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Gold Coast Search Partners LLC v. Career Partners, Inc.

United States District Court, N.D. California

September 11, 2019

GOLD COAST SEARCH PARTNERS LLC, et al., Plaintiffs,
v.
CAREER PARTNERS, INC., et al., Defendants.

          ORDER DENYING PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION, AND DENYING IN PART AND GRANTING IN PART DEFENDANTS' MOTION TO DISMISS DOCKET NOS. 9, 30

          EDWARD M. CHEN UNITED STATES DISTRICT JUDGE

         Plaintiffs Gold Coast Search Partners LLC (“Gold Coast”), Anna Brady, and Janelle Matthews (collectively, “Plaintiffs”) filed suit seeking declaratory and injunctive relief. Brady and Matthews signed non-compete and non-solicitation covenants in a pre-employment agreement (“Employment Agreement”) when they were former employees of Defendants Career Partners, Inc. (“CPI”) and Brian O'Callaghan (collectively, “Defendants”). Plaintiffs' complaint seeks a declaratory judgment holding these covenants invalid. Plaintiffs also seek to enjoin Defendants from enforcing the Employment Agreement in an earlier-filed action before a New York state court.

         Pending before the Court are two motions: Plaintiffs' preliminary injunction motion (“PI Mot.”) and Defendants' motion to dismiss (“MTD”). The Court heard both motions in a consolidated hearing.

         Pursuant to the reasons discussed below, Plaintiffs' preliminary injunction motion is DENIED because (1) the requested relief would enjoin parallel state proceedings, which violates the Anti-Injunction Act, and (2) the requested relief seeks a prior restraint on speech. Defendants' request to stay this action under the Colorado River doctrine is GRANTED. As a result, the remainder of Defendants' motion to dismiss is DENIED as moot; the denial is without prejudice, should Defendants wish to refile if the stay is lifted.

         I. BACKGROUND FACTS

         CPI is a New York corporation engaged in the business of talent recruitment for investment firms. Compl. ¶ 8. CPI's main office is in New York City. MTD at 3. It is in the business of recruiting pre- and post-MBA candidates with CPI's investment-firm clients. Id. Brady and Matthews began working as recruiters for CPI in its San Francisco, California office in September 2009 and March 2010, respectively. Compl. ¶ 15. Both separated from CPI in January 2019 to start their own company-Gold Coast, a professional recruiting firm for private equity firms and hedge funds. Id. ¶¶ 4, 15; PI Mot. at 6. When Brady and Matthews joined CPI, they signed the Employment Agreement containing the at-issue restrictive covenants. Compl. ¶ 4.

         The Employment Agreement's non-compete covenant reads as follows:

         THIRD: Covenant Not to Compete

Candidate agrees that to the extent the Candidate is employed in the New York office, the Candidate agrees not to compete, directly or indirectly, either as principal, manager, agent, consultant, officer, stockholder, partner, investor, lender or employee or in any other capacity, carry on, be engaged in or have any financial interest in, any business or Person which is in competition with the business of CPI within a 250 mile radius of CPI's principal place of business. In view of the services which Candidate will perform and has performed for-‘ [sic] CPI, which are special, unique, extraordinary and intellectual in character and will place Candidate in a position of confidence and trust with the Customers and other employees of CPI and will provide her with access to Confidential Information of CPI, Candidate expressly acknowledges that the restrictive covenants set forth in this Agreement are necessary in order to protect and maintain the proprietary interests and other legitimate business interests of CPI. Candidate agrees and hereby acknowledges that (i) such provisions do not impose a greater restraint than is necessary to protect the goodwill or other business interests of CPI, (ii) such provisions contain reasonable limitations as to time and scope of activity to be restrained, (iii) such provisions are not harmful to the general public, and (iv) such provisions a.re [sic] not unduly burdensome to Candidate, and the consideration of employment is sufficient to compensate Candidate for the restrictions confined in such provisions. In consideration thereof and in light of Candidate's education, skills and abilities, Candidate agrees that she will not assert in any forum that such provisions prevent Candidate from earning a living or otherwise are void or unenforceable or should be held void or unenforceable. This provision is not intended to apply to any person primarily employed in the California offices and, to the extent that this provision is inconsistent with California law, it shall not apply.

         Compl. ¶ 18 (emphasis added). The Employment Agreement also includes the following non-solicitation clause:

“FOURTH: Non-Solicitation of CPI Customer & Employees
A. CPI Customers-Candidate agrees that he/she shall not, on their own behalf or on behalf of any business or Person other than CPI, directly or indirectly, solicit, call on or contact any Customer, as defined under Article FIRST, for any business purpose or otherwise as contemplated by this Agreement during the term of this Agreement without written permission from CPI. Candidate also agrees that he or she will not provide services to any CPI Customer or accept employment with any CPI Customer without the consent of CPI, which consent will not be unreasonably withheld. B. CPI Employees-Candidate agrees that he/she shall not, on their own behalf or on behalf of any business or Person other than CPI, directly or indirectly, solicit or offer employment to, or hire, any individual who has been employed by CPI at any time during the term of this Agreement without written permission from CPI.”

Compl. ¶ 19. The Employment Agreement defines “Customers” broadly to include past and present clients of CPI, which further includes the clients' agents and employees. Id. at ¶ 20. The Employment Agreement contains a New York choice-of-law provision. Id. ¶ 26. Brady and Matthews remained as California residents throughout their employment with CPI. PI Mot. at 3. On occasions during their employment with CPI, Brady and Matthews traveled to and performed services in New York.

         After Plaintiffs began operating as Gold Coast, Defendants' counsel sent Plaintiffs correspondence requesting confirmation that Brady and Matthews would comply with the Employment Agreement. Id. at 4. Defendants received no response. Id. Around the same time, Plaintiffs opened an office in New York City (less than one mile away from CPI). Id. at 5. Defendants allege Plaintiffs caused at least one CPI customer to engage Gold Coast rather than CPI. MTD at 4.

         Thereafter, Defendants filed suit in New York Supreme Court (the “New York Action”) to enforce the restrictive covenants of the Employment Agreement, among other things. See Plaintiffs' Request for Judicial Notice (“RJN”), Ex. 1, at 14-22 (Defendants' complaint in New York seeks injunctive relief, breach of contract, theft of compensation, unfair competition, and tortious interference with contract).[1] Plaintiffs contend that the Employment Agreement's restrictions are unlawful and unenforceable in California. If enforced, these restrictions would “destroy Gold Coast and would render Ms. Brady and Ms. Matthews unable to conduct their business and work in their chose profession to earn a living.” Compl. ¶ 30. Plaintiffs also allege that Defendants have disparaged and slandered Gold Coast. Id.

         On May 24, 2019, Defendants herein propounded 300 document requests in the New York Action, which requested information related to Plaintiffs' interactions with CPI's clients, among other things. PI Mot. at 7. On June 14, 2019, Plaintiffs herein (defendants in the New York Action) filed a motion to dismiss in the New York Action on forum non conveniens grounds, as well as on the merits. MTD at 4, fn 3. Plaintiffs have not contested personal jurisdiction in New York.

         On July 31, 2019, the parties met for a preliminary conference in the New York Action. At this conference, the New York Supreme Court stayed the case pending the disposition of the motions before this Court. The parties also set November 7, 2019, as the hearing date before the New York Supreme Court for the pending motion to dismiss.

         II. PROCEDURAL BACKGROUND

         Defendants' New York Action commenced on April 25, 2019.[2] Plaintiffs filed this action on June 3, 2019. Docket No. 1. On July 13, 2019, Plaintiffs filed their motion for preliminary injunction. Docket No. 22. Defendants filed their opposition to Plaintiffs' motion while concurrently filing their motion to dismiss. Docket Nos. 27, 30.

         III. LEGAL STANDARD

         A party seeking a preliminary injunction must meet one of two variants of the same standard. Under the original Winter standard, a party must show “that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.” Winter v. NRDC, Inc., 555 U.S. 7, 20 (2008). Under the “sliding scale” variant of the Winter standard, “if a plaintiff can only show that there are ‘serious questions going to the merits'-a lesser showing than likelihood of success on the merits-then a preliminary injunction may still issue if the ‘balance of hardships tips sharply in the plaintiff's favor,' and ...


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