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California Appeals Court strikes down nonsolicitation provision in preliminary injunction
August 24, 2009
Trade Secrets Alert
Author(s): John A. Chatowski

The trial court entered a preliminary injunction that included a prohibition against directly or indirectly soliciting customers of the former employer.  There were separate provisions in the injunction prohibiting use of certain trade secret information. The California Court of Appeals in The Retirement Group v. James Galante struck down the nonsolicitation provision, citing Edwards v. Arthur Andersen LLP (2008) and Section 16600 of the California Business and Professions Code and remanded the case to the trial court to enter a new injunction deleting the nonsolicitation clause.

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The Retirement Group (TRG) obtained a preliminary injunction against former employees (Advisors) in a trade secret misappropriation lawsuit that precluded Advisors from engaging in various categories of conduct. Only the fourth category of enjoined conduct was appealed: the provision preventing Advisors from directly or indirectly soliciting any current TRG customers to transfer their accounts or business relationships from TRG to Advisors.

Advisors appealed only the Category 4 prohibitions asserting that the nonsolicitation clause in the preliminary injunction violates Edwards v. Arthur Andersen LLP (2008) and the strong public policy embodied in Section 16600 of the California Business and Professions Code.

The TRG court agreed and ordered that the nonsolicitation provision be deleted and that a new injunction be entered that is limited solely to the protection against the misuse of TRG’s trade secrets.The appellate court placed heavy emphasis on the fact that there were already other provisions in the preliminary injunction to protect TRG’s trade secret information and to prevent misuse of trade secrets. Therefore, the additional prohibition against directly or indirectly soliciting any current TRG customers transgresses Section 16600 and the California Supreme Court decision in Edwards. The conduct to be enjoined is the misuse of trade secret information, not the solicitation of the former employer’s customers.

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