Judge: Gregory Keosian, Case: 23STCV24040, Date: 2024-01-03 Tentative Ruling

Case Number: 23STCV24040    Hearing Date: January 26, 2024    Dept: 61

I.                   MOTION TO STAY PENDING APPEAL

“Trial courts generally have the inherent power to stay proceedings in the interests of justice and to promote judicial efficiency.” (Freiberg v. City of Mission Viejo (1995) 33 Cal.App.4th 1484, 1489.) The decision of a trial court to stay proceedings is thus generally a matter of discretion. (Bains v. Moores (2009) 172 Cal.App.4th 445, 480.)

Defendants Lockton Companies, LLC, Lockton Investment Advisors, LLC, Lockton Investment Securities, LLC, and Lockton Partners, LLC (Defendants) seek a stay of this action pending a decision by the California Supreme Court in the case Lockton Companies, LLC v. Superior Court, No. S282136. Defendants’ petition for review in that case was granted on December 13, 2023. (RJN Exh. 1.) Defendants argue that their petition in that case addresses the enforceability of the same forum selection clause at issue in Defendants’ pending motion to dismiss for forum non conveniens. (Motion at p. 1.) Thus Defendants argue that this court should stay these proceedings and the pending motion to dismiss until the Supreme Court offers its guidance. Defendants argue that if the stay is not granted, the parties will likely expend substantial resources in the appellate courts seeking relief related to Defendant’s motion to dismiss. (Motion at pp. 5–6.)

No stay is warranted here. Defendants’ petition for review in the other case was granted on December 13, 2023, little more than a month before the scheduled hearing on this motion. Any stay granted here would thus be substantial and indeterminate in duration, likely causing prejudice and delay to Plaintiff Gregory Barnes (Plaintiff).

Moreover, as Plaintiff notes in opposition to the present motion, the Supreme Court is not currently undertaking any active review of the Lockton Companies appeal, but after granting Defendants’ petition has deferred any further action in that matter pending disposition of a related issue in another appeal, EpicentRx v. Superior Court, No. S282521. (Opposition at p. 2.) The Lockton Companies appeal is thus unlikely to directly determine the enforceability of the forum selection clause at issue in Defendants’ pending motion.

The relevance of the Lockton Companies and EpicentRx appeals to the present matter stands at a broader level of generality, and relates to the standards and burdens governing the application of such clauses in the forum non conveniens context. (RJN Exh. 4.) Specifically, appellate authority holds that “when the claims at issue are based on unwaivable rights created by California statutes . . . the party seeking to enforce the forum selection clause bears the burden to show litigating the claims in the contractually-designated forum will not diminish in any way the substantive rights afforded under California law.” (Verdugo v. Alliantgroup, L.P. (2015) 237 Cal.App.4th 141, 147, internal quotation marks and alterations omitted.) Defendants in the Lockton Companies appeal argue that this burden-shifting framework runs contrary to California Supreme Court precedent holding that it the party challenging the forum selection clause bears the “burden of establishing that enforcement of the . . . clause would be unreasonable.” (Smith, Valentino & Smith, Inc. v. Superior Court (1976) 17 Cal.3d 491, 496; RJN Exh. 4.) While relevant to the present dispute, extant case authority already provides guidance on this question. Courts have already ruled on the same forum selection clause as applied to different plaintiffs. (See Kaufman v. Lockton Cos., LASC Case No. 22STCV23460; Roderick v. Lockton Cos., LASC Case No. 23STCV24101; Canales v. Lockton Cos., LASC Case No. 23STCV24107.)

The motion is therefore DENIED.

II.                INCONVENIENT FORUM

 “When a court upon motion of a party or its own motion finds that in the interest of substantial justice an action should be heard in a forum outside this state, the court shall stay or dismiss the action in whole or in part on any conditions that may be just.” (Code Civ. Proc. § 410.30, subd. (a).)

In determining whether to grant a motion based on forum non conveniens, a court must first determine whether the alternate forum is a “suitable” place for trial. If it is, the next step is to consider the private interests of the litigants and the interests of the public in retaining the action for trial in California. The private interest factors are those that make trial and the enforceability of the ensuing judgment expeditious and relatively inexpensive, such as the ease of access to sources of proof, the cost of obtaining attendance of witnesses, and the availability of compulsory process for attendance of unwilling witnesses. The public interest factors include avoidance of overburdening local courts with congested calendars, protecting the interests of potential jurors so that they are not called upon to decide cases in which the local community has little concern, and weighing the competing interests of California and the alternate jurisdiction in the litigation.

(Stangvik v. Shiley Inc. (1991) 54 Cal.3d 744, 751.) The party moving for forum non conveniens bears the initial burden of establishing the propriety of dismissal. (Ibid.) “If the plaintiff is a California resident, the ‘plaintiff's choice of a forum should rarely be disturbed unless the balance is strongly in favor of the defendant.” (National Football League v. Fireman’s Fund Insurance Company (2013) 216 Cal.App.4th 902, 917.)

However, Defendants move for dismissal based on the operation of a forum selection clause. This involves a different analysis:

The law in this area is well-established. In California, the procedure for enforcing a forum selection clause is a motion to stay or dismiss for forum non conveniens, but a motion based on a forum selection clause is a special type of forum non conveniens motion. The factors that apply generally to a forum non conveniens motion do not control in a case involving a mandatory forum selection clause. When a case involves a mandatory forum selection clause, it will usually be given effect unless it is unfair or unreasonable. Moreover, a court will normally reject any claims that the chosen forum is unfair or inconvenient. Also, a court will usually honor a mandatory forum selection clause without extensive analysis of factors.

(Richtek USA, Inc. v. uPI Semiconductor Corporation (2015) 242 Cal.App.4th 651, 661.)

Defendants Lockton Companies, LLC, Lockton Investment Advisors, LLC, Lockton Investment Securities, LLC, and Lockton Partners, LLC (Defendants) present the forum selection clause contained in various LLC member agreements executed by Plaintiff Gregory D. Barnes (Plaintiff), which states:

Member and the Series agree that this Agreement shall be deemed to have been made in the State of Missouri. This Agreement and all disputes, claims, or issues that in any way pertain to the interpretation, validity or enforceability of, or otherwise arise out of or relate to this Agreement, the Operating Agreement, and/or Member’s membership in the Series . . . shall be subject to, governed by, and construed in accordance with the laws of the State of Missouri without reference to choice of laws, irrespective to choice of laws, irrespective of the fact that one or both of the parties now is or may become a resident of a different state. Any action involving any disputes, claims or issues that in any way pertain to the interpretation, validity, or enforceability of, or otherwise arise out of or relate to this Agreement, the Operating Agreement and/or Member’s membership in the Series . . . shall be brought exclusively in any Federal Court in Kansas City, Missouri or in the Circuit Court of Jackson County, Missouri; . . .Such courts shall have exclusive jurisdiction over these matters, and Member hereby agrees to be subject to the personal jurisdiction of such courts. The Parties hereto agree that the provisions set for in this Section 7.7. are fair and reasonable.

(Mundy Decl. Exh. A, § 7.7; see also, Exhs. F, J.) Because Plaintiff’s case here addresses the enforceability of a non-compete clause contained in the agreements, Defendants contend that the forum selection clause applies, requiring the dispute to be tried in Missouri. (Motion at pp. 4–5.)

Defendants argue that the forum selection clauses are fair and reasonable. They have already initiated an action against Plaintiff in federal court in Missouri based on his departure from the company and attempts to engage in competitive activities. (Motion at p. 5.) Defendants further argue that each of them is organized under Missouri law and has its principal place of business there, making the Missouri forum reasonable. (Motion at p. 6.)

Plaintiff counters that enforcing the forum selection clause here would violate California public policy, as it would effect a waiver of Plaintiff’s unwaivable statutory rights, specifically the prohibition against contracts that restrain individuals from “engaging in a lawful profession, trade, or business.” (Opposition at p. 3; Bus. & Prof. Code § 16600.) Plaintiff argues that the forum selection clause also requires application of Missouri law “without reference to choice of laws,” which, given Missouri’s comparatively lax stance on contracts in restriction of trade, would allow Defendants to circumvent California law. (Opposition at p. 4, citing Whelan Sec. Co. v. Kennebrew (Mo. 2012) 379 S.W.3d 835, 841 [Missouri courts will enforce non-compete clauses so long as they are  “no more restrictive than is necessary to protect the legitimate interests of the employer”].)

Plaintiff argues that while the burden is ordinarily upon the party opposing a forum-selection clause to prove that it is unfair and unreasonable, that burden “is reversed when the claims at issue are based on unwaivable rights created by California statutes.” (Verdugo v. Alliantgroup, L.P. (2015) 237 Cal.App.4th 141, 147.) In such a circumstance, “the party seeking to enforce the forum selection clause bears the burden to show litigating the claims in the contractually-designated forum will not diminish in any way the substantive rights afforded  under California law.”(Ibid., citing Wimsatt v. Beverly Hills Weight etc. Internat., Inc. (1995) 32 Cal.App.4^th 1511, 1520–1524.) Where “the forum selection clause has the potential to operate as a waiver,” the party seeking its enforcement “bears the burden to show that it does not.” (Id. at p. 152.)

Plaintiff argues that because Plaintiff’s claims are based on unwaivable statutory rights, and because trying the case in Missouri involves the potential for waiver of those rights — Defendants have declared their intention to fight the application of California law in Missouri — the forum selection clause should not be enforced. (Opposition at p. 6.)[1]

Defendants respond that the operative statute governing the non-compete clause is not Business & Professions Code § 16600, but rather Business & Professions Code § 16602.5, which expressly authorizes non-compete covenants imposed against the members of LLCs, specifically to the effect that “he or she or it will not carry on a similar business within a specified geographic area where the limited liability company business has been transacted, so long as any other member of the limited liability company, or any person deriving title to the business or its goodwill from any such other member of the limited liability company, carries on a like business therein.” (Motion at p. 7.)

Defendant’s argument is unpersuasive. Section 16602.5 expressly requires that such covenants apply “within a specified geographic area.” The non-compete contract here not only contains no geographic limit, but specifically disclaims its existence: “[T]he restrictions imposed by this Agreement cannot be limited to a geographic location or region, and, therefore, it is reasonable that the restricted activities are not limited to a geographical scope or region.” (Mundy Decl. Exh. A, § 5.5.) Although Defendant argues that this court may revise the geographic scope of the agreement pursuant to the rule of reasonableness (Motion at pp. 7–11, citing Roberts v. Pfefer (1970) 13 Cal.App.3d 93, 98.) But while “[c]ourts have ‘blue penciled’ noncompetition covenants with overbroad or omitted geographic and time restrictions to include reasonable limitations, . . .  courts will not strike a new bargain for the parties “for the purposes of saving an illegal contract.” (Strategix, Ltd. v. Infocrossing West, Inc. (2006) 142 Cal.App.4th 1068, 1074.) “[A]ny portion of the agreement restraining competition not within an exception is per se invalid.” (Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130, 1157.) The transfer of the forum to Missouri would thus likely involve the application of law more favorable to the restrictive covenant at issue, and likely prejudice Plaintiff’s statutory rights.

Defendant argues that the Missouri forum would likely entail the same choice of law analysis under the “internal affairs doctrine” as would be conducted here. (Motion at pp. 11–12.) “The internal affairs doctrine is a conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation's internal affairs—matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders—because otherwise a corporation could be faced with conflicting demands.” (State Farm Mutual Automobile Ins. Co. v. Superior Court (2003) 114 Cal.App.4th 434, 442.) This principle, however, is unlikely to be decisive in this case, as the dispute does not involve the management of Defendant entities, but restrictions upon Plaintiff that are contracted to take place after his departure from the company. Defendant also argues that both Missouri and California would otherwise apply choice of law analysis from section 187 of the Restatement (Second) of Conflicts of Law. (Motion at p. 11.) This argument is also unpersuasive, as the agreement states that Missouri law shall apply “without reference to choice of laws.” (Mundy Decl. Exh. A, § 7.7.) But this analysis is also likely to play out differently in Missouri, as that determination would involve questions of “whether the chosen state's law is contrary to a fundamental policy” of the forum state. (Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 466.) As discussed above, this analysis is likely to be far more critical of the covenant at issue in California than in Missouri.

The motion is therefore DENIED.