Donald Golden v. Calif Emergency Physicians , 782 F.3d 1083 ( 2015 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
DONALD GOLDEN, No. 12-16514
Plaintiff-Appellant,
D.C. No.
v. 3:10-cv-00437-
JSW
CALIFORNIA EMERGENCY
PHYSICIANS MEDICAL GROUP; MED
AMERICA; MARK ALDERDICE; OPINION
ROBERT BUSCHO,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of California
Jeffrey S. White, District Judge, Presiding
Argued and Submitted
February 14, 2014—San Francisco, California
Filed April 8, 2015
Before: Alex Kozinski, Diarmuid F. O’Scannlain,
and Mary H. Murguia, Circuit Judges.
Opinion by Judge O’Scannlain;
Dissent by Judge Kozinski
2 GOLDEN V. CAL. EMERGENCY PHYSICIANS
SUMMARY*
Settlement
The panel reversed the district court’s order that a
settlement agreement be enforced in an employment
discrimination action filed by a physician.
The agreement included a provision that the physician
waive his rights to employment with the defendant or at any
facility that the defendant may own or with which it may
contract in the future.
The panel held that the parties’ private party contract
dispute regarding whether the no-employment provision
voided the settlement agreement was ripe for review under
the traditional ripeness standard.
The panel held that the district court abused its discretion
in holding that Cal. Bus. & Prof. Code § 16600, which
provides that a contract is void if it restrains anyone from
engaging in a lawful profession, did not apply solely because
the no-employment provision in the settlement agreement did
not constitute a covenant not to compete. The panel
remanded the case to the district court for further
proceedings.
Dissenting, Judge Kozinski wrote that the settlement
agreement was not void because the no-employment
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
GOLDEN V. CAL. EMERGENCY PHYSICIANS 3
provision did not limit the physician’s current ability to
practice his profession.
COUNSEL
Richard Raines, Gagen, McCoy, McMahon and Armstrong,
Danville, Cal., argued the cause and filed the briefs for the
plaintiff-appellant.
Sarah E. Robertson, Fitzgerald, Abbott & Beardsley LLP,
Oakland, Cal., argued the cause for defendants-appellees.
Mark Alan Delgado, Fitzgerald, Abbott & Beardsley LLP,
Oakland, Cal., filed the brief for defendants-appellees. With
him on the brief was Sarah E. Robertson, Fitzgerald, Abbott
& Beardsley LLP, Oakland, Cal.
OPINION
O’SCANNLAIN, Circuit Judge:
We must decide whether California law prohibits a
settlement agreement that may constrain a physician’s
freedom to practice medicine.
I
A
Donald Golden, M.D., is an emergency-room doctor
formerly affiliated with the California Emergency Physicians
Medical Group (together with other related defendants sued
in this action, collectively, “CEP”), a large consortium of
4 GOLDEN V. CAL. EMERGENCY PHYSICIANS
over 1000 physicians that manages or staffs many emergency
rooms, inpatient clinics, and other facilities in California and
other, mostly Western states. In May 2008, Dr. Golden sued
CEP in the California Superior Court of Alameda County,
regarding the loss of his staff membership at Seton Coastside
Medical Facility; he alleged various state and federal causes
of action including racial discrimination. CEP removed the
suit to federal court in January 2010 based on original
subject-matter jurisdiction under 28 U.S.C. § 1331.
Prior to the scheduled trial date, the parties orally had
agreed in open court to settle the case. In return for a
substantial monetary amount, Dr. Golden consented to
relinquish his current suit, to forego all other possible claims
he may have against CEP, and furthermore—most important
for this appeal—to waive any and all rights to employment
with CEP or at any facility that CEP may own or with which
it may contract in the future (the “no-employment
provision”). The magistrate judge then presiding expressly
confirmed with Dr. Golden that he bound himself thereby,
although he did so “extremely reluctantly.” The terms of this
agreement were subsequently reduced to writing.
Following the hearing, Dr. Golden refused to execute the
written agreement and attempted to have it set aside. Dr.
Golden’s attorney, who represented him during the settlement
negotiations and entered into the resulting agreement on his
behalf, moved the court to withdraw as counsel, a motion on
which the court never specifically acted. Instead, the district
court referred the matter to the magistrate judge to determine
whether it may enforce the settlement agreement. The
magistrate judge, on June 23, 2011, issued her Report and
Recommendation, advising that various provisions of the
written agreement, not relevant to this case, be struck and,
GOLDEN V. CAL. EMERGENCY PHYSICIANS 5
over Dr. Golden’s objections, that he be compelled to sign the
amended document. The district court adopted the magistrate
judge’s recommendation in full.
Dr. Golden nevertheless refused to sign the agreement
and filed a notice of appeal, which this Court dismissed for
lack of jurisdiction. Golden v. Cal. Emergency Physicians
Med. Grp., No. 11-16983 (9th Cir. Jan. 9, 2012). Thereupon
Dr. Golden’s former counsel moved the district court to
intervene and further moved to enforce the settlement
agreement. Following several continuances and responsive
papers filed by the defendants, former counsel, and Dr.
Golden, the district court ultimately granted the motion to
intervene, ordered the settlement be enforced, and dismissed
the case. Dr. Golden filed a timely notice of appeal.
B
On appeal, Dr. Golden raises only one argument1: the no-
employment provision of the agreement violates California
law as a contract restraining the lawful practice of a
profession. See Cal. Bus. & Prof. Code § 16600. Since the
no-employment provision constituted a material term, Dr.
Golden submits, the entire settlement agreement is
consequently void and his lawsuit should be reinstated.
1
The no-employment provision expresses the parties’
agreement “that . . . Golden shall not be entitled to work or be
1
Earlier in the district court proceedings, Dr. Golden advanced various
reasons for invalidating the settlement, including friction with his counsel,
inadequate advice, and severe personal stress.
6 GOLDEN V. CAL. EMERGENCY PHYSICIANS
reinstated at any CEP-contracted facility or at any facility
owned or managed by CEP.” Such provision, however, not
only waives any right Dr. Golden otherwise may have to
continue or to regain previous or current employment with
CEP; it also provides that “if CEP contracts to provide
services to, or acquires rights in, a facility that is an
emergency room . . . at which Golden is employed or
rendering services, CEP has the right to and will terminate
Golden from any work in the emergency room without any
liability whatsoever.” CEP retains a similar right, by virtue
of this provision, to terminate Dr. Golden as a hospitalist at
any facility that it may acquire or with which it may contract
at some future point. The parties nevertheless further agreed
to the possibility of a future employment arrangement at an
“urgent care facility” but only under very narrow and well-
defined circumstances.
2
Section 16600 of the California Business and Professions
Code instructs 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.” Courts and
commentators appear unanimously to agree that this language
regulates non-competition covenants, to whatever extent it
also prohibits other professional restraints. Nowhere either
in the no-employment provision or in the remainder of the
agreement does Dr. Golden arguably surrender any right to
practice his profession generally, nor any right to seek
employment with CEP’s competitors or at facilities in which
CEP does not have an ownership interest or with which it
does not contract for services. Rather, the no-employment
provision solely governs the terms on which CEP agrees to do
business with Dr. Golden in the future. Concluding that the
GOLDEN V. CAL. EMERGENCY PHYSICIANS 7
no-employment provision did not inhibit Dr. Golden from
competing with CEP, the district court determined that
section 16600 did not void the settlement agreement.
II
Before we address the merits of Dr. Golden’s appeal, we
must first satisfy ourselves that we have jurisdiction over the
case. Unlike other issues, which the litigants are under an
obligation to raise or else we consider waived, the federal
courts must independently evaluate whether a particular
dispute meets the constitutional “case” or “controversy”
requirement of Article III. See, e.g., Plains Commerce Bank
v. Long Family Land & Cattle Co., 554 U.S. 316, 324 (2008)
(“[W]e bear an independent obligation to assure ourselves
that jurisdiction is proper before proceeding to the merits.”);
Metro. Wash. Airports Auth. v. Citizens for the Abatement of
Aircraft Noise, Inc., 501 U.S. 252, 265 n.13 (1991)
(“[Because ripeness] concerns our jurisdiction under Article
III, . . . we must consider the question on our own
initiative.”).
Dr. Golden contends that section 16600 voids his
settlement agreement because, in a future set of
circumstances uncertain—perhaps unlikely—ever to
materialize, the no-employment provision may impermissibly
restrain his professional practice. We must therefore
determine whether his prayer for relief would require us to
adjudicate a merely hypothetical dispute that is currently
unripe for review.
8 GOLDEN V. CAL. EMERGENCY PHYSICIANS
A
“The ripeness doctrine is drawn both from Article III
limitations on judicial power and from prudential reasons for
refusing to exercise jurisdiction.” Nat’l Park Hospitality
Ass’n v. Dep’t of Interior, 538 U.S. 803, 808 (2003) (internal
quotation marks omitted). So-called prudential ripeness has
a “twofold aspect, requiring us to evaluate both the fitness of
the issues for judicial decision and the hardship to the parties
of withholding court consideration.” Abbott Labs. v.
Gardner, 387 U.S. 136, 149 (1967).
Nevertheless, in previous cases, we have concluded that
we do not analyze the prudential component of the ripeness
inquiry in private contract litigation. In re Coleman, 560 F.3d
1000, 1006 n.15 (9th Cir. 2009). We held specifically, in
Principal Life Insurance Co. v. Robinson, that “the
appropriate standard for determining ripeness of private party
contract disputes is the traditional ripeness standard, namely,
whether there is a substantial controversy, between parties
having adverse legal interests, of sufficient immediacy and
reality to warrant the issuance of a declaratory judgment.”
394 F.3d 665, 671 (9th Cir. 2005) (internal quotation marks
omitted).
Principal reasoned that the prudential-ripeness doctrine,
“root[ed] in cases involving administrative agencies,” id. at
670, had developed in order to “prevent the courts, through
avoidance of premature adjudication, from entangling
themselves in abstract disagreements over administrative
policies, and also to protect the agencies from judicial
interference until an administrative decision has been
formalized and its effects felt in a concrete way by the
challenging parties,” id. (quoting Cal. Dep’t of Educ. v.
GOLDEN V. CAL. EMERGENCY PHYSICIANS 9
Bennett, 833 F.2d 827, 833 (9th Cir. 1987) (internal quotation
marks omitted)). Given the origin and rationale of prudential
ripeness, Principal discerned “no legal or logical requirement
compelling the extension” of the doctrine “to cases involving
only private contracts.” Id.Although we have not had occasion to apply Principal in
an appeal from an order enforcing a settlement agreement, the
principle exemplified in that case applies to the facts
presented here. Assessing the validity of a settlement
agreement, as our precedents make clear, is a question of state
contract law. See, e.g., O’Neil v. Bunge Corp., 365 F.3d 820,
822 (9th Cir. 2004) (“Typically, the construction and
enforcement of settlement agreements are governed by
principles of local law which apply to interpretation of
contracts generally.” (internal quotation marks omitted)).
The decisive issue here, accordingly, is one of ordinary
contract law; thus, we do not consider the “prudential” factors
outlined in Abbott Laboratories and its progeny to assess this
case’s ripeness.
In addition, the reasoning articulated in Principal—which
originated as a declaratory-judgment suit—for dispensing
with the prudential component of the ripeness inquiry applies
with equal, if not greater, force in ordinary disputes about
contractual enforcement. Principal concluded that, when
reviewing administrative actions, important institutional
concerns cautioned all the more strongly against premature
judicial involvement. We notably observed that private suits
for declaratory judgments ordinarily do not have, as
administrative actions usually do, “consequences for many
members of the general public, not just those directly in the
immediate controversy.” 394 F.3d at 670. Extending
declaratory relief to private parties does not ordinarily trigger
10 GOLDEN V. CAL. EMERGENCY PHYSICIANS
separation-of-powers concerns as often does “judicial
entanglement in administrative agency actions before the
agencies have had an opportunity to take action or make
decisions.” Id. at 671. But if these considerations, which
gave rise to and justified the prudential-ripeness doctrine, are
absent in most private declaratory-judgment suits, all the
more so will they not appear in an action to enforce an
agreement. Moreover, declaratory-judgment suits raise
ripeness concerns—in a typical context—when conduct that
allegedly violates a contractual provision has not yet been
undertaken or when any injury from actual or potential
breaches has yet to materialize. See, e.g., Alcoa, Inc. v.
Bonneville Power Admin., 698 F.3d 774, 793 (9th Cir. 2012)
(explaining that the court has “dismissed claims that are
based solely on harms stemming from events that have not
yet occurred, and may never occur” as insufficiently ripe).
Declaratory-judgment suits may require the courts to rule on
legal issues before the surrounding facts have fully matured.
But when a litigant resists his adversary’s attempt to enforce
a contract against him, the dispute has already completely
materialized. As a result, the special imperative, in
administrative appeals, that courts stay their hands slackens
considerably in a case such as this.
We therefore confirm expressly what the logic of
Principal necessarily implies: only the “traditional ripeness
standard” applies in actions to enforce settlement agreements.
To satisfy this standard, Dr. Golden’s claim must at least
present a substantial controversy between parties having
adverse legal interests that savors of sufficient immediacy
and reality to warrant resolution.
GOLDEN V. CAL. EMERGENCY PHYSICIANS 11
B
Dr. Golden’s former attorney sought, in the district court,
to enforce the settlement agreement so that he might collect
his contingency fee. No party here disputes that such claim
would be ripe for review. But Dr. Golden contends that if
section 16600 voids the no-employment provision, the whole
settlement agreement falls. Indeed, even CEP’s counsel
conceded at oral argument that the no-employment provision
is a material term, and CEP would not have consented to an
agreement that simply deleted that provision.2 To affirm the
district court’s enforcement of the settlement agreement—in
a way that would allow the parties to litigate the validity of
the no-employment provision in a future factual
context—would not defer resolution of the allegedly
“hypothetical” dispute between the parties. Rather, it would
settle such dispute, at least partially, by ruling that the
settlement agreement stands regardless of future events that
may, to some extent, void the no-employment provision.
This appeal triggers judicial concerns about ripeness
because Dr. Golden’s argument depends, in some sense, on
a “hypothetical” state of future affairs. But Dr. Golden does
2
In supplemental briefing that followed oral argument, CEP now takes
the position that the appeal is unripe for review, because “[w]ith the
exception of [the no-employment provision], the parties agree that the
Settlement Agreement is otherwise enforceable,” and thus “the District
Court’s decision ordering enforcement of the Settlement Agreement and
dismissing this action should be affirmed.”
CEP, however, does not—and indeed, after its concession at oral
argument, cannot—dispute the materiality of the no-employment
provision and, consequently, the fate of the entire agreement should we
find such provision void.
12 GOLDEN V. CAL. EMERGENCY PHYSICIANS
not ask us for a declaratory judgment that the no-employment
provision theoretically violates California law in this
uncertain future. Rather, he argues that, under the State’s
business and professions code, the agreement is currently
void. Dr. Golden, moreover, did not force this issue himself;
his former attorney, interested in his contingency fee,
besought the district court to enforce the settlement. Only in
defending against the enforcement proceedings did Dr.
Golden contend that, due to the no-employment provision,
California law voids the agreement. Dr. Golden’s legal
interest in this case, stated precisely, concerns the present
enforcement of the settlement rather than the future
interaction between the no-employment provision and his
emergency-medicine practice.
For such reasons, this appeal satisfies the “traditional
ripeness standard” reaffirmed in Principal. The parties in this
case have clearly “adverse legal interests”—one wishes to
settle on the agreement’s terms, the other prefers to press the
suit. Whether a substantial monetary amount will change
hands—and whether a legal claim concededly worth at least
that much will be foregone—presents a “substantial
controversy.” Adjudicating the question presented by this
appeal will determine whether the lawsuit ends and the
money is paid in the present, and therefore savors of
“sufficient immediacy and reality” to warrant resolution.3
3
We may silence any lingering doubts about this case’s ripeness by
considering how we would dispose of this appeal had we found
jurisdiction lacking. To dismiss the appeal as unripe, without more, would
be a paradoxical ruling that the district court could currently enforce the
settlement agreement, notwithstanding any properly raised and distinctly
articulated concerns about its voidness under state law. This would be
equivalent to finding the case ripe and ruling against Dr. Golden on the
merits.
GOLDEN V. CAL. EMERGENCY PHYSICIANS 13
We conclude, therefore, that this dispute is ripe for
review.
III
“We review a district court’s enforcement of a settlement
agreement for abuse of discretion.” Doi v. Halekulani Corp.,
276 F.3d 1131, 1136 (9th Cir. 2002); see also Callie v. Near,
829 F.2d 888, 890 (9th Cir. 1987). A district court abuses its
discretion when, among other instances, it applies an
incorrect rule of law. See, e.g., Bateman v. U.S. Postal Serv.,
231 F.3d 1220, 1223 (9th Cir. 2000).
In its order enforcing the settlement agreement, the
district court held section 16600 of the California Business
and Professions Code to be inapposite. The no-employment
provision, explained the district court, “is not a covenant not
to compete,” but rather “reflects the parties[’] intent that . . .
Defendants chose not to employ Dr. Golden at [their]
facilities.” Furthermore, the no-employment provision “does
not . . . preclude Dr. Golden from working for one of [their]
competitors or at a hospital or other facility not operated by
Defendants.”
The decisive question for this appeal, therefore, is
whether the district court erred by categorically excluding
this settlement agreement from the ambit of section 16600 on
the sole ground that it did not constitute a covenant not to
compete.
A
Dr. Golden contends that no California case has ever
explicitly limited the reach of section 16600 to traditional
14 GOLDEN V. CAL. EMERGENCY PHYSICIANS
non-compete clauses in employment agreements. Further,
Dr. Golden argues that no case cited by CEP has upheld such
a clause specifically as consistent with section 16600. No
California court, seemingly, has yet confronted such an
argument. Given CEP’s dominance of emergency medicine
within the State and its aggressive plans to expand its
geographical footprint, Dr. Golden asserts that the agreement,
if enforced, will substantially limit his opportunities to
practice. CEP not only will refuse to employ him, but also
will “terminate” him, “without any liability whatsoever,” if it
subsequently acquires an interest in a facility where he would
be working. Dr. Golden argues that the settlement clearly
restrains him in a meaningful way from practicing his
medical specialty by forcing him preemptively to surrender
a position he may obtain in the future if certain
circumstances—completely outside his control—eventually
come to pass.
B
This Court looks to state law to guide its “construction
and enforcement of settlement agreements.” O’Neil,
365 F.3d at 822. The California Supreme Court has not ruled
expressly whether section 16600 applies only to typical so-
called “non-compete covenants.” In other words, California
seems not to have settled whether a contract can
impermissibly restrain professional practice, within the
meaning of the statute, if it does not prevent a former
employee from seeking work with a competitor and if it does
not penalize him should he do so.
When the highest court of a state has not yet decided an
issue of state law, a federal court must “apply what [it] find[s]
to be the state law after giving proper regard to relevant
GOLDEN V. CAL. EMERGENCY PHYSICIANS 15
rulings of other courts of the State.” Comm’r v. Estate of
Bosch, 387 U.S. 456, 465 (1967) (internal quotation marks
omitted); accord, e.g., Martin v. United States, 984 F.2d
1033, 1039 (9th Cir. 1993).
1
In the first place, section 16600 of the California Business
and Professions Code 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.” The
statute does not specifically target covenants not to compete
between employees and their employers: the text does not
include any form of the word “compete” or “competition,”
and does not even implicitly constrain itself to contracts
concerning employment. Rather, section 16600 voids “every
contract” that “restrain[s]” someone “from engaging in a
lawful profession, trade, or business.” Id. (emphasis added).
The breadth of this statutory prohibition appears even
more stark when read alongside the successive provisions in
the Code that admit of a few, narrow exceptions. Section
16601 permits a business owner selling his interest in the
company, under certain circumstances, to “agree with the
buyer to refrain from carrying on a similar business within a
specified geographic area.” Likewise, section 16602
countenances an agreement among partners, upon
dissociation or dissolution of the partnership, “not [to] carry
on a similar business within a specified geographic area.”
See also Cal. Bus. & Prof. Code § 16602.5 (allowing “[a]ny
member . . . , upon or in anticipation of a dissolution of, or
the termination of his or her interest in, a limited liability
company . . . [to] agree . . . not [to] carry on a similar
business within a specified geographic area”). Such statutory
16 GOLDEN V. CAL. EMERGENCY PHYSICIANS
exceptions seem by their plain language to correspond to
more conventional non-compete covenants. Given the
different, narrower language with which such sections
describe the category of contracts excepted from the ban, we
reasonably expect the general prohibition to extend further.
When carving out exceptions to section 16600, the
California legislature demonstrated an ability to describe,
with considerable detail, a subspecies of the contracts “by
which anyone is restrained from engaging in a lawful
profession, trade, or business.” But when articulating the
general rule against professional restraints, the legislature
adopted categorical language: “every contract” that
“restrain[s]” anyone “from engaging in lawful profession . . .
of any kind” is “void.” Id. § 16600 (emphasis added).
Accordingly, the statutory context lends little support to
construing section 16600 much more narrowly—as simply a
prohibition of agreements between employers and employees
not to compete—than its plain language would otherwise
suggest.
2
The California Supreme Court, furthermore, has
articulated a broad understanding of what constitutes a void
contract under section 16600. In a seminal case, which both
parties here invoke for support, the supreme court invalidated,
under the predecessor to section 16600, a provision in a
contract that required one of the parties to pay $5,000 in
liquidated damages to the other party if he takes up
employment within a certain geographical area. Chamberlain
v. Augustine, 156 P. 479 (Cal. 1916). The court specifically
rejected the argument that the contract withstands the law’s
ban because it does not restrict the party from “exercising a
GOLDEN V. CAL. EMERGENCY PHYSICIANS 17
lawful business, but is merely an agreement that if he did
engage in such business he would pay the sum.” Id. at 480.
Although this contract did not affirmatively prevent the party
from engaging in his lawful business, “[i]t imposes upon him
a liability in the sum of $5,000 if he does engage in such
business” and thus “he is not as free to do so as he would
have been if he were not bound by it.” Id. The court in
Chamberlain did not determine merely that the contract
imposed an impediment to competition; rather, it concluded
that “the necessity of paying $5,000 . . . is clearly a restraint
of a substantial character and the form in which it is cast does
not make it less a restraint.” Id. At least in this canonical
statement of the California Supreme Court, the crux of the
inquiry under section 16600 is not whether the contract
constituted a covenant not to compete, but rather whether it
imposes “a restraint of a substantial character” regardless of
“the form in which it is cast.”
The California Supreme Court’s most recent statement on
section 16600 underscores how strictly the state understands
the statutory proscription on professional restraints.
Analyzing the genesis of the law, the court explained “that
section 16600 evinces a settled legislative policy in favor of
open competition and employee mobility.” Edwards v.
Arthur Andersen LLP, 189 P.3d 285, 291 (Cal. 2008); see
also D’sa v. Playhut, Inc., 85 Cal. App. 4th 927, 933 (2000).4
4
California’s stringent rule departs from the more traditional approach
of the common law, which recognized a “rule of reasonableness” with
respect to covenants not to compete and other similar contractual
restraints. See Restatement (Second) of Contracts § 188 (1981); see also
Bosley Med. Group v. Abramson, 161 Cal. App. 3d 284, 288 (1984)
(discussing history of California’s rejection of the common-law rule).
Although the Code permits such anti-competitive covenants in some
circumstances, see Cal. Bus. & Prof. Code §§ 16601, 16602, 16602.5, and
18 GOLDEN V. CAL. EMERGENCY PHYSICIANS
At issue specifically in Edwards was a more traditional
variety of non-compete covenants—an employment
agreement forbidding a certified public accountant from
poaching Arthur Andersen’s clients and personnel after
leaving the firm. Nevertheless, the court used this
opportunity to reaffirm the State’s strong policy against
restraints to professional practice and specifically to disavow
even narrow exceptions that the federal courts had begun to
fashion. Notably, Edwards rejected a proposed
rule—apparently suggested by earlier California cases and
extended by the Ninth Circuit—“that a mere limitation on an
employee’s ability to practice his or her vocation would be
permissible under section 16600, as long as it was reasonably
based.” Id. at 291. The state supreme court, moreover, did
not simply inquire—as both the district court in this case did
and CEP, in its brief, urges us to do—whether the challenged
provisions permit the employee to compete with his former
employer. The decisive concern for the court, rather, was that
the agreement “restricted his ability to practice his accounting
profession.” Id. at 292.
CEP cites a decision from an intermediate appellate
tribunal, City of Oakland v. Hassey, 163 Cal. App. 4th 1477(2008), which upheld a contractual provision requiring police
officers to reimburse the department if they voluntarily left
their jobs before completing five years of service. According
to CEP, this case counsels against applying section 16600
outside the context of non-compete covenants. The
the state courts uphold restrictive contracts to protect trade secrets, see
Muggill v. Reuben H. Donnelley Corp., 398 P.2d 147, 149 (Cal. 1965);
Gordon v. Landau, 321 P.2d 456, 459 (Cal. 1958), otherwise California
does not make exceptions for narrow or reasonable restraints, see
Edwards, 189 P.3d at 292–93.
GOLDEN V. CAL. EMERGENCY PHYSICIANS 19
California Court of Appeal concluded, contrary to the police
officer’s claim of contractual invalidity under section 16600,
that “nothing in the agreements . . . ‘restrained [him] from
engaging in [his] lawful trade, business or profession.’
Nothing prevented him from working for another police
department, or anywhere else, for that matter.” Id. at 1491
(alterations in the original) (citation omitted). Although CEP
invokes the case to argue that section 16600 outlaws only
agreements not to work for a former employer’s competitors,
Hassey does not necessarily read that statute so narrowly.
The decisive point in Hassey, indeed, was that “nothing in the
agreements . . . restrained [him] from engaging in [his] lawful
trade, business or profession.” Id. (internal quotation marks
omitted).
Both Edwards and Hassey begin with the text of the law:
whether the contested provision “restrained anyone from
engaging in [his] lawful trade, business, and profession,” and
not specifically whether it prevented him from competing
with his former employer’s services. In Edwards,
furthermore, the California Supreme Court restated the
statutory anti-restraint policy even more emphatically and
intimated that even “a mere limitation on an employee’s
ability to practice his or her vocation . . . [that was]
reasonably based” would fall afoul of section 16600.
189 P.3d at 291. Under such a broad reading of the statute,
the contractual provision approved by the intermediate
appellate court in Hassey perhaps also should have failed: a
requirement to reimburse training expenses could impose a
meaningful obstacle to “employee mobility,” Edwards, 189
20 GOLDEN V. CAL. EMERGENCY PHYSICIANS
P.3d at 291, and, hence, limit the opportunities one may have
to engage in one’s chosen line of work.5
C
In determining a contract’s validity under section 16600,
therefore, the court should direct its inquiry according to the
actual statutory language: whether the challenged provision
“restrain[s anyone] from engaging in a lawful profession,
trade, or business of any kind.” Cal. Bus. & Prof. Code
§ 16600. This prohibition extends to any “restraint of a
substantial character,” no matter its form or scope.
Chamberlain, 156 P. at 480. The statutory context of section
16600 furthermore suggests that the prohibition on
professional restraints extends to a larger category of
contracts than simply those where the parties “agree . . . to
refrain from carrying on a similar business within a specified
geographic area.” Cal. Bus. & Prof. Code § 16601; see also
Edwards, 189 P.3d at 293 (“[The prohibition in section 16600
is] unambiguous, and if the Legislature intended the statute to
apply only to restraints that were unreasonable or overbroad,
it could have included language to that effect.”).
5
Dr. Golden makes a similar point in his reply brief, claiming that
Hassey contravenes Chamberlain v. Augustine. The obstacle to employee
mobility in Chamberlain, Dr. Golden argues, is indistinguishable from that
of Hassey—that is, a payment of money to a former employer. Whether
Hassey conflicts with the rule of Chamberlain, which the California
Supreme Court has not since explicitly abrogated, depends on whether the
reimbursement requirement is a restraint of a “substantial character”
similar to the sum of liquidated damages at issue in the older case. The
Hassey court does not answer that question expressly, but like
Chamberlain, as well as Edwards, it analyzed the issue according to the
broader statutory language of section 16600.
GOLDEN V. CAL. EMERGENCY PHYSICIANS 21
The district court, in ruling on whether section 16600
applies to the no-employment provision, began its analysis by
stating a narrower principle: “[i]n California, covenants not
to compete are void.” From that premise, the court then
proceeded to find that, because the no-employment provision
is not such a covenant, it does not fall within the statutory
prohibition.6 Accordingly, the district court seems to have
mischaracterized the appropriate legal rule; such an error
constitutes an abuse of discretion.
The courts of California have not clearly indicated the
boundaries of section 16600’s stark prohibition but have
nevertheless intimated that they extend to a considerable
breadth. At the very least, we have no reason to believe that
the State has drawn section 16600 simply to prohibit
“covenants not to compete” and not also other contractual
restraints on professional practice. We refrain, however,
from addressing the ultimate merits of this question on the
relatively undeveloped record that accompanies this appeal,
leaving the district court at liberty to order additional briefing
or to conduct further fact-finding as it deems prudent. On
remand, the district court should determine in the first
instance whether the no-employment provision constitutes a
restraint of a substantial character to Dr. Golden’s medical
practice.
6
The district court did reasonably recapitulate Dr. Golden’s argument
that, due to the no-employment provision, “in effect, he cannot work
because Defendants own a large number of hospitals and facilities in
California.” Despite acknowledging this contention, and quoting the
statutory language, the court still stated and applied a more circumscribed
legal rule than that of the California courts.
22 GOLDEN V. CAL. EMERGENCY PHYSICIANS
IV
For the foregoing reasons, we reverse the judgment of the
district court and remand the case for further proceedings not
inconsistent with this opinion.
REVERSED AND REMANDED.
KOZINSKI, Circuit Judge, dissenting:
Dr. Golden and California Emergency Physicians (CEP)
have a serious disagreement and they have agreed to resolve
it by parting ways. Dr. Golden is paid a large sum of money
and, in exchange, he gives up his right to continue working
for CEP. The provision barring Dr. Golden from current
employment by CEP cannot possibly violate California
Business and Professions Code § 16600 because the
continuation of their employment relationship is the very
subject in controversy in this lawsuit, and one possible
outcome would be that he would lose his job and get nothing
in exchange. If this violates section 16600, few employment
disputes could ever be settled.
The only way section 16600 might be implicated is if, at
some future time, Dr. Golden were working for an entity that
is acquired by CEP, in which case the agreement would give
the employer a right to fire him without a further showing of
cause. We have no way of knowing whether this part of the
settlement agreement will ever come into play, as its
enforcement depends on numerous circumstances that are not
capable of determination at this time: where Dr. Golden will
choose to live and work; where he will find employment; and
GOLDEN V. CAL. EMERGENCY PHYSICIANS 23
what facilities, if any, CEP will acquire in the future. If the
stars align and all this came to pass, we would then have to
determine whether Dr. Golden’s ability to practice his
profession at that indefinite future time would be adversely
affected, a highly contingent inquiry depending on numerous
factors that are susceptible to little more than a guess today.
The majority remands for further fact-finding, but fact-
finding normally involves reconstructing past events, not
prognosticating about the future. The court will need a ouija
board to “find” any of the facts the majority believes are
relevant to whether the agreement will violate section 16600.
What we know for sure is that the settlement agreement
does not limit Dr. Golden’s ability to practice his profession
at this time—except to the extent that he can’t work for CEP.
No case cited by the majority, and none I’m aware of, has
construed section 16600 as preserving an unfettered right to
employment in all future circumstances, no matter how
remote or contingent.
If and when the scenario Dr. Golden fears to comes to
pass, he can raise section 16600 as a defense to his dismissal.
A court can then adjudicate the issue in light of the concrete
circumstances as they exist at that time—including making a
factual determination whether CEP’s share of the market is so
great that being dismissed by them impairs Dr. Golden’s
ability to practice his profession. If it is, then that portion of
the settlement agreement might, in the words of section
16600, be “to that extent void.” But I can see no justification
for allowing this remote contingency to serve as an excuse for
Dr. Golden to finagle his way out of his contract and deprive
his lawyer of the fee he has earned. Because I seriously
doubt that the California Supreme Court would reach such a
result, I would affirm the judgment of the district court.