964 F. Supp. 2d 1050
D. Ariz.2013Background
- Plaintiff Unisource Worldwide, Inc. sued former employees Chung, Newton, and Moore and others for breach of restrictive covenants and related tort/Covenant claims.
- Defendants Chung, Newton, and Moore were UGS employees who signed non-competition, non-solicitation, and non-recruitment covenants as part of employment.
- Plaintiff alleged Counts 1 (non-compete), 2 (non-solicit), 3 (non-recruitment), 4 (return of property), 5 (confidentiality), 7 (duty of loyalty), 10 (AUTSA misappropriation), 11 (tortious interference), 12 (civil conspiracy), and 13 (business defamation); Defendants moved for judgment on the pleadings on Counts 1, 2, 3, 11, and 12.
- Court addressed AUTSA preemption and whether Counts 1–3 and 11–12 were preempted or enforceable, permitted amendment, and reserved ruling on Counts 2 and 3 to proceed.
- Court held that Count 1 (non-competition) is facially unreasonable and granted judgment on the pleadings as to Count 1; Counts 2 and 3 (non-solicitation and non-recruitment) survive at the pleadings stage with limitations; Counts 11 and 12 (tortious interference and civil conspiracy) are preempted to the extent they rely on misappropriation under AUTSA, with allowance for amendment to narrow non-preempted theories.
- Plaintiff granted leave to file a third amended complaint to address preemption and pleading standards by August 26, 2013.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| AUTSA preemption scope for Counts 11–12 | Counts 11–12 fall outside AUTSA misappropriation. | AUTSA preempts claims based on misappropriation; broader preemption applies. | Broad AUTSA preemption applies to Counts 11–12. |
| Non-solicitation and non-recruitment enforceability | Covenants are reasonable restrictions to protect legitimate interests. | Covenants are vague/overbroad and unenforceable. | Counts 2 and 3 survive at pleading stage; further factual development needed. |
| Non-competition enforceability | Covenant necessary to protect legitimate interests; other covenants cover interests. | Non-compete overly broad and unnecessary given other covenants. | Count 1 invalid on its face; granted in favor of Defendants. |
| Blue-pencil/severability of covenants | Blue-pencil could save reasonable parts. | Cannot narrow the non-compete to salvage enforceability. | Blue-pencil cannot save the facially unreasonable non-competition covenant. |
Key Cases Cited
- Cousins v. Lockyer, 568 F.3d 1063 (9th Cir. 2009) (standard for Rule 12 dismissal applied to pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (S. Ct. 2009) (legal conclusions not entitled to presumption of truth)
- Valley Med. Specialists v. Farber, 982 P.2d 1277 (Ariz. 1999) (restrictive covenants disfavored; reasonableness required)
- Bryceland v. Northey, 772 P.2d 36 (Ariz. Ct. App. 1989) (reasonableness and legitimate interests limit covenants)
- Prudential Ins. Co. v. Pochiro, 736 P.2d 1180 (Ariz. Ct. App. 1983) (trade secret protections and preemption considerations)