Judge: Jon R. Takasugi, Case: 22STCV13457, Date: 2023-07-10 Tentative Ruling

Case Number: 22STCV13457    Hearing Date: April 9, 2024    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

One Day Defendants’ motion for terminating sanctions and monetary sanctions or, in the alternative, for an order directing Plaintiff to show cause why it should not be held in contempt is DENIED IN PART, GRANTED IN PART.

Plaintiff is sanctioned, jointly and severally with counsel, $3,500.00.

            Plaintiff is directed to address all metadata issues associated with its two most recent productions, within 30 days of entry of this order. If Plaintiff failed to resolve this issue, One Day Defendant may renew its request for an OSC: re contempt.

            On April 21, 2022, Plaintiff CBD Franchising, Inc. (“Plaintiff”) filed a complaint against Defendants Central Jersey Doors & Closets, LLC, Mary Conway, William Conway, One Day Doors and Closets, Inc., and One Day Enterprises, alleging causes of action for: (1) breach of written contract; (2) breach of the implied duty of good faith and fair dealing; (3) tortious interference with contractual relations; and (4) unlawful business practices.

            Defendants One Day Enterprises, LLC and One Day Doors & Closets, Inc. (collectively “Defendants”) move for terminating sanctions against Plaintiff, as well as monetary sanctions against Plaintiff and its counsel, Christopher Reeder and Duncan McCreary, in the amount of $24,390.00. Alternatively, Defendants move for an OSC requiring Plaintiff and its counsel to show cause why they should not be held in contempt, fined, and imprisoned. Alternatively, Defendants move for an order requiring Plaintiff and its counsel to comply with the Court’s discovery orders within 15 days. The motion is made on the grounds that Plaintiff failed to comply with the Court’s July 19, 2023 and January 2, 2024, discovery orders.  

 Legal Standard

“The discovery statutes evince an incremental approach to discovery sanctions, starting with monetary sanctions and ending with the ultimate sanction of termination.” (Doppes v. Bentley Motors, Inc. (2009) 174 Cal.App.4th 967, 992.) “Discovery sanctions should be appropriate to the dereliction, and should not exceed that which is required to protect the interests of the party entitled to but denied discovery.” (Ibid.) “[C]ontinuing misuses of the discovery process warrant incrementally harsher sanctions until the sanction is reached that will curb the abuse.” (Ibid.) Where discovery violations are “willful, preceded by a history of abuse, and the evidence shows that less severe sanctions would not produce compliance with discovery rules, the trial court is justified in imposing the ultimate sanction.” (Ibid.) A trial court has broad discretion to impose discovery sanctions, but two facts are generally a prerequisite to the imposition of nonmonetary sanctions. (Biles v. Exxon Mobil Corp. (2004) 124 Cal.App.4th 1315, 1327.) Where discovery sanctions are requested against a party, there must be a failure to comply with a court order and the failure must be willful. (Ibid.)   

“Spoliation of evidence means the destruction of or significant alteration of evidence or the failure to preserve evidence for another’s use in pending or future litigation.” (Williams v. Russ (2008) 167 Cal.App.4th 1215, 1223.) Spoliation of evidence “is a misuse of the discovery process that is subject to a broad range of punishment, including monetary, issue, evidentiary, and terminating sanctions.” (Ibid.)  

“A decision to order terminating sanctions should not be made lightly.” (Creed-21 v. City of Wildomar (2017) 18 Cal.App.5th 690, 702.)  A trial court’s order to impose terminating sanctions will be reversed only if it “was arbitrary, capricious, or whimsical.”  (Ibid.) “[W]here a violation is willful, preceded by a history of abuse, and the evidence shows that less severe sanctions would not produce compliance with the discovery rules, the trial court is justified in imposing the ultimate sanction.”  (Ibid.) Trial courts have properly imposed terminating sanctions when parties have willfully disobeyed one or more discovery orders. (Los Defensores, Inc. v. Gomez (2014) 223 Cal.App.4th 377, 390.) Terminating sanctions are warranted when a party’s lack of compliance with the discovery process has caused the opposing party prejudice. (Doppes v. Bentley Motors, Inc. (2009) 174 Cal.App.4th 967, 989.)

Discussion

            On July 19, 2023, after taking the matter under submission, the Court granted in part Defendants’ motions to compel further responses. Plaintiff was ordered to provide further responses to Defendants’ RFP, Set One, Nos. 1 and 3; Defendants’ RFP, Set Two, Nos. 12-34; Defendants’ SROGs Nos. 1-3, 5-9, 14, and 17-19; and Defendants’ RFAs. (07/19/23 Minute Order.) As to Defendants’ motion to compel further responses to FROGs, the Court deemed the motion as substantively moot but ordered Plaintiff and its counsel to pay monetary sanctions in the amount of $700.00 (07/19/23 Minute Order.)

            On January 2, 2024, after hearing and taking the matter under submission, the Court granted Defendants’ motion for terminating and monetary sanctions in part. (01/02/24 Minute Order.) The Court denied Defendants’ request for terminating sanctions against Plaintiff; however, the Court granted Defendants’ request for terminating sanctions and sanctioned Plaintiff in the amount of $10,500.00. (01/02/24 Minute Order.) The Court noted that “Plaintiff’s conduct did not yet rise to the level of warranting terminating sanctions, though it [did] warrant monetary sanctions and the scheduling of an OSC re: Contempt.” (01/02/24 Minute Order at p. 2.) The Court found that Plaintiff’s conduct constituted an abuse of the discovery process; however, the Court did not impose terminating sanctions because Defendants did not move “to compel Plaintiff’s compliance with the 7/19/23 order, nor [did] [Defendants] [seek] an OSC re: contempt for Plaintiff’s failure to comply with the order.” (01/02/24 Minute Order at pp. 4-5.)

            Initially, the Court will address Defendants’ contention that Plaintiff failed to comply with the Court’s January 2, 2024 order. The Court notes that the January 2, 2024 order only mandated that Plaintiff pay sanctions to Defendants in the amount of $10,500.00. Such order did not compel Plaintiff to comply with the Court’s July 19, 2023 order. The declaration of Timothy Butler (“Butler”) in support of the motion does not state that Plaintiff failed to pay monetary sanctions pursuant to the January 2, 2024 order. The declaration of Tessa L. Cierny (“Cierny”) in support of the reply also does not indicate whether or not Plaintiff paid sanctions pursuant to the Court’s January 2, 2024 order.

            Butler sets forth the procedural posture of this action as it relates to discovery between the parties including Plaintiff’s untimely discovery responses despite a court order pursuant to the Court’s July 19, 2023 order. (Butler Decl., ¶¶ 3-29.) As to the Court’s July 19, 2023 order, Defendants argue that Plaintiff has not even attempted to remedy its discovery abuses or comply with such order. (Butler Decl., ¶ 30.) Butler declares that Plaintiff is willfully hiding responsive documents or otherwise spoliating evidence in this litigation. (Butler Decl., ¶ 31.) In fact, Butler states that, after the Court’s January 2, 2024 order, Plaintiff produced 2,742 additional pages of documents it has withheld for years—but nowhere close to compliance with this Court’s orders—consisting mainly of generic Franchise disclosure documents, a former employee’s desk file, and consultant invoices with are mainly unresponsive. (Butler Decl., ¶ 30.)

            In opposition to the motion, Plaintiff’s counsel, Zachary Ward (“Ward”), attests to completing his document review on March 7, 2024, and submitting responsive documents to counsel’s vendor, Lumix, and that Lumix provided PDF, native, and Bates stamped documents to Defendants’ counsel on March 8, 2024, which are relevant documents. (Ward Decl., ¶¶ 7-15; Exhs. A-G.) Ward declares that the following responsive documents were provided to Defendants: (1) documents sent or received by Mayra Austin (Ward Decl., ¶ 9; Exh. A.); (2) documents sent or received by Cathy Cooper (Ward Decl, ¶ 10; Exh. B.); (3) documents sent or received by Joann Terrones (Ward Decl., ¶ 11; Exh. C); (4) documents sent or received by Christopher Reeder (Ward Decl., ¶ 12; Exh. D.); (5) documents sent or received by Defendants William Conway, Mary Conway, and Central Jersey Doors & Closets (Ward Decl., ¶ 13; Exh. E); (6) documents pertaining to Plaintiff’s price book (Ward Decl., ¶ 14; Exh. F); and (7) documents pertaining to Ron Lichwala’s invoices (Ward Decl., ¶ 15; Exh. G.). Ward also sets forth classes of documents corresponding to certain Bates numbers referenced in the production. (Ward Decl., ¶¶ 16-24.)

            In opposition to the motion, Duncan J. McCreary (“McCreary”) provides a declaration setting forth discovery abuses by Defendants and stating that Plaintiff has produced over 50,000 documents during discovery, including an ESI search and native production. (McCreary Decl., ¶¶ 16-17.)

            The Court notes that Plaintiff has not put the actual purported responsive documents before the Court in connection with the opposition, and has only listed the Bates-stamped numbers purporting to be responsive to Defendants’ discovery requests. (Ward Decl., Exh. A-G.)

In its reply, Cierny declares that the March 8, 2024 production contained 67% duplicate productions and such production did not contain any metadata. (Cierny Decl, ¶¶ 4-5.) Cierny states that, to date, Plaintiff has not produced any documents from its internal files related to its claimed damages. (Cierny Decl., ¶ 7.)

            In its initial tentative, the Court concluded that One Day Defendants fell short of showing that terminating sanctions were warranted, but still concluded Plaintiff had not complied with the Court’s July 19, 2023 order. After oral argument, and after further review after taking the matter under submission, the Court concludes otherwise.

            This is because the record indicates that Plaintiff has since provided responsive documents to the July 19, 2023 order. Defendants note that Plaintiff did, as represented, produce nearly 18,000 on March 8, 2024 and March 13, 2024. Similarly, Defendants reply confirms that Plaintiff completed a Second ESI Production on March 8, 2024, and produced the Notice of Termination on October 12, 2023.  As such, the Court finds that the issue is not that Plaintiff has not complied with Court Orders, but that Defendants’ motion was necessary in order to prompt Plaintiff to provide responsive documents.

            For this reason, the Court does not find an OSC re: contempt to be necessary. Rather, Plaintiff is directed to address all metadata issues associated with its two most recent productions, within 30 days of entry of this order. If Plaintiff fails to do so, Defendant may renew its request for an OSC re: contempt.

            However, given that the timing of Plaintiff’s production does indicate that the filing of these motions were necessary to push Plaintiff to comply with the Court’s orders, the Court finds monetary sanctions must be imposed.

Plaintiff is sanctioned, jointly and severally with counsel, $3,500.

Based on the foregoing, One Day Defendants’ motion for terminating sanctions and monetary sanctions or, in the alternative, for an order directing Plaintiff to show cause why it should not be held in contempt is DENIED as to all requests but for monetary sanctions.  Plaintiff is sanctioned, jointly and severally with counsel, $3,500.

It is so ordered.

Dated: April 5, 2024

Hon. Jon R. Takasugi
Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the court at smcdept17@lacourt.org by 4 p.m. the day prior as directed by the instructions provided on the court website at www.lacourt.org.  If a party submits on the tentative, the party’s email must include the case number and must identify the party submitting on the tentative.  If all parties to a motion submit, the court will adopt this tentative as the final order.  If the department does not receive an email indicating the parties are submitting on the tentative and there are no appearances at the hearing, the motion may be placed off calendar.  For more information, please contact the court clerk at (213) 633-0517.  

Superior
Court of California

County
of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

One Day Defendants’ motion for
summary judgment, or summary adjudication in the alternative, is DENIED.

On 4/21/2022,
Plaintiff CBD Franchising, Inc. (Plaintiff or CBD) filed suit against Central
Jersey Doors & Closets, LLC, Mary Conway, William Conway, One Day Doors and
Closets, Inc., and One Day Enterprises, alleging: (1) breach of written
contract; (2)  breach of the implied duty
of good faith and fair dealing; (3) tortious interference with contractual
relations; and (4) unlawful business practices.

On 2/6/2024, One
Day Defendants moved for summary judgment, or in the alternative, summary
adjudication, of the third and fourth causes of action.

Discussion

            One
Day Defendants argue they are entitled to summary judgment of the third and fourth
causes of action for tortious interference with contractual relations and
unlawful business practices because: (1) the 2013 Franchise Agreements’
post-term covenant not to compete is unenforceable under Business and
Professions Code section 16600; (2) any reasonable trier of fact would find
that One Day Enterprises did not have knowledge of the 2013 Franchise Agreement
at any time relevant to CBDF’s claims; (3) any reasonable trier of fact would
find that the Conways did not breach the 2013 Franchise Agreement’s post-term
covenant not to compete because the covenant was no longer binding at the time
of their alleged breaches; and (4) any reasonable finder of fact would find
that One Day Doors and Closet, Inc. was an inactive business entity at all
relevant times, such that it is entitled to summary judgment.

            The
Court addresses each argument in turn.

I.                  
Post-Term Covenant Not to
Compete

Business and
Professions Code section 16600, provides that “every contract by which anyone
is restrained from engaging in a lawful profession, trade, or business of any
kind is to that extent void.” (Bus. & Prof. Code, § 16600.) Under section
16600, contractual restraints imposed on an individual “after the termination
of employment or the sale of interest in a business” are “invalid without
regard to their reasonableness.” (Ixchel Pharma, LLC v. Biogen, Inc.
(2020) 9 Cal.5th 1130, 1152.) That per se rule of invalidity embodies
California’s “settled legislative policy in favor of open competition and
employee mobility,” which “protects the important legal right of persons to
engage in businesses and occupations of their choosing.” (Edwards v. Arthur
Andersen LLP (2008) 44 Cal.4th 937, 946, citations and quotation marks
omitted.) This rule applies regardless of whether the contractual restraint is
imposed on an individual who is classified as an employee or instead as an
independent contractor: “Thus, an agreement by an employee or independent
contractor not to compete with his employer after leaving that employment is
void.” (Bosley Medical Group v. Abramson (1984) 161 Cal.App.3d 284,
288.)

            Here,
Section 13.02 of the 2013 Franchise Agreement purports to prohibit the Conways,
as individuals and independent contractors, from obtaining employment with any
“Competitive Business” located within any CBDF territory, or within 75 miles of
the perimeter of any CBDF territory, for a two-year period following the
termination of the agreement. (SUF 3.)

Under
Sections 1.01 and 13.01 of the 2013 Franchise Agreement, the term “Competitive
Business” includes any business that offers or sells “custom closet services or
products or other customed home organizer services or products” or “custom
closets, custom home and officer organizers, other customized organizer
services and related services and products” (collectively, “Custom Closets”).
(SUF 4.)

Given that
the 2013 Franchise Agreement purports to impose contractual restraints on the
Conways as individuals, rather than on any business entity, One Day Defendants
contend that the covenant not to compete falls squarely within the per se rule
of invalidity because it is a “contract by which [the Conways are] restrained
from engaging in a lawful profession, trade, or business.” (Bus. & Prof.
Code, § 16600.)

A contractual
restraint “falls outside the confines” of the per se rule of invalidity if “it
does not address an individual’s ability to engage in a profession, trade, or
business.” (Quidel Corporation v. Superior Court of San Diego County
(2020) 57 Cal.App.5th 155, 166.) In other words, contractual restrains imposed
on a business related to “business operations and commercial dealings”,
as opposed to an individual, are only invalid if they are “unreasonable.” (Ixchel,
supra, 9 Cal.5th at p. 1152.) One Day Defendants argue that even if the
covenant not to complete is construed as a restraint on a business, rather than
the Conways as individuals, it is still invalid because it is unreasonable.

In
opposition, CBDF argues: (1) the 2013 Franchise Agreement provides that its
post-term covenant not to compete should be governed by New Jersey law; (2) the
2013 Franchise Agreement’s post-term covenant not to compete falls with an
exception created by section 16601 permitting restrictive covenants when a
person “sells the goodwill of a business.”; and (3) section 16600 does not
prohibit post-term contractual restraints when they are included in franchise
agreements.

As for CBDF’s
first contention, California’s courts will not enforce an otherwise binding
choice-of-law provision when the agreement violates California’s fundamental
policy in favor of free competition. (See, e.g., Scott v. Snelling and
Snelling, Inc. (N.D. Cal. 1990) 732 F.Supp. 1034, 1041 [“Therefore, the
Court holds that it should apply California law to the question of the
enforceability of the covenants restricting competition in the franchise
agreements in this case despite the choice of law provision nominating
Pennsylvania law as controlling interpretation of the agreements.”]; Frame
v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1971) 20 Cal.App.3d
668, 673 [same]; Hollingsworth Solderless Terminal Co. v. Turley (9th
Cir. 1980) 622 F.2d 1324, 1338 [same].) As such, the Court declines to analyze
the validity of the non-compete covenant according to New Jersey law.

As for the
second contention, section 16601 has an exception which permits restrictive
covenants when a person “sells the goodwill of a business.” (Bus. & Prof.
Code, § 16601.) One Day Defendants argue that the 2013 Franchise Agreement
expressly and repeatedly states that it does not transfer any goodwill. (SUF
6.) However, in opposition, CBDF submitted evidence that goodwill was
transferred as part of the agreement. In support, CBDF noted that the Asset
Purchase Agreement explicitly states that the Conways were selling
“substantially all of [the business entity’s] operating assets together with
the goodwill of the business entity.” And, the Conways agreed that they were
transferring “[t]o the extent assignable, all of Seller's right, title and
interest in and to its customer contracts, telephone numbers, facsimile
numbers, any website and e-mail addresses and URLs (Universal Resource
Locators), licenses, leases, contracts and governmental authorizations relating
to the Business and operations of the Seller, customer lists and accounts, goodwill
and any other assets used in the Business.” (Egner Decl. ¶ 12, Exs. 5- 6, at
Section 1.a.(iii), emphasis added.)

As for the third
contention, California courts agree that a “post-franchise anti-competitive
provision of [any franchise] agreement violates anti-trust laws (Bus. &
Prof. Code, § 16600).” (Dayton Time Lock Service, Inc. v. Silent Watchman
Corp. (1975) 52 Cal.App.3d 1, 6; see also Kelton v. Stravinski
(2006) 138 Cal.App.4th 941, 947 [endorsing Dayton].) As such, the Court disagrees
with the contention that section 16600 does not prohibit post-term contractual
restraints. To the contrary, it is established that, even in the franchise
context, post-termination covenants not to compete are voided by Section
16600.” (Sonoma Tires, Inc. v. Big O Tires, LLC (N.D. Cal., Jan. 22,
2013, No. C 11-0818 RS)

In sum, the
Court finds a triable issue as to whether or not CBDF’s post-term covenant not
to compete violates section 1600. More specifically, the Court finds a triable
issue as to whether or not goodwill was transferred as part of the agreement.
To the extent that One Day Defendants argues that the non-compete is
unreasonable, this is a question for a trier of fact.

II.              
Knowledge of Post-Term
Covenant Not to Compete

One Day
Defendants argue that any reasonable trier of fact would find that One Day
Enterprises did not have knowledge of the 2013 Franchise Agreement at any time
relevant to CBDF’s claims. (See Ixchel, supra, 9 Cal.5th
at p. 1140 [noting that a plaintiff must prove “the defendant’s knowledge of
that contract”].

In support,
One Day Defendants submitted evidence that:

-        
One Day Enterprises first became aware
that the Conways were former CBDF franchisees after July 27, 2017, when One Day
Enterprises was served with CBDF’s complaint in the prior and related New
Jersey action between these parties. (SUF 42-43.)

-        
It is undisputed that the Conways never
purchased any Custom Closet from One Day Enterprises, and that they purchased
their last Custom Closet from Whip’s Carpentry on July 20, 2017—that is, before
One Day Enterprises learned that the Conways were former CBDF franchisees. (SUF
41, 52.)

-        
The plain and unambiguous language of
the 2013 Franchise Agreement demonstrates that its post-term covenant not to
compete reaches only Custom Closets, and does not include Interior Door Slabs.
(SUF 3-4.)

-        
At the same time CBDF filed its
complaint in the prior and related New Jersey action, CBDF sought a preliminary
injunction. (SUF 55.) In response, the Court entered a consent order—drafted by
CBDF, and entered with the consent of both CBDF and the Conways— that expressly
permitted the Conways to continue selling Interior Door Slabs to the public:
CBD agrees that this injunction does not include or preclude the Conway
Defendants from the sales of, or installation of doors, door hinges or door
handles in any area of Territory provided that these items are not part of a
custom closet or other customized home organizer service or product. (SUF 56.).

The Court
agrees that this evidence supports a reasonable inference that the One Day
Defendants did not have knowledge of the 2013 Franchise Agreement at any time
relevant to CBDF’s claims, and that the continuation of sales of Interior Door
Slabs by One Day Defendants to the Conways did not violate the post-term
covenant not to compete.

Accordingly,
the burden shits to CBDF to disclose a triable issue of material fact. 

In
opposition, CBDF argue that One Day Defendants were aware of the non-compete
and knew that the Conways had been involved in the closet business. In support,
CBDF submitted evidence that:

-        
Mr. Winter made clear statements
indicating he knew the Conways had been involved in the closet business. For
example, in his initial emails with the Conways, Mr. Winter stated “would do
very well at this business, especially by adding interior and closet doors to
the produce mix.” (Reeder Decl. Ex. 8.)

-        
Mrs. Conway’s LinkedIn demonstrates
that she listed being a Closets by Design franchise owner from September 2003,
through April 2016. (Reeder Decl. Ex. 9.)

-        
Defendants had been involved in
litigation over a non-compete in the industry so they know such provisions are
common. (King Depo p. 31:19-11, 44:23-45:8.)

-        
On September 27, 2017, CBDF filed a
Motion to Enforce Litigant's Rights in the NJ Action to compel compliance with
the Consent Order entered on August 22, 2017. (Id. ¶ 9.) The New Jersey Court
granted CBDF’s Motion and signed an Enforcement Order on November 9, 2017,
which ordered the Conways “to cease operation of their Competitive Business in
violation of section 1, 1(c), and 1(d) of the Consent Order, including but not
limited to, all advertising, solicitation, sales, manufacturing or installation
of custom closets or other home organization systems (including closet doors)
as well as all affiliation, whether by agreement or otherwise, with ODDC and
use of the word ‘closets’ in any business or trade name.” (Id. Ex. 24.)

-        
Documents produced in discovery in the
NJ Action revealed that between July 18, 2017, through December 2017, ODD
issued monthly invoices to the Conways, even after receiving notice of the
Verified Complaint, the Conways’ non-compete agreement with CBDF, the August
22, 2017, Consent Order, and the November 9, 2017, Enforcement Order. (Id. Exs.
22, 25.)

Moreover,
CBDF cited Mission Viejo Florist, Inc. v. Orchard Supply Company, LLC (C.D.
Cal., Nov. 17, 2016, No. SACV1601841CJCKESX) 2016 WL 9275407, to show that a
tortious interference with contractual relations claim can be maintained where
there has been substantial interference even if this was not the primary
purpose of the contract:

Plaintiff
characterizes this reliance as “willful blindness,” which it argues was
unreasonable, especially after Plaintiff directed letters to Defendant several
months prior to its opening alerting Defendant of Plaintiff's exclusive right.
… For purposes of this tort, “a plaintiff need not establish that the primary
purpose of the defendant's actions was to disrupt the contract. The tort is
shown even where ‘the actor does not act for the purpose of interfering with
the contract or desire it but knows that the interference is certain or
substantially certain to occur as a result of his [or her] action.’”
(Citations.) Plaintiff has provided evidence that Defendant became aware of
Plaintiff's exclusivity provision and proceeded in spite of it.

(Mission
Viejo Florist, Inc. at * 5.)

Taken
together, CBDF’s evidence supports a reasonable inference that One Days
Defendants had knowledge of the non-compete provision and the New Jersey orders
not to compete.

III.           
Breach of Post-Term
Covenant

One Day
Defendants argue that, even assuming the covenant not to compete is
enforceable, the Conways did not breach the 2013 Franchise Agreement’s
post-term covenant not to compete.

            In
support, One Day Defendants submitted evidence that:

-        
On April 7, 2015, CBDF terminated the
2013 Franchise Agreement pursuant to Section 17.02 of the agreement by having
its outside counsel, Christopher Reeder, send the Conways the 2015 Notice of
Termination. (SUF 8.)

-        
The 2015 Notice of Termination
expressly terminated the 2013 Franchise Agreement pursuant to Section 17.02:
“Accordingly, the Franchise Agreement is hereby terminated immediately
pursuant to Sections 17.02(6) and 17.06 of the Franchise Agreement.” (SUF 9.)

-        
The Notice of Termination expressly stated
that the Conways were subject to post-termination obligations that CBDF had not
excused: “Nothing in this letter should be construed . . . to excuse any post
termination obligation of the Franchisee, its principals, and guarantors.” (SUF
10.)

-        
The plain language of the 2016 Transfer
Agreement demonstrates that CBDF released the Conways from all of their rights,
duties, and obligations. (SUF 28-32.)

-        
With the 2016 Transfer Agreement, CBDF
expressly consented to the Conways’ assignment of all of their post-termination
“rights, duties and obligations under” the 2013 Franchise Agreement in exchange
for, among other things, a new “Confidentiality/Non-Competition Agreement.”
(SUF 28-32.)

-        
It is undisputed that the Conways never
purchased any Custom Closets from One Day Enterprises. (SUF 41.)

-        
It is undisputed that the Conways
placed their first order for Interior Door Slabs with One Day Enterprises on
April 19, 2017. (SUF 40.)

One Day
Defendants’ evidence supports a reasonable inference that because CBDF terminated
the 2013 Franchise Agreement on April 7, 2015, the agreements two-year,
post-term covenant not to compete would have expired, absent further agreement
among the parties, on April 7, 2017. (SUF 11.) One Day Defendants’ evidence
also supports a reasonable inference that CBDF released the Conways from all of
their post-term rights, duties, and obligations under the 2013 Franchise
Agreement as of June 21, 2016. Finally, One Day Defendants’ evidence supports a
reasonable inference that the Conways therefore did not breach the covenant
because they never purchased any Custom Closets from One Day, and did not place
their first order for Interior Door Slabs with One Day Enterprises until April
19, 2017.

Accordingly,
the burden shits to CBDF to disclose a triable issue of material fact. 

In
opposition, CBDF argues that a triable issue of material fact exists as to
whether or not the Conways breached the post-term covenant because CBDF did not
release the Conways from their obligation to perform under the 2013 Franchise
Agreement or their Post-Assignment Obligations. 

As to One Day
Defendants’ argument that CBDF terminated the Franchise Agreement on April 7, 2015,
and thus the covenant not to compete expired on April 7, 2017, CBDF submitted
evidence that, contrary to One Day Defendants’ representation, they did not
only send a Notice of Termination on April 7, 2015. Rather, they sent a Notice
of Termination and a Limited License Agreement. (Egner Decl. ¶ 7, Ex.
2.) The terms of the Limited License terms expressly incorporated the 2013
Franchise Agreement. Specifically, Section 1 of the Limited License Agreement
provided:

CBDF grants
Licensee a license to continue to operate the Closets By Design Business for a
period of thirty (30) days from the Effective Date, revocable at CBDF's option.
Licensee's right to operate the Business is limited to the Territory specified
in the Franchise Agreement, which is incorporated by reference as though fully
set forth herein.

(Id. ¶ 8, Ex.
2.)

The Limited
License Agreement further provides that: CBDF may renew the licenses granted to
Licensee to continue to operate the Franchise as set forth herein and use the
Closets By Design System as well as use and display the Proprietary Marks in
connection therewith for consecutive thirty (30) day periods at CBDF's option.

(Ibid.)

CBDF
submitted evidence that the Conways executed this Limited License Agreement,
continued to operate as a CBDF franchisee including paying royalties and
completing jobs, and CBDF took no steps to terminate the Conways’ franchise.
(See Egner Depo. p. 134:6-138:25, 141:12-156:17, 159:8-11, 167:2-17,
174:21-177:18, 180:5- 12, 220:11-221:20, 223:6-11, 225:6-8, 226:14-18,
227:12-23; Kroll Depo. p. 65:21-67:15, 72:4- 20, 77:4-79:15, 80:19-24,
81:9-84:17; Almond Depo. p. 91:1-15, 93:2-5, 132:24-133:13; M. Conway
Deposition p. 106:1-18, 133:20-25, 146:3-147:16, 149:1-150:1, 163:3-164:3,
179:13- 182:13, 259:10-13;) B. Conway Depo p. 42:20-43:19, 66:17-67:18,
94:16-96:1 101:21-102:20, 103:4-6, 104:24-106:20, 111:17-22, 112:19-115:6,
138:1-139:4 148:7-149:8, 150:1-22, 160:3-13, 161:2-163:18, 210:9-211:10,
213:16-215:4, 216:1-16.)

CBDF
submitted evidence that Bill Conway subsequently expressly requested that the
franchise not be terminated and CBDF approve a transfer instead, and that CBDF
agreed. (Egner Decl. ¶ 10, Ex. 4.) CBDF also submitted evidence that when the
Conways sold the franchise to DenMatt Industries, LLC, they represented that
they were still franchisees and subject to the 2013 Franchise Agreement. (Id.
Exs 5-7.)

As to One Day
Defendants’ contention that CBDF released the Conway from their post-term
“right, duties and obligations” under the 2013 Franchise Agreement on June 21, 2016,
CBDF submitted evidence that the 2013 Franchise Agreement contained terms which
explicitly survive the Conways’ assignment of 2013 Franchise Agreement. In
particular, Section 13.02 states:

You agree
that for a period of two years immediately following the expiration,
cancellation, assignment or termination of this Agreement for any
reason, you will not directly or indirectly engage in any other Competitive
Business as defined in Section 13.01 above.

(Egner Decl.
Ex. 1., emphasis added)

            As
such, CBDF has submitted evidence that the 2013 Franchise Agreement contained
terms, including the non-compete provision, that expressly survived the
Conways’ assignment of the 2013 Franchise Agreement.

            In
sum, there are triable issues of fact as to whether or not the Conways breached
the non-compete covenant. 

IV.           
Inactive Business Entity

Finally, One
Day Defendants argue that One Day Doors and Closet, Inc. was an inactive
business entity at all relevant times. In support, One Day Defendants submitted
a declaration stating “[a]t all times relevant here, Defendant One Day Doors
and Closets, Inc. was an inactive corporate entity. To the extent any documents
relevant here references One Day Doors and Closets, Inc., the reference was
inadvertent.” (SUF 33.)

However, One
Day Defendants’ argument is not supported by any case law and consists only of:

Any reasonable
finder of fact would find that One Day Doors and Closet, Inc. was an inactive
business entity at all relevant times. (SUF 33.) And One Day Doors and Closets,
Inc. is entitled to summary judgment for that reason standing alone. But, in
any event, to the extent One Day Enterprise’s conduct is wrongly attributed to
it, One Day Doors and Closets, Inc. is entitled to summary judgment or, in the
alternative, summary adjudication for all of the reasons given above.

            (Motion,
19: 18-22.)

            In
opposition, CBDF submitted evidence to show that One Day Doors and Closets Inc.
is a valid and functioning corporate entity. More specifically, CBDF submitted
evidence that:

-        
The California Secretary of State
provides documentation that One Day Doors and Closets, Inc. was founded on or
about April 18, 2012, with full articles of incorporation. (Reeder Decl. Ex.
31.)

-        
The California Secretary of State
further provides documentation that One Day Doors and Closets Inc., updated its
statement of information on December 13, 2022. (Id. Ex. 32.)

-        
The trademark registration demonstrates
that it was registered by One Day Doors and Closets, Inc. (Id. Exs.
33-35.)

-        
The Confidentiality Agreement and Terms
and Conditions of Sale executed by the Conways and Mr. Winter explicitly list
“One Day Doors and Closets, Inc., a California Corporation with its
headquarters located at 2675 Skypark Dr. #204, Torrance, CA 90505.” (Id.
Ex. 10. p. 5.)

Taken
together, the concludes that a triable issue exists as to whether One Day Doors
and Closets Inc. was an inactive business entity at all relevant times.

Based on the
foregoing, One Day Defendants’ motion for summary judgment, or summary
adjudication in the alternative, is denied.

It is so ordered.

Dated:  April   
, 2024

   Hon. Jon R.
Takasugi

   Judge of the
Superior Court

Parties who intend to submit on this tentative must
send an email to the court at smcdept17@lacourt.org
by 4 p.m. the day prior as directed by the instructions provided on the court
website at www.lacourt.org.  If a party submits
on the tentative, the party’s email must include the case number and must
identify the party submitting on the tentative. 
If all parties to a motion submit, the court will adopt this
tentative as the final order.  If the department
does not receive an email indicating the parties are submitting on the
tentative and there are no appearances at the hearing, the motion may be placed
off calendar.  For more information, please contact the court clerk at (213)
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