Court Opinion

ID: 4153440
Source: CourtListenerOpinion
Date Created: 2017-03-16 20:01:02.154096+00
Date Added: 2024-06-11T14:34:06.759625
License: Public Domain

FILED
                           NOT FOR PUBLICATION
                                                                             MAR 16 2017
                    UNITED STATES COURT OF APPEALS                       MOLLY C. DWYER, CLERK
                                                                           U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

SEYCHELLES ORGANICS, INC., a                     No.   15-15814
Delaware corporation,
                                                 D.C. No. 2:11-cv-01746-FJM
              Plaintiff-Appellant,

 v.                                              MEMORANDUM*

JOHN R. ROSE; ANUMED
INTERNATIONAL, LLC; MARIA
ESPARZA,

              Defendants-Appellees.

                    Appeal from the United States District Court
                             for the District of Arizona
                   Frederick J. Martone, District Judge, Presiding

                             Submitted March 14, 2017
                             San Francisco, California

Before: TROTT, WARDLAW, and GOULD, Circuit Judges.

      Seychelles Organics, Inc. (“Seychelles”) appeals the district court’s denial of

its motion to show cause why John R. Rose (“Rose”), Julie Alcantar, Anumed

International, LLC, and Maria Esparza should not be held in contempt for allegedly

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
violating a 25-year non-compete clause in the Settlement Agreement between

Seychelles and Rose. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we

affirm.

      1.     Seychelles argues that the district court violated its procedural due

process rights by “sua sponte modifying its prior judgment” without providing

notice or a hearing. See Armstrong v. Brown, 768 F.3d 975, 979–80 (9th Cir.

2014) (court modifying injunction must “provide the affected party with notice and

an opportunity to be heard”). However, the district court did not modify the

injunction, but rather declined to enforce it because the injunction was invalid.

Seychelles thus was not entitled to a due process hearing. “[O]nce an injunction in

a civil case has been invalidated, rights granted under the injunction no longer exist

and cannot be enforced.” Hampton Tree Farms, Inc. v. Yeutter, 956 F.2d 869, 871

(9th Cir. 1992). Moreover, the district court did not issue its order sua sponte, as

Seychelles claims. Rather, it issued it in response to Seychelles’ motion for an

order to show cause. The district court was not required to provide advance notice

as to the precise reason it was denying the motion.

      2.     The district court did not err in holding that the section of the

Settlement Agreement containing the non-compete clause was invalid and legally

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unenforceable.1 Seychelles argues that the non-compete clause was a reasonable

restraint on trade ancillary to the sale of the goodwill of a business. However, the

provision barring Rose from competing worldwide for 25 years in the markets for

certain hormonal supplements was unrelated to the sale of Rose’s businesses.

Instead, it was part of the settlement of Seychelles’ legal claims. The covenant not

to compete thus does not further any “legitimate interest beyond [Seychelles’]

desire to protect itself from competition.” Valley Med. Specialists v. Farber, 982
P.2d 1277, 1281 (Ariz. 1999). Accordingly, the restraint is naked rather than

ancillary. See Restatement (Second) of Contracts § 187 cmt. b (Am. Law Inst.

1981) (“A promise made subsequent to the transaction or relationship is not

ancillary to it.”). Naked restraints like the one here are per se invalid under

Arizona contract law. Valley Med. Specialists, 982 P.2d at 1281; see also

Restatement (Second) of Contracts § 187 (“A promise to refrain from competition

that imposes a restraint that is not ancillary to an otherwise valid transaction or

relationship is unreasonably in restraint of trade.”).

      1
        Although Alcantar, Anumed International and Esparza were not parties to
the settled lawsuit and are not signatories to the Settlement Agreement, to the
extent the non-compete clause is unenforceable as to Rose, it is also unenforceable
as to them.

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      Even if the rule of reason applied, the covenant would be invalid because it

is unreasonably broad in scope. A 25-year, worldwide non-compete agreement is

not “reasonably limited as to time and territory,” see Gann v. Morris, 596 P.2d 43,

44 (Ariz. Ct. App. 1979), and no case cited by Seychelles is to the contrary.

      3.     “The construction and enforcement of settlement agreements are

governed by principles of local law which apply to interpretation of contracts

generally.” Jeff D. v. Andrus, 899 F.2d 753, 759 (9th Cir. 1989). Because the non-

compete clause was invalid under Arizona contract law, the district court lacked

power to enforce that clause in the Settlement Agreement.

      Seychelles’ arguments that the court had authority to enforce the clause as a

contempt sanction or equitable remedy lack merit. The predicate for a contempt

sanction is a finding of contempt. The predicate for an equitable remedy is a

finding of breach. The district court made neither of these findings, and nothing in

the Stipulated Judgment indicates that it viewed its ruling as a sanction or remedy.

      AFFIRMED.

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