Seychelles Organics, Inc. v. John Rose , 682 F. App'x 605 ( 2017 )

FILED
NOT FOR PUBLICATION
MAR 16 2017
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
SEYCHELLES ORGANICS, INC., a No. 15-15814
Delaware corporation,
D.C. No. 2:11-cv-01746-FJM
Plaintiff-Appellant,
v. MEMORANDUM*
JOHN R. ROSE; ANUMED
INTERNATIONAL, LLC; MARIA
ESPARZA,
Defendants-Appellees.
Appeal from the United States District Court
for the District of Arizona
Frederick J. Martone, District Judge, Presiding
Submitted March 14, 2017
San Francisco, California
Before: TROTT, WARDLAW, and GOULD, Circuit Judges.
Seychelles Organics, Inc. (“Seychelles”) appeals the district court’s denial of
its motion to show cause why John R. Rose (“Rose”), Julie Alcantar, Anumed
International, LLC, and Maria Esparza should not be held in contempt for allegedly
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
violating a 25-year non-compete clause in the Settlement Agreement between
Seychelles and Rose. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we
affirm.
1. Seychelles argues that the district court violated its procedural due
process rights by “sua sponte modifying its prior judgment” without providing
notice or a hearing. See Armstrong v. Brown, 768 F.3d 975, 979–80 (9th Cir.
2014) (court modifying injunction must “provide the affected party with notice and
an opportunity to be heard”). However, the district court did not modify the
injunction, but rather declined to enforce it because the injunction was invalid.
Seychelles thus was not entitled to a due process hearing. “[O]nce an injunction in
a civil case has been invalidated, rights granted under the injunction no longer exist
and cannot be enforced.” Hampton Tree Farms, Inc. v. Yeutter, 956 F.2d 869, 871
(9th Cir. 1992). Moreover, the district court did not issue its order sua sponte, as
Seychelles claims. Rather, it issued it in response to Seychelles’ motion for an
order to show cause. The district court was not required to provide advance notice
as to the precise reason it was denying the motion.
2. The district court did not err in holding that the section of the
Settlement Agreement containing the non-compete clause was invalid and legally
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unenforceable.1 Seychelles argues that the non-compete clause was a reasonable
restraint on trade ancillary to the sale of the goodwill of a business. However, the
provision barring Rose from competing worldwide for 25 years in the markets for
certain hormonal supplements was unrelated to the sale of Rose’s businesses.
Instead, it was part of the settlement of Seychelles’ legal claims. The covenant not
to compete thus does not further any “legitimate interest beyond [Seychelles’]
desire to protect itself from competition.” Valley Med. Specialists v. Farber, 982
P.2d 1277, 1281 (Ariz. 1999). Accordingly, the restraint is naked rather than
ancillary. See Restatement (Second) of Contracts § 187 cmt. b (Am. Law Inst.
1981) (“A promise made subsequent to the transaction or relationship is not
ancillary to it.”). Naked restraints like the one here are per se invalid under
Arizona contract law. Valley Med. Specialists, 982 P.2d at 1281; see also
Restatement (Second) of Contracts § 187 (“A promise to refrain from competition
that imposes a restraint that is not ancillary to an otherwise valid transaction or
relationship is unreasonably in restraint of trade.”).
1
Although Alcantar, Anumed International and Esparza were not parties to
the settled lawsuit and are not signatories to the Settlement Agreement, to the
extent the non-compete clause is unenforceable as to Rose, it is also unenforceable
as to them.
3
Even if the rule of reason applied, the covenant would be invalid because it
is unreasonably broad in scope. A 25-year, worldwide non-compete agreement is
not “reasonably limited as to time and territory,” see Gann v. Morris, 596 P.2d 43,
44 (Ariz. Ct. App. 1979), and no case cited by Seychelles is to the contrary.
3. “The construction and enforcement of settlement agreements are
governed by principles of local law which apply to interpretation of contracts
generally.” Jeff D. v. Andrus, 899 F.2d 753, 759 (9th Cir. 1989). Because the non-
compete clause was invalid under Arizona contract law, the district court lacked
power to enforce that clause in the Settlement Agreement.
Seychelles’ arguments that the court had authority to enforce the clause as a
contempt sanction or equitable remedy lack merit. The predicate for a contempt
sanction is a finding of contempt. The predicate for an equitable remedy is a
finding of breach. The district court made neither of these findings, and nothing in
the Stipulated Judgment indicates that it viewed its ruling as a sanction or remedy.
AFFIRMED.
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