Blue Mountain Enterprises, LLC v. Owen, 74 Cal. App. 5th 537 (2022)

Gregory S. Owen transferred his ownership interest in several real estate and construction-related firms to Blue Mountain Enterprises, LLC, as part of a joint venture with Acolyte Limited. Owen became Blue Mountain’s CEO and he agreed to a post-employment non-solicitation provision, which precluded him from soliciting Blue Mountain’s customers for a period of three years after the termination of his employment. After Owen’s employment was terminated for cause, Owen established a competing construction services company and sent a letter to Blue Mountain customers stating, among other things, that he was launching his new business with “greater perspective, more resources and a much stronger team.” The trial court granted Blue Mountain a preliminary and permanent injunction prohibiting Owen from soliciting its customers and prevailed on its motion for summary judgment adjudication of its breach of contract claim.

The Court of Appeal affirmed and rejected Owen’s argument that the non-solicitation covenant did not meet the requirements of Cal. Bus. & Prof. Code § 16601 because the restrictive covenant was contained in Owen’s employment agreement and there was no explicit transfer of good will. The Court found that Owen’s transfer of his personal interest into Blue Mountain (a portion of which was later transferred to Acolyte) was sufficient to qualify for the sale-of-business exemption under Section 16601. The Court also rejected Owen’s attempt to disavow the customer non-solicitation covenant because it was found in his employment agreement, stating: “Blue Mountain’s ability to enforce the non-solicitation covenant is not undone by the fact that this provision is found in one contract in a multi-contract joint venture rather than another.” Moreover, the Court concluded that an explicit transfer of goodwill was not required to qualify for the exemption under section 16601; rather, the transfer of goodwill could be reasonably inferred. The Court further concluded that Owen’s letter to Blue Mountain customers did more than simply announce his new business. It was deemed to “petition, importune and entreat” the customers to leave Blue Mounter for better opportunities with Owen’s new company.