969 F.3d 219
5th Cir.2020Background
- Six Dimensions hired Lynn Brading in 2014; she signed a 2014 employment agreement with a two‑year nonsolicitation clause and agreed to sign a June 2015 "Termination Certification" reiterating the same restriction.
- Brading left Six Dimensions in June 2015 for Perficient and solicited Six Dimensions employees; seven employees (including Aaron Price) ultimately moved to Perficient.
- Price retained Six Dimensions training materials on a thumb drive after resigning; he testified he kept them to benefit Perficient but did not upload or provide them to Perficient.
- Six Dimensions sued Brading and Perficient for breach of contract, unfair competition (California UCL), tortious interference, unjust enrichment, and trade‑secret misappropriation. The district court granted summary judgment finding breaches of both the 2014 and 2015 agreements, later reconsidered and held the 2014 nonsolicit void under California law but left the 2015 breach finding in place based on waiver; a jury found no misappropriation and awarded damages for the 2015 breach.
- The Fifth Circuit reversed only the portion of the judgment holding Brading breached the 2015 agreement (finding the district court misapplied its discretion regarding waiver and failed to apply California law consistently), and otherwise affirmed the district court’s rulings (including that California law voids the nonsolicitation provisions and rejection of UCL extraterritorial application and denial of a new trial on trade‑secret claims).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of nonsolicitation provisions (2014 & 2015) under California law | Nonsolicit provisions are reasonable and enforceable to protect employer interests | Section 16600 voids restraints on engaging in a lawful profession; Edwards governs | Court held California law (Edwards) likely voids these nonsolicitation provisions; affirmed district court’s conclusion that 2014 clause is unenforceable and applied same analysis to 2015 |
| Whether 2015 Termination Certification was separately enforceable / waived defenses | 2015 agreement was a separate, enforceable contract and defendants failed to timely challenge it | Brading argued 2015 was part of 2014 or, if separate, invalid under same law; also argued waiver enforcement was improper | Court found district court abused its discretion by relying on waiver to enforce 2015 without giving Brading fair notice/opportunity; reversed the judgment awarding damages for 2015 breach |
| Application of California UCL extraterritorially | UCL applies because choice‑of‑law clause and prior California connections justify California law and UCL relief | UCL has a presumption against extraterritorial application; no alleged misconduct or injury occurred in California here | Court affirmed district court: UCL was not applied—Six Dimensions failed to show conduct or injury in California sufficient to overcome the presumption against extraterritorial application |
| Trade‑secret misappropriation (acquisition theory) — new trial request | Evidence (Price’s retention, statements to Sumner, possession while at Perficient) showed Perficient acquired secrets; verdict against great weight | Perficient argued no evidence it ever received, used, or caused acquisition while Price was an employee; jury instructions and evidence supported defense | Court affirmed denial of new trial: there was not an "absolute absence of evidence" for the jury’s verdict that Perficient did not acquire/misappropriate the materials |
Key Cases Cited
- Edwards v. Arthur Andersen LLP, 189 P.3d 285 (Cal. 2008) (California Supreme Court: Section 16600 bars restraints on engaging in a lawful profession; nonsolicitation/competition restrictions are void unless an exception applies)
- AMN Healthcare, Inc. v. Aya Healthcare Servs., Inc., 239 Cal. Rptr. 3d 577 (Cal. Ct. App. 2018) (intermediate appellate court held employee‑nonsolicitation clause void post‑Edwards)
- Loral Corp. v. Moyes, 219 Cal. Rptr. 836 (Cal. Ct. App. 1985) (pre‑Edwards decision upholding employee nonsolicit clause; court found later decisions undermine Moyes)
- Norwest Mortg., Inc. v. Superior Court, 72 Cal. App. 4th 214 (Cal. Ct. App. 1999) (framework discussing when UCL may be applied to out‑of‑state plaintiffs/injuries)
- Sullivan v. Oracle Corp., 254 P.3d 237 (Cal. 2011) (California Supreme Court presumption against extraterritorial application of the UCL)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (U.S. 1986) (summary judgment standard—genuine dispute for trial exists if reasonable jury could return verdict for nonmovant)
- Whitehead v. Food Max of Miss., Inc., 163 F.3d 265 (5th Cir. 1998) (standard for new trial—verdict should be set aside only if against the great weight of the evidence)