Agreement to Forfeit Revenues Was An Illegal Restraint on Trade Prohibited by Cal. Bus. & Prof. Code § 16600

Case: Alliance Payment Systems v. Walczer (Cal. App. 1st Dist. No. A111425, 6/25/07)

The One Sentence Summary: Provision in settlement agreement for forfeiture of residuals was an illegal restraint on trade in violation of California's Business and Professions Code section 16600.


California Court of Appeal Holdings:

• The Ninth Circuit's interpretation that de minimis or narrow restraints on trade are allowed under Bus. & Prof. Code § 16600 is not consistent with the language of the statute, and was rejected by the court.
• The court rejected the argument that valuable property rights may be protected by restraints on trade. The only exceptions to section 16600 are trade secrets and confidential and proprietary information.
  
• The restraint was not enforceable despite its mutuality, or that it was entered as part of a settlement agreement.
• The court would not "blue pencil" the agreement to add restrictions that would make the agreement enforceable.
• Anti-solicitation clauses are routinely viewed as, and voided as, illegal restraints on trade.
• A clause in the settlement agreement prohibiting solicitation of specific accounts was enforceable because it was an agreement under Business and Professions Code § 16602 in connection with the dissolution of a partnership. It was geographically limited in scope because it referred to specific customers whose locations were known to the former partners.
• There was sufficient evidence of solicitation of customers to justify the trial court's order of a new trial.