Judge: Robert B. Broadbelt, Case: 23STCV24054, Date: 2024-01-10 Tentative Ruling

Case Number: 23STCV24054    Hearing Date: March 1, 2024    Dept: 53

Superior Court of California

County of Los Angeles – Central District

Department 53

MOVING PARTIES:             Defendants Lockton Companies, LLC – Pacific Series and Lockton Investment Advisors, LLC

RESPONDING PARTY:       Plaintiff Mark Racunas

(1)   Motion for Order Staying Proceedings Pending Resolution in California Supreme Court

(2)   Motion to Dismiss and/or Stay Action on the Ground of Forum Non Conveniens

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

REQUEST FOR JUDICIAL NOTICE

The court grants defendants Lockton Companies, LLC – Pacific Series and Lockton Investment Advisors, LLC’s requests for judicial notice, filed on January 4, 2024 in support of their motion to stay proceedings pending resolution in California Supreme Court.  (Evid. Code, § 452, subd. (d).)

The court grants defendants Lockton Companies, LLC – Pacific Series and Lockton Investment Advisors, LLC’s requests for judicial notice, filed on November 27, 2023 in support of their motion to dismiss and/or stay action on ground of forum non conveniens.  (Evid. Code, § 452, subd. (d).)

The court denies plaintiff Mark Racunas’s request for judicial notice, filed on January 4, 2024, as to Exhibits 1-3 because rulings from other Superior Court departments cannot be cited as binding or persuasive authority and therefore those rulings are not relevant to a material issue presented by the pending motion to dismiss.  (Malek Media Group LLC v. AXQG Corp. (2020) 58 Cal.App.5th 817, 825 [“Any matter to be judicially noticed must be relevant to a material issue”].)

The court grants plaintiff Mark Racunas’s request for judicial notice, filed on January 4, 2024, as to Exhibit 4.  (Evid. Code, § 452, subd. (d).)

The court denies plaintiff Mark Racunas’s supplemental request for judicial notice, filed on February 16, 2024, as to Exhibits 1 and 2 because rulings from other Superior Court departments cannot be cited as binding or persuasive authority and therefore those rulings are not relevant to a material issue presented by the pending motion to dismiss.  (Malek Media Group LLC, supra, 58 Cal.App.5th at p. 825.)

The court denies plaintiff Mark Racunas’s supplemental request for judicial notice, filed on February 16, 2024, as to Exhibit 3 because it is not relevant to a material issue presented by the pending motion to dismiss.  (Malek Media Group LLC, supra, 58 Cal.App.5th at p. 825.)

The court denies plaintiff Mark Racunas’s second supplemental request for judicial notice, filed on February 27, 2024, because a ruling from another Superior Court department cannot be cited as binding or persuasive authority and therefore it is not relevant to a material issue presented by the pending motion to dismiss.  (Malek Media Group LLC, supra, 58 Cal.App.5th at p. 825.)

BACKGROUND

Plaintiff Mark Racunas (“Plaintiff”) filed the operative First Amended Complaint in this action on October 26, 2023, against defendants Lockton Companies, LLC – Pacific Series (“Pacific Series”) and Lockton Investment Advisors, LLC (“LIA”) (collectively, “Defendants”).  The First Amended Complaint alleges one cause of action for declaratory relief, requesting that the court issue a judicial declaration that, inter alia, he may freely and fairly compete against Defendants and that the restrictive covenants set forth in his agreements with Defendants are void and unenforceable under California law.  (FAC ¶¶ 1-2.)

Now pending before the court are two motions filed by Defendants.  First, Defendants move the court for an order staying proceedings pending the resolution of Lockton Cos., LLC, et al. v. Superior Court of Los Angeles County, pet. granted December 13, 2023, S282136 (“Giblin”) by the California Supreme Court.  Second, Defendants move the court for an order dismissing or staying this action on the ground of forum non conveniens.

MOTION FOR STAY OF PROCEEDINGS PENDING RESOLUTION IN CALIFORNIA SUPREME COURT

Defendants request that the court stay proceedings in this action pending resolution of Giblin by the California Supreme Court.  (Def. RJN Ex. 1 [order granting petition for review in Giblin].)  Plaintiff opposes Defendants’ request, contending that he would be prejudiced by a stay.  Plaintiff further asserts that, because the petition was granted on a grant-and-hold basis, the Supreme Court is unlikely to review the issues raised in Giblin.  (Def. RJN Ex. 1 [stating that “[f]urther action in this matter is deferred pending consideration and disposition of a related issue in EpicentRX v. S.C. (EpiRx), S282521 [citation], or pending further order of the court”]; Opp., p. 3:16-30.)

The court finds that it is not in the interests of justice and judicial efficiency to stay proceedings in this action pending resolution of Giblin.  (Freiberg v. City of Mission Viejo (1995) 33 Cal.App.4th 1484, 1489 [“Trial courts generally have the inherent power to stay proceedings in the interests of justice and to promote judicial efficiency”].)  The court acknowledges, as Plaintiff has pointed out, that the California Supreme Court has deferred review of Giblin pending the disposition of EpiRx and therefore may not review and rule on the issues regarding the forum selection clauses at issue in this action and Giblin.  The court further finds that Plaintiff would be unduly prejudiced by an indefinite stay of this action. 

The court therefore exercises its discretion to deny Defendants’ motion to stay proceedings in this action.  (Freiberg, supra, 33 Cal.App.4th at p. 1489.)

MOTION TO DISMISS OR STAY ON GROUND OF FORUM NON CONVENIENS

Defendants move the court for an order dismissing or, in the alternative, staying this action pursuant to the doctrine of forum non conveniens.

“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).)  “‘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 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 circumstance of the case.”  [Citations.]’”  (Korman v. Princess Cruise Lines, Ltd. (2019) 32 Cal.App.5th 206, 213.)

1.     The Forum Selection Clauses are Mandatory

“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; Korman, supra, 32 Cal.App.5th at p. 215.)  “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, n. 2.)  “A mandatory clause ordinarily is ‘given effect without any analysis of convenience; the only question is whether enforcement of the clause would be unreasonable.’  But, if ‘the clause merely provides for submission to jurisdiction and does not expressly mandate litigation exclusively in a particular forum, then the traditional forum non conveniens analysis applies.  [Citation.]’”  (Animal Film, LLC, supra, 193 Cal.App.4th at p. 471.)

Defendants submit (1) the Amended and Restated Member Agreement entered into by and between Plaintiff and Pacific Series on May 1, 2016, and (2) the Member Agreement entered into by and between Plaintiff and LIA on September 18, 2018 (collectively, the “Agreements”).  (Mundy Decl., Ex. A, Amended and Restated Member Agreement, p. 1; Mundy Decl., Ex. B, Member Agreement, p. 1.)  

The Agreements 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 or LIA], 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 Entitles 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 or LIA] 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, Amended and Restated Member Agreement, p. 12, ¶ 7.7, subd. (a) [emphasis in original]; Mundy Decl., Ex. B, Member Agreement, pp. 11-12, ¶ 7.7, subd. (a) [emphasis in original].)

The court finds that the forum selection clauses set forth in the Agreements are mandatory because they expressly state that (1) any disputes, claims, or issues arising out of or relating to the agreements “shall be brought exclusively in any Federal Court in Kansas City, Missouri or in the Circuit Court of Jackson County, Missouri[,]” and (2) those courts “shall have exclusive jurisdiction over these matters[.]”  (Mundy Decl., Ex. A, Amended and Restated Member Agreement, p. 12, ¶ 7.7, subd. (a) [emphasis added]; Mundy Decl., Ex. B, Member Agreement, pp. 11-12, ¶ 7.7, subd. (a) [emphasis added].)  The court finds that this language “‘clearly designates’” the federal court in Kansas City, Missouri and the Circuit Court of Jackson County, Missouri “‘as the exclusive’” forums and therefore finds that the forum selection clauses are mandatory.  (Korman, supra, 32 Cal.App.5th at p. 215 [“‘To be mandatory, a clause must contain language that clearly designates a forum as the exclusive one’”]; Verdugo, supra, 237 Cal.App.4th at p. 147, n. 2.)

The court further finds that the forum selection clauses apply to Plaintiff’s action for declaratory relief.  Plaintiff seeks a judicial declaration that he may freely and fairly compete against Defendants and that the restrictive covenants set forth in the Agreements are void and unenforceable under California law.  (FAC ¶¶ 1-2, 69.)  Thus, Plaintiff’s action involves disputes or claims arising out or relating to the enforceability of certain provisions of the Agreements and is therefore encompassed by the forum selection clauses therein.  (Mundy Decl., Ex. A, Amended and Restated Member Agreement, p. 12, ¶ 7.7, subd. (a); Mundy Decl., Ex. B, Member Agreement, pp. 11-12, ¶ 7.7, subd. (a).)

2.     Plaintiff’s Action Involves Unwaivable Statutory Rights

“‘When a case involves a mandatory forum selection clause, it will usually be given effect unless it is unfair or unreasonable.  [Citation.]’”  (Korman, supra, 32 Cal.App.5th at p. 216.)  “The party opposing enforcement of a forum selection clause ordinarily ‘bears the “substantial” burden of proving why it should not be enforced.’”  (Verdugo, supra, 237 Cal.App.4th at p. 147 [emphasis in original].)  “That burden, however, 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., and at p. 145 [“the burden is reversed when the underlying claims are based on statutory rights the Legislature has declared to be unwaivable”]; G Companies Management, LLC v. LREP Arizona, LLC (2023) 88 Cal.App.5th 342, 350 [quoting Verdugo, supra, 237 Cal.App.4th at p. 147].)

As set forth above, Plaintiff seeks a judicial declaration that the restrictive covenants set forth in the Agreements are unenforceable pursuant to California law and, specifically, that they are void and unenforceable pursuant to Business and Professions code section 16600 and California’s public policy in favor of employee mobility and open competition.  (FAC ¶ 60.) 

Section 16600 provides that, 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.”  (Bus. & Prof. Code, § 16600, subd. (a).)  This statute “shall be read broadly, in accordance with Edwards v. Arthur Anderson LLP (2008) 44 Cal.4th 937, to void the application of any noncompete agreement in an employment context, or any noncompete clause in an employment contract, no matter how narrowly tailored, that does not satisfy an exception in this chapter.”  (Bus. & Prof. Code, § 16600, subd. (b)(1).)

In their reply, Defendants (1) assert that section 16600 does not set forth an express statutory anti-waiver provision, (2) assert that rights established thereunder, while substantively non-waivable, are not procedurally non-waivable, and (3) therefore contend that the burden of proof on the enforceability of a forum selection clause does not shift to Defendants, comparing the rights at issue in this action to those presented in cases alleged under the Fair Employment and Housing Act and the unfair competition law.  (Reply, pp. 2:27-3:27.)  The court disagrees.

As noted by Defendants, Civil Code section 3513 provides that “a law established for a public reason cannot be contravened by a private agreement.”  (Civ. Code, § 3513.)  “[S]ection 16600 evinces a settled legislative policy in favor of open competition and employee mobility[,]” “protects Californians[,] and ensures that ‘every citizen shall retain the right to pursue any lawful employment and enterprise of their choice.’”  (Edwards v. Arthur Anderson LLP (2008) 44 Cal.4th 937, 946.)  This statute “was adopted for a public reason[,]” and therefore the benefits provided thereby cannot be waived.  (Weber, Lipshie & Co. v. Christian (1997) 52 Cal.App.4th 645, 659; SingerLewak LLP v. Gantman (2015) 241 Cal.App.4th 610, 620 [“At least one court has indicated [the rights established by section 16600] is an unwaivable right”].)  Although the court notes, as set forth above, that Defendants argue that the rights established by this statute are not procedurally unwaivable because it does not include an express non-waiver provision, the court construes the non-waiver provision in Civil Code section 3513, pursuant to the authorities cited above, to be an express non-waiver statute that applies to section 16600.  (Ibid.)

Thus, the court finds that (1) the rights established by section 16600 are unwaivable, and (2) the burden therefore shifts to Defendants to show that litigating Plaintiff’s claims in Missouri will not diminish the rights afforded to him under California law.   (Weber, Lipshie & Co., supra, 52 Cal.App.4th at p. 659; SingerLewak LLP, supra, 241 Cal.App.4th at p. 622; Civ. Code, § 3513; Verdugo, supra, 237 Cal.App.4th at p. 147.)

3.     Enforcing the Forum Selection Clauses Would Diminish Substantive Rights Afforded to Plaintiff under California Law

“As explained above, a defendant seeking to enforce a mandatory forum selection clause [in an action based on unwaivable rights] bears the burden to show enforcement will not in any way diminish the plaintiff’s unwaivable statutory rights.  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.”  (Verdugo, supra, 237 Cal.App.4th at p. 157.)

The court finds that Defendants have not met their burden to show that the foreign forum (i.e., Missouri courts) provides the same or greater rights than California or that the foreign forum will apply California law on the claims at issue.  (Verdugo, supra, 237 Cal.App.4th at pp.147, 157.)

First, the court notes that Defendants assert that it is equally likely that this court could determine that Missouri law applies and that a Missouri court could determine that California law applies.  (Mot., p. 12:10-22.)  However, this does not establish that the Missouri courts “will apply California law on the claims at issue.”  (Verdugo, supra, 237 Cal.App.4th at p. 157 [emphasis added].)

Second, the court notes that Defendants have argued that enforcing the forum selection clauses will not violate Labor Code section 925.  (Mot., pp. 13:25-15:12; FAC ¶ 72 [alleging that the forum selection clauses are unlawful pursuant to Labor Code section 925].)  Because Plaintiff has not raised this argument in opposition, the court does not address it in ruling on Defendants’ motion.

Third, the court finds that litigating this action in Missouri will diminish substantive rights afforded to Plaintiff under California law because it appears that the restrictive covenants set forth in the Agreements would likely not be enforceable under California law but may be enforceable in Missouri.

The Amended and Restated Member Agreement and Member Agreement both provide that, for a period of two years following the sale of Plaintiff’s producer unit, Plaintiff shall not do the following: (1) directly or indirectly, for himself or on behalf of any other person, “render services for any competitor of [Pacific Series or LIA], or any Other Series or Affiliate, as applicable,” and further shall not interfere with any employee’s relationship with Defendants;  (2) “directly or indirectly, for himself or on behalf of any other Person, solicit, induce, persuade or encourage,” or attempt to do so, “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 or services provided by” Defendants; and (3) directly or indirectly, on behalf of himself or any other person, accept, serve, or work on any such competitive business from any such Customer Account, or in any way do business with any of the Customer Accounts that may not be solicited.  (Mundy Decl., Ex. A, Amended and Restated Member Agreement, pp. 7-8, ¶¶ 5.3, 5.4; Mundy Decl., Ex. B, Member Agreement, pp. 7-8, ¶¶ 5.3, 5.4.)

The Agreements further state that the signee-member (i.e., here, Plaintiff) “acknowledges and agrees that the nature of the business” of Defendants “is carried on wherever a Customer Account is located . . . such that the restrictions imposed by [the Agreements] 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; rather, they extend to any geographical location where the restricted activities are or reasonably could be conducted.”  (Mundy Decl., Ex. A, Amended and Restated Member Agreement, p. 9, ¶ 5.5; Mundy Decl., Ex. B, Member Agreement, ¶ 5.5.)

The parties do not appear to dispute that, under Missouri law, the restrictive covenants set forth above would likely be enforceable.  “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 necessary to protect the legitimate interests of the employer.’  [Citation.]  A non-compete agreement must be narrowly tailored temporally and geographically and must seek to protect legitimate employer interests beyond mere competition by a former employee.’”  (Whelan Sec. Co. v. Kennebrew (2012) 379 S.W.3d 835, 841-842.)  Thus, because the Agreements include language purporting to establish the reasonableness of the scope of the restrictive covenants, a Missouri court may enforce those covenants against Plaintiff.  (Ibid.; Mundy Decl., Ex. A, Amended and Restated Member Agreement, p. 9, ¶ 5.5; Mundy Decl., Ex. B, Member Agreement, ¶ 5.5.)

In contrast, a California court would be unlikely to enforce the restrictive covenants pursuant to Business and Professions Code sections 16600 or 16602.5.  (Mot., p. 7:24-25 [asserting that section 16602.5 applies to the covenants here].)

“[U]nless 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 a 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.)  The exception set forth by Business and Professions Code section 16602.5 is as follows:  “Any 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.) 

The restrictive covenants that are the subject of this action do not satisfy the requirements of section 16602.5 because (1) section 16602.5 permits restrictive covenants “within a specified geographic area where the limited liability company business has been transacted,” and (2) the covenants here expressly state that they “cannot be limited to a geographic location or region” and “extend to any geographical location where the restricted activities are or reasonably could be conducted.”  (Bus. & Prof. Code, § 16602.5; Mundy Decl., Ex. A, Amended and Restated Member Agreement, p. 9, ¶ 5.5; Mundy Decl., Ex. B, Member Agreement, ¶ 5.5.)  Thus, the restrictive covenants are likely not enforceable under California law since (1) they do not comply with section 16602.5, and (2) as set forth above, California law requires courts to construe section 16600 broadly “to void the application of any noncompete agreement . . . no matter how narrowly tailored, that does not satisfy an exception” set forth by statute.  (Bus. & Prof. Code, §§ 16600, subd. (b)(1), 16602.5.)

The court also notes that Defendants, in reply, assert that the common law rule of reasonableness would apply to enforce the restrictive covenants pursuant to section 16602.5, and that California courts can blue pencil covenants, such that the covenants would be enforceable under California law to the same extent as they are under Missouri law.  (SingerLewak LLP, supra, 241 Cal.App.4th at p. 623; Mot., p. 10:14-16 [citing SingerLewak LLP, supra, 241 Cal.App.4th at pp. 622-623.)  But (1) the SingerLewak LLP Court did “not reach the question of whether, under the guise of a rule of reasonableness, a court . . . may imply a geographic covenant in a partnership covenant not to compete when the parties did not include one[,]” and (2) it is likely that a California court would not “blue pencil” the restrictive covenants at issue here, such that the restrictive covenants would be unenforceable under section 16602.5, while a Missouri court may modify the restrictive covenants to render them enforceable.  (SingerLewak LLP, supra, 241 Cal.App.4th at p 623, n. 4; Strategix, Ltd. v. Infocrossing West, Inc. (2006) 142 Cal.App.4th 1068, 1074 [“courts will not strike a new bargain for the parties ‘for the purposes of saving an illegal contract’”]; Whelan Sec. Co., supra, 379 S.W.3d at p. 844 [if a non-compete clause is unreasonably broad, “courts can still give effect to its purpose by refusing to give effect to the unreasonable terms or modifying the terms of the contract to be reasonable”].)

Thus, the court finds that Defendants have not met their burden to show that litigating Plaintiff’s claims in Missouri will not diminish the substantive rights afforded to him under California law because it appears that the restrictive covenants at issue in this case (1) would be determined to be unenforceable and void under California law, but (2) would be determined (or modified) to be enforceable in Missouri.  (Verdugo, supra, 237 Cal.App.4th at p. 147.)  The court therefore exercises its discretion to deny Defendants’ motion to dismiss or stay this action pursuant to the doctrine of forum non conveniens.

ORDER

The court denies defendants Lockton Companies, LLC – Pacific Series and Lockton Investment Advisors, LLC’s motion for order staying proceedings pending resolution in California Supreme Court.

The court denies defendants Lockton Companies, LLC – Pacific Series and Lockton Investment Advisors, LLC’s motion to dismiss and/or stay this action on the grounds of forum non conveniens.

The court orders plaintiff Mark Racunas to give notice of this ruling.

IT IS SO ORDERED.

DATED:  March 1, 2024

_____________________________

Robert B. Broadbelt III

Judge of the Superior Court