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Wanke, Industrial, Commercial, Residential, Inc v. the Superior Court of San Diego County

October 4, 2012

WANKE, INDUSTRIAL, COMMERCIAL, RESIDENTIAL, INC., PETITIONER,
v.
THE SUPERIOR COURT OF SAN DIEGO COUNTY, RESPONDENT; SCOTT KECK ET AL., REAL PARTIES IN INTEREST. WANKE, INDUSTRIAL, COMMERCIAL, RESIDENTIAL, INC., PLAINTIFF AND APPELLANT,
v.
SCOTT KECK ET AL., DEFENDANTS AND APPELLANTS.



PETITION for writ of mandate and APPEALS from orders of the Superior Court of San Diego County, Timothy B. Taylor, Judge. (Super. Ct. No. 37-2008-00097163-CU-BC-CTL)

The opinion of the court was delivered by: Aaron, J.

CERTIFIED FOR PUBLICATION

(Super. Ct. No. 37-2008-00097163-CU-BC-CTL)

Petition denied. Appeals affirmed in part; reversed in part; and remanded for further proceedings.

I. INTRODUCTION

This case requires this court to answer two fundamental questions. First, may a party obtain appellate review of an order acquitting a defendant in a non-summary criminal contempt proceeding? We conclude that the double jeopardy clause of the Fifth Amendment to the federal constitution precludes such review. Second, may a party successfully defend against an alleged violation of a facially valid stipulated injunction that the trial court had jurisdiction to issue, on the ground that the injunction is invalid? We conclude that the answer to this question is "no."

Applying these conclusions in the present case, we deny Wanke, Industrial, Commercial, Residential, Inc.'s (Wanke) writ petition seeking review of an order acquitting Scott Keck and his company, WP Solutions, Inc. (WP Solutions), of contempt for violating a stipulated injunction enjoining Keck and WP Solutions from soliciting certain Wanke customers. However, with respect to Wanke's related appeal from its motion to enforce a settlement agreement that incorporated the stipulated injunction, we conclude that the trial court erred in finding that the stipulated injunction is invalid and refusing to enforce the injunction on that basis.*fn1

II.

FACTUAL AND PROCEDURAL BACKGROUND

A. The parties

Wanke is a company that installs waterproofing systems in southern California. Scott Keck and Jacob Bozarth are former employees of Wanke.*fn2 While employed by Wanke, Keck and Bozarth signed certain confidentiality agreements as conditions of their employment. In early 2008, Keck and Bozarth left Wanke's employ and formed their own competing waterproofing company, WP Solutions.

B. The underlying action for misappropriation of trade secrets

In December 2008, Wanke filed the underlying action in this matter against Keck and Bozarth. Wanke's complaint alleged that it had "spent a significant amount of time, effort, and money in the acquisition, development, compilation and maintenance of confidential information concerning its customers, business, and products," including the "identity of [Wanke's] existing and prospective customers, the objectives of each customer, the strategies developed for each customer, the identities of key personnel at those customers, the special needs and characteristics of [Wanke's] existing and potential customers, [and] the histories and account balances of existing customers . . . collectively . . . 'Confidential Information' . . . ." Wanke further alleged that Keck and Bozarth had "misus[ed] and misappropriat[ed] . . . [Wanke's] trade secrets . . . including . . . some or all of the Confidential Information." Wanke also alleged that Keck and Bozarth had "actively targeted and recruited customers of [Wanke] utilizing the confidential business information of [Wanke] . . . ." Wanke's complaint contained eight causes of action, including a claim for misappropriation of trade secrets. In its prayer for relief, Wanke requested that the court issue "an order enjoining [Keck and Bozarth] from soliciting [Wanke's] past or current customers," in addition to seeking other forms of relief.

Keck and Bozarth filed a cross-complaint against Wanke for unpaid compensation.

In October 2009, the parties resolved the action by entering into a settlement and mutual general release agreement (Settlement Agreement).*fn3 Among the terms of the Settlement Agreement were that Keck, Bozarth, and WP Solutions would pay Wanke $38,000. In addition, the parties agreed to release each other from any existing or future claims. Keck, Bozarth, and WP Solutions also agreed to a stipulated injunction described in the following paragraph (Stipulated Injunction). The Settlement Agreement provided that the trial court would retain jurisdiction over the parties pursuant to Code of Civil Procedure section 664.6, to enforce the terms of the Settlement Agreement and the Stipulated Injunction.

On October 30, 2009, the trial court entered the Stipulated Injunction.*fn4 The Stipulated Injunction, which the parties agreed would remain in force for five years from the date of entry of the order, prohibited Keck, Bozarth and WP Solutions from:

"Contacting or soliciting any person, entity, project owner, or representative on the customer list of [Wanke] attached hereto as Exhibit '1' ('[Wanke's] Customers')[*fn5 ] for the purpose of gaining any of their business, provided that, after a period of eighteen (18) months from the date of entry of this order that defendants will not be deemed to have contacted or solicited a person or entity included within the definition of [Wanke's] Customers if such person or entity initiates the contact with defendants which leads to defendants submitting a bid or proposal to such person or entity."

The Stipulated Injunction also contains various other restrictions related to this provision, including prohibitions on "[s]eeking to redirect and/or redirecting business from [Wanke's] Customers to Defendants," and "[s]upplying labor, equipment, materials or services to any of [Wanke's] Customers." The Stipulated Injunction provides for liquidated damages in the amount of $50,000 "for the initial violation of any provision of this order, with the amount of such liquidated damages increasing in increments of [$10,000] for each subsequent violation of any provision of this order, plus [Wanke's] actual attorneys' fees, costs and expenses . . . ."

C. Proceedings to enforce the Stipulated Injunction

1. The Con Am Management proceedings

a. The order to show cause for contempt and motion to enforce the Settlement Agreement

In May 2010, Wanke filed an application for an order to show cause (OSC) requesting that the trial court hold Keck, Bozarth, and WP Solutions (defendants) in contempt for having violated the Stipulated Injunction. In its application, Wanke alleged that defendants had violated the terms of the Stipulated Injunction on 11 separate occasions by, among other things, contacting and/or supplying labor and/or materials to Con Am Management, one of Wanke's customers that appeared on the "Customer & Job List" attached to the Stipulated Injunction.

In June 2010, Wanke filed a motion to enforce the Settlement Agreement pursuant to Code of Civil Procedure section 664.4. In its motion and accompanying brief, Wanke referred to defendants' alleged violations of the Stipulated Injunction related to Con Am Management, and requested that the court order defendants to pay liquidated damages as provided in the Stipulated Injunction.

b. The contempt trial/hearing on motion to enforce the Settlement Agreement*fn6

On August 9, the trial court held a combined trial on Wanke's OSC for contempt and hearing on Wanke's motion to enforce the Settlement Agreement. At that proceeding, Wanke presented evidence that Keck and WP Solutions had repeatedly contacted Con Am Management and had supplied labor to the company, in violation of the Stipulated Injunction.

c. The trial court's statement of decision

On August 11, the trial court issued a statement of decision. With respect to all 11 counts, the trial court determined that Wanke had established three of the four elements necessary to prove that defendants were in contempt of the Stipulated Injunction. Specifically, the trial court determined that defendants had knowledge of the Stipulated Injunction, that they had the ability to comply with its terms, and that they had willfully disobeyed it.*fn7 However, the court concluded that Wanke had failed to establish the "existence of a lawful order," which is required before a party may be held in contempt of that order.

The trial court reached this conclusion based on its determination that the Stipulated Injunction was invalid to the extent that it prohibited defendants from soliciting an entity merely because the entity appeared on the customer list attached to the Stipulated Injunction. In making this determination, the court began by reviewing California law pertaining to the enforceability of non-competition agreements, including Business and Professions Code section 16600.*fn8 The court summarized this law by noting, "[C]courts have repeatedly held a former employee may be barred from soliciting existing customers to redirect their business away from the former employer and to the employee's new business if the employee is utilizing trade secret information to solicit those customers." The trial court also recognized that, "Numerous courts have concluded [that] customer lists can qualify for trade secret protection." However, the trial court determined that the Stipulated Injunction was invalid under Business and Professions Code section 16600 because neither the identity of Con Am Management nor its location was a trade secret. The court reasoned as follows:

"[H]ad [Wanke] prevailed at trial [in the underlying trade secret action], [Wanke] would not have been entitled to an injunction which protected as its exclusive property the identity or location of [Con Am Management]. This is so because anyone, including Keck, could easily identify Con Am as a potential customer. The fact that defendants agreed to the [Stipulated Injunction] does not change the result, given the fact that [Wanke] now seeks to have the court invoke its contempt powers. The court must conclude that the [Stipulated Injunction], to the extent it would protect as a trade secret the mere identity of [Con Am Management] (and forbid any contact with [Con Am Management] for 18 months or 5 years, depending on who initiated the contact) is overbroad and infirm."

On this basis, the court concluded that the defendants could not be convicted of contempt and that they were "acquitted" on all 11 counts.

After reaching this conclusion, the court proceeded to rule that the Stipulated Injunction could be applied lawfully under the following circumstances:

"So as to avoid striking down the entire [Stipulated] Injunction (which would naturally have the effect of unwinding the entire settlement and consigning the parties to further fruitless and expensive litigation) and (hopefully) as a guide to the parties in arranging their affairs in the future, the court holds that the provisions of the [Stipulated] Injunction apply only to jobs undertaken or proposed to be undertaken for Con Am while defendants Keck and/or Bozarth were employed by [Wanke]. . . . Only on these jobs can the defendants be said to be using information they learned while employed at [Wanke] to 'identify customers with particular needs or characteristics' within the meaning of the case law discussed above [addressing the enforceability of non-competition agreements under California law]. [Citation.]"

With respect to Wanke's motion to enforce the Settlement Agreement, the court ruled that "no liquidated damages may be imposed," because "all eleven of the alleged 'violations' were not in fact violations of the [Stipulated Injunction] as interpreted above by the court." Notwithstanding this conclusion, the trial court ruled that Wanke was entitled to recover attorney fees from defendants in the amount of $17,665 as the prevailing party on the motion to enforce the Settlement Agreement.*fn9 The court reasoned that "although [Wanke] did not succeed in having the defendants held in contempt and did not succeed in obtaining an award of liquidated damages," Wanke did obtain a "declaratory judgment regarding the scope and enforceability of the [Stipulated Injunction]."

2. The proceedings involving AV Builders: Saratoga West

In September 2010, Wanke filed a motion to enforce the Settlement Agreement with respect to a different customer/job listed in the Stipulated Injunction, AV Builders: Saratoga West.*fn10 In its motion, Wanke quoted the trial court's statement of decision in which the court held " 'that the provisions of the [Stipulated] Injunction apply only to jobs undertaken or proposed to be undertaken . . . while defendants Keck and/or Bozarth were employed by [Wanke].' " Wanke contended that "[e]ven under th[is] highly restrictive reading of the [Stipulated] Injunction," defendants had violated the Stipulated Injunction by performing work for AV Builders on the Saratoga West project. Wanke attached a declaration and supporting exhibits to its motion.

Defendants filed an opposition to the motion in which they argued, "[o]nly when the Defendants misuse trade secret information, may Defendants be considered in breach of the [Settlement] [A]greement." Defendants further contended that "[n]either Keck nor Bozarth utilized any information gained from their previous employment to unfairly compete with [Wanke] on the 2009 Saratoga West project." Defendants supported their opposition with a declaration from Keck in which he discussed the circumstances leading to AV Builders awarding WP Solutions a job on the Saratoga West project.

The trial court issued a tentative order granting Wanke's motion. In its order, the court recited its August 11 decision that the Stipulated Injunction applied to "jobs undertaken or proposed to be undertaken . . . while defendants Keck and Bozarth were employed by [Wanke]." The court proceeded to find that defendants had violated the Stipulated Injunction, as so interpreted. The court ordered defendants to pay Wanke $58,615, including $50,000 in ...


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