Seychelles Organics, Inc. v. John Rose
682 F. App'x 605
| 9th Cir. | 2017Background
- Seychelles Organics sued John R. Rose and later entered a Settlement Agreement including a 25-year, worldwide non‑compete covering certain hormonal supplement markets.
- Seychelles moved in district court for an order to show cause to hold Rose (and non‑signatories Alcantar, Anumed International, and Esparza) in contempt for violating that non‑compete.
- The district court denied the motion, concluding the non‑compete provision was invalid and therefore unenforceable.
- Seychelles appealed, arguing the court improperly modified its prior judgment without notice and that the covenant was enforceable as ancillary to the sale of goodwill or as an equitable/contempt remedy.
- The Ninth Circuit had to decide (1) whether Seychelles was entitled to a due process hearing before the court declined to enforce the clause, and (2) whether the non‑compete was legally enforceable and/or enforceable by contempt or equitable relief.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the court violate due process by "sua sponte" modifying its injunction without notice or hearing? | Seychelles: Court effectively modified injunction and thus owed notice and a hearing. | Rose/District: Court did not modify an injunction; it declined to enforce an invalid injunction and acted in response to Seychelles’ motion. | Court: No due process violation; injunction was invalid so no hearing required and the order responded to Seychelles’ motion. |
| Was the non‑compete ancillary to a sale of goodwill (thus reasonable) or a naked restraint? | Seychelles: Covenant is ancillary to sale and a reasonable restraint on trade. | Rose/District: Covenant arose from settlement, not sale; it is a naked restraint meant only to protect Seychelles from competition. | Court: Covenant is a naked restraint under Arizona law and therefore invalid. |
| Even if analyzed under the rule of reason, is a 25‑year, worldwide restraint reasonable? | Seychelles: The scope is reasonable and enforceable. | Rose/District: Duration and worldwide scope are unreasonably broad. | Court: Unreasonably broad; 25 years worldwide is not reasonably limited and thus invalid. |
| Could the court enforce the covenant via contempt sanction or equitable remedy despite contractual invalidity? | Seychelles: Court could enforce clause as contempt or equitable remedy. | Rose/District: Enforcement requires a finding of contempt or breach; none was made and the clause is invalid. | Court: No; absent a contempt finding or breach, and given invalidity, the court lacked power to enforce the clause as sanction or equitable relief. |
Key Cases Cited
- Armstrong v. Brown, 768 F.3d 975 (9th Cir.) (courts must give affected parties notice and opportunity to be heard before modifying injunctions)
- Hampton Tree Farms, Inc. v. Yeutter, 956 F.2d 869 (9th Cir.) (once an injunction is invalidated rights under it cease to exist)
- Jeff D. v. Andrus, 899 F.2d 753 (9th Cir.) (settlement‑agreement construction governed by local contract law)
- Valley Med. Specialists v. Farber, 982 P.2d 1277 (Ariz. 1999) (naked restraints are per se invalid under Arizona law)
- Gann v. Morris, 596 P.2d 43 (Ariz. Ct. App.) (non‑competes must be reasonably limited as to time and territory)