Prudential Locations, LLC v. Gagnon ( 2022 )

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Electronically Filed
Supreme Court
SCWC-XX-XXXXXXX
01-APR-2022
09:15 AM
Dkt. 96 AMOP
IN THE SUPREME COURT OF THE STATE OF HAWAI‘I
---o0o---
________________________________________________________________
PRUDENTIAL LOCATIONS, LLC,
Respondent/Plaintiff-Appellant,
vs.
LORNA GAGNON and PRESTIGE REALTY
GROUP LIMITED LIABILITY COMPANY,
Petitioners/Defendants/Cross-Claim Defendants-Appellees,
and
RE/MAX LLC and LORRAINE CLAWSON,
Respondents/Defendants/Cross-Claimants/
Third-Party Plaintiffs-Appellees,
and
KEVIN TENGAN,
Respondent/Third-Party Defendant-Appellee.
________________________________________________________________
SCWC-XX-XXXXXXX and SCWC-XX-XXXXXXX
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(CAAP-XX-XXXXXXX & CAAP-XX-XXXXXXX; CIV. NO. 13-1-2328)
APRIL 1, 2022
McKENNA AND WILSON, JJ., AND CIRCUIT JUDGE MORIKAWA, ASSIGNED BY
REASON OF VACANCY, WITH RECKTENWALD, C.J., CONCURRING IN PART
AND DISSENTING IN PART, WITH WHOM NAKAYAMA, J., JOINS
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AMENDED1 OPINION OF THE COURT BY McKENNA, J.
I. Introduction
This case addresses the enforceability of a non-compete
agreement restricting Lorna Gagnon (“Gagnon”), a former employee
of Prudential Locations, LLC (“Locations”), from “establishing
her own brokerage firm in the State of Hawai‘i within one year
after terminating her employment with Locations” and from
soliciting persons “employed” or “affiliated with” Locations.
At issue are two restrictive clauses within the non-compete
agreement: a non-compete clause and a non-solicitation clause.
We hold as follows: (1) the ICA erred in failing to
address whether the non-compete and solicitation clauses were
ancillary to a legitimate purpose not violative of HRS Chapter
480, as required by HRS § 480-4(c) (Supp. 2015); (2) restricting
competition is not a legitimate ancillary purpose, as
HRS § 480-4(a) prohibits contracts in restraint of trade or
commerce in the State; (3) to establish a violation of a non-
solicitation clause, there must be evidence that the person
subject to the solicitation clause actively initiated contact;
and (4) summary judgment was properly granted in favor of Gagnon
as to the non-compete clause, but summary judgment should not
have been granted for one agent as to the non-solicitation
1 This opinion has been amended to change only the final paragraph.
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clause due to a genuine issue of material fact regarding whether
Gagnon actively initiated contact.
We therefore vacate the Intermediate Court of Appeals’
(“ICA”) July 2, 2020 judgment on appeal and the Circuit Court of
the First Circuit’s (“circuit court”) December 9, 2016 final
judgment in favor of Gagnon and remand to the circuit court only
with respect to the alleged breach of the solicitation clause as
to one agent. We otherwise affirm the judgments of the ICA and
the circuit court.
II. Background
Locations is a real estate brokerage firm with offices in
Kapahulu, Pearlridge, Mililani, Kailua, and Kapolei. Gagnon
worked as a real estate salesperson in New Hampshire from 1989
and later became a licensed real estate broker in 1999. Gagnon
had previously owned an independent brokerage business, and from
2003 to 2008, she owned and operated a RE/MAX real estate
franchise in New Hampshire.
In 2008, Gagnon moved to Hawai‘i after interviewing with
Locations while on the mainland, then accepted a “sales coach”
position with Locations. On August 8, 2008, Gagnon signed a
“Confidentiality and Non-Competition Agreement.” The
Confidentiality and Non-Competition Agreement contained four
parts: (1) recitals; (2) confidentiality and proprietary
rights; (3) agreement not to compete (“Non-Compete Agreement”);
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and (4) remedies of company. The Non-Compete Agreement was
comprised of non-compete and non-solicitation clauses. In
summary, the clauses prohibited Gagnon from establishing her own
brokerage firm in the State of Hawai‘i and from soliciting other
persons affiliated with Locations to terminate their
affiliations to work with her. The clauses prohibited these
acts for a one-year period after her employment termination.
The Confidentiality and Non-Compete Agreement provided as
follows:
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
THIS CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
(the “Agreement”), is made and entered into as of the date
set forth below, by and between Prudential Locations Real
Estate, LLC, a [Hawai‘i] limited liability company, the
employer described below (“Company”) and the employee
described below (“Employee”).
1. Recitals.
1.1 The primary business of the Company is to
provide real estate brokerage and/or property management
services in the State of [Hawai‘i], hereinafter collectively
referred to as the “Business.”
1.2 The Business involves confidential and
proprietary information and procedures and trade secrets of
the Company and its subsidiaries, and such Information is a
special, valuable and unique asset of the Business.
1.3 Employee is employed by the Company and
will have access to such confidential and proprietary
information, procedures and trade secrets of the Company.
1.4 Employee, in consideration of future
employment, agrees to enter into this Agreement for the
protection of the Business.
NOW, THEREFORE, the parties hereto, intending to be
legally bound hereby, do promise and agree as follows:
2. Confidentiality and Proprietary Rights. Employee
acknowledges and agrees that he or she will have access to
confidential and proprietary information and procedures and
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trade secrets of the Company and its subsidiaries, and that
such information is a special, valuable and unique asset of
the business of the Company and its subsidiaries. Employee
further acknowledges and agrees that such confidential and
proprietary information and procedures and trade secrets
belonging exclusively to the Company includes, without
limitation, the following: (i) any information which is not
generally developed, made or obtained by the Company or any
of its subsidiaries or which otherwise came into possession
of the Company or any of its subsidiaries, (ii) all
memoranda, files, books, papers, letters, drawings,
documents, formulas, specifications, investigations, and
other processes data, and all copies thereof and therefrom,
in any way relation to the Company or any of its
subsidiaries, whether used, developed, made or obtained by
the Company or any of its subsidiaries or which otherwise
came into the possession of the Company or any of its
subsidiaries, (iii) all information related to clients and
customers, including without limitation, clients and
customer lists, and identities of existing, past and
prospective clients and customers, prices charged or
proposed to be charged to any existing, past and
prospective client or customer, client or customer
contacts, special customer requirements, and all related
information; (iv) sales and marketing strategies, plans,
materials and techniques, research and development
information, trade secrets and other know-how or other
information pertaining to the financial condition,
business, research and development or prospects of the
Company or any of its subsidiaries; and (v) patterns,
devices, compilations of information, copyrightable
material and technical information, if any, in any way
relating to the Company or any of its subsidiaries
(hereinafter collectively referred to as the “Confidential
Information”).
2.1 Restriction on Use of Confidential
Information. Employee agrees that, except in performance
of duties under an employment arrangement with the Company,
Employee shall not directly or indirectly, at any time or
place, during his or her employment and at anytime after
Employee ceases to be an employee for any reason
whatsoever, use for his or her own benefit or for the
benefit of any third party, or disclose to any third party,
any Confidential Information acquired by reason of his or
her status as an employee or former employee of the
Company, including without limitation, Confidential
Information belonging or relating to the Company or its
subsidiaries, affiliates and customers. Employee agrees
that the duration, geographic area
and scope of this provision is reasonably necessary for the
protection of the Company and does not and will not impose
undue hardship on Employee.
3. Agreement Not To Compete. Employee agrees that
Employee shall not, directly or indirectly, within the
State of Hawaii where the Company conducts or has conducted
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business, during his or her employment and for a period of
one (1) year after Employee ceases to be an employee for
any reason whatsoever, (i) represent, furnish consulting
services to, be employed by, or engage or participate in
the same or similar business, or perform services for third
parties which are generally comparable or competitive with
those performed by the Company with respect to the Business
(“Comparable Services”), (ii) own or operate, or become
proprietor, partner, principal, agent, consultant,
employee, trustee, director, officer, stockholder or
investor, of any person, firm or business which engages or
participates in the same or similar business or businesses
conducted by the Company, including without limitation, the
Business, or which performs Comparable Services, (iii)
engage in any activity or conduct adverse to the Business
or Interests of the Company, or (iv) induce or encourage
any other persons employed or affiliated with the Company
to terminate their relationship with the Company.
Notwithstanding the foregoing, Company agrees that the
Employee may, independently or as an employee or
independent contractor of an existing real estate brokerage
company act as a real estate salesperson or
broker/salesperson, and such conduct shall not constitute a
violation of this paragraph (the “Permitted Activities”).
Permitted Activities however shall not include (i)
Employee’s formation of a real estate brokerage company
with other real estate salesperson(s), (ii) Employee’s
solicitation of other persons employed or affiliated with
the Company.
(Emphasis in original.)
In June 2013, Gagnon terminated her employment with
Locations, and in August 2013, she opened a new RE/MAX franchise
in Hawai‘i called Prestige Realty Group, LLC (“Prestige”). A few
Locations real estate agents also left Locations to open
Prestige.
A. Circuit court proceedings
Locations filed a complaint in the circuit court against
Gagnon and Prestige on August 23, 2013, claiming Gagnon violated
the Non-Compete Agreement by establishing Prestige and
soliciting Locations’ agents.
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After discovery, Locations filed a motion for partial
summary judgment seeking enforcement of the Non-Compete
Agreement. Locations contended the Non-Compete Agreement was
tailored to its legitimate business interests, and that Gagnon
had acknowledged the reasonableness of its duration, scope, and
geographic area by signing it. Locations asserted it had a
legitimate interest in protecting confidential business
information and preventing “its managerial personnel from taking
actions harmful to its business, such as forming a competing
real estate brokerage firm and poaching Locations’ agents.”
Locations acknowledged that: (1) pursuant to Technicolor,
Inc. v. Traeger, 57 Haw. 113, 122, 551 P.2d 163, 170 (1976), a
non-compete clause must protect a legitimate business interest
and be reasonable; and (2) to be reasonable, a non-compete
clause must not: (a) be “greater than required for the
protection of the person for whose benefit it is imposed[;]” (b)
“impose undue hardship on the person restricted[;]” (c) have a
“benefit to the covenantee [that] is outweighed by injury to the
public[.]” Locations claimed enforcing the non-compete clause
against Gagnon was necessary because she had access to
“technologies and techniques” tailored to Locations and its
“website-related technology that provides analysis and reports
concerning preferences of its consumers.”
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Locations also maintained the Non-Compete Agreement did not
impose undue hardship on Gagnon because it only prevented her
from starting a brokerage firm that would compete with
Locations, but it did not restrict her from working for an
already existing firm.
Locations also contended Gagnon violated the non-
solicitation clause, citing Gagnon’s deposition testimony
regarding conversations in which Locations’ former agents
expressed interest in joining Gagnon after learning she was
leaving Locations.
Gagnon filed a memorandum in opposition to Locations’
motion for partial summary judgment and a cross-motion for
summary judgment. Gagnon contended that through the deposition
testimony of William Chee (“Chee”) and Dan Tabori (“Tabori”),
Locations’ President and Vice-President of Business Operations,
Locations admitted the sole purpose of the Non-Compete Agreement
was to prevent new competition, thereby restricting trade and
commerce in violation of HRS § 480-4(a).2 Gagnon cited Chee’s
statement that, “when someone goes out and starts their own
firm, it provides a bigger threat to our company, which we’re
trying to protect against,” and Tabori’s testimony that, “we
2 HRS § 480-4(a) provides: “Every contract, combination in the form of
trust or otherwise, or conspiracy, in restraint of trade or commerce in the
State, or in any section of this State is illegal.”
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want to make sure that we don’t bring people on who learn what
we do and then go ahead and start their own company.”
Furthermore, Gagnon pointed out that of the eighteen
coaches employed by Locations, only some were bound by non-
compete agreements, and Locations’ executives, including Tabori,
were not under non-compete covenants. Gagnon argued that if
employees and managers with similar or more access to
confidential information than her were not restricted by non-
compete agreements, then Locations had no legitimate interest in
the Non-Compete Agreement with her.
Gagnon alternatively argued that if there was a legitimate
interest, the non-compete clause was unreasonable because it
encompassed the entire State of Hawai‘i, was unduly burdensome
because her only source of income came from Prestige, and it
limited the public’s ability to choose a provider of real estate
services. Gagnon also maintained with respect to the non-
solicitation clause that she did not solicit any of Locations’
agents and, because Locations’ agents were independent
contractors, they were not “employees” or “persons affiliated
with” Locations under the clause.
The circuit court held a hearing on the parties’ motions
for summary judgment on August 3, 2016.3 Locations maintained it
3 The Honorable Karl K. Sakamoto presided.
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had a legitimate interest in protecting its confidential
information. However, Locations admitted the Non-Compete
Agreement did not mention confidentiality and that it “didn’t
move [for summary judgment] on whether Ms. Gagnon used
confidential material or misappropriated confidential material.”
Locations argued that, even without evidence that Gagnon used
any of its confidential information, Gagnon violated the Non-
Compete Agreement.
On August 25, 2016, the circuit court issued its findings
of fact (“FOFs”), conclusions of law (“COLs”), and orders
denying Locations’ motion for partial summary judgment and
granting Gagnon’s cross-motion for summary judgment. The
circuit court’s findings included the following:
33. Locations has produced no evidence that Defendants
were in possession of and had been using any confidential
or proprietary information, or any trade secrets of
Locations.
34. Locations does not contend that any of the Defendants
are using any technology, concept, method, training or idea
of Locations.
35. Locations does not dispute that there was no trade
secret violation.
36. All coaches at Locations have access to the same
information at Locations.
. . . .
39. At least six noncompete agreements were in effect at
any one time for persons with the same access to the same
information, with the same job description, the same
responsibilities, and the same geographic scope.
40. Former and current employees and managers at
Locations, including other sales coaches, were and
currently are not bound by or party to any non-compete
agreement.
41. Of the 18 coaches, some were bound to one of the 6
versions of non-compete agreements and some were not bound
by any non-compete restriction.
. . . .
48. Ms. Gagnon could take all that she knew or learned
while at Locations and could work independently as an
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employee or independent contractor for an existing real
estate brokerage firm in Hawai‘i.
49. At present, Ms. Gagnon’s only means of support for
herself and her five children “is the income, if any, that
[she] may earn working at Prestige.”
50. Enforcement of the Noncompete Clause [] would likely
result in the forced forfeiture of Ms. Gagnon’s real estate
broker’s license in [Hawai‘i].
51. Enforcement of the Noncompete Clause would require Ms.
Gagnon to leave the State of [Hawai‘i] to find work as a
real estate broker.
52. Enforcement of the Noncompete Clause would place an
undue hardship on Ms. Gagnon by severely limiting her
earning potential in the only industry in which she has
worked in the last 27 years.
The circuit court concluded that Locations’ sole interest
in enforcing the non-compete clause was to prevent competition
and therefore lacked a legitimate protectible interest and was
illegal under HRS § 480-4(a). The circuit court also
alternatively deemed the non-compete clause unreasonable under
Traeger, 57 Haw. at 122, 551 P.2d at 170, because it: (1) was
greater than required for Location’s protection; (2) imposed an
undue hardship upon Gagnon; and (3) the benefit to Locations was
outweighed by the injury to the public. The circuit court also
found the non-solicitation clause unreasonable and an illegal
restraint on trade and commerce.
The circuit court issued its judgment in favor of Gagnon on
December 9, 2016. On December 28, 2016, the circuit court also
granted in part Gagnon and Prestige’s motion for attorney’s fees
and costs. Locations appealed the circuit court’s decision to
the ICA.
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B. ICA proceedings
On April 15, 2020, the ICA issued its memorandum opinion.
Prudential Locations, LLC v. Gagnon, CAAP-XX-XXXXXXX (App. Apr.
2020) (mem.). The ICA held that the non-compete clause was
reasonable because its geographical scope was limited to the
State of Hawai‘i and its one-year duration was “no longer than
other such covenants approved by Hawai‘i courts.” Prudential
Locations, LLC, mem. op. at 14. The ICA further ruled that the
non-compete clause did not impose undue hardship on Gagnon and
the benefit to Locations was not outweighed by any injury to the
public. Id. The ICA held the non-solicitation clause valid for
the same reasons. Prudential Locations, LLC, mem. op. at 15.
The ICA did not, however, address whether Locations had a
legitimate protectible interest.
The ICA vacated the circuit court’s FOFs, COLs, and orders
on the parties’ motions for summary judgment and the circuit
court’s award of attorney’s fees and costs. Id.III. Standard of Review
A circuit court’s grant or denial of summary judgment is
reviewed de novo. Ralston v. Yim, 129 Hawaiʻi 46, 55, 292 P.3d
1276, 1285 (2013). Furthermore,
Summary judgment is appropriate if the pleadings,
depositions, answers to interrogatories and admissions on
file, together with the affidavits, if any, show that there
is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law. A
fact is material if proof of that fact would have the
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effect of establishing or refuting one of the essential
elements of a cause of action or defense asserted by the
parties. The evidence must be viewed in the light most
favorable to the non-moving party. In other words, we must
view all of the evidence and inferences drawn therefrom in
the light most favorable to the party opposing the motion.
129 Hawaiʻi at 55-56, 292 P.3d at 1285-86 (cleaned up).
In sum, this court’s case law indicates that a summary
judgment movant may satisfy their initial burden of
production by either (1) presenting evidence negating an
element of the non-movant’s claim, or (2) demonstrating
that the non-movant will be unable to carry their burden of
proof at trial. Where the movant attempts to meet their
burden through the latter means, they must show not only
that the non-movant has not placed proof in the record, but
also that the movant will be unable to offer proof at
trial. Accordingly, in general, a summary judgment movant
cannot merely point to the non-moving party’s lack of
evidence to support their initial burden of production if
discovery has not concluded. (Merely asserting that the
non-moving party has not come forward with evidence to
support its claims is not enough.).
129 Hawaiʻi at 60-61, 292 P.3d at 1290-91 (cleaned up).
IV. Discussion
Gagnon’s Application presents four questions:
A. Whether the ICA’s Opinion that held a Non-Compete
Agreement whose sole admitted intent by its drafter was to
prevent competition legal and enforceable was directly
inconsistent with the Hawai‘i statutory and case law.
B. Whether the ICA committed a grave error in failing to
address the absence of any legitimate protectible interest
in support of the Non-Compete Agreement.
C. Whether the ICA committed a grave error in its analysis
of the “reasonableness” of the Non-Compete Agreement.
D. Whether the ICA committed a grave error in failing to
determine the protectible interest for the Non-Solicitation
clause and in enforcing a restriction against the
solicitation of “employees” and “affiliates” against “real
estate brokers.”
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A. Summary judgment was properly granted in favor of Gagnon as
to the non-compete clause
1. The enforceability of non-compete covenants in Hawai‘i
and other states
Under the common law, restrictive covenants in employment
agreements were considered valid as long as they were
reasonable. Edwards v. Arthur Andersen, LLP, 189 P.3d 285, 290
(Cal. 2008). The more recent trend in the United States has
been toward restricting the enforceability of non-compete
covenants. See Rachel Arnow-Richman, The New Enforcement
Regime: Revisiting the Law of Employee Competition (And the
Scholarship of Professor Charles Sullivan) With 2020 Vision, 50
Seton Hall L. Rev. 1223 (2020) (discussing different states’
approaches to non-competition covenants).
While the majority of states continue to apply some form of
the common law reasonableness analysis, others have moved toward
bans on all or specific types of non-compete covenants. For
example, California law 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[,]” with
statutory exceptions for non-compete agreements related to the
sale and dissolution of corporations, partnerships, and limited
liability corporations. CAL. CIVIL CODE § 16600 (West through Ch.
19 of 2021 Reg. Sess.); Edwards, 189 P.3d at 291 (“[O]ur courts
have consistently affirmed that section 16600 evinces a settled
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legislative policy in favor of open competition and employee
mobility.”).4
Under Hawaiʻi law, pursuant to HRS § 480-4(a), “Every
contract, combination in the form of trust or otherwise, or
conspiracy, in restraint of trade or commerce in the State, or
in any section of this State is illegal.” HRS § 480-4(c) then
enumerates several types of restrictive covenants that may be
lawfully entered into “ancillary to a legitimate purpose not
violative of this chapter.”5 (Emphasis added.)
4 North Dakota, Oklahoma, and Washington D.C. have also passed
legislation generally prohibiting non-compete covenants. N.D. CENT. CODE § 9-
08-06 (2019); OKLA. STAT. tit. 15, § 217 (2001); D.C. CODE § 32-581.02 (2021).
Other states have prohibited non-compete covenants for certain categories of
employees. For instance, Illinois, Maine, Maryland, Massachusetts, New
Hampshire, Rhode Island, and Washington have enacted legislation prohibiting
employers from entering into non-compete covenants with employees below
certain income levels. 820 ILL. COMP. STAT. 90/10 (2017); ME. STAT. tit. 26, §
599-A (2019); MD. CODE ANN., LAB. & EMPLY. § 3-716 (2019); MASS. GEN. LAWS ch. 149,
§ 24L (2021); N.H. REV. STAT. ANN. § 275:70 (2019); 28 R.I. GEN. LAWS § 28-59-3
(2020); WASH. REV. CODE § 49.62.020 (2020).
5 HRS § 480-4(c) provides:
Notwithstanding subsection (b) and without limiting the
application of subsection (a), it shall be lawful for a
person to enter into any of the following restrictive
covenants or agreements ancillary to a legitimate purpose
not violative of this chapter, unless the effect thereof
may be substantially to lessen competition or to tend to
create a monopoly in any line of commerce in any section of
the State:
(1) A covenant or agreement by the transferor
of a business not to compete within a
reasonable area and within a reasonable period
of time in connection with the sale of the
business;
(2) A covenant or agreement between partners
not to compete with the partnership within a
reasonable area and for a reasonable period of
time upon the withdrawal of a partner from the
partnership;
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In Traeger, 57 Haw. 113, 551 P.2d 163, we considered
whether the permissible restrictive covenant exceptions in
HRS 480-4(c)6 are exclusive. We held “the restrictive covenants
and agreements enumerated under [HRS §] 480-4(c) were not meant
to be exclusive in their respective fields.” 57 Haw. at 121,
551 P.3d at 170. We noted the drafters of HRS § 480-4(c)
“intended to have courts analyze all restrictive covenants that
are not listed as ‘per se violations,’ and determine their
validity” based on whether the covenant was “reasonable” as a
matter of law. Id. We held that a restrictive covenant is not
reasonable if: “(i) it is greater than required for the
protection of the person for whose benefit it is imposed; (ii)
it imposes undue hardship on the person restricted; or (iii) its
(3) A covenant or agreement of the lessee to be
restricted in the use of the leased premises to
certain business or agricultural uses, or
covenant or agreement of the lessee to be
restricted in the use of the leased premises to
certain business uses and of the lessor to be
restricted in the use of premises reasonably
proximate to any such leased premises to
certain business uses;
(4) A covenant or agreement by an employee or
agent not to use the trade secrets of the
employer or principal in competition with the
employee's or agent's employer or principal,
during the term of the agency or thereafter, or
after the termination of employment, within
such time as may be reasonably necessary for
the protection of the employer or principal,
without imposing undue hardship on the employee
or agent.
6 See supra note 4.
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benefit to the covenantee is outweighed by injury to the
public[.]”7 Traeger, 57 Haw. at 122, 551 P.3d at 170 (cleaned
up).
Then in 7’s Enterprises, Inc. v. Del Rosario, 111 Hawaiʻi
484, 493 143 P.3d 23, 32 (2006), we held in relevant part that,
while not exhaustive, “training that provides skills beyond
those of a general nature is a legitimate interest which may be
considered in weighing the reasonableness of a non-competition
covenant, when combined with other factors weighing in favor of
a protectible business interest such as trade secrets,
confidential information, or special customer relationships.”
Hence, although the permissible restrictive covenant exceptions
provided in HRS 480-4(c) are not exclusive, HRS § 480-4(c)
requires that a restrictive covenant or agreement in restraint
of commerce or trade be “ancillary to a legitimate purpose not
violative of [Chapter 480].” Even if a restrictive covenant
otherwise satisfies the Traeger three-factor reasonableness
7 Traeger upheld the non-compete clause in question as reasonable,
concluding there was “ample evidence as to these factors and other
facts necessary for the court to have made its ‘reasonableness
analysis.’” Traeger, 57 Haw. at 122, 551 P.2d at 170. But see Hazel
G. Beh & H. Ramsey Ross, Non-Compete Clauses in Physician Employment
Contracts Are Bad for Our Health, 14 HAW. B.J. 79, 83-85 (2011)
(criticizing Traeger’s analysis and the “modern trend among
jurisdictions that is deferential to employers and elevates freedom of
contract principles above the traditional judicial stance that rendered
them suspect”).
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test, it is unenforceable unless it is ancillary to a legitimate
purpose not violative of Chapter 480.8
2. The non-compete clause was not ancillary to a legitimate
purpose
The ICA did not address whether the non-compete and non-
solicitation clauses within this Non-Compete Agreement were
“ancillary to a legitimate purpose” as required by
HRS § 480-4(c).
Locations argues its legitimate purpose was to prevent
Gagnon from using proprietary information obtained as a sales
8 In 2015, Hawaiʻi joined the trend toward restricting the enforceability
of non-compete agreements. HRS § 480-4 was amended to preclude non-compete
and non-solicitation clauses in the technology industry. The new HRS § 480-
4(d) (Supp. 2015) provides in relevant part:
Except as provided in subsection (c)(4), it shall be
prohibited to include a noncompete clause or a nonsolicit
clause in any employment contract relating to an employee
of a technology business. The clause shall be void and of
no force and effect.
In enacting this amendment, the legislature noted that “Hawai[ʻ]i has a
strong public policy to promote the growth of new businesses in the economy,
and academic studies have concluded that embracing employee mobility is a
superior strategy for nurturing an innovation-based economy.” 2015 Haw.
Sess. Laws Act 158, § 1. It also found that “restrictive employment
covenants impede the development of technology businesses within the State by
driving skilled workers to other jurisdictions and by requiring local
technology businesses to solicit skilled workers from out of the State.” Id.
The legislature acknowledged Traeger’s holding that non-compete agreements
can be enforced if they are reasonable. Id. However, the legislature then
stated, “[e]mployer trade secrets are already protected under the federal
Uniform Trade Secrets Act and under section 480-4(c)(4), [HRS]; therefore,
the benefits to the employer from noncompete or nonsolicit agreements are
duplicative and overreaching protections that may unreasonably impose undue
hardship upon employees of technology businesses and the Hawai‘i economy.”
Id. While Act 158 of 2015 bans non-compete agreements in the technology
industry only, the legislature stressed Hawai‘i’s strong public policy in
promoting the growth of new businesses.
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coach, from forming a competing firm, and from “poaching” its
agents.
Locations argued it had an interest in “protecting . . .
its proprietary systems, its customer management, the training
modules it’s developed over 40 years, the information that was
provided on a system-wide basis, including managerial reports to
Ms. Gagnon about how to optimize the success of its sales
force,” as well as Gagnon’s “access to confidential materials,
proprietary materials that were the secret sauce, if you will,
of why Locations is one of, if not the most, successful local
real estate companies in Hawaii.” Locations argued that it
sought to protection against unfair competition, which it
contended was knowledge and skills Gagnon allegedly acquired as
a Locations employee:
She had been an entrepreneur running her own franchise in
New Hampshire for four years. What she didn't know was how
to be a real estate again in this market. She came to
Hawaii. We paid her hundreds of thousands of dollars to
learn our systems and train our sales agents, and then she
left.
(Emphasis added).
Even if non-trade-secret, confidential business information
constitutes a “legitimate business interest” for purposes of a
non-compete agreement under Hawaiʻi law, the record in this case
does not reflect a genuine issue of material fact as to the
existence of such non-trade-secret, confidential business
information. Contrary to the dissent, the information that
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Locations asserts constitutes a protectible legitimate purposes
was not actually “confidential.” As noted by the circuit court,
other Locations employees and managers with similar or more
access to the allegedly confidential information were not
restricted by non-compete agreements.9 For example, only some of
the eighteen sales coaches employed by Locations were subject to
non-compete agreements. Further, despite Locations’ purported
confidentiality concerns, the non-compete clause only prohibited
Gagnon from starting her own firm, but permitted her to work for
an existing brokerage firm even within one year of leaving
Locations. In addition, Locations did not produce any evidence
of and did not dispute that there was no trade secret
violation.10
9 As indicated in the circuit court’s FOF 43 quoted above, two coaches
hired after Gagnon had no-post employment restriction agreements. Also, as
indicated in FOFs 37 and 40, the supervisor of the sales coaches as well as
former or current employees were not bound by any non-compete agreements.
The record does not reflect that Gagnon was provided with any unique or
specialized training by Locations. Gagnon actually brought with her to
Locations twenty-five years of prior experience in the real estate industry
and was hired as a “sales coach.” Moreover, Locations held monthly corporate
sales meetings, open to real estate agents from other brokerage firms, where
training materials were shown via a PowerPoint presentation to all attendees,
including real estate agents from other firms.
10 Under Hawaiʻi law:
“‘Trade secret’ means information, including a formula,
pattern, compilation, program device, method, technique, or
process that:
(1) Derives independent economic value, actual or
potential, from not being generally known to, and
not being readily ascertainable by proper means
by, other persons who can obtain economic value
from its disclosure or use; and
(2) Is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy.
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Locations also argued that a protectible “legitimate
purpose” was to prevent Gagnon from forming a competing firm.
Tabori stated during his deposition that preventing competition
from new firms was a purpose of the non-compete agreement:
Q. You said that the rationale for having a noncompete
that prevents someone from forming a new entity such as Ms.
Gagnon’s restrictive covenant is that you don’t want
someone to start up a new competing enterprise against you,
essentially with your stuff. Fair?
A. That would be the reason to put that language into the
noncompete that Lorna Gagnon signed, fair.
Preventing competition, however, is not a legitimate ancillary
purpose under HRS § 480-4(a). The plain language purpose of
HRS § 480-4(A) is to prohibit contracts in restraint of commerce
or trade in the State.
Hence, although based on different reasoning than the
circuit court, we hold that summary judgment was properly
granted in favor of Gagnon with respect to the non-compete
clause. See Kahaikupuna v. State, 109 Hawaiʻi 230, 233–34, 124
P.3d 975, 978–79 (2005) (affirming summary judgment on different
grounds than the trial court and explaining that an appellate
court may affirm a grant of summary judgment on any ground
appearing in the record) (cleaned up).11
HRS § 482B-2 (2008).
11 We note that as part of the reasonableness analysis, Gagnon had argued
that consumers should be able to choose their own providers of real estate
services. With respect to non-competes in professional services contracts
generally, the Washington Court of Appeals has stated, “public policy
requires [a court] to carefully examine covenants not to compete, even when
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B. A genuine issue of material fact exists as to one agent
with respect to the non-solicitation clause
1. Non-solicitation clauses also require a legitimate
ancillary purpose
Gagnon also asserts the ICA “failed to address the
independent legality of the non-solicitation clause.”12
Solicitation clauses are also contracts in restraint of
trade or commerce that require a legitimate ancillary purpose
under HRS § 480-4(a). As explained above, preventing
competition is not a legitimate ancillary purpose, and the
alleged purpose of protecting confidentiality lacks merit in
this case.
protection of a legitimate business interest is demonstrated, because of
equally competing concerns of freedom of employment and free access of the
public to professional services.” See Knight, Vale & Gregory v. McDaniel, 37
Wash. App. 366, 370, 680 P.2d 448, 452 (Wash Ct. App. 1984). See also
Professor Beh’s article with respect to medical professionals, supra note 6.
We also note that Rule 5.6 of the Hawaiʻi Rules of Professional Conduct
provides:
A lawyer shall not participate in offering or making:
(a) a partnership, shareholders, operating,
employment, or other similar type of agreement that
restricts the right of a lawyer to practice after
termination of the relationship, except an agreement
concerning benefits upon retirement or as permitted by Rule
1.17 of these Rules; or
(b) an agreement in which a restriction on the
lawyer’s right to practice is part of the settlement of a
client controversy.
Thus, the Hawaiʻi legal profession does not allow non-compete
agreements.
12 Gagnon also maintains that real estate agents are not “employees” or
“affiliates” covered by the non-solicitation clause, and that the non-
solicitation clause was unreasonable if it applied to the solicitation of
agents. These arguments lack merit and we do not address them further.
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Workforce stability and customer relationships can,
however, be legitimate ancillary interests for an agreement
prohibiting the solicitation of employees. See, e.g., Arpac
Corp. v. Murray, 589 N.E.2d 640, 649-50 (Ill. App. Ct. 1992)
(holding that a non-solicitation agreement was “enforceable and
not void” because it “was reasonably calculated to protect [the
employer’s] interest in maintaining a stable work force”);
Genesee Valley Tr. Co. v. Waterford Grp., 14 N.Y.S.3d 605, 609
(N.Y. App. Div. 2015) (“A covenant not to solicit employees is
inherently more reasonable and less restrictive than a covenant
not to compete, and an employer has a legitimate interest in
preventing an employee from leaving to work for a competitor if
the employee has cultivated personal relationships with clients
through the use of the employer's resources.”) (citations and
quotations omitted).
2. “Solicitation” requires an active initiation of contact
In this case, the non-solicitation clause prohibited Gagnon
from soliciting other persons employed or affiliated with
Locations by “induc[ing] or encourage[ing][them] to terminate
their relationship with the Company.”13 Three agents, including
Sherrie Au (“Au”), joined Gagnon at Prestige after learning she
was leaving Locations. These agents’ termination of their
13 Merely “encouraging” someone to leave employment cannot
constitute “solicitation”; employees are “encouraged” by family and
friends to switch employers for various reasons.
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employment with Locations and subsequent employment with
Prestige do not automatically demonstrate a violation of the
non-solicitation clause.
Our law does not clearly define “solicitation.” We agree
with reasoned opinions from other jurisdictions and now hold
that “solicitation” requires an active initiation of contact.
Thus, to withstand summary judgment for a violation of the non-
solicitation clause, evidence indicating that Gagnon actively
initiated contact with the agents that joined her must have
existed. See UARCO Inc. v. Lam, 18 F. Supp. 2d 1116, 1121 (D.
Haw. 1998) (holding a non-solicitation agreement enforceable
where the former employees’ admitted to calling company’s
customers and informing them of their new employment); Prosonic
Corp. v. Stafford, 539 F. Supp. 2d 999, 1004 (S.D. Ohio 2008)
(holding that employer’s claim that a former employee solicited
other employees was “mere speculation” because employer failed
to produce evidence that former employee personally induced
employees to leave the company); Atmel Corp. v. Vitesse
Semiconductor Corp., 30 P.3d 789, 793 (Colo. App. 2001)
(interpreting “solicitation” to require actively initiated
contact).
Here, the record reflects a genuine issue of material fact
with respect to Gagnon’s active initiation of contact only with
respect to Au. The conversations Gagnon had with the subject
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agents to inform them that she was leaving Locations do not, by
themselves, constitute active initiation of contact or
“solicitation.” With respect to Au, however, on July 2, 2013,
about one month before her last day at Locations, Gagnon emailed
Au, saying “Any chance you have Friday this week open? There is
something I want to discuss with you and it cannot wait till
next week as planned.” Three days later, Gagnon and Au met for
lunch. Regarding her conversation with Au, Gagnon provided the
following declaration:
On July 5, 2014, I had lunch with Sherrie Au. During
lunch, I informed Sherri of my decision to leave Prudential
and my plans for opening up a RE/MAX franchise. I
explained to her my plans. Sherrie stated that she always
said that she would go with me if I left Locations. I
responded by stating that Kevin and I could not think of
any other person we would rather have be our partner.
Sherrie and I did not at that time discuss any
organizational structure of a new company. There was no
understanding at the time as to what role Sherrie would
have or if she would even join me in the new company.
Sherrie then sent me a set of points and questions that she
wanted answered by me before she reached any decision.
(Emphasis added.) Although Au attested she left Locations on
her own volition and that Gagnon did not solicit her to leave,
the record reflected possible active initiation of contact of Au
by Gagnon, precluding summary judgment. Thus, this case is
remanded to the circuit court only with respect to the alleged
violation of the solicitation clause as to Au.
V. Conclusion
For these reasons, we vacate and affirm the lower courts’
orders and judgments as follows.
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The ICA’s Order Granting in Part and Denying in Part Motion
for Fees and Costs filed on June 26, 2020 is vacated.
The following circuit court orders and judgments are
vacated only with respect to the parts relating to the non-
solicitation clause and Au:
1. The Findings of Fact, Conclusions of Law, and Order
Denying Plaintiff Prudential Locations LLC n/k/a
Locations LLC’s Motion for Partial Summary Judgment
Against Gagnon filed on August 25, 2016 only as to
Locations’ breach of contract claim against Gagnon
arising out of Gagnon’s alleged breach of the non-
solicitation clause as to Au;
2. The Findings of Fact, Conclusions of Law, and Order
Granting Defendants Lorna Gagnon and Prestige Realty
Group Limited Liability Company’s Cross-Motion for
Summary Judgment on the First Amended Complaint of
Plaintiff Prudential Locations, LLC n/k/a/ Locations LLC
filed on August 25, 2016 only as to Locations’ breach of
contract claim against Gagnon arising out of Gagnon’s
alleged breach of the non-solicitation clause as to Au;
3. The Findings of Fact, Conclusions of Law, and Order
Granting Defendants’ RE/MAX LLC and Lorraine Clawson’s
Cross-Motion for Summary Judgment Against Plaintiff
Prudential Locations, LLC filed on August 25, 2016 only
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as to Locations’ tortious interference claims against
RE/MAX and Clawson arising out of their alleged
encouragement and inducement of Gagnon to breach the
non-solicitation clause as to Au;
4. The following paragraphs in both the Judgment filed on
December 9, 2016 and the Final Judgment filed on March
22, 2017:
a. Paragraph 1 to the extent that it entered judgment
in favor of Gagnon with respect to her alleged
breach of the non-solicitation clause as to Au,
b. Paragraph 3 to the extent that it entered judgment
in favor of RE/MAX with respect to RE/MAX’s alleged
tortious interference with the non-solicitation
clause in Gagnon’s agreement with Locations as it
related to Au, and
c. Paragraph 4 to the extent that it entered judgment
in favor of Clawson with respect to Clawson’s
tortious interference with the non-solicitation
clause in Gagnon’s agreement with Locations as it
related to Au;
5. The Order Granting in Part and Denying in Part
Defendants Lorna Gagnon and Prestige Realty Group
Limited Liability Company’s Motion for Award of
Attorney’s Fees and Costs Against Plaintiff Prudential
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Locations, LLC n/k/a Locations, LLC filed on December
28, 2016;
6. The Order Granting in Part and Denying in Part
Defendants RE/MAX, LLC and Lorraine Clawson’s Renewed
Motion for Award of Attorneys’ Fees and Costs Against
Plaintiff Prudential Locations, LLC, n/k/a Locations,
LLC filed March 3, 2017; and
7. Paragraphs 7 through 10 of the Final Judgment filed on
March 22, 2017.
All other circuit court orders and judgments are affirmed.
Matt A. Tsukazaki /s/ Sabrina S. McKenna
for petitioners/defendants-appellees
/s/ Michael D. Wilson
William J. Kelly III, pro hac vice
(Jamie C. S. Madriaga and /s/ Trish K. Morikawa
Duane R. Miyashiro,
with him on the briefs)
for respondents/defendants-appellees
John Rhee
(Paul Alston and Kristin L. Holland,
with him on the briefs)
for respondent/plaintiff-appellant
Joseph A. Ernst
for amicus curiae
Chamber of Commerce Hawaii
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