(Super. Ct. No. 30-2009-00121143) Appeal from a judgment of the Superior Court of Orange County, Geoffrey T. Glass, Judge.
The opinion of the court was delivered by: Fybel, J.
CERTIFIED FOR PUBLICATION
When Michael Maas sold his stock in Crave Entertainment Group, Inc. (Crave), to Handleman Company (Handleman), he signed a stock purchase agreement, which contained a three-year covenant not to compete. As part of Handleman's acquisition of Crave, Maas--a Crave employee--also signed an employment agreement containing a one-year covenant not to compete, which would become operative when Maas's employment with Crave was terminated. Maas resigned from Crave three years after its acquisition by Handleman. About six months later, he began working for Solutions 2 Go, Inc., a competitor of Crave, owned by Nima Taghavi.
Fillpoint, LLC (Fillpoint), which had acquired Crave from Handleman, sued Maas for breaching his employment agreement, and also sued Solutions 2 Go and Taghavi for interference with contract. (Maas, Solutions 2 Go, and Taghavi will be referred to collectively as defendants.) The trial court granted defendants' non-suit motion; we affirm.
Under the general rule in California, covenants not to compete are unenforceable. To protect an acquired business's goodwill, an exception to this rule allows such covenants in connection with the sale of a business. This exception, however, is limited. In this case, the three-year covenant not to compete in the stock purchase agreement was designed to protect the goodwill of the business being sold. Handleman and its successor in interest, Fillpoint, received the full benefit of that covenant for three years following Handleman's acquisition of Maas's Crave stock. The covenant Fillpoint seeks to enforce in this litigation is a separate non-competition and nonsolicitation covenant in the employment agreement, which could only be triggered when Maas left Crave's employ.
We agree with Fillpoint that the stock purchase agreement and the employment agreement are part of a single transaction and must be read together. When a purchase agreement and an employment agreement are entered into at the same time or roughly the same time, as part of a single transaction, and the two different agreements contain different covenants not to compete, the agreements must be read together. In this case, when we read the two non-competition covenants together, we hold that the non-competition and nonsolicitation covenant contained in the employment agreement is void and unenforceable under California law. For the reasons we discuss, that covenant does not fit within the limited exception to California's prohibition against covenants not to compete.
STATEMENT OF FACTS AND PROCEDURAL HISTORY
Maas was employed by Star Video Games, and owned stock in Star Video Games's parent company, Crave. In 2005, Handleman acquired Crave. Maas and the other Crave stockholders, including Taghavi, entered into a securities purchase agreement with Handleman, dated October 18, 2005 (the purchase agreement). The purchase agreement included a covenant not to compete that prohibited Maas, as well as the other former Crave stockholders, from engaging in the business of distribution and publishing of video games for 36 months after the closing date.*fn1 In the purchase agreement, Crave agreed to ensure that Maas, Taghavi, and other employees would execute employment agreements at closing. The purchase agreement contained an integration clause that made the blank form employment agreement a part of the purchase agreement. The blank form employment agreement was an exhibit to the purchase agreement.
About a month after the purchase agreement was signed, on November 22, 2005, Maas entered into an employment agreement with Crave by which he agreed to work for Crave for three years (the employment agreement). The employment agreement also included a covenant not to compete or solicit. The period of the non-compete provision in the employment agreement was for one year after the expiration of the employment agreement or after the earlier termination of Maas's employment.*fn2 The employment agreement contained an integration clause which provided as follows: "This Agreement and the Securities Purchase Agreement among Handleman Company and the Shareholders, Option Holders and Warrant Holders of Crave Entertainment Group, Inc. dated October 18, 2005 constitute the sole and entire agreements between the parties. [¶] Any prior agreement, promises, and negotiations not expressly set forth in this Agreement are of no force and effect whatsoever. [¶] To the extent there exists any conflict between this Agreement and the Securit[ies] Purchase Agreement, the Securit[ies] Purchase Agreement shall prevail."
Taghavi resigned from Crave in December 2006. Maas resigned from Crave effective November 22, 2008, after satisfying the three-year covenant not to compete contained in the purchase agreement, and fulfilling the three-year term of the employment agreement.
In February 2009, Fillpoint acquired Crave's assets. In April 2009, Crave executed an assignment of the employment agreement to Fillpoint.
In June 2009, Maas became the president and chief executive officer and a shareholder of Solutions 2 Go, a company owned by Taghavi. On appeal, the parties do not dispute that Solutions 2 Go is a competitor of Crave.
Fillpoint sued Maas for breach of the employment agreement, and sued Taghavi and Solutions 2 Go for tortious interference with the employment agreement; defendants asserted, among other defenses, the unenforceability of the ...