Prudential Locations, LLC v. Gagnon ( 2020 )

NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
Electronically Filed
Intermediate Court of Appeals
CAAP-XX-XXXXXXX
15-APR-2020
10:30 AM
NO. CAAP-XX-XXXXXXX and CAAP-XX-XXXXXXX
IN THE INTERMEDIATE COURT OF APPEALS
OF THE STATE OF HAWAI#I
CAAP-XX-XXXXXXX
PRUDENTIAL LOCATIONS, LLC, Plaintiff-Appellant, v.
LORNA GAGNON, PRESTIGE REALTY GROUP LIMITED LIABILITY COMPANY,
Defendants/Cross-Claim Defendants-Appellees, and RE/MAX LLC,
LORRAINE CLAWSON, Defendants/Cross-Claimants/Third-Party
Plaintiffs-Appellees, and KEVIN TENGAN, Third-Party
Defendant-Appellee, and DOES 1-15, Defendants
and
CAAP-XX-XXXXXXX
PRUDENTIAL LOCATIONS, LLC, Plaintiff-Appellant, v.
LORNA GAGNON, PRESTIGE REALTY GROUP LIMITED LIABILITY COMPANY,
Defendants/Cross-Claim Defendants-Appellees, and RE/MAX LLC,
LORRAINE CLAWSON, Defendants/Cross-Claimants/Third-Party
Plaintiffs-Appellees, and KEVIN TENGAN, Third-Party
Defendant-Appellee, and DOES 1-15, Defendants
APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT
(CIVIL NO. 13-1-2328)
MEMORANDUM OPINION
(By: Ginoza, Chief Judge, Fujise and Hiraoka, JJ.)
I.
In this consolidated appeal,1 Plaintiff-Appellant
Prudential Locations LLC (Locations), appeals from the following
orders entered by the First Circuit Court (Circuit Court):2
1
On May 2, 2017, this court consolidated CAAP-XX-XXXXXXX into CAAP-
XX-XXXXXXX.
2
The Honorable Karl K. Sakamoto presided. The Honorable Virginia
Lea Crandall entered an order addressing the renewed motion for attorneys'
fees and costs and Final Judgment.
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
In CAAP-XX-XXXXXXX,
(1) the August 25, 2016 "Findings of Fact, Conclusions
of Law, and Order [(FFCLO)] Denying [Locations's]
Motion for Partial Summary Judgment [(MPSJ)] Against
[Defendant-Appellee] Lorna Gagnon [(Gagnon)]";
(2) the August 25, 2016 "[FFCLO] Granting Defendants
[Appellees Gagnon] and Prestige Realty Group Limited
Liability Company's [(Prestige)] Cross-Motion for
Summary Judgment [(XMSJ)] on the First Amended
Complaint of [Locations]";
(3) the August 25, 2016 "[FFCLO] Granting [Defendants-
Appellees RE/MAX LLC (RE/MAX)] and Lorraine Clawson's
[(Clawson)] [XMSJ] Against [Locations]";
(4) the November 1, 2016 "Order Denying [Locations's]
Motion for Leave to File Second Amended Complaint"
(SAC);
(5) the November 7, 2016 "Order Granting Defendant
[RE/MAX's] Motion for Protective Order as to the
Deposition of Tim Burns [(Burns)] Noticed for
September 14, 2016, Filed September 2, 2016";
(6) the November 15, 2016 "Order Denying [Locations's]
Motion to Compel";3
(7) the December 9, 2016 Judgment;
(8) the December 28, 2016 "Order Granting in Part and
Denying in Part [Gagnon and Prestige's] Motion for
Award of Attorney's Fees and Costs [(MFC)] Against
[Locations]"; and
(9) the December 28, 2016 "Order Denying [RE/MAX and
Clawson's] Motion to Recover Attorneys' Fees and Costs
Pursuant to [Hawaii Revised Statutes (HRS)] §§ 607-9,
607-14, and 607-14.5".
In CAAP-XX-XXXXXXX, Locations appealed from
(1) the March 3, 2017 "Order Granting in Part and
Denying in Part [RE/MAX and Clawson's] Renewed Motion
for Award of Attorneys' Fees and Costs Against
[Locations]"; and
(2) the March 22 2017 "Final Judgment".
3
The order also denied Locations's Hawai#i Rules of Civil Procedure
(HRCP) Rule 56(f) request for discovery continuance.
2
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Locations contends that the Circuit Court erroneously
determined that the Agreement Not to Compete (Non-Compete Clause)
contained as Paragraph 3 of the Confidentiality and Non-
Competition Agreement (CNA) signed by Gagnon was invalid and
unenforceable; improperly denied Locations leave to file a second
amended complaint; abused its discretion in denying discovery;
and abused its discretion in awarding attorneys' fees to RE/MAX
and Clawson.
II.
A.
Locations is a real estate brokerage firm in Hawai#i.
Gagnon started working in real estate in 1989, as a sales person,
in New Hampshire. In 1999 she became a licensed real estate
broker. From 2003 to 2008, Gagnon owned and operated a RE/MAX
franchise in New Hampshire. Gagnon and her five children moved
to Hawai#i from New Hampshire on July 1, 2008.
Locations offered and Gagnon accepted a "Sales Coach"
position by letter dated August 6, 2008. As a Sales Coach,
Gagnon mentored and monitored Locations's agents' engagement with
the company, discussed Locations's agents' plans for business and
personal challenges and assisted Locations's agents' growth as
real estate sales professionals by developing sales skills, role
playing, and setting sales goals and ways to achieve those goals.
On August 8, 2008, Gagnon signed the CNA4 that is at issue here.
4
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.
(continued...)
3
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4
(...continued)
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 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 known to the
public which was or is used, 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 or which relates to 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 relating 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, the identities of existing, past and
prospective clients and customers, prices charged or
proposed to be charged to any existing, past or 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,
(continued...)
4
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4
(...continued)
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 [Hawai#i] where the Company conducts or has conducted
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 businesses conducted by the
Company, including without limitation, the 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.
4. Remedies of Company. Employee and Company hereby
acknowledge and agree that the duration, scope and
geographic area applicable to the restrictions set forth in
this Agreement are fair, reasonable and necessary, and
represent the area in which the goodwill associated with the
conduct of the Business has been or will be developed by the
Company. It is the intent of the parties that the
provisions of this Agreement shall be enforced to the
fullest extent permissible under the laws and public
policies of the State of [Hawai#i]. Employee and Company
agree that (i} a monetary remedy for a breach of this
Agreement will be inadequate, and will be impracticable and
extremely difficult to prove, and further agrees that such a
breach would cause the Company irreparable harm, and that
the Company shall be entitled to temporary and permanent
injunctive relief without the necessity of proving actual
damages, and (ii) the Company shall be entitled to such
injunctive relief, including temporary restraining orders,
preliminary injunctions and permanent injunctions, without
the necessity of posting bond or other undertaking in
connection therewith.
(Emphasis in original).
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On June 28, 2013, Gagnon submitted a resignation letter
to Locations's Executive Vice President of Sales, Scott Higashi
(Higashi). Gagnon's letter stated that her last day of
employment would be July 3, 2013. According to Gagnon, she
discussed her resignation with Higashi, who asked her to remain
with Locations until August 15, 2013.
At some point in time, Gagnon and Clawson began
discussing Gagnon opening a new RE/MAX franchise in Hawai#i. On
July 3, 2013, Gagnon formally acknowledged receipt of a RE/MAX
franchise disclosure document as a prospective RE/MAX franchisee.
On July 15, 2013, Gagnon and Kevin Tengan, who was the
manager of Locations's technology department, entered into a
RE/MAX franchise partnership agreement. On July 18, 2013,
Gagnon, as registered agent and organizer, submitted Prestige's
articles of organization to the Hawai#i Department of Commerce
and Consumer Affairs (DCCA). On July 22, 2013, Gagnon, as a
managing member of Prestige, submitted to DCCA an Application for
Registration of Trade Name. Several days later, Tengan purchased
several domain names for Prestige to develop websites for Oahu
and Maui. On August 8, 2013, Gagnon and Tengan executed a RE/MAX
franchise agreement.
On August 13, 2013, Gagnon informed Higashi that Sherri
Au (Au), a Locations agent who had been one of Gagnon's mentees,
was terminating her agency relationship with Locations.
Gagnon's last day at Locations was August 15, 2013. On
August 26, 2013, the Real Estate Commission of DCCA issued to
Prestige a Notice of Licensure, authorizing "RE/MAX Prestige" to
act as a real estate broker, effective August 15, 2013. Au was
listed as the Principal Broker for Prestige in the application
for licensure submitted on August 15, 2013. On September 1,
2013, Prestige opened its sole office in Hawai#i Kai.
B.
On August 23, 2013, Locations filed a complaint against
Gagnon and Prestige, alleging breach of the CNA and tortious
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interference with contract by forming Prestige and encouraging
others to leave Locations. On May 23, 2014, Locations filed its
First Amended Complaint (FAC), which added tortious interference
with contract claims against RE/MAX and Clawson.
On August 7, 2015, Locations filed a motion for leave
to file the SAC to add an unfair method of competition claim
against RE/MAX. On October 22, 2015, RE/MAX and Clawson filed
their answer and cross-claim against Gagnon and Prestige.5
Following discovery, the parties filed MPSJs: on
December 22, 2014, Locations filed an MPSJ against RE/MAX and
Clawson for a determination that they tortiously interfered with
Gagnon and Locations's CNA;6 on November 17, 2015, Locations
filed an MPSJ against Gagnon seeking enforcement of the Non-
Compete Clause, a finding that she was in breach of the Non-
Compete Clause, and damages; on July 11, 2016, Gagnon and
Prestige filed their XMSJ for a determination that the Non-
Compete Clause was invalid and unreasonable and that the Non-
Solicitation Clause did not apply to agents or independent
contractors; and on July 15, 2016, RE/MAX and Clawson filed a
XMSJ for a determination that there was no tortious interference
with Gagnon's CNA. At the hearing on August 3, 2016, the Circuit
Court took these matters under advisement.
On August 23, 2016, Locations filed a notice of taking
deposition upon oral examination of Burns (to whom Clawson
reported) for September 14, 2016, in Merrillville, Indiana.
On August 25, 2016, the Circuit Court issued the
FFCLOs. The court ruled that the Non-Compete Clause was illegal
and unenforceable as a matter of law, and that the Non-
Solicitation Clause was an illegal restraint on trade or
commerce.7 Locations then filed a motion to compel RE/MAX and
5
RE/MAX and Clawson also filed a third-party complaint against
Tengan, which was later dismissed by stipulation.
6
This motion was denied on March 2, 2015 but has not been included
in this appeal.
7
On September 8, 2016, seeking to vacate the FFCLOs, Locations
filed a petition for writ of mandamus against Judge Sakamoto, which the
Hawai#i Supreme Court denied.
7
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Clawson to produce discovery and to produce for deposition Burns,
Garrett Matthews (a RE/MAX consultant), and HRCP Rule 30(b)(6)8
designated witness(es).
On September 2, 2016, RE/MAX filed a motion for
protective order, arguing that after the Circuit Court's ruling
on the MPSJs and XMSJs, no claim remained against RE/MAX and
Locations's motion for leave to file a SAC to add an unfair
method of competition claim against RE/MAX had not been decided,
making discovery on this claim moot.
On November 1, 2016, the Circuit Court denied
Plaintiff's motion for leave to file the SAC, explaining that the
proposed SAC sought to reassert and relitigate claims identical
to those asserted in the FAC, all of which had been dispositively
adjudicated through the FFCLOs and, as a result, no claims or
parties remained. As Locations's proposed claim for unfair
method of competition against RE/MAX was predicated on the
validity of the CNA between Locations and Gagnon and having
already determined that the Non-Compete Clause was not reasonable
and invalid and unenforceable, the Circuit Court ruled that any
attempt to add an unfair method of competition claim would be
futile and thus, moot.
On November 7, 2016, the Circuit Court granted RE/MAX's
motion for protective order and consequently denied Locations's
motion to compel.
On November 18, 2016, Gagnon and Prestige filed a MFC.
RE/MAX and Clawson filed a MFC pursuant to HRS §§ 607-9, 607-14
and 607-14.5.9
8
HRCP Rule 30(b)(6) covers subpoenas to persons designated by an
organization to testify as to matters known or reasonably available to the
organization.
9
HRS § 607-9 provides for taxable costs; HRS § 607-14 provides for
attorneys' fees to the prevailing party in all actions (1) in the nature of
assumpsit, (2) on a promissory note, and (3) contract in writing, not to exceed
25 percent of the judgment; HRS § 607-14.5 provides for attorneys' fees and costs
to be paid by either party upon the court's specific finding that all or a
portion of the party's claim or defense was frivolous.
8
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Judgment in favor of Defendants Gagnon, Prestige,
RE/MAX, and Clawson and against Locations on all claims was
entered on December 9, 2016.
On December 28, 2016, the Circuit Court denied without
prejudice RE/MAX and Clawson's MFC. The court agreed that they
were entitled to reasonable attorneys' fees pursuant to HRS
§ 607-14 because the tortious interference claims asserted
against them were derived from the breach of contract action
against Gagnon and Prestige. However, the court found the
requested amount was excessive and unreasonable, and there was
insufficient evidence to establish that Locations's claims were
frivolous under HRS § 607-14.5. The Circuit Court granted in
part and denied in part Gagnon and Prestige's MFC, due to, inter
alia, insufficient evidence to establish that Locations's claims
were frivolous under HRS § 607-14.5.
Locations filed a timely notice of appeal from the
Judgment on December 29, 2016.
On January 9, 2017, RE/MAX and Clawson filed a renewed
MFC. A Final Judgment was entered on March 22, 2017, which
incorporated the December 9, 2016 Judgment, the December 28, 2016
orders on fees and costs, and added a March 3, 2017 order
granting in part and denying in part RE/MAX and Clawson's renewed
request for fees and costs.
On March 23, 2017, Locations filed a notice of appeal
from the March 22, 2017 Final Judgment.
III.
Locations asserts that the Circuit Court:
(A) erred in granting summary judgment against
Locations in ruling that the Non-Compete Clause: (1) is greater
than required for the protection of Locations and that Locations
lacks a legitimate interest in enforcing it; (2) imposes an undue
hardship on Gagnon; (3) the harm to the public is outweighed by
the benefit; and (4) the clause did not fit any of the exceptions
listed in HRS §480-4(c) (Supp. 2019)10 and is an illegal
restraint on trade or commerce;
10
HRS §480-4(c) is set forth infra p. 10 n.11.
9
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(B) erred in determining that all non-solicitation
clauses are per se against public policy and illegal under HRS
§ 480-4;
(C) abused its discretion: (1) in delaying decision on
Locations's motion for leave to file SAC over fourteen months and
then denying it after ruling against Locations on summary
judgment; (2) refusing to consider Locations's motions to compel;
(3) instructing the parties that it would rule on the validity of
the Non-Compete Clause on summary judgment prior to allowing
discovery of RE/MAX; (4) granting RE/MAX's motion for protective
order; (5) considering RE/MAX's untimely renewed MFC; (6) ruling
that RE/MAX, who is the target of a tort claim, is entitled to
attorney's fees under HRS § 607-14; (7) awarding uncapped
attorney's fees to Defendants; and (8) denying Locations's HRCP
Rule 56(f) request.
IV.
A. The Motions for Summary Judgment to Determine the Validity
and Enforceability of the Non-Compete Clause
1.
In this case, the parties' motions for summary judgment
turned on a single, legal determination: Whether the Non-Compete
Clause was reasonable and enforceable, or whether it was an
illegal restraint on trade, prohibited by HRS § 480-4.11
11
HRS § 480-4(a) through (c) provides:
§480-4 Combinations in restraint of trade,
price-fixing and limitation of production prohibited.
(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.
(b) Without limiting the generality of subsection
(a), no person, exclusive of members of a single business
entity consisting of a sole proprietorship, partnership,
trust, or corporation, shall agree, combine, or conspire
with any other person or persons, or enter into, become a
member of, or participate in, any understanding,
arrangement, pool, or trust, to do, directly or indirectly,
any of the following acts, in the State or any section of
the State:
(1) Fix, control, or maintain the price of any
commodity;
(2) Limit, control, or discontinue, the production,
(continued...)
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On review of a summary judgment proceeding, the
standard to be applied by this court is identical to that
employed by the trial court. Wright & Miller, Federal
Practice and Procedure: Civil § 2716. This means that "the
inferences to be drawn from the underlying facts alleged in
the materials (such as depositions, answers to
interrogatories, admissions and affidavits) considered by
the court in making its determination must be viewed in the
light most favorable to the party opposing the motion." Gum
v. Nakamura, 57 Haw. 39, 549 P.2d 471 (1976); Aku v. Lewis,
52 Haw. 366, 477 P.2d 162 (1970); Abraham v. Onorato
Garages, 50 Haw. 628, 446 P.2d 821 (1968). Further, in
11
(...continued)
manufacture, or sale of any commodity for the
purpose or with the result of fixing,
controlling or maintaining its price;
(3) Fix, control, or maintain, any standard of
quality of any commodity for the purpose or with
the result of fixing, controlling, or
maintaining its price;
(4) Refuse to deal with any other person or persons
for the purpose of effecting any of the acts
described in paragraphs (1) to (3).
(c) 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;
(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.
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considering the validity of the granting of summary judgment
under H.R.C.P. Rule 56(c), the appellate court must
determine whether any genuine issue as to a material fact
was raised and, if not raised, whether the moving party was
entitled to judgment as a matter of law. Abrahm v. Onorato
Garages, supra.Technicolor, Inc. v. Traeger, 57 Haw. 113, 118-19, 551 P.2d 163,
168 (1976) (ellipsis omitted).
The Non-Compete Clause was part of the CNA drafted by
Locations and signed by Gagnon, as a condition of her employment
with Locations. As quoted, supra at n.4, the Non-Compete Clause
forbade Gagnon, for one year after her employment with Locations
ceased, in the State of Hawai#i, from performing the Business12 or
"Comparable Services"13 of Locations for third parties; having
virtually any relationship with a "person, firm or business"
engaged in the same or similar Business or Comparable Services of
Locations; engaging in any conduct adverse to Locations's
interests; or inducing or encouraging anyone employed or
affiliated with Locations to terminate their relationship with
Locations. However, the Non-Compete Clause explicitly allowed
Gagnon to act as a real estate salesperson or broker/salesperson
for an existing company, so long as she did not form a brokerage
company with other real estate salespersons or solicit other
persons from Locations. Id.
As a general rule, and as pertinent here, any contract
that is in restraint of trade or commerce, is illegal. HRS
§ 480-4(a). HRS § 480-4 is a remedial statute, Cieri v. Leticia
Query Realty, Inc., 80 Hawai#i 54, 68, 905 P.2d 29, 43
(1995), and as such "should be liberally construed to suppress
the perceived evil and advance the enacted remedy." Kalima v.
State, 111 Hawai#i 84, 100, 137 P.3d 990, 1006 (2006) (internal
quotation marks omitted). However, HRS 480-4(c) contains
12
Defined in the CNA as "real estate brokerage and/or property
management services."
13
Defined in the Non-Compete Clause as services "which are generally
comparable or competitive with those performed by [Locations] with respect to
the Business."
12
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exceptions to the general rule. See n.11 supra. "Exceptions or
exclusions to a remedial law are narrowly construed." 73 Am.
Jur. 2d Statutes § 176.
In Technicolor, relying primarily on the legislative
history of HRS § 480-4,14 the Hawai#i Supreme Court concluded that
the exceptions listed in HRS § 480-4(c) were not exclusive.
Rather, restrictive covenants should be evaluated, "in much the
same way that federal courts would, in Section 1[] Sherman Act
Cases,[15] analyze such covenants." Technicolor, 57 Haw. at 121-
22, 551 P.2d at 170. Thus, the Technicolor court adopted federal
case analysis which applied a "rule of reason" test to determine
the validity of restrictive covenants, which in turn considered
three factors:
Generally courts will find a restrictive covenant "not
reasonable", and therefore invalid, 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 benefit to the
covenantee is outweighed by injury to the
public. . . .
This "reasonableness analysis" is done by the court,
as a matter of law[.]
Technicolor, 57 Haw. at 122, 551 P.2d at 170 (citation omitted,
emphasis added).
2.
Taking these concepts in hand, we review the Non-
Compete Clause at issue here.
The Non-Compete Clause prevents Gagnon from engaging in
the types of business or services as that of Locations for third
parties, for the duration of her employment through one year
14
See Conf Comm. Report No. 16 on H.B. 27, reprinted in 1961 House
Journal at 1067, 1075 (advising that comparable provisions of federal anti-
trust laws would guide the interpretation and application in light of the
economic and business conditions in this State).
15
The Sherman Antitrust Act provides that "[e]very contract,
combination in the form of trust or otherwise, or conspiracy, in restraint of
trade or commerce among the several States, or with foreign nations, is
declared to be illegal[.]" Ch. 647, 26 Stat. 209 (1890), as amended, 15
U.S.C. § 1 (1970).
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after leaving Locations, in the State of Hawai#i. Such an
agreement not to compete is generally considered a restraint on
trade which is prohibited by HRS § 480-4 unless it qualifies for
an exception under HRS § 480(c), or it is considered "reasonable"
as determined by the court. See Technicolor, 57 Haw. at 120-22,
551 P.2d at 169-70 (the "'reasonableness analysis' is done by the
court, as a matter of law.").
We conclude that the Non-Complete Clause is reasonable.
First, it is not "greater than required for the protection" of
Locations. Its geographical scope is limited to the State of
Hawai#i, and then only where Locations conducts, or has
conducted, business. Its one-year duration is no longer than
other such covenants approved by Hawai#i courts. See 7's
Enters., Inc. v. Del Rosario, 111 Hawai#i 484, 486, 143 P.3d 23,
25 (2006) (three years); Technicolor, 57 Haw. at 115, 551 P.2d at
166 (three years); see also Merrill Lynch, Pierce, Fenner & Smith
v. McClafferty, 287 F. Supp. 2d 1244 (D. Haw. 2003) (one-year
restriction was valid under Hawai#i law); UARCO Inc. v. Lam, 18
F. Supp. 2d 1116 (D. Haw. 1998) (two-year restriction was valid
under Hawai#i law). Most importantly, the breadth of the
services prohibited, which initially appears co-terminus with the
services provided by Locations, was limited as it did not prevent
Gagnon from acting as a real estate salesperson or
broker/salesperson in Hawai#i, independently or as an employee or
independent contractor for an existing real estate firm.
The Non-Compete Clause does not impose undue hardship.
Gagnon was not prevented from earning a living -- as an
independent broker/salesperson or an independent contractor for
an established real estate firm -- from real estate sales or
brokerage, beginning immediately after leaving Locations, so long
as she did not solicit others affiliated with Locations.
Finally, the benefit to Locations does not appear to be
outweighed by injury to the public. The terms of the Non-Compete
Clause do not deprive the public of Gagnon's services and
expertise.
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B. The Non-Solicitation Clause Is Valid
Locations argues that the Circuit Court erred in ruling
the "Non-Solicitation Clause" contained within the Non-Compete
Clause was illegal.
As quoted above, supra at n.4, Gagnon was prohibited,
without exception, from inducing or encouraging persons employed
or affiliated with Locations to terminate their association with
Locations. Non-solicitation agreements can be lawful even under
statutes which forbid non-compete covenants. 3 R. Callmann on
Unfair Competition, Trademarks & Monopolies § 16.44 (4th ed.
1983). A non-solicitation clause is not a per se violation of
federal antitrust law, id. (citing Aydin Corp. v. Loral Corp.,
718 F.2d 897 (9th Cir. 1983)).
In any event, under Technicolor, the non-solicitation
clause is reasonable. Like the Non-Compete Clause, its
geographic and temporal terms are no more than the anti-
competitive provisions evaluated in other Hawai#i cases. Nor
does the benefit of the Non-Solicitation Clause to Locations
appear to deprive the public of these employees' or associates'
services or expertise, which remain available to the public for
the time they maintain their relationship with Locations, or if
they choose to leave Locations without being solicited by Gagnon.
Thus, we conclude that the anti-solicitation clause was
not prohibited by HRS § 480-4.
V.
For the foregoing reasons, we vacate the findings of
fact, conclusions of law, and orders on the parties' motions for
summary judgment, and remand this case to the Circuit Court for
further proceedings. Because we hold that the CNA is valid and
enforceable, the defendants are no longer the prevailing parties
and we vacate the orders granting the defendants' respective
motions for attorneys' fees and costs, without prejudice to any
party moving for an award of attorneys' fees and/or costs at the
appropriate time. We vacate the order denying Locations's motion
to file a second amended complaint, without expressing any
opinion on whether such a motion should be granted if renewed on
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remand. We vacate the discovery orders, without expressing any
opinion on what discovery should be allowed or not allowed on
remand.
DATED: Honolulu, Hawai#i, April 15, 2020.
On the briefs: /s/ Lisa M. Ginoza
Chief Judge
Paul Alston
Kristin L. Holland /s/ Alexa D.M. Fujise
John Rhee Associate Judge
(Alston Hunt Floyd & Ing)
for Plaintiff-Appellant. /s/ Keith K. Hiraoka
Associate Judge
Matt A. Tsukazaki
for Defendants-Appellees Lorna
Gagnon & Prestige Realty
Group, LLC.
Duane R. Miyashiro
(Cox, Wootton, Lerner,
Griffin, & Hansen)
and
William J. Kelly
(Kelly & Walker)
for Defendants-Appellees
RE/MAX, LLC and Lorraine
Clawson.
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