Judge: Mark H. Epstein, Case: 24SMCV02050, Date: 2024-06-17 Tentative Ruling

Case Number: 24SMCV02050    Hearing Date: June 17, 2024    Dept: I

This is an application for a TRO and a OSC re: Preliminary Injunction.  Plaintiff alleges that it bought defendants’ business on June 6, 2023, and paid over $1 million for it.  As part of the transaction, plaintiff obtained a 5 year non-compete agreement from the sellers.  Although non-compete contracts are not permitted as between an employer and employee, they are permitted when they are reasonable and part and parcel of the sale of a business.  Generally speaking, the business involves social media promotion applications.  That included a website, Plixi.  According to plaintiff, shortly after the deal closed, plaintiff discovered a competing website, Upgrow.  Plaintiff did not initially know that Upgrow was tied to defendants, but in February 2024, plaintiff claims that it learned that a company called Sequoia was responsible for the merchant account for Upgrow.  That evidence comes from Mr. Tran, who declares that defendant approached him to set up the merchant account and sent him documents that showed a “dba” of Sequoia as Upgrow.  Plaintiff claims that defendant is Sequoia’s agent and contact person and that defendants and Sequoia share the same physical address.  Upgrow not only allegedly competes with Plixi, but has the same catchphrase.  Plaintiff sent defendants a cease and desist letter, but plaintiff states that the letter was ignored.  Plaintiff filed suit.  After suit was filed, plaintiff learned of another website similar to Plixi, Keesy. 

Plaintiff states that both Upgrow and Keesy are competitors and have harmed Plixi’s business.  (Of course, to the extent that these entities have nothing to do with defendants, the fact that plaintiff is harmed by competition is not a tort or contract breach.  It is only if defendants, in violation of the non-compete agreement, are affiliated with Upgrow or Keesy that there is a problem.)  Finally, plaintiff claims that it believes that Upgrow is about to be sold because there is an indication that the domain name is for sale on GoDaddy.com.  Plaintiff asserts that competition from Upgrow and others have eaten into Plixi’s business and have increased expenses.

Plaintiff seeks a TRO and an OSC re: Preliminary Injunction to bar defendants from further violation of the non-compete, specifically directing them to stop undertaking any activity that competes with or aids the business they sold to plaintiff, including the sale of any competing enterprise or aiding it in any way.

In opposition, defendant contends that he has no ownership or financial interest, direct or indirect, in Upgrow or Keesy.  Upgrow, he states, was started by a former person associated with Plixi, Sarkar (who is not a party to the non-compete agreement).  After the sale, Sarkar had a consulting agreement with plaintiff, but when the agreement expires, Sarkar decided to start his own company, Upgrow.  Defendant admits that Sarkar did contact him and asked for help to set up the merchant account because Sarkar lives in Bangladesh and the account has to be set up by a US company.  Defendant states that he agreed to set up the merchant account as a favor, but he has received no compensation for it or in any other way for anything relating to Upgrow.

In considering injunctive relief, the court looks to a sliding two-prong test: (1) the likelihood of plaintiff’s success on the merits; and (2) the balance of hardships.  The stronger the showing on one prong, the less of a showing is needed on the other.  The court also looks to see if the alleged harm to the plaintiff is irreparable.  Where the harm is only monetary and it is quantifiable, and if the defendant can stand in damages, then injunctive relief is unlikely, especially where what is being sought is specific performance under a contract.  And finally the court looks to whether issuing the injunctive relief will maintain or alter the status quo.  The goal of pre-trial injunctive relief is to keep the parties where they were before litigation began to the extent possible.  Therefore, an injunction that maintains the status quo is more likely to be entered than one that changes the status quo.  This factor takes on greater importance at the TRO stage, where the principal goal is to freeze everything until the court can obtain full briefing and properly consider the matter.

The court will likely DENY the TRO.  First, as the defense points out, it is hard to understand why plaintiff waited four months to bring this motion—and that is four months after the cease and desist letter.  If this were an emergency, it would have been brought sooner.  Second, the court is not at all sure that the harm is irreparable.  Third, the court is not sure that this is causing any harm at all, let alone the kind that must be rectified by a TRO.  There is a lot of competition in this field, apparently, and Upgrow is only one competing entity.  Fourth, the court would think that if there is harm, it can be rectified in damages.  That is especially so in that the assistance given here was not of a technical or proprietary sense—it was more mundane.  Indeed, the court doubts that a non-compete agreement could validly extend to providing aid that is not technical or competitive in nature, at least where there is no public-facing association between the person signing the non-compete and the other entity.  Fifth, the court has no confidence that Upgrow is actually being sold or that any of the proceeds would go to defendant.

Were the court to get past all of those issues, the court would still have concerns and questions.  First, it appears that defendant agrees that he is associated with Sequoia, but he asserts that other than setting up the merchant account, Sequoia does nothing—specifically it provides Upgrow no technical assistance or business assistance.  The court needs to know if that is the case.  Second, defendant says that all the money received in the merchant account has gone to pay Upgrow’s bills or to Upgrow’s owners, but none to defendant.  The court needs to know if plaintiff has any evidence disputing that.  Third, defendant contends that Plixi’s problems stem from its own business practices or the fact that there are lots of competitors out there.  The court needs to better understand how Upgrow ties directly to the alleged harm.  Fourth, the court needs to understand why the harm is irreparable.  Fifth, the opposition states that if this injunction issues, he will be in contempt of court.  The court does not understand why that is.  Sixth, the court needs to better understand whether the GoDaddy is the only evidence that Upgrow is for sale. 

In short, there is an insufficient showing for a TRO.  Nor will the court issue an OSC.  Plaintiff needs to make a greater showing to get a PI, so a new motion would be the better course.