Court Opinion

ID: 9782683
Source: CourtListenerOpinion
Date Created: 2023-08-30 19:04:33.758283+00
Date Added: 2024-06-11T12:27:51.838592
License: Public Domain

Filed 8/30/23 Frazer v. Rendon CA4/3

                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     FOURTH APPELLATE DISTRICT

                                                 DIVISION THREE

 FRAZER, LLP,

      Plaintiff and Appellant,                                         G061846

           v.                                                          (Super. Ct. No. 30-2019-01119773)

 LUIS A. RENDON,                                                       OPINION

      Defendant and Respondent.

                   Appeal from a judgment of the Superior Court of Orange County, Melissa
R. McCormick, Judge. Affirmed.
                   Atkinson, Andelson, Loya, Ruud & Romo, Edward C. Ho, Daniel M.
Hargis and Mae G. Alberto for Plaintiff and Appellant.
                   Snell & Wilmer, Jeffrey M. Singletary and Jing (Jenny) Hua for Defendant
and Respondent.
                                             *               *               *
                Generally, “every contract by which anyone is restrained from engaging in
a lawful profession, trade, or business of any kind is to that extent void.” (Bus. & Prof.
                  1
Code, § 16600.) However, a limited exception allows a former partner to “agree that he
or she will not carry on a similar business within a specified geographic area where the
partnership business has been transacted.” (§ 16602, subd. (a), italics added.)
                Frazer, LLP (Frazer) is an accounting firm that sued its former partner Luis
A. Rendon. Frazer alleged Rendon breached two clauses in the Frazer partnership
agreement: a noncompete clause (by doing accounting work for former Frazer clients)
and a nonsolicitation clause (by hiring a Frazer employee).
                Rendon filed a motion for summary adjudication arguing the partnership
agreement provisions are void as a matter of law because the noncompete clause does not
specify a geographic area, and the nonsolicitation clause violates California’s public
“policy in favor of open competition and employee mobility.” (Edwards v. Arthur
Andersen LLP (2008) 44 Cal.4th 937, 945–946 (Edwards).)
                The trial court granted Rendon’s motion for summary adjudication. We
agree with the trial court’s ruling and affirm the judgment.

                                               I
                      FACTS AND PROCEDURAL BACKGROUND
                In 2011, Rendon signed Frazer’s partnership agreement (the relevant
clauses will be covered later in this opinion). Frazer is an accounting firm headquartered
in Anaheim, California. Frazer provides accounting services to clients located in
California, as well as other states and countries.
                In 2019, the Frazer partnership terminated Rendon’s partnership status
following an internal investigation.

1
    Further undesignated statutory references are to the Business and Professions Code.

                                              2
Court Proceedings
              Frazer later filed a complaint against Rendon for breach of contract and
related causes of action. Frazer claimed Rendon: A) breached its noncompete clause by
doing accounting services for former Frazer clients (seeking about $2.6 million in
damages); and B) breached its nonsolicitation clause by hiring a Frazer employee
(seeking about $60,000 in damages).
              Rendon filed a cross-complaint against Frazer for breach of contract and
declaratory relief. Rendon alleged Frazer wrongfully denied him pay and benefits
(seeking about $1.4 million in damages).
              Frazer and Rendon filed motions for summary adjudication. The trial court
denied Frazer’s motion and granted Rendon’s motion. In a written ruling, the court stated
its reasoning as follows:
              “The broadly worded noncompete clause prevents Rendon for a period of
five years after leaving the partnership from soliciting or performing work for anyone
who has been a Frazer client within the prior five years, unless Rendon pays Frazer ‘an
amount of 150% of whatever the . . . client was billed by Frazer’ in the year before the
partner left. The noncompetition provision does not contain a territorial limitation as
required by section 16602. [¶] The broadly worded nonsolicitation clause prevents
Rendon for a period of five years after leaving the partnership from soliciting or hiring
any Frazer employee, unless Rendon ‘pay[s] a toll equal to 30% of the annualize salary’
of the employee for the one year before the employee leaves Frazer. [¶] The
noncompetition and nonsolicitation provisions exceed the allowable scope of sections
16600 and 16602. The provisions are unenforceable.”
              Frazer filed a timely appeal from the trial court’s granting of Rendon’s
motion for summary adjudication (the parties settled the remaining causes of action and
filed a stipulated entry of judgment to facilitate appellate review).

                                              3
                                               II
                                        DISCUSSION
              “A party may move for summary adjudication as to one or more causes of
action . . . if the party contends that the cause of action has no merit . . . .” (Code Civ.
Proc., § 437c, subd. (f)(1).) “Summary adjudication works the same way as summary
judgment, ‘except it acts on specific causes of action . . . , rather than on the entire
complaint.’” (Oroville Hospital v. Superior Court (2022) 74 Cal.App.5th 382, 398.)
              “A trial court properly grants summary judgment where no triable issue of
material fact exists and the moving party is entitled to judgment as a matter of law.”
(Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 476.) On appeal, we review the record
de novo, considering the evidence set forth in the moving papers. (Artiglio v. Corning
Inc. (1998) 18 Cal.4th 604, 612.)
              In this opinion, we affirm the trial court’s ruling regarding: A) the client
noncompete clause, and B) the employee nonsolicitation clause.

A. The Client Noncompete Clause
              Frazer claims the trial court improperly found the client noncompete clause
is not enforceable and the court should have rewritten (blue penciled) its noncompete
clause to include the required geographic limitation. We disagree.
              In this part of the discussion, we will: 1) review relevant principles of law;
2) quote Frazer’s client noncompete clause; and 3) analyze the facts as applied to the law.

              1. Relevant Principles of Law
              Generally, noncompete agreements are void under section 16600.
(Advanced Bionics Corp. v. Medtronic, Inc. (2002) 29 Cal.4th 697, 706 [“California has a
strong interest in protecting its employees from noncompetition agreements”].) “Except
as provided in this chapter, every contract by which anyone is restrained from engaging

                                               4
in a lawful profession, trade, or business of any kind is to that extent void.” (§ 16600.)
              A statutory exception (for partnership agreements) provides in full as
follows: “Any partner may, upon or in anticipation of any of the circumstances described
in subdivision (b), agree that he or she will not carry on a similar business within a
specified geographic area where the partnership business has been transacted, so long as
any other member of the partnership, or any person deriving title to the business or its
goodwill from any such other member of the partnership, carries on a like business
therein.” (§ 16602, subd. (a), italics added.) “Subdivision (a) applies to either of the
following circumstances: [¶] (1) A dissolution of the partnership. [¶] (2) Dissociation
of the partner from the partnership.” (§ 16602, subd. (b).)
              Ordinarily, “ambiguities in written agreements are to be construed against
their drafters.” (Sandquist v. Lebo Auto., Inc. (2016) 1 Cal.5th 233, 247.) In order to
enforce a partnership noncompete agreement under section 16602, the agreement itself
“must clearly establish that it falls within this limited exception.” (Hill Medical Corp. v.
Wycoff (2001) 86 Cal.App.4th 895, 903 (Wycoff).) A noncompete clause in a partnership
agreement will be enforced only “to the extent that it is reasonable and necessary in terms
of time, activity and territory.” (See Monogram Industries, Inc. v. Sar Industries, Inc.
(1976) 64 Cal.App.3d 692, 698, italics added.)

              2. Frazer’s Client Noncompete Clause
              Frazer’s client noncompete clause provides, in relevant part: “As a material
part of the compensation arrangement . . . each Partner upon the cessation of the Partner
status of such Partner (‘Former Partner’), will not . . . solicit or otherwise perform
accounting services for any Person who was a client of the Partnership within a five (5)-
year period ending on the date the Partner became a Former Partner (‘Partnership
Client’), during the Restricted Period [five years].
              “Notwithstanding the preceding provisions . . . the Former Partner will be

                                              5
relieved from such restriction with respect to a Partnership Client if, at the beginning of
the Former Partner’s . . . subsequent engagement with such Partnership Client, the
Former Partner pays to the Partnership an amount (‘Restricted Buyout Amount’) equal to
[150 percent] of the Partnership Client billings . . . for the one (1)-year period ending on
the date the Partner became a Former Partner (“Restriction Buyout Percentage”).”

              3. Analysis and Application
              Noncompete agreements are presumptively void under California law.
However, there is a limited exception allowing a partner to “agree that he or she will not
carry on a similar business within a specified geographic area where the partnership
business has been transacted.” (§ 16602, subd. (a), italics added.)
              Frazer’s noncompete clause does not specify a geographic area within
which Rendon was prohibited from carrying on an accounting business. Indeed, Frazer’s
broad noncompetition clause essentially prohibited Rendon from soliciting or performing
accounting services for former Frazer clients literally anywhere. In short, we find the
Frazer client noncompete clause to be facially invalid under the plain terms of section
16602. (See Wycoff, supra, 86 Cal.App.4th at p. 903 [in order to uphold a noncompete
agreement, the terms of the contract “must clearly establish that it falls within this limited
exception”].) Thus, we affirm the trial court’s ruling granting Rendon’s motion for
summary adjudication regarding the noncompete clause.
              Frazer primarily relies on Swenson v. File (1970) 3 Cal.3d 389 (Swenson),
to support its notion that its noncompete clause is enforceable even though it does not
contain a territorial limitation. But Swenson is distinguishable because the California
Supreme Court was interpreting and applying an earlier version of section 16602, which
is markedly different from section 16602 as it exists today.
              In Swenson, a retired partner from a Los Angeles County accounting firm
opened up his own accounting practice in a different part of the county. (Swenson, supra,

                                              6
3 Cal.3d at p. 391.) The plaintiff (partnership) sued the defendant (retired partner) for
breaching a covenant not to compete. The covenant at issue provided: “‘The retired
partner will not render service to a client which is or has been a client of the partnership
within the last three years prior to the retirement of the retiring partner.’” (Ibid.) Another
covenant (not at issue) provided: “‘The retired partner will not render service to a client
which has its principal office within a radius of twenty miles from any partnership office
which existed on the date of his retirement . . . .’” (Id. at p. 392.) When the partnership
agreement was executed, section 16602 provided: “‘Partners may, upon or in
anticipation of a dissolution of the partnership, agree that none of them will carry on a
similar business within the same city or town or a specified part thereof, where the
partnership business has been transacted.’” (Id. at p. 392, italics added.)
              As to the disputed covenant, the Swenson opinion held: “On its face . . . the
covenant would be invalid in its entirety, since it forbids defendant from serving former
partnership clients without regard to territorial limits.” (Swenson, supra, 3 Cal.3d at p.
395.) “However, section 16602 does not invalidate that covenant in its entirety, for under
section 16600 a contract in restraint of trade is only ‘to that extent void.’ Thus, the rule
of severability may be invoked to uphold defendant’s covenant to the extent that it falls
within the limits permitted by section 16602.” (Ibid., italics added.) The Court
concluded the covenant “may be upheld to the extent that serving such clients would also
constitute, under former section 16602, ‘carrying on’ an accounting business within the
Cities of Pasadena or Azusa, where the partnership offices are located.” (Ibid., italics
added.) The Court ultimately found the defendant had not breached the covenant because
he did not do business with former clients in Pasadena or Azusa. (Id. at p. 397.)
              Here, just as in Swenson, the client noncompete clause is facially invalid
because it forbids Rendon from soliciting or performing accounting services for “former
partnership clients without regard to territorial limits.” (Swenson, supra, 3 Cal.3d at p.
395.) However, unlike Swenson, a trial court cannot invoke the doctrine of severability

                                              7
to uphold the Frazer noncompete clause “to the extent that it falls within the limits
permitted by section 16602.” (Ibid.) This is because section 16602 no longer includes
territorial limits that may be judicially imposed (i.e., “the same city or town or a specified
part thereof”). (Swenson, at p. 392.) Section 16602 now requires the parties to specify
the territorial limits within the terms of their agreement: “Any partner may . . . agree that
he or she will not carry on a similar business within a specified geographic area where
                                                                             2
the partnership business has been transacted . . . .” (§ 16602, subd. (a).)
              Frazer really does not dispute that its noncompete clause does not specify a
geographic area as required by the statute. (See § 16602, subd. (a).) Rather, Frazer
argues the trial court was required to have rewritten (blue penciled) the noncompete
clause “‘to include reasonable limitations.’” We disagree.
              “In the construction of a statute or instrument, the office of the Judge is
simply to ascertain and declare what is in terms or in substance contained therein, not to
insert what has been omitted, or to omit what has been inserted . . . .” (Code Civ. Proc.,
§ 1858, italics added.) “Where a contract has several distinct objects, of which one at
least is lawful, and one at least is unlawful, in whole or in part, the contract is void as to
the latter and valid as to the rest.” (Civ. Code, § 1599.)
              The doctrine of severability “‘preserves and enforces any lawful portion of
the parties’ contract that feasibly may be severed.’” (Baeza v. Superior Court (2011) 201
Cal.App.4th 1214, 1230, italics added.) The severability “doctrine is equitable and fact
specific, and its application is appropriately directed to the sound discretion of the . . .
trial courts in the first instance.” (Marathon Entertainment, Inc. v. Blasi (2008) 42

2
  Given the realities of modern business communications (pdf documents, Internet access,
e-mail, etc.), it is possible that the statutory requirement for “a specified geographic area”
may be somewhat antiquated. (See § 16602, subd. (a).) But it is not the job of the
judicial branch to update and amend statutes. (See Burden v. Snowden (1992) 2 Cal.4th
556, 562 [“Where the words of the statute are clear, we may not add to or alter them to
accomplish a purpose that does not appear on the face of the statute”].)

                                               8
Cal.4th 974, 998.) Generally, a court only abuses its discretion when its decision is
arbitrary and/or capricious. (People v. Carmony (2004) 33 Cal.4th 367, 378.)
              In this case, the trial court analyzed Swenson, supra, 3 Cal.3d 389, and
declined to rewrite (blue pencil) Frazer’s noncompete clause:
              “The agreement in Swenson, restricted a departing partner from providing
services (i) to any partnership client and (ii) to a non-partnership client which had its
principal office within a 20-mlle radius of any partnership office. The Swenson court
noted the blanket prohibition on servicing the firm’s clients was facially invalid due to
the lack of any geographic restriction, but upheld both restrictions ‘to the extent that
servicing such clients would also constitute, under former section 16602, “carrying on”
an accounting business with the Cities of Pasadena or Azusa, where the partnership
offices are located.’ [Citation.] Unlike in . . . Swenson, the agreement here does not
contain a geographic limitation of any kind. The court is skeptical [it] may, ‘under the
guise of the rule of reasonableness’ or otherwise, include a geographic limitation in a
partnership covenant not to compete when the parties did not include one.”
              We share the skepticism of the trial court. Frazer did not include any kind
of geographic limitation in its noncompete clause, and section 16602 itself no longer
includes any geographic limitations; therefore, the trial court in this case had no statutory
language to logically refer to (as in Swenson) in order save the presumptively void
noncompete agreement. As far as the trial court imposing its own “reasonable”
geographic limitations, Frazer suggests in its briefing that the noncompete clause should
“be enforced as to customers in Los Angeles and Orange Counties.” But we are left to
wonder why Frazer did not simply specify that geographic limitation within its own
partnership agreement, which Frazer had presumably drafted. (See Code Civ. Proc.,
§ 1858 [it is not the role of courts to insert contract terms that have been omitted by the
parties]; see also Sandquist v. Lebo Auto., Inc., supra, 1 Cal.5th at p. 247 [“ambiguities in
written agreements are to be construed against their drafters”].)

                                              9
              Moreover, in a declaration signed by Frazer’s managing partner, he
averred: “Frazer provides professional services to clients located in California, states
throughout the country, and in some instance[s] internationally.” The managing partner
also stated: “In California, Frazer provides services to clients located throughout the
state, including, but not limited to, clients located in Orange County, Los Angeles
County, San Diego County, San Bernardino County, Riverside County, and Santa Clara
County. For other states, Frazer provides professional services to clients located in, but
not limited to, Florida, Nevada, Colorado, and Texas.” (Italics added.)
              Given Frazer’s failure to specify a geographic limitation, and the relatively
large area in which Frazer provides accounting services to its clients, we find the trial
court did not abuse its discretion when it declined to rewrite Frazer’s client noncompete
clause (i.e., the trial court was neither arbitrary nor capricious). To reiterate, we affirm
the court’s ruling granting Rendon’s motion for summary adjudication on the basis that
Frazer’s noncompete clause is void as a matter of law.

B. The Employee Nonsolicitation Clause
              Frazer also claims the trial court erred when it found its employee
nonsolicitation clause to be void under section 16600. We disagree.
              “Except as provided in this chapter, every contract by which anyone is
restrained from engaging in a lawful profession, trade, or business of any kind is to that
extent void.” (§ 16600.) “At common law, and in many states, restraints on the practice
of a profession, trade, or business were valid, if reasonable. [Citation.] In contrast,
however, California has settled public policy in favor of open competition.” (Wycoff,
supra, 86 Cal.App.4th at pp. 900–901.)
              “In the years since its original enactment . . . our courts have consistently
affirmed that section 16600 evinces a settled legislative policy in favor of open

                                              10
competition and employee mobility.” (Edwards, supra, 44 Cal.4th at pp. 945–946, 949–
950 [the rule against a restraint of trade is not subject to “a narrow-restraint exception”].)
              Generally, employee nonsolicitation agreements are presumptively void.
(Diodes, Inc. v. Franzen (1968) 260 Cal.App.2d 244, 255.) “The interests of the
employee in his own mobility and betterment are deemed paramount to the competitive
business interests of the employers, where neither the employee nor his new employer
has committed any illegal act accompanying the employment change.” (Ibid.)
              “California courts have consistently declared [section 16600] an expression
of public policy to ensure that every citizen shall retain the right to pursue any lawful
employment and enterprise of their choice. Section 16600 has specifically been held to
invalidate employment contracts which prohibit an employee from working for a
competitor when the employment has terminated, unless necessary to protect the
employer’s trade secrets.” (Metro Traffic Control, Inc. v. Shadow Traffic Network (1994)
22 Cal.App.4th 853, 859, 861 [“‘Any attempt to restrict competition by the former
employee by contract appears likely to be doomed’”]; Pacific Wharf & Storage Co. v.
Standard American Dredging Co. (1920) 184 Cal. 21, 24–25 (Pacific) [“The rule making
void contracts in restraint of trade is not based upon any consideration for the party
against whom the relief is sought, but upon considerations of sound public policy”].)
              Frazer’s employee nonsolicitation clause provides: “Each Partner
acknowledges that the Partnership’s [employees] are valuable assets in the operation of
the Partnership’s business. Each Partner agrees that, during the period that such Person is
a Partner . . . and for five (5) years following such Person ceasing to be a Partner, such
Person shall not, in any time or in any manner, directly or indirectly, solicit, hire, recruit
or encourage any other [employee] to the Partnership to leave the Partnership or work
for any other Person. If a Partner breaches the provisions of this Section . . . , such
Partner immediately shall pay to the Partnership an amount equal to thirty percent (30%)
of the annualized salary of the applicable [employee] for the one (1)-year period

                                              11
immediately preceding the date the employment of such [employee] is terminated with
the Partnership.” (Italics added.)
              Here, Frazer’s broad nonsolicitation clause not only purports to prevent
Rendon from soliciting Frazer’s employees to work for him or any other person, but it
also purports to prevent Rendon from hiring Frazer’s employees. This plainly violates
California’s long established public policy of open competition and mobility under
section 16600 because the nonsolicitation clause seeks to restrain Frazer employees from
being able to freely “leave the Partnership or work for any other Person.” (Italics added.)
(See § 16600 [“every contract by which anyone is restrained from engaging in a lawful
profession, trade, or business of any kind is to that extent void”]; see also Pacific, supra,
184 Cal. at pp. 24–25 [“The rule making void contracts in restraint of trade is not based
upon any consideration for the party against whom the relief is sought, but upon
considerations of sound public policy”].)
              Thus, we find the trial court properly granted Rendon’s motion for
summary adjudication on the basis the nonsolicitation clause is void under section 16600.
              Frazer primarily relies on Loral Corp. v. Moyes (1985) 174 Cal.App.3d 268
(Loral), in support of its argument that its employee nonsolicitation clause is enforceable;
however, Loral is readily distinguishable. In Loral, a company sued its former employee
for breaching a nonsolicitation agreement. (Id. at pp. 273–274.) Under that agreement,
the former employee had agreed “not to disrupt, damage, impair or interfere with his
former employer by ‘raiding’ its work-staff.” (Id. at p. 275.) The Court of Appeal found
the nonsolicitation agreement did not create an unreasonable restraint on trade because
the “restriction only slightly affects [the company’s] employees.” (Id. at p. 279.) The
company’s employees were still free to seek employment with competitors (including the
defendant); that is, the company’s employees only lost the option of being first contacted
by the defendant. (Id. at pp. 279–280.) As such, the Court of Appeal held that the
employee nonsolicitation agreement was not void. (Id. at p. 280.)

                                             12
                 Unlike the agreement in Loral, supra, 174 Cal.App.3d 268, the Frazer
nonsolicitation clause creates a restraint of trade in violation of section 16600 because it
interferes with a Frazer employee’s mobility, or freedom to leave employment at Frazer,
and then to work for Rendon or “any other Person.” Thus, Loral does not alter our
                                                                                   3
analysis that the Frazer nonsolicitation agreement is void under section 16600.
                 Frazer also argues: “Soliciting or hiring former partnership employees to
work at a competing business is fairly construed to be part of carrying on a similar
business within the meaning of section 16602 such that non-solicitation clauses are
governed by section 16602.” However, Frazer cites no legal authority supporting the
proposition that a nonsolicitation agreement can be construed under section 16602. In
any event, even if we were to analyze the employee nonsolicitation clause under section
16602, we would find it unenforceable because it also does not include a geographic
limitation as required under that statute. (See infra, pt.II.A.)
                 Finally, Frazer argues “the trial court provided no justification why it found
the worker non-solicitation clause to be unenforceable.” We disagree. But we need not
address this argument because it is of no consequence. (See Meda v. Autozone, Inc.
(2022) 81 Cal.App.5th 366, 374 [“‘we review the ruling of the trial court, not its
rationale’”].)

3
  Because we find Loral, supra, 174 Cal.App.3d 268, to be distinguishable, we need not
address Rendon’s colorable argument that Loral is no longer “good law.” (See AMN
Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018) 28 Cal.App.5th 923, 937–939
[the holding in Loral, supra, 174 Cal.App.3d 268, has been called into doubt]; see also
Edwards, supra, 44 Cal.4th at pp. 949–950 [the section 16600 rule prohibiting a restraint
of trade is not subject to “a narrow-restraint exception”].)

                                               13
                                      III
                                DISPOSITION
          The judgment is affirmed. The costs on appeal are awarded to Rendon.

                                            MOORE, ACTING P. J.

WE CONCUR:

GOETHALS, J.

MOTOIKE, J.

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