................................................................................9 23 Gatsinaris v. ART Corp. Sols. Inc., 24 No. SA CV 15-0741-DOC, 2015 WL 4208595 (C.D. Cal. July 10, 2015) .....................................9 25 Hilb, Rogal & Hamilton Ins. Servs. v. Robb, 33 Cal. App. 4th 1812 (1995) ........................................................................................................13 26 Hill Med. Corp. v. Wycoff, 27 86 Cal. App. 4th 895 (2001) ............................................................................................................5 28 - ii - MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION IT Corp. v. County of Imperial 1 35 Cal.3d 63 (1983) .......................................................................................................................11 2 Kolani v. Gluska, 64 Cal. App. 4th 402 (1998) ............................................................................................................6 3 Latona v. Aetna U.S. Healthcare Inc., 4 82 F. Supp. 2d 1089 (C.D. Cal. 1999) .........................................................................................6, 8 5 Lifestyle Improvement Centers, LLC v. East Bay Health, LLC, 2013 WL 5564144 (S.D. Ohio Oct. 7, 2013) .................................................................................11 6 Lilith Games (Shanghai) Co. v. uCool, Inc., 7 No. 15-CV-01267-SC, 2015 WL 5591612 (N.D. Cal. Sept. 23, 2015) .........................................11 8 Nedlloyd Lines B.V. v. Superior Court, 3 Cal.4th 459 (1992) ....................................................................................................................7, 8 9 Raimonde v. Van Vlerah, 10 42 Ohio St. 2d 21 (1975) .................................................................................................................7 MCDERMOTT WILL & EMERY LLP 11 Right Site Coalition v. Los Angeles Unified School Dist., 160 Cal. App. 4th 336 (2008) ..........................................................................................................4 ATTORNEYS AT LAW 12 SAN FRANCISCO Robbins v. Superior Court 13 38 Cal. 3d 199 (1985) ....................................................................................................................12 14 Robinson v. Jardine Ins. Brokers Int’l Ltd., 856 F. Supp. 554 (N.D. Cal. 1994) ................................................................................................13 15 Rockefeller Capital Management, LLC et al. v. Focus Financial Partners, LLC et al., 16 Case No. CGC-18- 568832 (Cal. Sup. Ct., County of San Francisco, October 31, 2018) ....................................................................................................................................5, 11, 13 17 Ruiz v. Affinity Logistics Corporation, 18 667 F.3d 1318 (9th Cir. 2012) .........................................................................................................8 19 Scott v. Snelling & Snelling, Inc., 732 F. Supp. 1034 (N.D. Cal. 1990) ............................................................................................6, 8 20 Stryker Sales Corp. v. Zimmer Biomet, Inc., 21 231 F. Supp. 3d 606 (E.D. Cal. 2017)..............................................................................................8 22 Verdugo v. Alliantgroup, L.P. 237 Cal.App.4th 141 (2015) ............................................................................................................8 23 WeRide Corp. v. Kun Huang, 24 379 F. Supp. 3d 834 (N.D. Cal. 2019) .............................................................................................7 25 Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7 (2008) ...........................................................................................................................11 26 Statutes 27 California Business & Professions Code Section 16600 ............................................................. passim 28 - iii - MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION Civ. Code § 3426.1(d) ..........................................................................................................................12 1 2 3 4 5 6 7 8 9 10 MCDERMOTT WILL & EMERY LLP 11 ATTORNEYS AT LAW 12 SAN FRANCISCO 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - iv - MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION 1 I. INTRODUCTION 2 Plaintiff Kenneth Gould (“Plaintiff” or “Gould”) brings this motion for a preliminary 3 injunction against Defendants Lancaster Pollard & Co. (“Lancaster Pollard”) and Orix Real Estate 4 Capital Holdings, LLC (“ORIX”) (collectively, “Defendants”) seeking an injunction against the 5 enforcement, in California, of unlawful restrictive employment covenants that violate California law. 6 The non-compete and non-solicit covenants in Gould’s employment agreement with 7 Defendants are void under California Business & Professions Code Section 16600. Thus, the ultimate 8 question presented by this motion is whether the covenants are subject to Section 16600 in the first 9 place, or are instead governed by Ohio law. If California law applies, there is no genuine doubt that 10 the covenants are void. MCDERMOTT WILL & EMERY LLP 11 Gould has a high likelihood of prevailing on the merits on the issue of the applicability of ATTORNEYS AT LAW 12 California law, because California has a materially greater interest than Ohio in the subject matter of SAN FRANCISCO 13 the covenants. This case is about a California citizen and resident’s freedom to work in California for 14 a new California-based employer, not the internal affairs or management of the out of state defendants. 15 Gould will suffer irreparable harm if Defendants are allowed, pending summary judgment or 16 trial, to enforce the covenants. It may be at least six months to a year before a final judgment is entered 17 in this case. If the unlawful covenants are enforced in the interim—which they will be, even absent 18 Defendants’ legal action, simply by threat to proceed—Gould will have no adequate remedy to 19 compensate for opportunities lost during that period. As long as the restrictive covenants remain 20 enforceable against Gould and Defendants continue to threaten enforcement of the covenants, both 21 Gould and his future employer will face the choice to either permit enforcement by inaction or to 22 breach the covenants and simply await Defendants’ actions—the precise choice California law 23 prevents employees from being forced to make. The foregone opportunities that Gould will miss out 24 on if he cannot undertake the full scope of his duties cannot be quantified in monetary terms, making 25 injunctive relief appropriate and necessary. Absent an injunction, Gould faces an untenable option: 26 forego fulfilling his duties for his new employer until this Court enters a final judgment on the merits 27 (by which time the restrictive covenants may have already expired and the opportunities for which 28 -1- MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION 1 Gould sought new employment long since defunct), or begin his new job under the oppressive and 2 distracting shadow of litigation over his right to work in California. Either way, both Gould and his 3 new employer will be harmed. Conversely, Defendants will suffer little, if any, harm if the covenants 4 are suspended: they can hardly be said to be harmed by this Court for simply following applicable 5 law. 6 Because Gould is likely to succeed on the merits and will suffer irreparable harm absent an 7 injunction, the Court should grant his motion for preliminary injunction. Only this Court, on this 8 motion, can vindicate the clearly-held rights of both a California resident and a California-based 9 employer via this motion. Gould urges this Court to do so before it is too late. 10 II. FACTS MCDERMOTT WILL & EMERY LLP 11 Gould was hired by Defendant Lancaster Pollard in June of 2004 subject to an employment ATTORNEYS AT LAW 12 agreement (the “Agreement”) which provides, inter alia a noncompetition clause restricting him for a SAN FRANCISCO 13 period of two years from termination from being “employed by, or participate in the ownership, 14 management, operation of, or be associated in any manner with, any business of the type and character 15 of business engaged in by the Corporation at the time of such termination which competes with 16 [Lancaster Pollard].” (the “Non-Competition Clause”). Declaration of Kenneth Gould (“Gould 17 Decl.”), ¶ 5. During the original two-year period, he is also subject to a restriction against 18 communicating with any client for the purpose of soliciting business and soliciting any then-current 19 Lancaster Pollard employees (collectively, the “Non-Solicitation Clause”). Id. While Lancaster 20 Pollard has unilaterally amended the length of the policies, such that the Non-Competition Clause now 21 expires three months post-termination, and the Non-Solicitation Clauses expire 12 months post- 22 termination, it has refused to alter them further. 23 Gould has had a successful career originating loans under Housing and Urban Development 24 (“HUD”) loan programs, which guarantee the loans made to for-profit and non-profit entities. 25 Recently, however, the market has shifted and to remain competitive in the HUD loan market, an 26 originator needs to provide “bridge” loans which provide financing until the approval, usually six to 27 nine months later, by HUD of the HUD loan. The bridge loans, often for acquisition purposes, require 28 -2- MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION 1 taking a balance sheet position, and hence, risk. Lancaster Pollard has refused to provide bridge loans 2 for most of Gould’s opportunities, rendering Lancaster Pollard uncompetitive with the companies that 3 do provide such bridge loans. Gould Decl., ¶¶ 11-12. Gould has accordingly been stifled in his 4 profession and has been unable to secure deals which have instead gone to other companies due to 5 Lancaster Pollard’s decision not to move with the market shift. This led to Gould resigning his 6 employment with Lancaster Pollard and seeking opportunities elsewhere with other employers. Gould 7 Decl., ¶ 14. 8 Gould relocated to California on September 25, 2019. He maintains his residence at 725 7th 9 Avenue, Santa Monica, California. Gould has an offer to begin employment at a California-based 10 company, working from California, which has informed Gould it will operate a business model distinct MCDERMOTT WILL & EMERY LLP 11 from Lancaster Pollard by taking balance sheet positions on bridge loans. Gould Decl., ¶ 16. Thus, ATTORNEYS AT LAW 12 Gould’s work for this new employer would be different than his work for Lancaster Pollard. However, SAN FRANCISCO 13 despite Gould’s notice of resignation effective October 11, 2019, and notification that he sought a 14 waiver of the Non-Competition and Non-Solicitation Clause, Lancaster Pollard has steadfastly refused 15 to alter either the Non-Competition or Non-Solicitation Clause and has repeatedly dangled the threat 16 of enforcement against Gould. Gould Decl., ¶¶ 16-21. 17 Gould needs to move on with his career and get started with his new employer in California, 18 and just as importantly, be able to solicit those clients and employees necessary to proceed with the 19 business. Yet Gould cannot move forward with his offer absent this Court’s action. Gould Decl., ¶¶ 20 26-27. 21 III. PLAINTIFF IS ENTITLED TO A PRELIMINARY INJUNCTION 22 A. Legal Standard 23 To determine whether a preliminary injunction will issue, courts must assess “two interrelated 24 factors”: (1) “the likelihood that the plaintiff will prevail on the merits at trial”; and (2) “the interim 25 harm that the plaintiff is likely to sustain if the [injunctive relief] were denied as compared to the harm 26 that the defendant is likely to suffer if the [injunction] were issued.” Church of Christ in Hollywood v. 27 Superior Court, 99 Cal. App. 4th 1244, 1251 (2002) (citations omitted). These factors are 28 -3- MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION 1 “interrelated” in that “[t]he more likely it is that plaintiffs will ultimately prevail, the less severe must 2 be the harm that they allege will occur if the injunction does not issue.” Right Site Coalition v. Los 3 Angeles Unified School Dist., 160 Cal. App. 4th 336, 338-339 (2008). Furthermore, “if the party 4 seeking the injunction can make a sufficiently strong showing of likelihood of success on the merits, 5 the trial court has discretion to issue the injunction notwithstanding that party’s inability to show that 6 the balance of harms tips in his favor.” Common Cause v. Board of Supervisors, 49 Cal. 3d 432, 441- 7 442 (1989). 8 B. Plaintiff is Likely to Prevail on the Merits 9 1. This Motion is Properly Decided by this Court 10 Defendants opposed Gould’s motion for a temporary restraining order, and indeed this entire MCDERMOTT WILL & EMERY LLP 11 action, as improper based on the argument that Plaintiff’s action constitutes an anti-suit injunction. ATTORNEYS AT LAW 12 However, nothing in this action (including this motion) seeks to enjoin any foreign court’s proceeding SAN FRANCISCO 13 and accordingly violates no principle of comity. There was, as of the filing of this action, no filing in 14 any other court regarding this dispute. Nor has one been filed as of the date of this motion. Even if 15 such a case was filed, in no way would this Court be required by any principle of law to abstain from 16 ruling in this matter. See, e.g. Advanced Bionics Corp. v. Medtronic, Inc. 29 Cal.4th 697, 708, 709 17 (2002) (holding that where litigants ask two courts to rule on the same subject matter, neither court 18 should oust the other, and the two actions should proceed on parallel tracks: “The possibility that that 19 one action may lead to a judgment first and then be applied as res judicata in another action ‘is a natural 20 consequence of judicial proceedings in courts of concurrent jurisdiction.”’ (citation omitted)). 21 Defendants are well-aware of Advanced Bionics, having cited it in their Opposition to 22 Plaintiff’s ex parte application for a temporary restraining order (“Opposition”). Yet Defendants’ own 23 characterization of Advanced Bionics’ holding—“a California trial court could not issue a TRO 24 enjoining a Minnesota corporation (Medtronic) from proceeding in a parallel action filed in 25 Minnesota” (see Opposition at 5:3-5)—shows precisely why the case is irrelevant to Gould’s suit. 26 Gould is not asking this Court to stop any party nor any other court from taking any other action. 27 Rather, Gould is simply asking for an injunction precluding Defendants from enforcing restrictive 28 -4- MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION 1 covenants which are unenforceable in the State of California pending final resolution on the merits. 2 Given his California residence, pending California employment and the lack of any pending claim in 3 any other jurisdiction, if this Court stays its hand, there is no other forum which can currently provide 4 Gould the relief he seeks and, as shown infra, both entitled to and needs. Indeed, Defendants have 5 acknowledged in their Opposition that no action currently exists to vindicate Gould’s rights anywhere 6 else.1 Gould will have his claim heard here, or he will not have it heard at all. 7 There is no controlling authority for Defendants’ argument that any action in this Court 8 necessarily constitutes an anti-suit injunction: in fact, quite the contrary is true, even when a suit is 9 pending already in another jurisdiction. For example, in Rockefeller v. Focus et al., Judge Harold 10 Kahn granted plaintiffs’ motion for a preliminary injunction filed, as here, by a California resident MCDERMOTT WILL & EMERY LLP 11 seeking to start to work in California for a California-based company, finding that the old employer ATTORNEYS AT LAW 12 was “restrained and enjoined from directly or indirectly seeking to enforce its non-competition and SAN FRANCISCO 13 non-solicitation restrictive covenants as to [employee] in California.” See Request for Judicial Notice, 14 Exh. 1 [Order Granting in Substantial Part Plaintiffs’ Motion for Preliminary Injunction] (“RNJ”). 15 Importantly, Judge Kahn’s finding held that the plaintiffs were not seeking an anti-suit injunction 16 against a concurrent Delaware lawsuit filed by the former employer, and specifically found that the 17 defendants could continue to litigate their case in a Delaware court should they choose to do so. Ibid. 18 Similarly, Defendants here are not be precluded from any action in any foreign court by a decision on 19 this motion, and their reliance on Advanced Bionics is meritless. 20 2. The Restrictive Covenants Are Void Under California Law 21 (a) The Non-Competition Clause is Unenforceable 22 As determined under California law, the Non-Competition Clause is flagrantly unenforceable 23 under Cal. Bus. & Prof. Code §16600; see Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937, 945 24 (2008). California has a strong public policy of protecting its citizens’ rights to pursue lawful 25 employment. See Hill Med. Corp. v. Wycoff, 86 Cal. App. 4th 895, 901 (2001) (“covenants not to 26 compete are void. . . to ensure that every citizen shall retain the right to pursue any lawful employment 27 1 See Opposition at 1:17-18. (“To be clear, Defendants do not know if they will seek to enforce their lawful contractual rights outside of California.”). 28 -5- MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION 1 and enterprise of their choice”); see also Latona v. Aetna U.S. Healthcare Inc., 82 F. Supp. 2d 1089, 2 1093-94 (C.D. Cal. 1999) (collecting cases; employee non-compete agreement was facially invalid 3 and unenforceable). The purpose of Section 16600 is to “ensure that every citizen shall have the right 4 to pursue any lawful employment and enterprise of their choice.” Application Grp., Inc. v. Hunter 5 Grp., Inc., 61 Cal. App. 4th 881, 890 (1998). 6 Under Section 16600, “[a] former employee has the right to engage in a competitive business 7 for himself and to enter into competition with his employer, even for the business of those who have 8 been the customers of his former employer, provided such competition is fairly and legally 9 conducted.” See Scott v. Snelling & Snelling, Inc., 732 F. Supp. 1034, 1045-46 (N.D. Cal. 1990) 10 (granting partial motion for summary judgment where contractual covenants restricting competition MCDERMOTT WILL & EMERY LLP 11 were void as a matter of law; quoting Continental Car-Na-Var Corp. v. Moseley, 24 Cal. 2d 104, 110 ATTORNEYS AT LAW 12 (1944)). SAN FRANCISCO 13 Here, Gould resides within the state of California and will be directly involved in California- 14 based services for a California-based entity. Prohibiting his service is precisely what Section 16600 15 was intended to prevent. 16 (b) The Non-Solicitation Clauses are Unenforceable 17 In California, client non-solicitation clauses are similarly unenforceable. See Edwards, 44 Cal. 18 4th at 937 (holding customer non-solicitation clause invalid). Defendants’ Non-Solicitation Clause 19 violates California law by restricting Plaintiff’s ability to work with his clients and is unenforceable. 20 In Edwards, the court found the non-solicitation clause unenforceable where it “prohibited Edwards, 21 for a year after termination, from ‘soliciting,’ defined by the agreement as providing professional 22 services to any client of Andersen's Los Angeles office.” 44 Cal. 4th at 937. In Kolani v. Gluska, a 23 clause requiring an employee to not “solicit, interfere with, compete with in any manner or endeavor 24 to entice away . . . [any entity the company] actively engaged in sales promotion efforts” was 25 unenforceable as a prohibition on competition. 64 Cal. App. 4th 402, 405, 407 (1998). 26 Similarly, restrictions against non-solicitation of employees violate Section 16600. See, e.g. 27 AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., 28 Cal.App.5th 923 (Cal. Ct. App. 2018) 28 -6- MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION 1 (holding that employee non-solicitation covenants are generally void under Section 16600); Barker v. 2 Insight Glob., LLC, 2019 WL 176260, at *3 (N.D. Cal. Jan. 11, 2019) (holding that “California law is 3 properly interpreted post-Edwards to invalidate employee non-solicitation provisions”); WeRide Corp. 4 v. Kun Huang, 379 F. Supp. 3d 834 (N.D. Cal. 2019) (finding that a one-year post-employment 5 employee nonsolicitation clause is “is void under California law. Cal. Bus. & Prof. Code § 16600”). 6 The Non-Solicitation Clauses at issue in this matter are directly within the scope of those 7 proscribed by Section 16600. They cannot be enforced without running afoul of California law, and, 8 accordingly, are barred from enforcement. 9 3. California Law Governs This Dispute 10 Because the restrictive covenants are void under California law, the primary question is MCDERMOTT WILL & EMERY LLP 11 whether California law applies in the first place. Although the Non-Competition and Non-Solicitation ATTORNEYS AT LAW 12 Clauses from the Agreement signed in 2004 are ostensibly governed by Ohio law, Gould is now a SAN FRANCISCO 13 California resident seeking to work in California for a California-based employer. Were Ohio law to 14 govern, the test applied by the Court would be one of reasonableness: “A covenant not to compete 15 which imposes unreasonable restrictions upon an employee will be enforced to the extent necessary 16 to protect the employer’s legitimate interests. A covenant restraining an employee from competing 17 with his former employer upon termination of employment is reasonable if it is no greater than is 18 required for the protection of the employer, does not impose undue hardship on the employee, and is 19 not injurious to the public.” Raimonde v. Van Vlerah, 42 Ohio St. 2d 21 (1975). 20 (a) Legal Framework 21 California courts ordinarily give effect to contractual choice of law provisions, unless they find 22 that such enforcement would be contrary to California’s fundamental policy, after determining: (1) 23 whether the chosen state has a “substantial relationship” to the parties or their transaction, and, if so, 24 (2) whether the chosen state’s law is contrary to a fundamental California policy and, if there is such 25 a conflict, (3) whether California has a materially greater interest in the dispute than the chosen state. 26 See Nedlloyd Lines B.V. v. Superior Court, 3 Cal.4th 459, 466 (1992) (citing Restatement (Second) of 27 Conflicts of Law, section 187). “If California has a materially greater interest than the chosen state, 28 -7- MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION 1 the choice of law shall not be enforced, for the obvious reason that we will decline to enforce a law 2 contrary to this state’s fundamental policy.” Id.; see also Verdugo v. Alliantgroup, L.P. 237 3 Cal.App.4th 141, 147-48 (2015) (declining to enforce Texas forum-selection clause in employment 4 agreement where Texas’s substantive law was contrary to California’s); Ruiz v. Affinity Logistics 5 Corporation, 667 F.3d 1318, 1323 (9th Cir. 2012). 6 (b) California Has a Materially Greater Interest than Ohio 7 Ohio law is contrary to California’s fundamental public policy in favor of employee mobility 8 and against restrictive covenants, as articulated in Section 16600 and elsewhere. Therefore, this 9 Court’s focus should be on California’s much stronger interest in the restrictive covenants. As stated 10 above, California rejects all non-competition clauses as a matter of public policy. See Cal. Bus. & MCDERMOTT WILL & EMERY LLP 11 Prof. Code §16600 (providing that “every contract by which anyone is restrained from engaging in a ATTORNEYS AT LAW 12 lawful profession, trade, or business of any kind is to that extent void.”). Indeed, California courts SAN FRANCISCO 13 have decisively determined that § 16600 represents a fundamental public policy interest in California 14 that overrides contractual choice of law provisions. See, e.g., Scott, 732 F. Supp. at 1041 (applying 15 Section 16600 despite parties' contractual choice of Pennsylvania law); Application Grp., 61 Cal. App. 16 4th at 900 (applying Section 16600 despite parties' contractual choice of Maryland law); Stryker Sales 17 Corp. v. Zimmer Biomet, Inc., 231 F. Supp. 3d 606, 621 (E.D. Cal. 2017) (concluding that Michigan 18 law is "contrary to a fundamental policy of California, with respect to . . . the non-solicitation and non- 19 competition provisions . . . , to the extent such provisions restrain an individual from pursuing 20 employment or businesses of his choosing."); Arthur J. Gallagher & Co. v. Lang, No. C 14-0909 CW, 21 2014 WL 2195062, at *3 (N.D. Cal. May 23, 2014) (“Applying Illinois law to the parties' contract 22 would contravene California's fundamental public policy against the enforcement of non-competition 23 and non-solicitation agreements.”); Latona v. Aetna U.S. Healthcare Inc., 82 F. Supp. 2d 1089, 1093 24 (C.D. Cal. 1999). 25 As the court explained in Scott, California choice of law principles compel this result “because 26 of the strong public policy of California embodied in section 16600, the lack of an applicable statutory 27 exception to section 16600, and the broadly inclusive language of the statute.” Scott, 732 F. Supp. at 28 -8- MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION 1 1041; see also Gatsinaris v. ART Corp. Sols. Inc., No. SA CV 15-0741-DOC, 2015 WL 4208595, at 2 *12 (C.D. Cal. July 10, 2015) ("California public policy dictates that § 16600 applies" to a contract 3 despite the presence of a Colorado choice-of-law provision); Frame v. Merrill Lynch, Pierce, Fenner 4 & Smith, Inc., 20 Cal. App. 3d 668, 673 (1971) ("We conclude from the California Supreme Court's 5 treatment of the problem that section 16600 does represent a 'strong public policy' of this state. 6 Therefore, the agreement for application of New York law must not be allowed to defeat that policy."). 7 California's interest in enforcing section 16600 is so strong that in Application Group, Inc. v. 8 Hunter Group, Inc., the California Court of Appeals found, under a similar fact pattern, that California 9 law to governed an out-of-state non-compete agreement signed by an out-of-state employee who took 10 a new job with a California company, finding the contract invalid under section 16600. See MCDERMOTT WILL & EMERY LLP 11 Application Grp., 61 Cal. App. 4th at 894-905. ATTORNEYS AT LAW 12 Application Group is decisive with regard to the instant matter. In Application Group, the SAN FRANCISCO 13 plaintiff, an individual who had no prior connection to California, sought declaratory judgment that a 14 covenant not to compete contained in an employment contract she signed with her former employer 15 while employed in Maryland was illegal in California and could not be enforced against her if she took 16 a job with a competitor in California. 61 Cal. App. 4th 881, 885 (1998). The parties disputed whether 17 the contract should be interpreted under Maryland law (per the choice of law provision in the cont