Filed 8/19/26 CBD Franchising v. One Day Doors & Closets CA2/2
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
CBD FRANCHISING, INC., B342711
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. 22STCV13457)
v.
ONE DAY DOORS & CLOSETS,
INC., et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Los
Angeles County, Jon R. Takasugi, Judge. Affirmed.
Reeder McCreary, Christopher S. Reeder, Benjamin S.
Tragish and Marcus L. Tippens for Plaintiff and Appellant.
Peterson & Watts Law Group, Glenn W. Peterson; and
C. Athena Roussos for Defendants and Respondents.
_______________________________
Plaintiff CBD Franchising, Inc. (CBDF) appeals the trial
court’s grant of summary judgment on its complaint against
defendants One Day Doors & Closets, Inc., and One Day
Enterprises, LLC (together, One Day). For the reasons that
follow, we affirm.
BACKGROUND
CBDF is a franchisor of “Closets By Design” businesses,
which specialize in the sale of custom closets, custom home and
office organizers, and other customized organizer services. CBDF
is incorporated and headquartered in California but conducts
business nationwide.
One Day is primarily engaged in the production and sale of
interior door slabs. It uses licensees to distribute its products.
Although it does not manufacture or sell custom closet products
or services, some of its distributors purchase those products from
a third party, Whip’s Carpentry, and One Day advertises Whip’s
Carpentry products “as a courtesy” to its distributors that also
sell them.
This litigation between CBDF and One Day arises from
their respective relationships with William and Mary Conway, a
married couple who live in New Jersey.
In 2013, the Conways entered into a franchise agreement
with CDBF (the Franchise Agreement) to establish and operate a
Closets By Design business in five contiguous New Jersey
counties: “Mercer, Monmouth, Ocean, Burlington and Camden.”
The agreement defines these counties as the Conways’
“Territory.” Two provisions of the 2013 Franchise Agreement are
important to the present dispute.
First, section 13.02, entitled “Post-Term Covenant Not to
Compete,” prohibits the Conways, “for a period of two years
2
immediately following the . . . assignment or termination of th[e]
[Franchise] Agreement,” from “engag[ing] in any other
Competitive Business . . . .” Section 13.01 defines “Competitive
Business” to include the offer or sale of “custom closet services or
products or other customized home organizer services or
products.” Section 13.02 goes on to prohibit the Conways from
engaging in any such business within, or within 75 miles of, their
Territory or any other territory licensed to a Closets By Design
franchisee for a period of two years.
Second, the Franchise Agreement contains a choice-of-law
provision specific to the noncompete covenant. Section 23.05
states, in relevant part, “the laws of the State of the Territory
govern all issues involving . . . the non-competition covenants set
forth in [s]ection[s] 13.01 and 13.02 . . . .”
In April 2015, CBDF sent the Conways a notice
terminating the Franchise Agreement. According to the notice,
the Conways had not complied with certain reporting and royalty
payment obligations. The notice provided “the Franchise
Agreement is hereby terminated immediately” and nothing
contained in the notice would “excuse any post termination
obligation of [the Conways].”
Nevertheless, and in order to facilitate a potential sale of
the assets of the Conways’ Closets By Design business to a third
party, CBDF gave the Conways a limited license to continue
operating it. Although the limited license agreement recited
“CBDF terminated the Franchise Agreement” the same day, the
Franchise Agreement was incorporated by reference into the
limited license agreement. The limited license was revocable by
CBDF and renewable at its option for 30-day periods.
CBDF renewed the limited license agreement several
times. The Conways continued to operate their Closets By Design
3
business into June 2016. In March 2016 the Conways, together
with their operating company Closets By Design South Jersey
LLC, entered into an asset purchase agreement (APA) with
DenMatt Industries, LLC (DenMatt). The APA provided for the
sale to DenMatt of the equipment, furniture and fixtures,
miscellaneous assets, and goodwill of the business. The APA did
not specifically identify franchise rights as property to be
transferred. Rather, it was a condition to closing that the parties
obtain CBDF’s approval of the APA and that “[DenMatt] and
[CBDF] shall have entered into the then current form of
Franchise Agreement for the operation of the Business . . . .” The
Conways further agreed they would not compete with DenMatt
for a period of two years within five miles of the territory of their
business. That territory was defined in the APA as just three—
Mercer, Monmouth, and Ocean—of the five New Jersey counties
composing the Territory in the Franchise Agreement.
In June 2016, CBDF consented to the transfer of the
Franchise Agreement—notwithstanding its April 2015
termination notice—from the Conways to DenMatt. This consent
was memorialized in a document, signed by CBDF, DenMatt, and
the Conways, with an effective date of June 21, 2016. By this
document, the Conways transferred to DenMatt “all of their
rights, duties and obligations under and pursuant to the
Franchise Agreement.” The record does not show that DenMatt
and CBDF ever entered into the “then current form of Franchise
Agreement” as required by the APA. According to CBDF, the
consent to transfer document was the means by which DenMatt
acquired the right to operate a Closets By Design business.
On October 11, 2016, Mr. Conway entered into a license
agreement with One Day permitting him to use the “One Day”
trademark to promote and market One Day’s products in
4
conducting his “door replacement and closet business.” This
license was conditioned on his “selling One Day’s Products
exclusively.” Through Central Jersey Doors & Closets, LLC
(CJD&C), Mr. Conway, together with Mrs. Conway, proceeded to
operate as a “distributor for interior doors [and] closets” from an
address in Middlesex county. One Day relayed online inquiries
about closet organizer products to CJD&C.
CBDF learned of the Conways’ ongoing business activities.
After some investigation, it sued the Conways, CJD&C, and
One Day in New Jersey state court for an injunction. In
August 2017, the Conways and CJD&C consented to a
preliminary injunction requiring them to comply with the
restrictions of the noncompete covenants in the Franchise
Agreement through June 22, 2018, but expressly permitting them
to continue selling doors and related hardware to the extent not
part of a custom closet or other customized home organizer
service or product.
One Day continued doing business with the Conways after
entry of the consent order. For example, in September 2017, it
forwarded the Conways at least two inquiries about closet doors.
CBDF returned to the New Jersey court a few months later
to enforce the August 2017 consent order. In an unopposed order
dated November 9, 2017, the court ordered the Conways and
CJD&C to do and refrain from doing specific acts, including to
cease all sales of “custom closets or other home organization
systems (including closet doors) as well as all affiliation . . . with
[One Day] and use of the word ‘closets’ in any business . . . .”
Invoices issued after entry of the November 2017
enforcement order show One Day continued selling doors to
CJD&C. CBDF tells us One Day sent a notice to the Conways
terminating their relationship in January 2018, but CBDF’s
5
record citation to the purported termination notice directs
instead to One Day invoices from November 2017. As of
June 2018, One Day was still filling orders the Conways placed
before the January 2018 termination notice.
CBDF offers details on the procedural history of the
New Jersey case that rely heavily on citations to its own briefing.
What we can garner from the evidence is that CBDF added as
defendants One Day’s principals, who are California residents,
and the Conways asserted the case should have been brought in
California under the choice-of-venue provision in the Franchise
Agreement. For these reasons, the New Jersey court dismissed
the action and directed CBDF to refile it in California.
CBDF refiled its suit in California in April 2022. In doing
so, it dropped One Day’s principals as defendants and sued only
the Conways, CJD&C, and One Day. Neither the Conways nor
CJD&C answered in California and their defaults were taken.
One Day appeared and defended the two causes of action CBDF
asserted against it: tortious interference with contractual
relations and violation of California unfair competition law (UCL;
Bus. & Prof. Code, § 17200 et seq.).1 Each was predicated on
One Day interfering with the contractual relationship between
CBDF and the Conways by doing business with the Conways
while they were operating CJD&C in breach of the postterm
noncompete provisions of the Franchise Agreement.
In February 2024, One Day moved for summary judgment.
Among the several grounds for its motion was that the postterm
noncompete provisions of the Franchise Agreement were
unenforceable under section 16600. The trial court granted
1 Undesignated statutory references are to the Business and
Professions Code.
6
summary judgment on this basis. In reaching this conclusion, the
court declined to enforce the parties’ selection of New Jersey law
to “govern all issues involving . . . the non-competition
covenants . . . .”
After denying CBDF’s motion for reconsideration, the trial
court entered judgment. CBDF timely appealed.
DISCUSSION
I. Summary Judgment and Standard of Review
“A trial court should grant summary judgment ‘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.’ (Code Civ. Proc., § 437c, subd. (c).) A
defendant may establish its right to summary judgment by
showing that one or more elements of the cause of action cannot
be established or that there is a complete defense to the cause of
action. (Code Civ. Proc., § 437c, subd. (p)(2).) Once the moving
defendant has satisfied its burden, the burden shifts to the
plaintiff to show that a triable issue of material fact exists as to
each cause of action. (Ibid.) A triable issue of material fact exists
where ‘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.’ ” (Neiman v.
Leo A. Daly Co. (2012) 210 Cal.App.4th 962, 967 (Neiman).)
“ ‘We review the trial court’s decision de novo, considering
all the evidence set forth in the moving and opposition papers
except that to which objections were made and sustained.
[Citations.]’ [Citation.] We view the evidence and the inferences
reasonably drawn from the evidence ‘in the light most favorable
to the opposing party.’ ” (Neiman, supra, 210 Cal.App.4th at
pp. 967–968.)
7
II. Analysis
The central premise of One Day’s summary judgment
motion was as follows: One Day could be liable neither for
tortious interference with contractual relations nor unlawful
business practices because the contract right on which both
causes of action were predicated—CBDF’s right to be free of
competition from the Conways for two years following their
assignment of the Franchise Agreement—is invalid under
California law.
There is no dispute that if the contract right is invalid, the
causes of action fail. (See Ixchel Pharma, LLC v. Biogen, Inc.
(2020) 9 Cal.5th 1130, 1141 (Ixchel) [tortious interference with
contractual relations requires valid contract between the plaintiff
and a third party]; Becerra v. McClatchy Co. (2021)
69 Cal.App.5th 913, 951 [“where . . . a UCL claim is derivative of
an underlying violation of law, it must stand or fall with the
underlying claim”].)
Therefore, we must first consider which law applies, and
then consider whether the Franchise Agreement’s postterm
noncompete covenant is enforceable under that law.
A. Nonenforcement of the Parties’ Choice of New
Jersey Law
California courts follow section 187 of the Restatement
Second of Conflict of Laws (Restatement section 187) in
determining whether to enforce a contractual choice of law
provision. (Pitzer College v. Indian Harbor Ins. Co. (2019)
8 Cal.5th 93, 100 (Pitzer).)
Under Restatement section 187, subdivision (2), the court
must first determine “ ‘(1) whether the chosen state has a
substantial relationship to the parties or their transaction, or
(2) whether there is any other reasonable basis for the parties’
8
choice of law.’ ” (Pitzer, supra, 8 Cal.5th at pp. 100–101.) The
burden to make this showing lies with the party seeking
enforcement of the contractual choice. (Washington Mutual Bank
v. Superior Court (2001) 24 Cal.4th 906, 917.) If the court finds
neither test is met, “ ‘that is the end of the inquiry, and the court
need not enforce the parties’ choice of law.’ ” (Pitzer, at p. 101.)
If “ ‘either test is met, the court must next determine
whether the chosen state’s law is contrary to a fundamental
policy of California. [Fn. omitted.] If there is no such conflict, the
court shall enforce the parties’ choice of law. If, however, there is
a fundamental conflict with California law, the court must then
determine whether California has a “materially greater interest
than the chosen state in the determination of the particular
issue . . . .” [Citation.] If California has a materially greater
interest than the chosen state, the choice of law shall not be
enforced . . . .’ ” (Pitzer, supra, 8 Cal.5th at p. 101.) The burden of
establishing “ ‘both that the chosen law is contrary to a
fundamental policy of California and that California has a
materially greater interest in the determination of the particular
issue’ ” lies with the party opposing application of the
contractually selected law. (Ibid.)
“[W]hether, on undisputed facts, the contractual choice-of-
law provision supplants the law which would otherwise apply is
also a question of law reviewed de novo.” (Brack v. Omni Loan
Co., Ltd. (2008) 164 Cal.App.4th 1312, 1320.)
Here, it was One Day who opposed application of the
parties’ choice of New Jersey law. In its summary judgment
motion, it argued that, notwithstanding the Franchise
Agreement’s specification of New Jersey law, California law
should govern analysis of the issues involving the noncompete
provisions.
9
One Day did not dispute New Jersey law had a substantial
relationship to CBDF’s grant of a franchise to the Conways
pursuant to the Franchise Agreement. Rather, it argued only
that the postterm noncompete covenant in the Franchise
Agreement “violates California’s fundamental policy in favor of
free competition.” It then cited three cases—each of which
predated our Supreme Court’s adoption of Restatement
section 187—suggesting a public policy conflict was an
independently sufficient basis for California courts to reject the
parties’ choice of law. (Frame v. Merrill Lynch, Pierce, Fenner &
Smith, Inc. (1971) 20 Cal.App.3d 668, 673 [applying California,
rather than New York, law to noncompete clause because “an
agreement designating applicable law will not be given effect if it
would violate a strong California public policy”]; Scott v. Snelling
& Snelling, Inc. (N.D.Cal. 1990) 732 F.Supp. 1034, 1039 [same,
quoting Frame, at p. 673]; Hollingsworth Solderless Terminal Co.
v. Turley (9th Cir. 1980) 622 F.2d 1324, 1338 [citing Frame, at
p. 673]; see also Nedlloyd Lines B.V. v. Superior Court (1992)
3 Cal.4th 459, 480, fn. 7 [noting Frame’s analysis did not consider
Rest. § 187].)
In its opposition, CBDF did not argue One Day failed to
show California had a materially greater interest in the
noncompete issue. Instead, it argued only that the noncompete
covenant did not offend fundamental California policy.
The trial court elected not to enforce the parties’ choice of
New Jersey law based on its concurrence with One Day that its
enforcement under the circumstances would violate California’s
fundamental policy in favor of free competition. Since neither
party had raised whether California had a materially greater
interest in the issue than New Jersey, the court did not address
it.
10
On appeal, CBDF contends the trial court erred in both
(i) concluding that enforcing the Franchise Agreement’s postterm
noncompete covenant would violate California policy; and
(ii) failing to address whether California had a materially greater
interest.
1. CBDF Forfeited Its States’-interests
Argument by Failing to Raise It Below
One Day argues that theories not raised in the trial court
generally cannot be asserted for the first time on appeal (citing
Gilman v. Dalby (2021) 61 Cal.App.5th 923, 942), and urges us to
therefore deem CBDF’s states’-interests argument forfeited.
CBDF’s response is twofold: First, that it preserved the argument
by stating in opposition to summary judgment, “as the Conways’
Territory was located in New Jersey, New Jersey law applies.”
Second, that “[e]ven if the states[’]-interests issue was not fully
briefed to the trial court, it does not preclude it from being
presented on appeal.”
As to the former point, the mere assertion in the trial court
that the Franchise Agreement’s condition for the application of
New Jersey law was satisfied did not preserve the specific
argument that California did not have a materially greater
interest. “[A]n objection suffices to preserve an issue on appeal if
it ‘ “fairly inform[s] the trial court, as well as the [opposing]
party . . . , of the specific reason or reasons the objecting party
believes [a particular ruling should be made], so the [opposing]
party . . . can respond appropriately and the court can make a
fully informed ruling.” ’ ” (In re A.J. (2019) 39 Cal.App.5th 1112,
1117, quoting People v. Geier (2007) 41 Cal.4th 555, 609.) The
choice-of-law analysis under Restatement section 187 requires
the court to look beyond the terms of the contract. The statement
CBDF says preserved its states’-interests argument gave no hint
11
of this, much less informed the court what that analysis entails
or what elements of that analysis CBDF believed were, or were
not, satisfied.
As to the latter point, while true that CBDF is not
precluded from presenting the issue on appeal, it is within our
discretion not to consider it. (Farrar v. Direct Commerce, Inc.
(2017) 9 Cal.App.5th 1257, 1275, fn. 3 [“Whether an appellate
court will entertain a belatedly raised legal issue always rests
within the court’s discretion.”].) We exercise our discretion not to
consider the issue here.
The rule of forfeiture is “ ‘rooted in the fundamental nature
of our adversarial system: The parties must call the court’s
attention to issues they deem relevant. “ ‘In the hurry of the trial
many things may be, and are, overlooked which could readily
have been rectified had attention been called to them. The law
casts upon the party the duty of looking after his legal rights and
of calling the judge’s attention to any infringement of them.’ ” ’ ”
(Meridian Financial Services, Inc. v. Phan (2021) 67 Cal.App.5th
657, 698 (Meridian).) We are therefore “ ‘loath to reverse a
judgment on grounds that the opposing party did not have an
opportunity to argue and the trial court did not have an
opportunity to consider.’ ” (Id. at p. 700.)
It does not matter that One Day bore the burden to show
California had a materially greater interest in the issue. In
Meridian, the court deemed forfeited an issue the nonmovant
plaintiffs in summary judgment proceedings failed to raise in
opposition to the motion. It explained, “ ‘[t]hough this court is
bound to determine whether defendants met their threshold
summary judgment burden independently from the moving and
opposing papers, we are not obliged to consider arguments or
theories, including assertions as to deficiencies in defendants’
12
evidence, that were not advanced by plaintiffs in the trial court.’ ”
(Meridian, supra, 67 Cal.App.5th at p. 698.) The same logic
applies here.
2. Under the Circumstances, New Jersey’s
Noncompete Law Is Contrary to
Fundamental California Policy
If New Jersey law were to apply, the parties do not dispute
the Franchise Agreement’s postterm noncompete covenant would
be enforceable. Indeed, the New Jersey court enforced it, without
objection from the Conways. This is consistent with the New
Jersey rule that its courts will enforce a postterm noncompete
covenant in an employment agreement if “reasonable in view of
all the circumstances.” (Solari Industries, Inc. v. Malady (1970)
55 N.J. 571, 576.) The covenant is reasonable “if it ‘simply
protects the legitimate interests of the employer, imposes no
undue hardship on the employee and is not injurious to the
public.’ ” (Ingersoll-Rand Co. v. Ciavatta (1988) 110 N.J. 609,
628.)
California takes a different approach. Section 16600,
subdivision (a) provides: “Except as provided in this chapter,
every contract by which anyone is restrained from engaging in a
lawful profession, trade, or business of any kind is to that extent
void.” Courts have long recognized this provision reflects a strong
California policy in favor of individual freedom to pursue the
vocation of one’s choosing. (Application Group, Inc. v. Hunter
Group, Inc. (1998) 61 Cal.App.4th 881, 900 [collecting cases].)
And they have strictly enforced it to invalidate agreements not to
compete upon the termination of employment, or upon the sale of
interest in a business, without inquiring into their
reasonableness. (Ixchel, supra, 9 Cal.5th at p. 1151.)
13
CBDF acknowledges the difference in approach between
California and New Jersey in the employment context but
contends the states are more aligned when it comes to
noncompete provisions in the business and franchise contexts. In
particular, CBDF points to our Supreme Court’s decision in
Ixchel, supra, 9 Cal.5th at pages 1148 through 1159 as requiring
a liberalized approach to noncompete provisions in business
contracts.
Ixchel concerned an agreement between two biotechnology
companies, Forward Pharma (Forward) and Biogen, Inc.
(Biogen), by which Forward agreed to permanently cut ties with
another biotechnology company, Ixchel. (Ixchel, supra, 9 Cal.5th
at pp. 1137, 1138–1139.) The Ixchel court held this agreement
was not a per se violation of section 16600, even though it had the
effect of restraining trade. Rather, it was permissible if
reasonable. (Ixchel, at p. 1150.) In reaching this conclusion, the
court surveyed prior decisions concerning section 16600 and its
predecessor statute. On the one hand, cases involving
“agreements not to compete upon terminating employment or
selling a business” interpreted these statutes as an absolute bar
to enforcement. (Ixchel, at p. 1153.) On the other hand, cases
involving “contractual restraints on business operations and
commercial dealings” read the statutes as proscribing only
unreasonable restraints on trade. (Ixchel, at pp. 1153–1154.)
The cases applying a rule of reason concerned agreements
governing an ongoing business relationship. (See Ixchel, supra,
9 Cal.5th at pp. 1155–1156.) Grogan v. Chaffee (1909) 156 Cal.
611, 612–613, involved an agreement between an olive oil
producer and a retail grocer setting a minimum retail price for
product supplied by the producer. Associated Oil Co. v. Myers
(1933) 217 Cal. 297, 299–300, involved an exclusive dealing
14
agreement relating to retail gasoline sales on a commercial
property.
As the Ixchel court later explained, such agreements can
actually serve to promote competition. “Businesses engaged in
commerce routinely employ legitimate partnership and exclusive
dealing arrangements, which limit the parties’ freedom to engage
in commerce with third parties. Such arrangements can help
businesses leverage complementary capabilities, ensure stability
in supply or demand, and protect their research, development,
and marketing efforts from being exploited by contractual
partners.” (Ixchel, supra, 9 Cal.5th at pp. 1160–1161.) Such
arrangements “ ‘enable long-term planning on the basis of known
costs,’ ‘give protection against price fluctuations, and . . . offer the
possibility of a predictable market.’ ” (Id. at p. 1161.) By way of
example, “exclusive dealing arrangements are ‘often a part of a
franchise agreement or a distributorship contract,’ ” and, “[i]n
exchange of the right to sell the franchisor’s products, franchisees
often agree to purchase from a particular supplier or operate in a
particular geographic area.” (Ibid.) The Ixchel court “decline[d] to
construe section 16600 to call such arrangements into question
simply because they restrain trade in some way.” (Ibid.)
CBDF seizes on Ixchel’s deference to certain franchise
arrangements as extending to the Franchise Agreement’s
postterm noncompete provision. CBDF misreads Ixchel. As Ixchel
itself emphasized in parsing noncompete precedents, “ ‘language
in a judicial opinion is to be understood in accordance with the
facts and issues before the court.’ ” (Ixchel, supra, 9 Cal.5th at
p. 1158.) Ixchel concerned, and relied on cases concerning,
restrictions governing ongoing business relationships—not
restrictions on what individuals could do following the conclusion
of a business relationship. Thus, when it announced the rule of
15
reason applied to “business operations and commercial dealings,”
we construe this holding in light of those facts.2 (Ixchel, at
p. 1151.)
The Franchise Agreement’s postterm noncompete covenant
bears no resemblance to the exclusivity covenant made as part of
Forward and Biogen’s ongoing business relationship in Ixchel.
The noncompete served only to prevent the Conways from
competing with CBDF after their relationship had ended. It
served none of the salutary functions the Ixchel court identified
as warranting deference to agreements governing ongoing
relationships between businesses.
While it is true the Franchise Agreement is not an
employment agreement, and the Conways were never CBDF’s
employees, the effect of the postterm noncompete covenant is the
same as what our Supreme Court has said section 16600 flatly
prohibits: restraining an individual’s ability to engage in trade
after the conclusion of a business transaction or relationship.
(See Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 948
[invalidating postemployment noncompete “because it restrained
[an individual’s] ability to practice his profession”]; Chamberlain
v. Augustine (1916) 172 Cal. 285, 288 [invalidating noncompete
covenant included in contract for sale of interest in business
because it “clearly operate[d] to restrain the [individual]
defendant from ‘exercising a lawful profession, trade, or
business’ ” following the sale]; Muggill v. Reuben H. Donnelley
2 In doing so, we disagree with the federal district court in
Colorado, relied upon by CBDF, which construed a provision
prohibiting a franchisee from competing with the franchisor after
termination of their agreement as a “business dealing[]”subject to
the rule of reason in Ixchel. (See PostNet International Franchise
Corp. v. Wu (D.Colo. 2021) 521 F.Supp.3d 1087, 1101–1102.)
16
Corp. (1965) 62 Cal.2d 239, 243 [“[T]he provision forfeiting [an
individual retiree’s] pension rights if he works for a competitor
restrains him from engaging in a lawful business and is therefore
void.”].)
For these reasons, we agree with the trial court that
applying New Jersey law to the dispute at hand would be
contrary to California’s fundamental policy favoring an
individual’s right to engage in his chosen trade.
B. The Postterm Noncompete Covenant Is Invalid
For the reasons already discussed, the postterm
noncompete covenant in the Franchise Agreement purports to
restrain the Conways from engaging in a lawful profession, trade
or business within the meaning of section 16600 and is not
subject to a reasonableness exception under Ixchel.3 CBDF
argues that, even if this is so, the provision is exempted by
section 16601. We disagree.
As relevant here, section 16601 provides: “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, or any owner of a business entity
that sells . . . all or substantially all of its operating assets
together with the goodwill of 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, or any person deriving title to
the goodwill or ownership interest from the buyer, carries on a
like business therein.”
3 We therefore do not address the parties’ reasonableness
arguments.
17
CBDF argues section 16601 applies to the Franchise
Agreement because the Conways sold the goodwill of their
business to DenMatt and transferred to DenMatt all of their
rights and obligations under the Franchise Agreement. But as
One Day observes, the noncompete CBDF seeks to enforce is
contained in the Franchise Agreement between CBDF and the
Conways, not in the APA between the Conways and DenMatt.
Moreover, section 16601 applies to agreements between the seller
of goodwill and its buyer. At no point did the Conways sell
goodwill to CBDF and at no point did CBDF buy goodwill from
the Conways.
CBDF responds to the first issue by claiming the Franchise
Agreement, the APA, and the 2016 assignment form a single
transaction. Under CBDF’s own articulation of the integration
rule, these agreements do not constitute a single transaction.
According to CBDF, “[t]wo or more separately executed
instruments may be construed as one contract when they deal
with the same subject matter and are by reference to one another
so connected that they are interdependent.” The subject of the
Franchise Agreement was the establishment of a franchisor-
franchisee relationship between CBDF and the Conways. The
subject of the APA and the 2016 assignment was the sale of the
Conways’ business assets, and assignment of their rights under
the Franchise Agreement, to DenMatt. And while the 2016
DenMatt transaction documents referred to the Franchise
Agreement, the Franchise Agreement, executed three years prior,
in no way referenced the later documents, nor was it in any way
dependent upon them. The Franchise Agreement and the 2016
DenMatt transaction documents therefore cannot be
“interdependent.”
18
Even if CBDF were correct that the documents formed an
integrated transaction, this would not change that the Conways
never sold CBDF, and CBDF never bought from the Conways, the
goodwill of any business. Indeed, the Franchise Agreement, by
which the Conways acquired from CBDF certain rights to run a
Closets By Design business, suggests no goodwill was
transferred. Section 15.01 prohibits the Conways from claiming
to have acquired any “goodwill . . . in any of [the] Proprietary
Marks by virtue of the limited license granted under th[e]
[Franchise] Agreement, by virtue of [the Conways’] use of [any of]
the Proprietary Marks or otherwise. All of [the Conways’] uses of
the Proprietary Marks . . . will inure to [CBDF’s] benefit.”
Under the terms of the APA, the Conways did sell DenMatt
goodwill, but CBDF is not DenMatt. Moreover, the Conways and
DenMatt did not agree to the same postterm noncompete
covenant contained in the Franchise Agreement. Instead, they
agreed to a different postterm noncompete which covered a
differently defined territory and which is not at issue in this
litigation.
Citing Consolidated Photographic Industries v. Marks
(1953) 109 Cal.App.2d 310, CBDF argues that section 16601,
despite its plain language, can exempt nonbuyers from
section 16600’s proscriptions. In that case Marks, an individual,
sold his business to Twentieth Century Photo Laboratories, Inc.
(Twentieth). As part of the sale, Marks agreed not to compete
with Twentieth for five years. Shortly after the sale, Twentieth’s
two shareholders, Griffith Photo Service (Griffith) and Monarch
Photo Service (Monarch), agreed to divide Twentieth’s assets and
continued operating them. (Id. at p. 312.) Within the five-year
window in his agreement with Twentieth, Marks started a new
company to compete with Griffith and Monarch. The court held
19
Griffith and Monarch came “within the letter and spirit of
section 16601” as both the successors to Twentieth and the
beneficiaries of Marks’ agreement not to compete. (Consolidated,
at p. 314.) Indeed, by its terms, section 16601 offers the
protection of a postterm noncompete not only to the buyer of
goodwill but also to “ ‘any person deriving title to the good will
. . . from him.’ ” (Consolidated, at p. 313.) Thus, section 16601
allowed Griffith and Monarch to be free of competition from
Marks in accordance with the terms of his agreement with
Twentieth. (Consolidated, at p. 314.)
CBDF does not argue it is DenMatt’s successor in interest,
but attempts to analogize itself to Griffith and Monarch by noting
the Franchise Agreement gave it “contractual rights to enforce
the non-compete agreement following a transfer of goodwill.” This
is a circular argument. A contractual provision rendered
unenforceable under section 16600 does not become enforceable
by the contract saying it is. As it is neither a buyer, nor a
successor to a buyer, of the Conways’ goodwill, section 16601 is of
no benefit to CBDF.
C. Due Process
CBDF contends “the trial court permitted One Day to
violate CBDF’s due process rights.” According to CBDF, the
offensive act was One Day “lodging ‘presentation materials’ on
the eve of a summary judgment hearing, and the trial court’s
handling of the extraneous materials . . . .” CBDF goes on to
explain, “One Day’s 37-pages of ‘presentation materials’ . . . were
submitted the afternoon before the initial hearing, and then re-
submitted without permission from or request by the Court in
advance of the second summary judgment hearing, before CBDF
even had a chance to argue.”
20
CBDF’s vague assertions fail to show a due process
violation. CBDF does not point in their brief to any specific fact in
the presentation that was not contained in the separate
statement. Nor does it cite any case or statute requiring that all
argument must be oral, rather than written. In any event,
whatever CBDF complains the trial court did in its “handling of
the extraneous materials” One Day submitted, the court
expressly did not rely on the “supplemental documents” to which
CBDF took exception: “the Court’s decision is based only on the
original moving papers, and the points made by both sides in oral
argument.”
DISPOSITION
The judgment is affirmed. Costs are awarded to One Day.
RICHARDSON, J.
WE CONCUR:
LUI, P. J.
CHAVEZ, J.
21