Fillpoint, LLC v. Maas
146 Cal. Rptr. 3d 194
Cal. Ct. App.2012Background
- Maas sold Crave stock to Handleman in 2005 under a securities Purchase Agreement that included a 36‑month covenant not to compete.
- Maas also signed a Crave employment agreement, dated 11/22/2005, containing a one‑year noncompetition and nonsolicitation covenant and an integration clause.
- Maas resigned Crave in 2008 after satisfying the 36‑month purchase covenant; about six months later he began working for Solutions 2 Go, a Crave competitor.
- Fillpoint acquired Crave’s assets in 2009 and Crave assigned the Maas employment agreement to Fillpoint.
- Fillpoint filed suit for breach of the employment covenant and for tortious interference with the employment agreement; the trial court granted nonsuit, holding the covenants in the two agreements were separate and that the employment covenant was unenforceable under Bus. & Prof. Code §16600, with the employment covenant potentially assignable.
- The court concluded the purchase and employment agreements must be read together as a single integrated transaction, and that the combined covenants render the employment covenant unenforceable under California law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Must the purchase and employment agreements be read together as a single transaction? | Fillpoint asserts integration; two covenants should be read together. | Maas argues separate documents should be read independently. | Yes; read together as an integrated agreement. |
| Is the employment covenant not to compete enforceable under §16600/16601 when read with the purchase covenant? | Employment covenant should be enforceable under the 16601 exception. | Employment covenant is unenforceable under §16600 and not saved by 16601. | No; the employment covenant is unenforceable. |
| Does §16601 apply to the employment covenant given the single transaction? | 16601 applies to protect goodwill from the sale. | 16601 does not justify enforcement of the broader employee covenant. | No; §16601 does not rescue the employment covenant. |
| Are the nonsolicitation terms in the employment covenant permissible? | Nonsolicitation supports protecting goodwill. | Nonsolicitation is too broad and conflicts with public policy. | Too broad; not enforceable. |
Key Cases Cited
- Hilb, Rogal & Hamilton Ins. Servs. v. Robb, 33 Cal.App.4th 1812 (Cal. Ct. App. 1995) (location of covenant within contract not dispositive; covenant enforceable when part of sale/merger transaction)
- Strategix, Ltd. v. Infocrossing West, Inc., 142 Cal.App.4th 1068 (Cal. Ct. App. 2006) (16601 protects goodwill; limited to sale of business; covenants must be within transaction’s framework)
- Vacco Indus., Inc. v. Van Den Berg, 5 Cal.App.4th 34 (Cal. Ct. App. 1992) (noncompete agreements evaluated where cross-reference among documents varies; limited relevance here)
- Alliant Ins. Servs., Inc. v. Gaddy, 159 Cal.App.4th 1292 (Cal. Ct. App. 2008) (two covenants identical; not controlling for differing covenants in separate documents)
- Hill Med. Corp. v. Wycoff, 86 Cal.App.4th 895 (Cal. Ct. App. 2001) (limits of using 16601; transaction must clearly fall within narrow exception)