Blue Mountain Enterprises v. Owen CA1/1
A157054
| Cal. Ct. App. | Jan 10, 2022Background
- In April 2011 Owen contributed his HVAC/real-estate related companies (the “Blue Mountain Entities”) to a newly formed LLC, Blue Mountain Enterprises, LLC, receiving 100% membership interests; four related contracts (Contribution Agreement, Membership Interest Purchase Agreement, Operating Agreement, Employment Agreement) were executed as part of a single joint-venture transaction.
- On April 26, 2011 Acolyte (a Meyer affiliate) bought 50% of Blue Mountain for $16.5 million; Owen became CEO and executed an Employment Agreement that included a three-year post-termination covenant not to solicit Blue Mountain customers or employees.
- Owen was terminated for cause on April 20, 2016; in August 2016 he formed Silvermark and in June 2017 sent a targeted announcement to past/potential clients (naming ex-employees) that led to Silvermark bidding for work from former Blue Mountain customers.
- Blue Mountain sued for breach of contract (nonsolicitation) and other claims, obtained TRO and a preliminary injunction, moved for summary adjudication on the breach-of-customer-nonsolicitation claim, and secured a permanent injunction through April 20, 2019 (end of the three-year restraint).
- The trial court granted summary adjudication finding the Silvermark letter was a solicitation as a matter of law, awarded Blue Mountain contractual attorney fees (~$596,000 plus costs), and entered judgment; Owen appealed.
Issues
| Issue | Plaintiff's Argument (Blue Mountain) | Defendant's Argument (Owen) | Held |
|---|---|---|---|
| Enforceability under Cal. Bus. & Prof. Code §16601 (sale/disposition exception to §16600) | Section 16601 applies because Owen disposed of all his business interests when he contributed the Blue Mountain Entities to Blue Mountain LLC as part of a single integrated transaction, so Blue Mountain may enforce the nonsolicitation covenant. | Owen says he did not "sell or otherwise dispose of all" his interests—he only later sold 50% to Acolyte and initially retained membership interests—so §16601 does not apply. | Held: §16601 applies. The court treated the April 2011 contracts as an integrated transaction; Owen conveyed all operating interests to Blue Mountain LLC and thus "disposed" of them for §16601 purposes. |
| Whether the Silvermark letter was a "solicitation" (actionable) or mere announcement (nonactionable) | The targeted, individualized announcement to past customers and employees invited future business and touted Silvermark as a superior alternative—this constitutes solicitation as a matter of law. | Owen contends the mailing was only an announcement/advertisement and thus nonactionable. | Held: The letter was solicitation as a matter of law—targeted, individualized appeals to former customers crossed the Aetna/Sacks line into solicitation. |
| Procedural propriety of summary adjudication on the customer-solicitation breach when other contract breaches remained | Blue Mountain could seek summary adjudication on the customer-solicitation component because the complaint combined distinct wrongful acts that implicate separate primary rights. | Owen argued summary adjudication could not dispose of part of a single cause of action under CCP §437c(f)(1). | Held: Proper. The court applied Lilienthal: customer solicitation and employee solicitation implicate separate primary rights, so partial summary adjudication was permitted. |
| Award of contractual attorney fees—who was prevailing party and was award reasonable | Blue Mountain prevailed on the core contract enforcement objective (injunctive relief enforcing nonsolicitation) and thus was the prevailing party under Civ. Code §1717; fees awarded were reduced by the trial court for unrelated work and applied local rates. | Owen argued Blue Mountain achieved only a meager victory after pursuing many claims and that the fee award was excessive and insufficiently apportioned. | Held: Trial court did not abuse discretion. Blue Mountain was the prevailing party; the court reasonably apportioned and reduced fees and the award was not excessive. |
Key Cases Cited
- Strategix, Ltd. v. Infocrossing West, Inc., 142 Cal.App.4th 1068 (2006) (discusses §16601 purchaser/seller goodwill exception)
- Aetna Building Maintenance Co. v. West, 39 Cal.2d 198 (1952) (defines solicitation vs. mere announcement)
- American Credit Indemnity Co. v. Sacks, 213 Cal.App.3d 622 (1989) (letter to former customers constituted solicitation as a matter of law)
- Hilb, Rogal & Hamilton Ins. Servs. v. Robb, 33 Cal.App.4th 1812 (1995) (sale/disposition and placement of covenant in employment contract analyzed under §16601)
- Lilienthal & Fowler v. Superior Court, 12 Cal.App.4th 1848 (1993) (a complaint may combine separate causes; summary adjudication may address distinct wrongful acts)
- Duffey v. Tender Heart Home Care Agency, LLC, 31 Cal.App.5th 232 (2019) (standards for summary judgment/adjudication review)
- Scott Co. v. Blount, Inc., 20 Cal.4th 1103 (1999) (prevailing party determination under Civ. Code §1717)
- Hsu v. Abbara, 9 Cal.4th 863 (1995) (how to compare parties' success to determine prevailing party under §1717)