Blue Mountain Enterprises, LLC v. Owen ( 2022 )

Filed 1/10/22 Certified for Publication 1/28/22 (order attached)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION ONE
BLUE MOUNTAIN ENTERPRISES,
LLC.,
Plaintiff and Respondent, A157054, A158783
v. (Solano County
GREGORY S. OWEN et al., Super. Ct. No. FCS049313)
Defendants and Appellants.
In April 2011, Gregory S. Owen transferred his ownership interest in
several real estate and construction-related firms he had founded to a new
entity, Blue Mountain Enterprises, LLC (Blue Mountain), as part of a joint
venture with Acolyte Limited (Acolyte). The joint venture was established
through several interrelated contracts executed over a five-day period.
Acolyte acquired a 50 percent ownership interest in Blue Mountain and
Owen became the company’s chief executive officer. As part of his
employment contract, Owen agreed to abide by certain restrictive covenants,
including a covenant barring him from soliciting Blue Mountain’s customers
for a three-year period following the termination of his employment.
In April 2016, Owen was terminated from Blue Mountain for cause.
Months later, Owen established a new construction services company to
compete with Blue Mountain. He sent a letter to several companies within
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the building and construction trades describing this new venture, including
existing customers of Blue Mountain. Blue Mountain successfully obtained
preliminary and permanent injunctive relief prohibiting Owen from soliciting
Blue Mountain’s customers and prevailed on its motion for summary
adjudication of its breach of contract claim.
In these consolidated appeals, Owen challenges the trial court’s order
granting summary adjudication in favor of Blue Mountain. Owen contends
that the nonsolicitation covenant is unenforceable because it does not meet
the requirements set forth in Business and Professions Code1 section 16601, a
statutory exemption to section 16600’s general ban on noncompetition
covenants. He further asserts that his communications with Blue Mountain’s
customers were not solicitations as a matter of law. Finally, he challenges
the court’s order awarding Blue Mountain approximately $600,000 in
attorney fees as the prevailing party. We reject these contentions and affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. Background Leading to Present Dispute
i. The Formation of Blue Mountain
Beginning in 1982, Owen founded a series of real estate development
and construction businesses. One such business was Blue Mountain Air, Inc.,
which became a leader in the heating, ventilation, and air conditioning
(HVAC) market in Northern California. In late 2010, Owen met with
representatives of the Meyer Corporation U.S. (Meyer), a Chinese
multinational corporation that was looking for land and development
opportunities in California. Owen and Meyer decided to enter into a joint
venture by which Meyer would provide the capital and management skills
1All undesignated statutory references are to the Business and
Professions Code.
2
necessary to expand Owen’s enterprises and Owen would continue to oversee
the growth and expansion of these businesses. The parties agreed to form a
new entity named “Blue Mountain Enterprises, LLC.” Over the course of
several months, Owen and Meyer negotiated four contracts to formalize the
joint venture: a “Contribution Agreement” by which Owen transferred his
ownership interest in all of his businesses, described in the agreements as the
“Blue Mountain Entities,” into a newly formed limited liability company
(Blue Mountain); a “Membership Interest Purchase Agreement” by which
Acolyte, a Meyer subsidiary, acquired a 50 percent ownership interest in Blue
Mountain; an “Operating Agreement” for the new company; and an
“Employment Agreement” that defined Owen’s future management role in
Blue Mountain.
The joint venture was formalized over a five-day period in April 2011.
On April 22, 2011, Blue Mountain was registered as a limited liability
company with the Secretary of State. That same day, Owen transferred his
ownership interest of the Blue Mountain Entities to Blue Mountain under the
Contribution Agreement, receiving in exchange a 100 percent membership
interest in Blue Mountain.
On April 26, 2011, Acolyte acquired a 50 percent membership interest
in Blue Mountain pursuant to the Membership Interest Purchase Agreement.
Acolyte paid $16.5 million in exchange for its interest, $3 million of which
went directly to Owen. The residual $13.5 million was retained as working
capital for Blue Mountain. The Operating Agreement and the Employment
Agreement were also executed on April 26, 2011. These two agreements
addressed Owen’s continued role in managing Blue Mountain’s businesses.2
2The parties also entered into a “Master Services Agreement” that
included Polymathic Properties, Inc. (Polymathic). Acolyte formed
3
Under the Employment Agreement, Owen was hired to serve a five-
year term as Blue Mountain’s chief executive officer. The agreement
included restrictive covenants providing that during his employment, and for
a period of three years following the date of his termination, Owen would not
“solicit for himself or any entity the business of a customer of any of the Blue
Mountain Entities,” and would not solicit the services of any Blue Mountain
employees. By these provisions, Blue Mountain sought to protect its goodwill
and reputation, as well as its relationships with existing customers. At the
time, Blue Mountain’s customers included D.R. Horton, KB Homes, Lennar
Corporation (Lennar), Pulte Homes, Shea Homes, and Toll Brothers.
ii. Owen Is Terminated for Cause and Forms Silvermark
In September 2015, Blue Mountain executives began investigating
allegations of misconduct against Owen. On April 20, 2016, Owen was
terminated for cause. That same day, Acolyte, Polymathic, and a third
company filed suit against Owen alleging he had violated his fiduciary duties
and engaged in self-dealing while serving as chief executive of Blue
Mountain. The litigation was resolved in a confidential settlement
agreement on July 15, 2016. As part of the settlement agreement, Owen
agreed to sell his remaining interest in Blue Mountain to Polymathic. The
parties further agreed that neither Acolyte nor Polymathic would seek to
enforce the noncompetition provisions of Owen’s Employment Agreement
with Blue Mountain, but that “[Acolyte] and [Polymathic] make no
representations, warranties, or covenants regarding any other surviving
provisions contained in the Employment Agreement, including the ‘Non-
Solicitation’ and ‘Covenant Against Disclosure’ provisions set forth in
Polymathic to fund Blue Mountain with $48 million through a combination of
equity and debt.
4
Sections 5(b) and 5(f) of the Employment Agreement, each of which Owen
acknowledges and agrees remains fully enforceable by [Blue Mountain].”
(Italics added.)3
In August 2016, Owen formed a new company called Silvermark
Construction Services, Inc. (Silvermark). In June 2017, Owen sent a letter by
e-mail to several representatives of Blue Mountain customers, informing
them that he had started Silvermark. The letter began with the following
salutation: “To my friends; past and potential future clients; and the general
public.” The letter declared that Owen had recently sold all his interests in
Blue Mountain, and that he had “made the decision to launch a new
enterprise with greater perspective, more resources and a much stronger
team. Conscious of the environment, evolving technology and the
communities we work in, this new venture allows me to incorporate what I
have learned from where I have been, while considering where the market
and our world is headed.” The letter introduced by name two former Blue
Mountain employees who had joined Silvermark, “who combined, bring over
100 years of experience in the HVAC industry.” The letter concluded: “I
thank everyone who supports us in this transition and look forward to the
remarkable opportunities we have ahead with our new company, Silvermark
Construction Services, Inc.”
After receiving the announcement, at least one of Blue Mountain’s
customers (Lennar) invited Silvermark to bid on multiple HVAC construction
projects. Silvermark also submitted bids to provide HVAC construction
3The record on appeal contains a substantially redacted copy of the
confidential settlement agreement, in which only the recitals, a
confidentiality clause, and the paragraph describing the continuing
enforceability of the nonsolicitation provision are made visible.
5
services to other Blue Mountain customers, including Pulte Homes, Shea
Homes, and Toll Brothers.
B. Lawsuit Commences and Preliminary Injunction Is Obtained
On August 1, 2017, Blue Mountain filed suit against Owen and
Silvermark alleging causes of action for breach of contract, inducing breach of
contract, intentional interference with contractual relations, and intentional
interference with prospective economic relations. The complaint included a
request for preliminary and permanent injunctive relief.
The claim for breach of contract was brought against Owen only. Blue
Mountain alleged that Owen’s Silvermark letter violated the customer
nonsolicitation provision in the Employment Agreement and threatened Blue
Mountain with “immediate and irreparable harm in the form of lost business
and goodwill.” Blue Mountain also alleged that Owen had breached the
related covenant that prohibited him from soliciting employees of Blue
Mountain or its subsidiary entities.
Blue Mountain moved for a preliminary injunction the day after filing
its complaint. Blue Mountain acknowledged that section 16600 generally
prohibits agreements that restrain competition. It asserted however that
Owen’s conduct fell within the exception under section 16601 which provides
that the acquirer of “all of [a seller’s] ownership interest” may enforce the
seller’s contractual promise to refrain from soliciting the sold business’s
customers and employees. (§ 16601; Strategix, Ltd. v. Infocrossing West, Inc.
(2006) 142 Cal.App.4th 1068, 1072–1073 (Strategix).)
In his opposition to the motion, Owen argued that Blue Mountain could
not demonstrate a likelihood of prevailing on the merits because the
nonsolicitation covenants were unenforceable. Owen explained that because
he had sold only 50 percent of his ownership stake to Acolyte and had
6
retained the remaining 50 percent for himself, section 16601 was
inapplicable. He added that the partial sale of Blue Mountain to Acolyte did
not include the transfer of goodwill.
In October 2017, Blue Mountain moved ex parte for a temporary
restraining order (TRO) seeking to enjoin Owen “from continuing to breach
his contract through his improper solicitations” and “from soliciting and
retaining the services of former Blue Mountain employees.”4 Blue Mountain
reported that it had recently deposed Tim Frank, one of the former Blue
Mountain employees hired by Silvermark. During Frank’s deposition, Blue
Mountain learned that Frank and Owen had discussed forming a company to
compete directly with Blue Mountain’s HVAC business while Frank was still
working for Blue Mountain. He and Owen had also drafted a business plan
projecting revenue that would come from projects already in Blue Mountain’s
project pipeline. In addition, Frank had accessed more than 300 files during
his last two weeks of employment with Blue Mountain. Blue Mountain
asserted that Frank had no business purpose in accessing many of these files.
The trial court entered a TRO in favor of Blue Mountain. The order
prohibited Owen from soliciting a list of Blue Mountain customers. Included
among these customers were D.R. Horton, KB Homes, Lennar, Meritage
Homes, Pulte Homes, Shea Homes, Toll Brothers, and William Lyon Homes.
The order was to remain in effect until the conclusion of the hearing on Blue
Mountain’s pending motion for a preliminary injunction.
4That same month, Owen filed a cross-complaint for declaratory
judgment under Code of Civil Procedure section 1060. Owen sought a
declaration that the noncompetition provisions in the employment agreement
were void under section 16600. He dismissed the cross-complaint with
prejudice in March 2019.
7
On November 29, 2017, following a contested hearing, the trial court
entered a preliminary injunction in favor of Blue Mountain. The court
determined that the Employment Agreement’s nonsolicitation covenants fell
within the statutory exception to the general rule voiding noncompetition
agreements because Owen had disposed of the entirety of his business
interests when he conveyed those interests to Blue Mountain in April 2011.
The court explained: “The evidence shows that through a series of inter-
related contractual agreements executed within days of each other,
Defendant Owen consummated a business deal in which he created a
separate legal entity, Plaintiff Blue Mountain Enterprises, LLC . . . , to which
he conveyed 100% of his personal interest in specific construction and real
estate related businesses . . . .” Citing the parties’ other related agreements,
the court opined that the various contracts “were negotiated in consideration
of one another as part of a global business deal between Defendant Owen and
third-party Alcolyte, an affiliate of Meyer Corporation.”
The trial court also observed that Owen’s argument “ignore[d] several
factors,” including that Blue Mountain had a separate legal existence apart
from Owen. The court noted that at the time Blue Mountain sold 50 percent
of its interest to Alcolyte, it was Blue Mountain, not Owen, that owned the
entities formerly belonging to Owen. The court also found that while none of
the contracts expressly reference the sale of goodwill, the transfer of goodwill
could reasonably be inferred. The order enjoined Owen from soliciting or
engaging in business with Blue Mountain customers, from attempting to
interfere in Blue Mountain’s relationships with its customers, and from
soliciting Blue Mountain employees.
On January 18, 2018, the trial court entered an amended order
granting the preliminary injunction. Owen had filed a motion for
8
reconsideration based on the parties’ confidential July 2016 settlement
agreement, which he now lodged with the court under seal. The amended
order clarified that the customer solicitation restraint applied only to
companies that had been Blue Mountain customers as of April 2011.
On June 4, 2018, Blue Mountain filed a first amended complaint (FAC)
adding new causes of action for misappropriation of trade secrets and unfair
competition.
C. Blue Mountain Obtains Summary Adjudication
In September 2018, Blue Mountain moved for summary adjudication of
its first cause of action for breach of contract based on Owen’s violation of the
customer nonsolicitation covenant. (Code Civ. Proc., § 437c, subd. (f)(1).)
Blue Mountain also sought a final injunction covering the duration of the
Employment Agreement’s three-year post-employment nonsolicitation period,
ending on April 20, 2019.
In his opposition, Owen asserted that the motion was procedurally
improper because it asked the court to adjudicate a discrete legal issue rather
than to resolve the breach of contract cause of action. He argued that a
ruling on the breach of the customer nonsolicitation term would not
completely adjudicate the cause of action because the FAC also alleged that
he had breached the contract by soliciting Blue Mountain employees, and
Blue Mountain’s motion did not seek to resolve this issue. Owen also argued
that whether the Silvermark announcement constituted a solicitation or was
merely an advertisement was not susceptible to resolution as a matter of law.
Owen repeated his contention that the nonsolicitation provision did not
satisfy the section 16601 exception because he never sold all of his business
interests, asserting he had created the Blue Mountain limited liability
company merely to consolidate his businesses for personal estate and tax
9
planning purposes. He emphasized that the Contribution Agreement did not
cross-reference the Employment Agreement, nor did it obligate him to sell
any portion of “his new 100% ownership in [the Blue Mountain LLC].” He
further maintained that even if the restrictions were lawful, triable issues of
fact remained as to liability, causation, and damages.
At the hearing on the motion for summary adjudication, Blue
Mountain indicated that it was waiving any claim for damages for breach of
contract and would seek injunctive relief only. The trial court ordered the
parties to submit additional briefing as to whether summary adjudication
was appropriate in light of Blue Mountain’s election of equitable relief.
On February 19, 2019, the trial court entered its order granting Blue
Mountain’s motion for summary adjudication. The court’s detailed order
concluded that Owen’s letter constituted a solicitation as a matter of law.
“There is no dispute the letter was sent prior to the expiration of the
covenant not to solicit [Blue Mountain] customers. [Citation.] As such, Owen
breached his contract. With respect to [Owen’s] claim that the covenant not
to solicit is void, the court incorporates by reference its legal analysis in
response to [Owen’s] first motion for summary judgment (See Order Denying
Defendants’ and Cross-complainants’ Motion (11/7/18)) and second motion for
summary judgment, infra.” The court declared Blue Mountain to be “the
prevailing party on this cause of action” as it had “appropriately sought and
was awarded injunctive relief.”5
On April 9, 2019, judgment was entered in favor of Blue Mountain as to
the breach of contract action. The court converted the January 18, 2018
5 The trial court also summarily adjudicated Blue Mountain’s cause of
action for misappropriation of trade secrets in Owen’s favor.
10
amended preliminary injunction into a permanent injunction which expired
11 days later—on April 20, 2019—the three-year anniversary of Owen’s
termination for cause. The court reserved jurisdiction over attorney fees and
costs. Blue Mountain dismissed the FAC’s remaining causes of action. Owen
filed a timely notice of appeal from the judgment.
D. Attorney Fees
Both Blue Mountain and Owen moved for contractual attorney fees.
The motions were accompanied by thousands of pages of supporting evidence
and included requests for sanctions.
On October 11, 2019, the trial court found Blue Mountain to be the
prevailing party under the Employment Agreement and Civil Code
section 1717. The court stated: “After comparing the success and failure of
the litigation objectives for the parties, [Blue Mountain] is the prevailing
party in its case in chief on the contract as it is the party who obtained
‘greater relief in the action on the contract.’ ” The court awarded Blue
Mountain $596,114 in fees and $84,125 in costs and/or expenses based on the
attorney fee provision in the Employment Contract. The court denied Owen’s
requests for fees and costs.6
II. DISCUSSION
A. Summary Adjudication
“ ‘Summary adjudication motions are “procedurally identical” to
summary judgment motions. [Citation.] A summary judgment motion “shall
be granted if all the papers submitted show that there is no triable issue as to
any material fact and that the moving party is entitled to a judgment as a
matter of law.” [Citation.] To be entitled to judgment as a matter of law, the
moving party must show by admissible evidence that the “action has no merit
6 Owen does not appeal the denial of fees and costs.
11
or that there is no defense” thereto. [Citation.] . . . Material facts are those
that relate to the issues in the case as framed by the pleadings. [Citation.]
There is a genuine issue of material fact if, and only if, the evidence would
allow a reasonable trier of fact to find the underlying fact in favor of the party
opposing the motion in accordance with the applicable standard of proof.’ ”
(Duffey v. Tender Heart Home Care Agency, LLC (2019) 31 Cal.App.5th 232,
240–241 (Duffey).)
“ ‘The trial court’s ruling on a motion for summary adjudication, like
that on a motion for summary judgment, is subject to this court’s
independent review.’ [Citation.] ‘In performing our review, we view the
evidence in a light favorable to the losing party . . . , liberally construing [his]
evidentiary submission while strictly scrutinizing the moving party’s own
showing and resolving any evidentiary doubts or ambiguities in the losing
party’s favor.’ ” (Duffey, supra, 31 Cal.App.5th at p. 241.) The court does not
weigh evidence, but instead considers whether the evidence creates a triable
issue of fact. (Andrews v. Foster Wheeler LLC (2006) 138 Cal.App.4th 96,
113.)
i. Breach of Contract Claim Was Appropriately Resolved
by Summary Adjudication
Owen first contends that Blue Mountain was not entitled to summary
adjudication of its claim for breach of contract because its motion did not fully
resolve the cause of action. Owen observes that Blue Mountain’s claim was
predicated on both the alleged breach of the customer nonsolicitation
covenant as well as breach of the covenant against solicitation of Blue
Mountain employees. Owen relies on Code of Civil Procedure section 437c,
subdivision (f)(1), which provides that a summary adjudication motion may
be granted “only if it completely disposes of a cause of action, an affirmative
defense, a claim for damages, or an issue of duty.” (Italics added.)
12
A recognized exception to the statutory language above holds that
where two or more separate and distinct wrongful acts are combined in the
same cause of action in a complaint, a party may present a summary
adjudication motion that pertains to some, but not all, of the separate and
distinct wrongful acts. (Lilienthal & Fowler v. Superior Court (1993)
12 Cal.App.4th 1848, 1854–1855 (Lilienthal).) That is because each separate
and distinct wrongful act is an invasion of a separate and distinct primary
right, and each violation of a primary right is a separate and distinct “cause
of action” — regardless of how the claim is presented in the complaint. (Id. at
p. 1853.) Thus, to the extent the FAC’s first cause of action alleged separate
and distinct contractual violations, Blue Mountain was entitled to present a
motion for summary adjudication as to any alleged violation. (Id. at pp.
1854–1855.)
We have no difficulty concluding that Blue Mountain’s customer
solicitation claim and employee solicitation claim involve two different
primary rights: Blue Mountain’s right to enjoy and preserve the customer
goodwill it had acquired from Owen, and its right to be free from interference
with its employment relationships. Both primary rights are contractual and
were conferred by two different provisions in the Employee Agreement. The
solicitation of Blue Mountain’s customers thus invaded a different right and
constituted a “separate and distinct” wrongful act from the solicitation of
Blue Mountain’s employees. (Lilienthal, supra, 12 Cal.App.4th at pp. 1854–
1855.) Though the breaches were pleaded together in a single cause of action,
they involve allegations of separate and distinct wrongful acts and damages.
Consequently, the trial court did not abuse its discretion in addressing the
discrete customer solicitation claim by way of summary adjudication.
13
ii. Nonsolicitation Covenant Is Enforceable
In California, contractual provisions that prevent a person from
engaging in a profession, trade or business are generally void. (§ 16600.) As
the Supreme Court has noted, “section 16600 evinces a settled legislative
policy in favor of open competition and employee mobility.” (Edwards v.
Arthur Andersen LLP (2008) 44 Cal.4th 937, 946.) Blue Mountain invokes a
statutory exception to this general prohibition that is found in section 16601,
which states: “Any person who sells the goodwill of a business, or any owner
of a business entity selling or otherwise disposing of all of his or her ownership
interest in the business entity . . . may agree with the buyer to refrain from
carrying on a similar business within a specified geographic area in which
the business so sold, or that of the business entity, division, or subsidiary has
been carried on, so long as the buyer . . . carries on a like business therein.”
(Italics added.)
“Section 16601’s exception serves an important commercial purpose by
protecting the value of the business acquired by the buyer. ‘In the case of the
sale of the goodwill of a business it is ‘unfair’ for the seller to engage in
competition which diminishes the value of the asset he sold.’ [Citation.]
Thus, ‘[t]he thrust of . . . section 16601 is to permit the purchaser of a
business to protect himself or itself against competition from the seller which
competition would have the effect of reducing the value of the property right
that was acquired.’ [Citation.] ‘One of the primary goals of section 16601 is
to protect the buyer’s interest in preserving the goodwill of the acquired
corporation.’ ” (Strategix, supra, 142 Cal.App.4th 1068, 1072–1073.) The
exception is limited: “[I]n order to uphold a covenant not to compete
pursuant to section 16601, the contract for sale of the corporate shares may
not circumvent California’s deeply rooted public policy favoring open
14
competition. The transaction must clearly establish that it falls within this
limited exception.” (Hill Medical Corp. v. Wycoff (2001) 86 Cal.App.4th 895,
903.)
Owen renews the arguments he made in the trial court below that the
customer nonsolicitation covenant is unenforceable because he did not sell all
or substantially all of his ownership interests when the Blue Mountain joint
venture was created, but instead sold only 50 percent of those interests to
Acolyte under the Membership Interest Purchase Agreement. He suggests
that the initial transfer of his ownership interests to Blue Mountain was
disconnected from, and unrelated to, the joint venture, emphasizing that it
was only after the transfer was completed that he, as the new company’s sole
shareholder, sold a 50 percent membership interest to Acolyte. In his view,
he merely “consolidated all of his businesses into one LLC through a
Contribution Agreement” giving him ownership of all the company’s
membership interests and “did not sell or dispose of any of his business or
membership interests to any of the Meyer entities.”
Owen’s arguments are contradicted by his own sworn statements and
other undisputed evidence in the record. Section 1.2 of the Contribution
Agreement provides: “The Contributor [Owen] has agreed to assign, transfer,
convey and contribute all of the interests . . . in the BM Entities to the
Company [Blue Mountain] and, in exchange, the Company will issue one-
hundred percent (100%) of the membership interest in the Company to the
Contributor.” (Italics added.) The “BM Entities” consisted of Owen’s full
ownership interests in his various companies. The Employment Agreement
similarly states that “pursuant to the [Membership Interest] Purchase
Agreement, the Executive [defined as Owen] has formed the Company [Blue
Mountain], has agreed to contribute to the Company all of the Executive’s
15
ownership interests in the Blue Mountain Entities, and has agreed to sell or
cause the Company to issue a total of 50% of the membership interests in the
Company to Acolyte.” (Italics added.)
In Owen’s sworn declaration in opposition to Blue Mountain’s motion
for a preliminary injunction, Owen acknowledged that he had negotiated a
“joint venture with the Meyer Corporation” and that the Contribution
Agreement was the first step in the achievement of that joint venture. Owen
declared: “Over the course of several months, we negotiated four contracts,
all of which were prepared by Plaintiff Blue Mountain Enterprises, LLC’s . . .
parent company’s counsel. First, under the Contribution Agreement, I
moved my ownership of the [Blue Mountain Entities] into an LLC known as
[Blue Mountain]. [Blue Mountain] did not exist prior to the transaction.”
Owen then detailed the other three contracts that together constituted the
joint venture. As the trial court aptly recognized: “The evidence is clear that
four contracts were drafted and contemporaneously executed in
contemplation of a global business deal. Owen previously acknowledged this
and cannot in good faith create a controverted fact by submitting a
declaration that conflicts with his prior declaration as well as the contracts in
evidence.”7
Owen’s invocation of the subsequent sale of a 50 percent ownership
interest in Blue Mountain to Acolyte misses the point. The question here is
whether, as a matter of law, Owen “sold” or “otherwise disposed of” all of his
businesses interests when, pursuant to the Contribution Agreement, he
7 Owen’s counsel who represented him in the joint venture agreements
also testified at a deposition that the Contribution Agreement was “part and
parcel of the entire transaction.” His counsel acknowledged that the
Contribution Agreement had to precede the sale of a 50 percent ownership
interest in Blue Mountain to Acolyte.
16
conveyed all of his ownership stake in his various companies to Blue
Mountain. While Owen initially retained ownership of all of Blue Mountain’s
membership shares (for four days), he did so by conveying his personal
ownership in all of the Blue Mountain Entities to Blue Mountain LLC, a
separate and distinct legal entity. (See Curci Investments, LLC v. Baldwin
(2017) 14 Cal.App.5th 214, 220 [“Ordinarily a corporation is considered a
separate legal entity, distinct from its stockholders, officers and directors,
with separate and distinct liabilities and obligations. [Citation.] The same is
true of a limited liability company (LLC) and its members and managers.”].)
Contrary to Owen’s contentions on appeal, he received valuable consideration
in return for his contribution by receiving a 100 percent membership interest
in the new company. (See Hilb, Rogal & Hamilton Ins. Servs. v. Robb (1995)
33 Cal.App.4th 1812, 1824 (Hilb) [discussed below].) Owen unquestionably
“sold” or “otherwise disposed of” his entire ownership stake in the Blue
Mountain Entities when he conveyed that interest to Blue Mountain under
the Contribution Agreement. (Ibid.)
Owen seeks to avoid this result by asserting that Acolyte is “the party
through which Blue Mountain sought to enforce the allegedly anticompetitive
covenant.” Not so. The plaintiff in this case is Blue Mountain, the sole entity
that acquired all of Owen’s business interests under the Contribution
Agreement and assumed contractual obligations with Owen under the
Employment Agreement at issue in this appeal.
Owen also challenges whether Blue Mountain can enforce a
nonsolicitation covenant that is contained in the Employment Agreement
rather than the Contribution Agreement. As discussed above, the
Contribution Agreement was part of a global joint venture comprised of four
interrelated contracts that must be read together. Blue Mountain’s ability to
17
enforce the nonsolicitation covenant is not undone by the fact that this
provision is found in one contract in a multi-contract joint venture rather
than another.
Hilb, supra, 33 Cal.App.4th 1812, is instructive. In Hilb, the plaintiff
acquired an insurance brokerage firm that was co-owned by the defendant.
As part of the acquisition, the parties executed a merger agreement. The
merger agreement did not contain a covenant not to compete but required the
defendant to sign a separate employment contract. (Id. at p. 1817.) The
employment contract contained a noncompetition covenant that extended for
three years following the termination of the defendant’s employment with the
new company. The defendant received shares of the new company worth
$245,000 in exchange for transferring his shares in the sold company. He
was also paid $52,500 in consideration for the covenant not to compete. (Id.
at pp. 1817–1818.) After the defendant quit his job to work for a competitor,
the plaintiff sued for misappropriation of trade secrets and breach of the
employment contract’s covenant not to compete. (Id. at p. 1818.)
The appellate court upheld the trial court’s denial of a motion for a
preliminary injunction, finding that the harm to the defendant in enforcing
the noncompetition covenant tipped decidedly in favor of not issuing an
injunction. (Hilb, supra, 33 Cal.App.4th at p. 1822.) The Hilb court then
elected to address certain legal issues to “clarify or narrow the issues for the
trial court in any future proceedings.” (Id. at p. 1823.) The appellate court
concluded that the defendant had “sold” or “otherwise disposed of” his shares
in the insurance brokerage firm that was merged into the new firm. By
exchanging his shares in the sold company for shares in the new company,
the defendant had received valuable consideration and had disposed of his
entire ownership stake in the sold business. (Id. at pp. 1824–1825.)
18
The Hilb court further concluded that placement of the covenant not to
compete in the employment contract, rather than in the merger agreement,
did not affect the covenant’s enforceability under section 16601: “As
permitted by [section 16601], [the defendant] agreed that after the merger, he
would refrain from carrying on a business similar to the [plaintiff’s business].
The validity of that covenant is not affected by its location in the employment
contract rather than the merger agreement. Nothing in section 16601
requires that the covenant be contained in a particular type of document.
The purpose of the statute is served as long as the covenant is executed in
connection with the sale or disposition of all of the shareholder’s stock in the
acquired corporation.” (Hilb, supra, 33 Cal.App.4th at pp. 1825–1826; see
also Vacco Industries, Inc. v. Van Den Berg (1992) 5 Cal.App.4th 34, 42–43,
48; Alliant Ins. Services, Inc. v. Gaddy (2008) 159 Cal.App.4th 1292, 1294;
Fillpoint v. Mass (2012) 208 Cal.App.4th 1170, 1178–1181.)
Here, the trial court correctly found that section 16601 applies as a
matter of law because Owen “dispos[ed] of all of his . . . ownership interest”
under the Contribution Agreement while concurrently agreeing under the
Employment Agreement to “refrain from carrying on a similar business
within a specified geographic area in which the business so sold.” (§ 16601.)
While the Contribution Agreement and the Employment Agreement do not
cross-reference each other, it is undisputed that both contracts, along with
other contracts the parties executed in April 2011, were drafted to accomplish
the Blue Mountain joint business venture. As the trial court noted below,
“[r]ules of contract interpretation require that when several contracts
relating to the same matters are made between the same parties and as parts
of substantially one transaction, the contracts are to be construed together.
(Civ. Code, § 1642.)”
19
In sum, Blue Mountain has established that no material dispute
existed as to the enforceability of the contractual provision prohibiting Owen
from soliciting Blue Mountain’s customers.
iii. Announcement of Silvermark Was a Solicitation
Owen next asserts that the trial court erred in holding as a matter of
law that the Silvermark letter he sent to Blue Mountain’s customers
constituted a “solicitation,” contending that a fact finder could conclude that
the letter was merely a nonactionable advertisement. We disagree.
The trial court found the letter was clearly a solicitation: “In this case,
it is undisputed that the letter emailed by [Owen] was not sent to the public
at large, but targeted to business members of the building trade who
purchase HVAC systems which included Legacy Customers of [Blue
Mountain]. Further, the evidence shows the emails were not sent generically
to the businesses, but were emailed to multiple individuals within each
business. This individualized and targeted contact is not consistent with an
advertisement or promotional activity directed to the public at large.” (Italics
added.) The court concluded the letter constituted a solicitation as a matter
of law because it “does more than simply announce a new affiliation; it
‘petitions, importunes and entreats’ to targeted individual employees of past
customers, including Legacy Customers, to leave [Blue Mountain] for better
opportunities at Silvermark.”
While there are no cases directly addressing the meaning of “solicit” or
“advertisement” in the context of section 16601, “[a]t common law, the
boundary separating fair and unfair competition in the context of a protected
customer list has been drawn at the distinction between an announcement
and a solicitation.” (American Credit Indemnity Co. v. Sacks (1989)
213 Cal.App.3d 622, 634 (Sacks).)
20
In Aetna Building Maintenance Co. v. West (1952) 39 Cal.2d 198(Aetna), the Supreme Court addressed this distinction: “ ‘Solicit’ is defined
as: ‘To ask for with earnestness, to make petition to, to endeavor to obtain, to
awake or excite to action, to appeal to, or to invite.’ [Citation.] ‘It implies
personal petition and importunity addressed to a particular individual to do
some particular thing, . . .’ [Citation.] It means: ‘To appeal to (for
something); to apply to for obtaining something; to ask earnestly; to ask for
the purpose of receiving; to endeavor to obtain by asking or pleading; to
entreat, implore or importune; to make petition to; to plead for; to try to
obtain.’ ” (Id. at pp. 203–204.) In contrast, the Aetna court found that
“[m]erely informing customers of one’s former employer of a change of
employment, without more, is not solicitation. Neither does the willingness
to discuss business upon invitation of another party constitute solicitation on
the part of the invitee. Equity will not enjoin a former employee from
receiving business from the customers of his former employer, even though
the circumstances be such that he should be prohibited from soliciting such
business. ” (Id. at p. 204.)
In Sacks, an accounts receivable insurer (ACI) sought a preliminary
injunction against a former employee who had started her own business
using the insurer’s customer list. (Sacks, supra, 213 Cal.App.3d at p. 626.)
When she resigned, she sent a letter to those customers stating: “ ‘After
almost fifteen years as both an agent and policyholder, I have left [ACI] and
am very pleased to announce the formation of an independent insurance
agency. [¶] I shall continue to specialize in Credit Insurance but will now
primarily be representing Fidelity and Deposit Company of Maryland [F&D],
who [sic] is offering companies a very interesting alternative to the types of
policies being written by both [ACI] and Continental. If you would like to
21
learn more about the [F&D] policy, I will be happy to discuss it in detail with
you when you are ready to review your ongoing credit insurance needs at
renewal time. [¶] In the meantime, ACI will assign a new agent to your
policy. If I can be of assistance to you during the transition period or answer
any questions for you at any time, please do not hesitate to call me. [¶] I have
really enjoyed our past association and hope we don’t lose touch!’ ” (Ibid.)
The appellate court concluded that the letter went beyond an
announcement and amounted to a solicitation: “Although the letter begins as
an announcement of her departure from ACI and affiliation with F&D, it
soon assumes a different tone. Sacks informs ACI’s customers of the
interesting competitive alternative F&D offers as compared to ACI’s policies.
She invites their inquiry about the F&D policy and indicates she would be
happy to discuss it in detail when they are ready to renew. She personally
petitions, importunes and entreats ACI’s customers to call her at any time for
information about the better policies F&D can provide and for assistance
during the agent transition period. [¶] Phrased in the terms used in the
Aetna definition, Sacks is endeavoring to obtain their business. Sacks, in a
word, solicited. Therefore, as a matter of law, Sacks’s letter . . . constituted a
solicitation.” (Sacks, supra, 213 Cal.App.3d at pp. 636–637.)
Owen’s Silvermark letter closely resembles the letter at issue in Sacks.
The letter was specifically addressed to his “past and potential future
clients.” He boasted that his new venture, Silvermark, was a superior
alternative to Blue Mountain, having “greater perspective, more resources
and a much stronger team,” including two former Blue Mountain employees
“who combined bring over 100 years of experience in the HVAC industry.”
The letter was a direct appeal for future work and was sent directly to select
22
representatives of Blue Mountain’s corporate customers. Thus, the letter
constituted a solicitation as a matter of law.
The Silvermark letter does not resemble transmittals that courts have
found to be nonactionable. For example, in Moss, Adams & Co. v. Shilling
(1986) 179 Cal.App.3d 124, departing employees of an accounting firm
announced the formation of a new accounting business to clients the
employees had serviced on behalf of their former firm. The announcement
merely stated: “ ‘John D. Shilling and Cynthia L. Kenyon, formerly with
Moss Adams, are pleased to announce the formation of a new partnership:
Shilling, Kenyon & Co.[,] Certified Public Accountants[,] Lloyds Bank
Building[,] One Almaden Blvd., Suite 1110[,] San Jose, CA 95113[,] (408) 295-
3822.’ ” (Id. at p. 127.) The appellate court affirmed summary adjudication
in favor of the employees based upon the Aetna rule that “ ‘[m]erely informing
customers of one’s former employer of a change of employment, without more,
is not solicitation.’ ” (Ibid.)
As is plain from the contents of the letter, the Silvermark letter went
well beyond this type of an announcement by actively encouraging Blue
Mountain customers to leave Blue Mountain and do business with
Silvermark. The facts concerning this claim are not in dispute, and Owen
does not describe what further factual development would be required to
resolve this question. Accordingly, the trial court correctly found that the
Silvermark letter constituted a solicitation as a matter of law.
iv. Owen’s Affirmative Defenses Are Forfeited
Owen argues that Blue Mountain failed to overcome his affirmative
defenses relating to competitive privilege, trade secrets, and waiver.
Specifically, he asserts that the parties’ 2016 settlement agreement released
him from all past acts and obligations as an owner, giving Blue Mountain the
23
authority to pursue him as a former employee only. Because nonsolicitation
terms are void as a matter of law between an employer and an employee
unless necessary to protect trade secrets, and because the identities of the
builders who received the Silvermark letter are widely available, he claims
Blue Mountain cannot assert their identities are a trade secret and therefore
the nonsolicitation term necessarily violated section 16600.
Owen’s arguments are unconvincing for several reasons. It appears
that Blue Mountain was not a party to the 2016 settlement agreement and
therefore would not be bound by its terms. (See ante, pp. 4–5 & fn. 3.) More
to the point, because Owen provides only a substantially redacted copy of the
confidential settlement agreement in the record on appeal, with only certain
provisions made visible, we are unable to evaluate what claims were released
under the agreement. Under fundamental principles of appellate review, a
trial court’s judgment is presumed to be correct and the appellant “has the
burden of providing an adequate record. [Citation.] Failure to provide an
adequate record on an issue requires that the issue be resolved against [the
appellant].” (Hernandez v. California Hospital Medical Center (2000)
78 Cal.App.4th 498, 502.) As noted above, the most we can glean from the
appellate record is that Owen acknowledged under the settlement agreement
that Blue Mountain retains the right to enforce the nonsolicitation covenants
of the Employment Agreement against him. If a separate provision of the
settlement agreement suggests otherwise, it was incumbent on Owen to
provide a more complete copy of that agreement in support of his claims. We
conclude the argument has been forfeited.
B. Attorney Fees
In the second consolidated appeal, Owen contends that the trial court
erred in determining Blue Mountain to be the prevailing party and awarding
24
attorney fees. He also asserts that even if the determination was correct, the
amount of fees awarded is excessive. We disagree.
i. Applicable Legal Principles
In an action on a contract, Civil Code section 1717 permits an award of
reasonable attorney fees to the prevailing party where the contract
specifically provides for them. Civil Code section 1717 defines “prevailing
party” as “the party who recovered the greater relief in the action on the
contract.” (Civ. Code, § 1717, subd. (b)(1).) Here, the relevant attorney fee
provision is found in the parties’ Employment Agreement and provides: “If
an action at law or in equity is necessary to enforce or interpret the terms of
this Agreement, the losing party will be responsible to the prevailing party
for all reasonable attorneys’ fees, costs and expenses incurred by the
prevailing party.”
“When a party obtains a simple, unqualified victory by completely
prevailing on or defeating all contract claims in the action and the contract
contains a provision for attorney fees, [Civil Code] section 1717 entitles the
successful party to recover reasonable attorney fees incurred in prosecution
or defense of those claims” as a matter of right. (Scott Co. v. Blount, Inc.
(1999) 20 Cal.4th 1103, 1109.) But “if neither party achieves a complete
victory on all the contract claims, it is within the discretion of the trial court
to determine which party prevailed on the contract or whether, on balance,
neither party prevailed sufficiently to justify an award of attorney fees.”
(Ibid.; Civ. Code, § 1717, subd. (b)(1).)
“[I]n deciding whether there is a ‘party prevailing on the contract,’ the
trial court is to compare the relief awarded on the contract claim or claims
with the parties’ demands on those same claims and their litigation objectives
as disclosed by the pleadings, trial briefs, opening statements, and similar
25
sources. The prevailing party determination is to be made only upon final
resolution of the contract claims and only by ‘a comparison of the extent to
which each party ha[s] succeeded and failed to succeed in its contentions.’ ”
(Hsu v. Abbara (1995) 9 Cal.4th 863, 876.) “[I]n determining litigation
success, courts should respect substance rather than form, and to this extent
should be guided by ‘equitable considerations.’ ” (Id. at p. 877.) That a party
recovered “less than the amount he prayed for does not make his adversary
the prevailing party within the meaning of Civil Code section 1717.” (Buck v.
Barb (1983) 147 Cal.App.3d 920, 926.) “A trial court has wide discretion in
determining which party is the prevailing party under [Civil Code]
section 1717, and we will not disturb the trial court’s determination absent ‘a
manifest abuse of discretion, a prejudicial error of law, or necessary findings
not supported by substantial evidence.’ ” (Silver Creek, LLC v. BlackRock
Realty Advisors, Inc. (2009) 173 Cal.App.4th 1533, 1539.)
ii. Application
Owen challenges Blue Mountain’s status as the prevailing party, noting
that it pursued many causes of action before focusing exclusively on the
breach of contract claim, and waited until the last minute to narrow its
contract claims to a breach of the customer nonsolicitation provision. He
asserts that “[h]ad Blue Mountain abandoned its damages and invoked
Owen’s contractual provision from the outset, it would have incurred no fees
beyond the amended preliminary injunction.” Owen also notes that Blue
Mountain abandoned its claims for alleged breaches of contract relating to its
employee solicitation claim, asserting that “[s]uch a meager ‘victory’ cannot
form the basis for an award of nearly $600,000 in attorney fees.
The trial court was well aware of the extent to which Blue Mountain
succeeded in this litigation. In finding Blue Mountain to be the prevailing
26
party under Civil Code section 1717, the trial court noted that Blue Mountain
secured a temporary restraining order, a preliminary injunction, and a
permanent injunction against Owen based on the breach of the customer
nonsolicitation covenant. The court also acknowledged that Blue Mountain’s
other contractual claims were not adjudicated and that Blue Mountain had
waived recovery of monetary damages. Additionally, the court noted that the
causes of action for misappropriation of trade secrets and unfair competition
were dismissed following summary judgment, and that Blue Mountain had
thereafter voluntarily dismissed its remaining claims.
While we agree with Owen that Blue Mountain did not achieve all of
its litigation goals, the trial court carefully considered this factor, and it
disallowed a significant amount of attorney fees incurred by Blue Mountain
where its law firm’s activities did not meaningfully advance the objective of
enforcing the nonsolicitation covenant. These disallowed fees activities
included filing an amended complaint to allege claims for misappropriation
and unfair business practices and conducting discovery on these claims, as
well as unsuccessfully opposing several motions filed by Owen and
Silvermark.
It is true that the trial court found that Blue Mountain’s contract claim
“was essentially resolved following the preliminary injunction issued
November 29, 2017.” Importantly, however, the court observed that Blue
Mountain was thereafter forced “to defend numerous and repetitive
challenges . . . to the preliminary injunction,” including responding to Owen’s
and Silvermark’s demurrers, ex parte applications for a TRO, a motion to
modify the undertaking, a motion for trial preference, and a motion to
dissolve the preliminary injunction. The trial court carefully considered the
procedural record and voluminous contentions by the parties, and determined
27
that Blue Mountain was the prevailing party on its breach of contract cause
of action. We find no abuse of discretion in the court’s determination.
iii. The Award Is Not Excessive
“The amount of an attorney fee to be awarded is a matter within the
sound discretion of the trial court. [Citation.] The trial court is the best
judge of the value of professional services rendered in its court, and while its
judgment is subject to our review, we will not disturb that determination
unless we are convinced that it is clearly wrong. [Citations.] The only proper
basis of reversal of the amount of an attorney fees award is if the amount
awarded is so large or small that it shocks the conscience and suggests that
passion and prejudice influenced the determination.” (Akins v. Enterprise
Rent-A-Car Co. (2000) 79 Cal.App.4th 1127, 1134.)
Without providing any citation to the record, Owen contends that Blue
Mountain’s fees and costs should not have exceeded $205,557 and $4,495.70
respectively. It is unclear how Owen derived these figures, and “[i]t is not the
function of this court to comb the record looking for the evidence or absence of
evidence to support [a party’s] argument.” (People ex rel. Reisig v. Acuna
(2010) 182 Cal.App.4th 866, 879.) The contention is forfeited.
Owen also asserts that Blue Mountain failed to properly comply with
the trial court’s directives to apportion its fees and costs. Yet he does not cite
to any cases or statutes that would authorize this court to overturn the
attorney fee award on that basis. Blue Mountain sought approximately $2.5
million in attorney fees through judgment yet the court awarded only
$523,874, reducing recoverable hours and lowering counsel’s rates to conform
to the rates local to Solano County. The court added $72,240 for fees incurred
postjudgment.
28
The record reflects that the trial court was diligent in arriving at its
attorney fee determination. The trial court judge noted at the hearing on
attorney fees that the parties had filed cross-motions for fees along with a
deluge of supporting papers, commenting on the “sheer Herculean effort to
slog through all of these motions, all of the compendiums, all of the evidence.”
The judge noted that she had “reviewed each and every single billing entry
. . . [and] analyzed whether it was an appropriate award based on what I
could tell from the contents of the entry.” While Blue Mountain maintains
that the award should have been higher, it does not challenge the ruling on
appeal. The judge was within her discretion to reduce fees for what she
deemed to be unnecessary or unrelated work and to also use rates local to
Solano County for Blue Mountain’s counsel. We have no basis on which to
conclude that the court’s attorney fee award was “clearly wrong” or that the
court otherwise abused its discretion in determining the amount of the
attorney fee award.
III. DISPOSITION
The judgment and the order awarding Blue Mountain its attorney fees
are affirmed.
29
_________________________
Sanchez, J.
WE CONCUR:
_________________________
Humes, P. J.
_________________________
Banke, J.
A157054, A158783
30
Filed 1/28/22
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION ONE
BLUE MOUNTAIN ENTERPRISES, A157054, A158783
LLC,
(Solano County
Plaintiff and Respondent, Super Ct. No. FCS049313)
v.
ORDER CERTIFYING OPINION
GREGORY S. OWEN et al.,
FOR PUBLICATION
Defendants and Appellants.
[NO CHANGE IN JUDGMENT]
THE COURT:
The opinion in the above-entitled matter filed on January 10, 2022, was
not certified for publication in the Official Reports. After the court’s review of
a request under California Rules of Court, rule 8.1120, and good cause
established under rule 8.1105, it is hereby ordered that the opinion should be
published in the Official Reports.
There is no change in the judgment.
Dated:
___________________________
HUMES, P.J.
Trial Court: Solano County Superior Court
Trial Judge: Hon. Wendy Getty
Counsel:
Buchalter, Robert M. Dato and Dylan Wiseman for Plaintiffs and Appellants.
Akerman, Joshua R. Mandell and Haley C. Greenberg for Defendant and
Respondent Yoram Tamir.
2