Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_07-cv-00546/USCOURTS-caed-2_07-cv-00546-2/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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Even though Defendants received notice of the TRO motion and 1

when it was scheduled for hearing, they neither responded to the TRO

motion nor appeared at the scheduled TRO hearing.

1

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

HAIR CLUB FOR MEN, LLC, a Delaware )

limited liability company, )

) 2:07-cv-546-GEB-KJM

Plaintiff, )

)

v. ) ORDER

)

ELITE SOLUTIONS HAIR ALTERNATIVES, )

INC., a California corporation; )

DANIELLE EATON, an individual; and )

TINA MOSKAL, an individual, )

)

Defendants. )

)

Plaintiff’s motion for a preliminary injunction was argued

on April 4, 2007. Plaintiff was granted an ex parte temporary

restraining order (“TRO”) on March 22, 2007. Plaintiff seeks a 1

preliminary injunction enjoining its former employees, Defendants

Eaton and Moskal (“the stylists”), from soliciting Plaintiff’s

customers, servicing Plaintiff’s former customers whom the stylists

allegedly solicited to be customers of Defendant Elite Solutions (the

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The parties appeared to agree at the preliminary injunction 2

hearing that Elite Solutions is approximately fifteen miles from

Plaintiff’s business location.

2

stylists’ new employer) and disclosing and/or retaining in their

possession Plaintiff’s customer list. Plaintiff seeks a preliminary

injunction enjoining Defendant Eaton from working within a twenty mile

radius of Plaintiff’s business as a hair restoration stylist.2

Plaintiff also seeks a preliminary injunction enjoining Elite

Solutions from disclosing Plaintiff’s customer list. Plaintiff’s

complaint alleges breach of contract claims against the stylists for

their alleged breach of non-competition agreements, and claims of

misappropriation of trade secrets and unfair competition against all

Defendants. (Compl. ¶¶ 43-76.)

BACKGROUND

The stylists were previously employed by Plaintiff as hair

restoration stylists. (Ward Decl. ¶¶ 3, 4.) As part of this

employment the stylists signed a non-competition agreement with

Plaintiff. (Id.) The non-competition agreement which Eaton signed

prohibited her from directly or indirectly competing with Plaintiff’s

business within a radius of twenty miles of Plaintiff’s business

establishment. (Compl. Ex. 1 at ¶ 1(b).) The stylists quit their

jobs at Plaintiff’s business in January 2007, following which they

began working for Defendant Elite Solutions. (Id. ¶¶ 5,6; Long Decl.

¶¶ 7, 8.) 

Plaintiff submits declarations from customers who declare

the stylists solicited them to leave Plaintiff’s business and become

customers of Elite for hair replacement services. (Faris Decl. ¶ 4;

Ryan Decl. ¶ 5.) In addition, Plaintiff submits declarations from

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some of Plaintiff’s employees who declare that either Plaintiff’s

customers or the stylists informed them that the stylists contacted

Plaintiff’s customers and asked the customers to leave Plaintiff’s

business and to start receiving hair replacement services at Elite. 

(Litwinenco Decl. ¶ 2; Rencehausen Decl. ¶ 2; Cate Decl. ¶¶ 3, 6, 8,

10-11.) 

Defendants submit declarations from some of Plaintiff’s

former customers who now receive hair replacement services at Elite. 

Many of these customers declare the stylists announced that they were

now working at Elite and “did not attempt to solicit . . . business

for Elite Solutions.” (Provan Decl. ¶ 4; Nelson Decl. ¶ 4; Rutz Decl.

¶ 3; Salmone Decl. ¶ 4; Parker Decl. ¶ 3; Lewis Decl. ¶ 3; Vernarecci

Decl. ¶ 5; Lenci Decl. ¶ 4; Goodwin Decl. ¶ 3; Frey Decl. ¶ 5; Garcia

Decl. ¶ 3; Pendelton Decl. ¶ 3; Morgan Decl. ¶ 4; Eure Decl. ¶ 5;

Kingsbury Decl. ¶ 5.)

DISCUSSION

I. Standard

To obtain a preliminary injunction, Plaintiff must show

“either a likelihood of success on the merits and the possibility of

irreparable injury, or that serious questions going to the merits were

raised and the balance of hardships tips sharply in its favor.” 

Immigrant Assistance Project of the L.A. County Fed’n of Labor v. INS,

306 F.3d 842, 873 (9th Cir. 2002). 

II. Past Misappropriation

A. Serious Questions Going to the Merits

Defendants argued at the April 4 preliminary injunction

hearing, that notwithstanding Plaintiff’s declarations indicating

Defendants engaged in improper solicitation, Defendants merely

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announced their job change, which does not constitute improper

solicitation, and only contacted customers who had given the stylists

their telephone number. Plaintiff countered that customer contact

information the stylists received while at Plaintiff’s business was

property that belongs to Plaintiff.

Defendants also argue they have discredited Plaintiff’s

declarations which supports Plaintiff’s position on improper

solicitation through the evidence Defendants submitted. But

Defendants neither controvert Jim Ryan’s declaration that he did not

give his phone number to Defendants to enable Defendants to contact

him about transferring his business to Elite Solutions, nor his

averment that Moskal solicited him to leave Plaintiff’s business. 

(Ryan Decl. ¶¶ 5-8.)

Misappropriation is the:

Disclosure or use of a trade secret of another

without express or implied consent by a person who

. . . At the time of disclosure or use, knew or

had reason to know that his or her knowledge of

the trade secret was . . . Acquired under

circumstances giving rise to a duty to maintain

its secrecy or limit its use.

Cal. Civ. Code § 3426.1.

Defendants do not dispute that Plaintiff’s customer list

constitutes a trade secret which they agreed to not disclose. (Defs.’

Opp’n at 6:19-20.) However, Defendants argue the stylists did not

misappropriate Plaintiff’s customer list by merely announcing their

job change to customers even though they used phone numbers they

received during the course of their employment with Plaintiff. (Id.

at 6:20-22, 7:26-8:4.) At the hearing, Plaintiff argued that even if

customers provided their contact information to the stylists, since

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they received it by virtue of the stylists’ employment, the stylists

were not permitted to initiate contact with the customers.

“Merely informing customers of one’s former employer of a

change of employment, without more, is not solicitation. Neither does

the willingness to discuss business upon invitation of another party

constitute solicitation on the part of the invitee.” Hilb, Rogal &

Hamilton Ins. Servs. v. Robb, 33 Cal. App. 4th 1812, 1821 (1995). 

“[T]he right to announce a new affiliation, even to trade secret

clients of a former employer, is basic to an individual’s right to

engage in fair competition.” Id. “However, misappropriation occurs

if information from a customer database is used to solicit customers.” 

MAI Sys. Corp. v. Peak Computer, 991 F.2d 511, 521 (9th Cir. 1993) In

addition, “[e]verything which an employee acquires by virtue of

[their] employment . . . belongs to the employer.” Cal. Lab. Code §

2860.

Plaintiff has submitted sufficient evidence to raise serious

questions going to the merits as to whether the stylists engaged in

impermissible solicitation when using telephone numbers provided to

them in the course of their employment to contact Plaintiff’s

customers, and when explaining to Plaintiff’s customers the benefits

of the services provided by Elite Solutions. 

B. Balance of Hardships

Defendants argued at the hearing that the issuance of a

preliminary injunction mirroring the TRO should not issue because it

would impose significant hardship on Defendants. Defendants argued

that an injunction would have a much more devastating impact on

Defendants than denial would have on Plaintiff because it would cause

Defendants to lose a significant portion of their clients. In

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addition, Defendants assert an injunction would leave customers

without a hair replacement stylist and that the customers should be

permitted to remain with the stylists whom they have established a

relationship. Plaintiff rejoins it will lose over $65,000 in annual

revenue from the loss of these customers who are now receiving

services at Elite. (Pl.’s Reply at 10:6-8.) 

Although Plaintiff has presented some evidence of the

hardship it will sustain if an injunction prohibiting Defendants from

servicing those customers allegedly improperly solicited is denied,

Plaintiff has not shown the balance of hardships on this matter “tips

sharply in its favor.” Therefore, this portion of Plaintiff’s motion

for a preliminary injunction is denied. 

However, Plaintiff has shown it faces great hardships if

Defendants are not enjoined from “continued illegal solicitation of

both stylists and customers.” (Pl.’s Reply at 10:9-11.) Plaintiff’s

argument that this solicitation “will further affect the financial

stability and viability of the Sacramento facility, and [that] a

failure of that facility will have a detrimental affect on the good

will of the Company as a whole” is persuasive. (Id.) Defendants do

not counter Plaintiff on these points. Defendants have not shown that

they would suffer hardship if they were enjoined from initiating

contact with Plaintiff’s stylists and former customers. 

III. Twenty Mile Radius

Eaton argues the provision prohibiting her from working as a

hair replacement stylist within twenty miles of Plaintiff’s business

is an illegal restraint on trade and therefore, unenforceable under

California law. (Defs.’ Opp’n at 9:18-19.) Plaintiff asserts

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covenants not to compete are enforceable to protect the employer’s

trade secrets. (Pl.’s Mot. at 13:21-26.)

The general rule in California is that “every contract by

which anyone is restrained from engaging in a lawful profession,

trade, or business of any kind is to that extent void.” Cal. Bus. &

Prof. Code § 16600 (“Section 16600”). “[Section 16600] invalidates

provisions in employment contracts prohibiting an employee from

working for a competitor after completion of his employment or

imposing a penalty if he does so, unless they are necessary to protect

the employer’s trade secrets.” D’Sa v. Playhut, 85 Cal. App. 4th 927,

934 (2000). 

Both parties agree the clause prohibiting Eaton from

competing with Plaintiff’s business is a restraint on her ability to

engage in her profession. At issue is whether it is an impermissible

restraint on trade or whether it is necessary to protect Plaintiff’s

trade secrets. At the hearing, Plaintiff argued enforcement of the

twenty mile radius was necessary to protect Plaintiff’s trade secrets

because it prevented Eaton from impermissibly soliciting Plaintiff’s

customers. Plaintiff further argued enforcement was necessary to

protect Plaintiff from competition.

Narrow restraints which prohibit employees “from using

confidential information taken from the former employer, have been

held to be lawful.” Kolani v. Gluska, 64 Cal. App. 4th 402, 407

(1998). However, “an outright prohibition on competition . . . is

void.” Id. Plaintiff has not shown the twenty mile radius provision

is necessary to protect its trade secrets and therefore, this portion

of Plaintiff’s motion for a preliminary injunction is denied. See Id.

(holding that a forty mile prohibition on the employee competing with

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the employer was not necessary to prevent misappropriation of customer

information and was unenforceable). 

IV. Injunction

Defendants argued at the preliminary injunction hearing that

if a preliminary injunction issues, it should be narrow and specific

in its terms. Since, Plaintiff has raised serious questions going to

the merits and has shown that the balance sharply tips in its favor,

the following preliminary injunction issues:

(a) Ms. Eaton and any of her agents, servants, employees and

attorneys, and all those persons in active concert or participation

with any of them who receive actual notice of this Order by personal

service or otherwise are enjoined from:

(i) Initiating telephonic contact with any current Hair

Club customers or stylists with whom Defendants worked or learned of

during the course of their employment with Hair Club for the purpose

of purchasing or obtaining products, services or licenses related to

Hair Club’s business, other than for or on behalf of Hair Club; 

(ii) Directly or indirectly revealing, disclosing or

publishing, or authorizing anyone else to reveal, disclose or publish

Hair Club’s client lists and lead lists to any person, firm,

corporation or other entity, or directly or indirectly using, or

authorizing anyone else to use, this information for any reason or

purpose whatsoever, other than as expressly authorized by Hair Club;

and retaining possession of originals or copies of documents and/or

records of any nature in her possession, custody or control which

belong to Hair Club or relate to Hair Club’s client lists and lead

lists, whether or not such information was produced by her own

efforts.

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(b) Ms. Moskal and any of her agents, servants, employees and

attorneys, and all those persons in active concert or participation

with any of them who receive actual notice of this Order by personal

service or otherwise are enjoined from:

(i) Initiating telephonic contact with any current Hair

Club customers or stylists with whom Defendants worked or learned of

during the course of their employment with Hair Club for the purpose

of purchasing or obtaining, services or licenses related to Hair

Club’s business, other than for or on behalf of Hair Club; 

(ii) Directly or indirectly revealing, disclosing or

publishing, or authorizing anyone else to reveal, disclose or publish

Hair Club’s client lists and lead lists to any person, firm,

corporation or other entity, or directly or indirectly using, or

authorizing anyone else to use, this information for any reason or

purpose whatsoever, other than as expressly authorized by Hair Club

and retaining possession of originals or copies of documents and/or

records of any nature in her possession, custody or control which

belong to Hair Club or relate to Hair Club’s client lists and lead

lists, whether or not such information was produced by her own

efforts.

(c) Elite Solutions and any of its officers, agents, servants,

employees and attorneys, and all those persons in active concert or

participation with any of them who receive actual notice of this Order

by personal service or otherwise are enjoined from:

(i) Directly or indirectly revealing, disclosing or

publishing, or authorizing anyone else to reveal, disclose or publish

Hair Club’s client lists and lead lists to any person, firm,

corporation or other entity, or directly or indirectly using, or

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authorizing anyone else to use, this information for any reason or

purpose whatsoever, other than as expressly authorized by Hair Club.

Hair Club has posted a corporate surety bond in the amount

of $10,000 as security for the payment of such damages as any person

may be entitled to recover as a result of a wrongful restraint

hereunder. 

IT IS SO ORDERED.

Dated: April 5, 2007

 

GARLAND E. BURRELL, JR.

United States District Judge

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