COURT OF APPEAL ENFORCES STIPULATION FOR INJUNCTION AGAINST CLAIM THAT IT WAS AN IMPROPER RESTRAINT ON TRADE
California trade secret cases are often a battle over whether an employer's confidentiality agreement protects information that is trade secret or an unenforceable noncompetition agreement. In a case of first impression, the Court of Appeal in Wanke Industrial Commerical Residential, Inc. v. Sup. Court held that an injunction arising from a settlement agreement between Plaintiff Wanke (formerly the employer of the individual defendants) and the individual defendants and their competing company is enforceable to bar defendants from soliciting Wanke's customers.
In Wanke, Wanke sued its former employees and their new company under CalUTSA and other claims after the former employees started a new business and pursued Wanke's customers. As part of the settlement, the parties agreed to enter into a Stipulated Injunction that was entered as an order of the Court. The Stipulated Injunction barred Defendants from contacting or soliciting any Wanke client identified on an exhibit for 18 months. When caught in the act, the Defendants claimed that Court could not enforce their agreement as it violated California's Public Policy under Business & Professions Code section 16600 barring most covenants not to compete. And, the trial court agreed and held that the client list would not have, at trial, constituted a trade secret and, therefore, would not enforce the injunction. However, the Court of Appeal reversed, not only taking issue with the Defendants' reneging on their agreement by claiming it should not be enforced but finding that on its face, the injunction order protected trade secrets and concluding that enforcement of such an injunction is necessary to protect trade secrets.
While the opinion arises out of complicated factual and procedural background, it is helpful for parties engaged in CalUTSA claims to know that trial courts should enter and enforce Stipulated Injunctions preventing former-employees and their companies from competing against the former employer as part of a valid settlement. Further, counsel involved in settlement negotiations of trade secret cases should consult with Wanke for specific language to restrain competition that a Court has held is enforceable as a valid injunction under CalUTSA.