Judge Robert B. Broadbelt, Case 22STCV39876 2023-03-29 Tentative Ruling

Judge: Robert B. Broadbelt, Case: 22STCV39876, Date: 2023-03-29 Tentative Ruling

MOVING PARTIES: Defendants Lockton Companies, LLC—Pacific Series, Lockton Investment Advisors, LLC, Lockton Investment Securities, LLC f/k/a Lockton Financial Advisors, and Lockton Partners, LLC

Motion to Dismiss Complaint and/or Stay Action on Grounds of Forum Non Conveniens

The court considered the moving, opposition, and reply papers filed in connection with this motion.

The court grants plaintiff Sallie Giblin’s request for judicial notice. (Evid. Code, § 452, subd. (d).)

Defendants Lockton Companies, LLC—Pacific Series (“Pacific Series”), Lockton Investment Advisors, LLC (“LIA”), Lockton Investment Securities, LLC f/k/a Lockton Financial Advisors, LLC (“LIS”), and Lockton Partners, LLC (“Lockton Partners”) (collectively, “Defendants”) move the court for an order dismissing this action filed by plaintiff Sallie Giblin (“Plaintiff”) or, in the alternative, staying this action pursuant to the doctrine of forum non conveniens.

If a court “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).) “A defendant may enforce a forum-selection clause by bringing a motion pursuant to sections 410.30 and 418.10, the statutes governing forum non conveniens motions, because they are the ones which generally authorize a trial court to decline jurisdiction when unreasonably invoked and provide a procedure for the motion.” (Cal-State Business Products & Services, Inc. v. Ricoh (1993) 12 Cal.App.4th 1666, 1680.) “‘Section 410.30 is a codification of the doctrine of forum non conveniens [citation], but the principles governing enforcement of a forum selection clause are not the same as those applicable to motions based on forum non conveniens. [¶] In California, “forum selection clauses are valid and may be given effect, in the court’s discretion and in the absence of a showing that enforcement of such a clause would be unreasonable.” [Citation.] [¶] The burden of proof is on the plaintiff, and the factors involved in traditional forum non conveniens analysis do not control. [Citation.] “Instead, the forum selection clause is presumed valid and will be enforced unless the plaintiff shows that enforcement of the clause would be unreasonable under the circumstances of the case.”’” (Korman v. Princess Cruise Lines, Ltd. (2019) 32 Cal.App.5th 206, 213.)

The court finds that Defendants have presented evidence of agreements containing forum selection clauses between Defendants and Plaintiff. The court further finds that the forum selection clauses are mandatory.

Defendants present evidence establishing that (1) Plaintiff was a Producer Member of defendant Pacific Series and she entered into Member Agreements with Pacific Series based on her status as a member; (2) Plaintiff was a Producer Member of defendant LIA and she entered into Member Agreements with LIA based on her status as a member; (3) Plaintiff was a Producer Member of LIS, and she entered into the LIS Member Agreement based on her status as a member; and (4) Plaintiff became a Producer Partner of defendant Lockton Partners, and she entered into the May 1, 2017 Producer Partner Agreement with Lockton Partners based on her position. (Mundy Decl., ¶¶ 2-5; Mundy Decl., Ex. A [May 1, 2016 Amended and Restated Pacific Series Member Agreement], Ex. B [May 1, 2017 First Amendment to Amended and Restated Pacific Series Member Agreement], Ex. C [May 1, 2016 Amended and Restated LIA Member Agreement]; Ex. D [May 1, 2017 First Amendment to Amended and Restated LIA Member Agreement], Ex. E [November 17, 2021 Solicitation of Vote by Producer Members to Amend and Restate the Operating Agreement of LIA], Ex. F [November 6, 2017 LIS Member Agreement], Ex. G [May 1, 2017 Producer Partner Agreement with Lockton Partners].)

Each of the agreements entered into by and between Plaintiff and Defendants includes a forum selection clause.

The agreements with Pacific Series, LIA, and LIS include the following provision: “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 [Pacific Series, LIA, LIS], including, without limitation, any disputes, claims or issues arising out of or relating to the rights and interests of [the Other Series,] Affiliates and Lockton Entities as set forth herein, shall be brought exclusively in any Federal Court in Kansas City, Missouri or in the Circuit Court of Jackson County, Missouri; provided, however, [Pacific Series, LIA, and LIS] shall pay promptly, upon demand from time-to-time by Member, reasonable out-of-pocket costs of travel to attend proceedings in such forum. 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 forth in this Section 7.7 are fair and reasonable.” (Mundy Decl., Ex. A, § 7.7, subd. (a), Ex. C, § 7.7., subd. (a), Ex. F, § 7.7, subd. (a).)

The Producer Partner Agreement with Lockton Partners similarly states as follows: “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, the Member Agreement, the Lockton Companies Operating Agreement and/or Producer Partner’s membership in the Company and/or in the Series and/or any Other Series or Affiliate, if applicable, including, without limitation, any disputes, claims or issues arising out of or relating to the rights and interests of the Series, the Other Series, Affiliates and Lockton Entities as set forth herein, shall be brought exclusively in any Federal Court in Kansas City, Missouri or in the Circuit Court of Jackson County, Missouri; provided, however, the Company shall pay promptly, upon demand from time-to-time by Producer Partner, reasonable out-of-pocket costs of travel to attend proceedings in such forum. Such courts shall have exclusive jurisdiction over these matters, and Producer Partner hereby agrees to be subject to the personal jurisdiction of such courts. The parties hereto agree that the provisions set forth in this Section 5.9 are fair and reasonable.” (Mundy Decl., Ex. G, § 5.9, subd. (a).)

“In a contract dispute in which the parties’ agreement contains a forum selection clause, a threshold issue in a forum non conveniens motion is whether the forum selection clause is mandatory or permissive.” (Animal Film, LLC v. D.E.J. Productions, Inc. (2011) 193 Cal.App.4th 466, 471.) “A clause is mandatory if it requires the parties to litigate their disputes exclusively in the designated forum, and it is permissive if it merely requires the parties to submit to jurisdiction in the designated forum.” (Verdugo v. Alliantgroup, L.P. (2015) 237 Cal.App.4th 141, 147, fn. 2.) Courts will analyze the applicability of a forum selection clause differently based on whether the clause is mandatory or permissive. (Ibid; Animal Film, LLC, supra, 193 Cal.App.4th at p. 471.)

The court finds that the forum selection clauses in each of the agreements are mandatory because each provides that (1) covered claims “shall be brought exclusively in any Federal Court in Kansas City, Missouri or in the Circuit Court of Jackson County, Missouri” and (2) “[s]uch courts shall have exclusive jurisdiction over these matters….” (Mundy Decl., Ex. A, § 7.7, subd. (a), Ex. C, § 7.7., subd. (a), Ex. F, § 7.7, subd. (a), Ex. G, § 5.9, subd. (a) [emphasis added].) Thus, the forum selection clauses require covered disputes and claims to be brought in the designated courts, which the parties have agreed will have exclusive jurisdiction over such disputes and claims.

The court finds that the forum selection clauses apply to all of the claims and causes of action asserted by Plaintiff in her Complaint.

Plaintiff contends that the forum selection clauses do not apply to her causes of action under California’s Fair Employment and Housing Act (“FEHA”) (Gov. Code, § 12900 et seq.) because (1) the clauses apply only to claims that pertain to the interpretation, validity, or enforceability of the agreements, the operating agreement, and/or Plaintiff’s membership in the companies, and (2) Plaintiff has asserted claims under FEHA concerning the environment Plaintiff was subjected to and therefore “do not turn on any substantive provisions of her member agreements” and, accordingly, do not pertain to or arise out of the member agreements. (Opp., p. 3:19-21.) Defendants contend that Plaintiff’s action arises out of her membership with Defendants and therefore is governed by the forum selection clauses.

As set forth above, the forum selection clauses provide that “[a]ny 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 Plaintiff’s membership in the defendant companies “shall be brought exclusively in any Federal Court in Kansas City, Missouri or in the Circuit Court of Jackson County, Missouri….” (Mundy Decl., Ex. A, § 7.7, subd. (a), Ex. C, § 7.7., subd. (a), Ex. F, § 7.7, subd. (a), Ex. G, § 5.9, subd. (a) [emphasis added].)

The court finds that Plaintiff’s causes of action under FEHA arise from Plaintiff’s membership with Defendants. In her Complaint, Plaintiff alleges (1) facts establishing her history with Defendants, and (2) that, during the course of her relationship with Defendants, she was subjected to gender discrimination, retaliation, and harassment, including the existence of a hostile work environment. (Compl., ¶¶ 20-23, 88, 94-95, 102, 104.) Thus, the court finds that Plaintiff’s FEHA causes of action relate to her positions and legal relationship with Defendants, and therefore are encompassed by the parties’ Member Agreements and Producer Partner Agreement. (Mundy Decl., Exs. A, C, F, G.)

Plaintiff does not appear to dispute the applicability of the agreements to her fourth and fifth causes of action for declaratory relief and unfair competition, respectively. The court finds that those causes of action are encompassed by the Member Agreements and Producer Partner Agreement because Plaintiff (1) requests judicial declarations regarding her agreements with Defendants, and (2) alleges that Defendants have engaged in unfair competition by attempting to enforce restrictive noncompete covenants as set forth in those agreements. (Compl., ¶¶ 171, 179-182, 189.)

The court finds that Plaintiff has not met her burden to prove that the forum selection clauses should not be enforced pursuant to Labor Code section 925. (Korman, supra, 32 Cal.App.5th at p. 216 [burden is placed on the party seeking to overturn the forum selection clause].)

Labor Code section 925 provides that “[a]n employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following: [¶] (1) Require the employee to adjudicate outside of California a claim arising in California[,] [¶] (2) Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.” (Lab. Code, § 925, subd. (a).) This statute applies to contracts entered into, modified, or extended on or after January 1, 2017. (Lab. Code, § 925, subd. (f).) This statute does not apply to contracts “with an employee who is in fact individually represented by legal counsel in negotiating the terms of an agreement to designate either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied.” (Lab. Code, § 925, subd. (e).) Thus, section 925 “provides that a mandatory choice of law or forum selection clause in an employment contract is voidable at the option of the ‘employee’ when enforcement of the provision would require the employee to litigate a claim arising in California in an out-of-state forum, or deprive the employee of the substantive protection of California law with respect to a controversy arising in California.” (Grove v. Juul Labs, Inc. (2022) 77 Cal.App.5th 1081, 1094.)

The parties dispute whether Plaintiff was an employee or an owner of Defendants. Plaintiff and Defendants cite different standards to determine Plaintiff’s employment status, both of which appear to be inapplicable to the circumstances presented here. Plaintiff cites authority setting forth the common law employment test primarily used by courts to determine whether an individual is an employee or independent contractor. (Ayala v. Antelope Valley Newspapers, Inc. (2014) 59 Cal.4th 522, 530-531.) However, Defendants do not contend that Plaintiff was misclassified as an independent contractor and instead contend that Plaintiff was not an employee, but rather, an owner. In reply, Defendants cite Labor Code section 1132.4, which provides that an “‘[e]mployee’ means any person who performs services for wages or salary under a contract of employment, express or implied, for an employer.” This definition is in Chapter 8 of the Labor Code, entitled “Professional Strikebreakers.” Defendants have not cited any authority that establishes that this provision governs the employment relationship test here.

The court finds that the evidence shows that Plaintiff was not an employee within the meaning of Labor Code section 925, but was an owner of Defendants. The court therefore finds that Labor Code section 925 does not operate as a bar to this motion. The parties have presented the following evidence.

Defendants first cite to the agreements between Plaintiff and Defendants, which do not identify Plaintiff as an employee. First, the Amended and Restated Member Agreement with Pacific Series (1) defines Plaintiff to be a “Member” of Pacific Series; (2) provides that Plaintiff made a capital contribution to the Pacific Series in exchange for one Producer Unit in the Pacific Series; (3) states that the parties agree that, “for all purposes, [Plaintiff], as an owner of a Producer Unit in the [Pacific] Series, has and holds an ownership interest in the [Pacific] Series and all rights, benefits, duties, promises, opportunities and mutual agreements commensurate therewith, which employees of the [Pacific] Series do not have or hold.” (Mundy Decl., Ex. A, pp. 1-2, § 1.) Second, the Amended and Restated Member Agreement with LIA (1) similarly defines Plaintiff to be a “Member” of LIA; (2) provides that she made a capital contribution to the capital of LIA; and (3) provides an agreement that Plaintiff, “as an owner of a Producer Unit in the Company [i.e., LIA] has and holds an ownership interest in the Company and all rights, benefits, duties, promises, opportunities and mutual agreements commensurate therewith, which employees of the Company do not have or hold.” (Mundy Decl., Ex. C, pp. 1-2, § 1.)

Third, the Member Agreement with LIS also (1) defines Plaintiff to be a “Member;” (2) provides that she has made a capital contribution; and (3) includes an agreement between the parties that Plaintiff, “as an owner of a Producer Unit in the Company, has and holds an ownership interest in the Company and all rights, benefits, duties, promises, opportunities and mutual agreements commensurate therewith, which employees of the Company do not have or hold.” (Mundy Decl., Ex. F, pp. 1-2, § 1.) Finally, the Producer Partner Agreement with Lockton Partners defines Plaintiff to be a “Producer Partner” of Lockton Partners and provides that she shall “own an Interest comprising one Partner Unit of and in the Company,” and to share in the income “as an owner of” Lockton Partners. (Mundy Decl., Ex. G, pp. 1-2.) Further, Defendants present evidence that, “[a]s a Producer Member, [Plaintiff] received a Form K-1 and took advantage of expense and qualified income deductions[,]” and that Plaintiff was paid “in connection with her ownership interests” and “equity interests” in Defendants. (Mundy Decl., ¶¶ 17, 18, 20.)

In reply, Defendants present responsive evidence showing that (1) Plaintiff was not compensated by Defendants as an employee; (2) Plaintiff did not perform services for wages or a salary and instead was entitled to share in the profits as an owner; (3) Plaintiff was not treated as an employee for tax purposes in connection with her work for Defendants, and she (i) did not file taxes reporting W-2 income, (ii) did not pay payroll taxes, and (iii) filed state and federal taxes as a business owner and received a Form K-1; and (4) Plaintiff did not have an employment agreement with Defendants, and instead entered into the Member Agreements and Partner Agreement, and Defendants’ employees “are not party to these kinds of agreements.” (Supp. Mundy Decl., ¶¶ 14, 17-18.)

In her declaration, Plaintiff states that (1) “it is [her] understanding that [she] never held an ownership interest in any Lockton entity, including in the Pacific Series within which [she] worked[;]” (2) “the only interest [she] received under [the] agreements were entitlements to profit-sharing[;]” (3) she did not receive any power or control over Lockton operations as a result of her membership in Lockton Partners or any of the other Lockton entitles; (4) although she is a member of Pacific Series, LIA, and LIS, she has “never attended any membership meetings” and has “never acted like or conducted [herself] as an equity owner in those entities[;]” (5) she did not own any shares of stock that she could sell for cash or exchange for other assets; (6) she “always considered [herself] an employee and feel[s] [she] was treated as an employee” despite the titles she was given, which Plaintiff maintains “were not indicative of any ownership or power” with the Lockton entities; and (7) she had no power to hire or fire employees, control the service teams that supported her clients, and was personally subject to demotion or firing. (Giblin Decl., ¶¶ 24, 27-28, 30, 32.)

In opposition, Plaintiff does not meaningfully dispute the language in the agreements that identify her as an owner instead of an employee. The court also finds significant that the Member Agreements distinguish her position from that of its employees. Those agreements expressly state that Plaintiff, as a member of defendants Pacific Series, LIA, and LIS, “holds an ownership interest” therein, along with the rights, benefits, duties, and promises commensurate therewith, “which employees of [Pacific Series, LIA, and LIS] do not have or hold.” (Mundy Decl., Ex. A, § 1 [Amended and Restated Member Agreement with Pacific Series], Ex. C, § 1 [Amended and Restated Member Agreement with LIA], Ex. F, § 1 [Member Agreement with LIS] [emphasis added].)

Plaintiff also does not dispute that she received a Form K-1, took advantage of other tax benefits, and was compensated based on her equity interests. (Mundy Decl., ¶¶ 17-18.) Further, the court notes that the forum selection clauses are contained in the Member Agreements and Producer Partner Agreement, and not any employment contract between Plaintiff and Defendants. (Grove, supra, 77 Cal.App.5th at p. 1094 [finding that Section 925 did not apply to shareholder derivative claims and noting that the forum selection clause was not part of an employment contract and was instead contained in the corporate charter].)

The court therefore finds that Plaintiff has not met her burden of showing that she is an employee within the meaning of Labor Code section 925 and therefore finds that the forum selection clauses are not voidable pursuant to that statute for purposes of this motion.[1]

4. Enforcing the Forum Selection Clauses Would Violate California’s Public Policy

The court finds that Defendants have not met their burden to show that the forum selection clause should be enforced on the ground that litigating this action in Missouri would not diminish any substantive rights afforded in California.

“‘California courts will refuse to defer to the selected forum if to do so would substantially diminish the rights of California residents in a way that violates our state’s public policy.’” (Verdugo, supra, 237 Cal.App.4th at p. 147.) While the party opposing enforcement of a forum selection clause ordinarily has the burden of proving why it should not be enforced, the burden “is reversed when the claims at issue are based on unwaivable rights created by California statutes. In that situation, 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.) “By definition, this showing requires the defendant to compare the plaintiff’s rights if the clause is not enforced and the plaintiff’s rights if the clause is enforced. Indeed, a defendant can meet its burden only by showing the foreign forum provides the same or greater rights than California, or the foreign forum will apply California law on the claims at issue.” (Id. at p. 157.)

Plaintiff contends that enforcement of the forum selection clause and dismissal of her action would be contrary to California’s fundamental public policy because (1) this action concerns a California resident and California activities, and (2) noncompete covenants are unenforceable under California law, and the covenants in Defendants’ agreements are part of an illegal scheme to evade Business and Professions Code section 16600. The court notes that Plaintiff presents evidence showing that she (1) is a California resident, (2) received all agreements in California; (3) reported to California leadership at all times during her relationship with Defendants; (4) worked on almost exclusively California-based client accounts; and (5) interacted with Defendants’ Missouri-based executives in California more often than in Missouri. (Giblin Decl., ¶¶ 8, 10-11, 15-16.)

Plaintiff argues that her action concerns statutory rights under Business and Professions Code section 16600, and that enforcement of the forum selection clause has the potential to contravene this statute. The parties appear to agree that the rights pursuant to this statute are nonwaivable. (Mot., p. 12:15-16 [“even where rights are deemed non-waivable (such as rights under Section 16600”] [emphasis added]; Opp., p. 11:20-21 [Plaintiff’s claims “are based on unwaivable statutory rights”].) Thus, Defendants have the burden of showing that litigating this action in the contractually-designated forum will not diminish substantive rights afforded under California law. (Verdugo, supra, 237 Cal.App.4th at p. 147.)

First, the agreements with Pacific Series, LIA, and LIS provide that, when an individual is a Producer Member of those companies, and for a period of two years following the sale of the Producer Unit, the member shall not: (1) “render services for any competitor of [Pacific Series, LIA, and LIS]” or any other series or Affiliate, “and shall not otherwise take any action to interfere with, or attempt to interfere with, any employee’s, member’s, or consultant’s relationship with” Pacific Series, LIA, and LIS; (2) “directly or indirectly, for himself or on behalf of any other Person, solicit, induce, persuade or encourage, or attempt to solicit, induce, persuade or encourage, any of the Customer Accounts described below, if any such Customer Account qualified as a Customer Account within the six (6) month period immediately preceding the sale of Member’s Producer Unit, to reduce, terminate, or transfer to a competitor any products or services that are the same or substantially similar to, or directly competitive with, the products provided by” Pacific Series, LIA, and LIS; or (3) accept, service, or work on, or attempt to accept, service, or work on any such competitive business from any Customer Accounts that a member may not solicit or in any way do business with any of the Customer Accounts that a member may not solicit to the extent that the business is the same or substantially similar to that provided by Pacific Series, LIA, and LIS. (Mundy Decl., Ex. A, §§ 5.3, 5.4 [Amended and Restated Member Agreement with Pacific Series]; Mundy Decl., Ex. C, §§ 5.3, 5.4 [Amended and Restated Member Agreement with LIA]; Mundy Decl., Ex. F, §§ 5.3, 5.4 [Member Agreement with LIS].) The two-year period set forth in the agreements between Plaintiff and Pacific Series and Plaintiff and LIA appears to have been extended to four years by subsequent amended agreements. (Mundy Decl., Ex. B § 4, subd. (a) [First Amendment to Amended and Restated Member Agreement]; Mundy Decl., Ex. D, § 4, subd. (a) [First Amendment to Amended and Restated Member Agreement with LIA.) The two-year period set forth in the agreement between Plaintiff and LIS appears to have been extended pursuant to the terms set forth in “Exhibit A” to the agreement. (Mundy Decl., Ex. F, Exhibit A, § 4, subd. (a) [Member Agreement with LIS].)

Second, the Producer Partner Agreement with Lockton Partners provides that the restrictive covenants included in the Member Agreements “remain in full force and effect without amendment or modification and that, in addition and as separate and independent covenants of Producer Partner pursuant to this Agreement, Sections 5.3 and 5.4 of each such Member Agreement shall apply (disregarding for purposes of this Section 5.1 the two (2) year periods referenced therein) for a period of four (4) years following the sale of the Producer Unit . . . of the Producer Partner . . . .” (Mundy Decl., Ex. G, § 5.1 [Producer Partner Agreement with Lockton Partners].)

In their motion, Defendants contend that both California law and Missouri law would permit enforcement of the restrictive covenants set forth above.

“Under the common law, as is still true in many states today, contractual restraints on the practice of a profession, business, or trade, were considered valid, as long as they were reasonably imposed. [Citation.] This was true even in California. [Citations.] However, in 1872 California settled public policy in favor of open competition, and rejected the common law ‘rule of reasonableness,’ when the Legislature enacted the Civil Code. [Citations.] Today in California, covenants not to compete are void, subject to several exceptions” set forth by statute. (Edwards v. Arthur Anderson LLP (2008) 44 Cal.4th 937, 945; Bus. & Prof. Code, § 16600 [except as otherwise provided by statute, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void”].) “Thus, unless a contractual restraint falls into one of section 16600’s three statutory exceptions (§§ 16601 [sale of goodwill or interest in a business], 16602 [dissolution of partnership], or 16602.5 [dissolution or sale of limited liability company]), it ostensibly is void.” (AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018) 28 Cal.App.5th 923, 935.)

Here, Defendants assert that all three of the statutory exceptions permit enforcement of the restrictive covenants in the agreements between Plaintiff and Defendants.

Section 16601 provides that “any owner of a business entity selling or otherwise disposing of all of his or her ownership interest in the business entity . . . may agree with the buyer to refrain from carrying on a similar business within a specified geographical area in which the business so sold, or that of the business entity, division, or subsidiary has been carried on, so long as the buyer, or any person deriving title to the goodwill or ownership interest from the buyer, carries on a like business therein.” (Bus. & Prof. Code, § 16601.) This “exception is limited: ‘[I]n order to uphold a covenant not to compete pursuant to Section 16601, the contract for sale of the corporate shares may not circumvent California’s deeply rooted public policy favoring open competition. The transaction must clearly establish that it falls within this limited exception.’” (Blue Mountain Enterprises, LLC v. Owen (2022) 74 Cal.App.5th 537, 551.)

Section 16602 provides that a partner, upon or in anticipation of dissociation from the partnership, may “agree that he or she will not carry on a similar business within a specified geographic area where the partnership business has been transacted, so long as any other member of the partnership, or any person deriving title to the business or its goodwill from any such other member of the partnership, carries on a like business therein.” (Bus. & Prof. Code, § 16602, subds. (a), (b)(2).)

Section 16602.5 provides that “[a]ny member may, upon or in anticipation of a dissolution of, or the termination of his or her interest in, a limited liability company (including a series of a limited liability company formed under the laws of a jurisdiction recognizing such a series), agree 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.” (Bus. & Prof. Code, § 16602.5.)

Defendants contend that these provisions apply because (1) Plaintiff “sold back, and was compensated for, her Producer Units and Partner Unit” upon termination of her membership in Defendants; (2) Plaintiff dissociated from Lockton Partners; (3) Plaintiff had agreed, in her respective agreements with Defendants, to refrain from soliciting clients and engaging in other acts as set forth above. (Mundy Decl., ¶ 21.)

The court finds that Defendants have not met their burden of showing that the foreign forum (i.e., the Missouri courts) provides the same or greater rights than California because it appears that the restrictive covenants would not be enforceable under California law. (Verdugo, supra, 237 Cal.App.4th at p. 157.)

The court notes that Defendants have produced evidence showing that Plaintiff, as a member in Defendants, sold her interest in Defendants and agreed not to render services for any competitor or solicit any customer accounts. This evidence may support Defendants’ position that the statutory exceptions set forth in Business and Professions Code sections 16601, 16602, and 16602.5 apply. However, as noted by Plaintiff, the restrictive covenants in the agreements are not limited to “a specified geographic area” which is required by language of each statute. (Bus. & Prof. Code, §§ 16601, 16602, 16602.5.) Instead, the agreements expressly state that they are not limited to any geographical scope or region. The agreements specifically provide that, due to the nature of Defendants’ businesses, “such that the restrictions imposed by this Agreement cannot be limited to a geographic location or region . . . it is reasonable that the restricted activities are not limited to a geographical scope or region; rather, they extend to any geographical location where the restricted activities are or reasonably could be conducted.” (Mundy Decl., Ex. A, § 5.5 [Amended and Restated Member Agreement with Pacific Series], Ex. C, § 5.5 [Amended and Restated Member Agreement with LIA], Ex. F, § 5.5 [Member Agreement with LIS], Ex. G, § 5.2 [Producer Partner Agreement with Lockton Partners] [emphasis added].)

This language does not appear to satisfy the requirements of Sections 16601, 16602, or 16602.5. As to Section 16601, a restrictive covenant is enforceable if it prohibits activity “within a specified geographic area in which the business so sold, or that of the business entity, division, or subsidiary has been carried on . . . .” (Bus. & Prof. Code, § 16601.) Similarly, Section 16602 permits a restrictive covenant “within a specified area where the partnership business has been transacted, so long as any other member of the partnership, or any person deriving title to the business or its goodwill from any such other member of the partnership, carries on a like business therein.” (Bus. & Prof. Code, § 16602, subd. (a).) Section 16602.5 permits a restrictive covenant “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.” (Bus. & Prof. Code, § 16602.5.) But the language of the agreements does not limit their applicability to locations where business has been transacted, and also includes those areas where the restricted activities “reasonably could be conducted.” (Mundy Decl., Ex. A, § 5.5 [Member Agreement with Pacific Series], Ex. C, § 5.5 [Amended and Restated Member Agreement with LIA], Ex. F, § 5.5 [Member Agreement with LIS], Ex. G, § 5.2 [Producer Partner Agreement with Lockton Partners] [emphasis added].) Thus, it appears that the restrictive covenants would not be enforceable under these statutory exceptions.

The court notes that Defendants cite and rely on Tivoli LLC v. Sankey (C.D. Cal. 2015) 2015 WL 12683801 at *8, which provides that, “for employee nonsolicitation clauses, an explicit geographic restriction is not needed to define the scope of the covenant. Indeed, the scope will typically be clear based upon the terms of the restriction.” The court finds that this authority does not require the court to find that the restrictive covenants are enforceable because (1) the court is not “bound by federal decisions on matters of state law[,]” and (2) the language of the restrictive covenants exceeds the permitted geographic limitation set forth in Sections 16601, 16602, and 16602.5 for the reasons set forth above. (Haynes v. EMC Mortgage Corp (2012) 205 Cal.App.4th 329, 335.)

The court therefore finds that the restrictive covenants contained in the agreements between Plaintiff and Defendants appear to be unenforceable restraints on trade pursuant to California law.

As set forth above, Defendants have the burden to show that Missouri law provides for the same or greater rights than California. Missouri appears to employ a different standard when evaluating the enforceability of a restrictive covenant. “Missouri courts generally enforce a non-compete agreement if it is demonstratively reasonable. [Citation.] ‘A non-compete agreement is reasonable if it is no more restrictive than is necessary ….’” (Whelan Sec. Co. v. Kennebrew (2012) 379 S.W.3d 835, 841.) Here, the restrictive covenants include provisions seeking to establish that they are reasonable. It appears that a Missouri court may enforce the restrictive covenants at issue here based on Missouri law, which the court notes appears to conflict with California’s rejection of the common law rule of reasonableness. (Ibid.; Edwards, supra, 44 Cal.4th at p. 945.)

Finally, Defendants have not presented evidence showing that the foreign forum will apply California law. (Verdugo, supra, 237 Cal.App.4th at p. 157 [defendant can meet its burden by showing that “the foreign forum will apply California law on the claims at issue”].) Plaintiffs have submitted the Amended Complaint filed by Defendants in the United States District Court for the Western District of Missouri, in which they have alleged that Plaintiff’s agreements with Defendants “require litigation of disputes between the parties in Missouri, subject to Missouri law.” (Pl. RJN Ex. 3, ¶ 170.) Thus, it appears that Defendants will argue that Missouri law applies. Defendants do not present evidence establishing that their arguments on that ground are likely to be rejected by a Missouri court in favor of applying California law.

Based on the evidence and arguments presented in connection with this motion, the court finds that Defendants have not met their burden of showing that litigating Plaintiff’s claims in Missouri will not diminish the substantive rights afforded under California law since it appears that (1) under California law, the restrictive covenants in the Member Agreements and Producer Partner Agreement are unenforceable, but (2) under Missouri law, the restrictive covenants in the Member Agreement and Producer Partner Agreement are enforceable as “demonstratively reasonable.” (Verdugo, supra, 237 Cal.App.4th at pp. 147, 157; Whelan Sec. Co., supra, 379 S.W.3d at p. 841.) The court therefore exercises its discretion to deny Defendants’ motion to dismiss or stay this action pursuant to the forum selection clauses and the doctrine of forum non conveniens.

The court denies defendants Lockton Companies, LLC—Pacific Series, Lockton Investment Advisors, LLC, Lockton Investment Securities f/k/a Lockton Financial Advisors, LLC, and Lockton Partners, LLC’s motion to dismiss complaint and/or stay action on grounds of forum non conveniens.

[1] The court expresses no view and makes no finding as to whether Plaintiff is an individual covered under the FEHA in connection with ruling on this motion.

sallie giblin ; Plaintiff, vs. lockton companies, llc—pacific series , et al.; Defendants.	Case No.:	22STCV39876

	Hearing Date:	March 29, 2023

	Time:	10:00 a.m.

	[Tentative] Order RE: defendants’ motion to dismiss complaint and/or stay action on grounds of forum non conveniens