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Keywords

contractlawsuitbreach of contractstatute
contract

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Hendrickson v. Octagon Inc., 225 F.Supp.3d 1013, 2016 IER Cases 403,903

Facts

Professional sports agents Doug Hendrickson and Cliff LaBoy, Jr. filed a lawsuit against their former employer, Octagon, Inc., seeking to invalidate fee-sharing provisions in their employment agreements, claiming these provisions unlawfully restrained trade under California law. Octagon counterclaimed for breach of contract and other claims, asserting that the agents owed fees from contracts negotiated during their employment. The case revolves around the enforceability of these fee-sharing arrangements and the application of California law over Virginia law, as stipulated in the contracts.

Issue

Whether the fee-sharing provisions in the employment agreements between the agents and Octagon are enforceable under California law, and whether the agents are liable for the fees claimed by Octagon.

Whether the fee-sharing provisions in the employment agreements between the agents and Octagon are enforceable under California law, and whether the agents are liable for the fees claimed by Octagon.

Rule

Under California law, contracts that restrain individuals from engaging in lawful professions, trades, or businesses are generally void, with specific exceptions. Fee-sharing provisions in employment agreements are enforceable if they do not violate this statute. The court must determine if the provisions at issue are enforceable based on the nature of the agreements and the circumstances surrounding the agents' employment and subsequent departure.

Analysis

The court found that California law applied to the fee-sharing provisions despite the contracts' choice-of-law clause favoring Virginia law. The provisions were deemed enforceable as they were triggered by Octagon's promise not to enforce a non-solicitation clause. The court also noted that the provisions did not restrain trade as they were designed to protect Octagon's legitimate business interests and were not overly burdensome on the agents.

California's settled legislative policy prohibits any restraint on trade, however reasonable. Edwards v. Arthur Andersen LLP, 44 Cal.4th 937, 950, 81 Cal.Rptr.3d 282, 189 P.3d 285 (2008). By contrast, Virginia applies the 'rule of reasonableness' and allows restraints if they protect a legitimate business interest, are not unduly burdensome, and are not otherwise against public policy. See Omniplex World Servs. Corp. v. U.S. Investigations Servs., Inc., 270 Va. 246, 618 S.E.2d 340, 342 (2005). Virginia law is thus contrary to California public policy.

Conclusion

The court held that the fee-sharing provisions were enforceable under California law, allowing Octagon to claim fees from contracts negotiated during the agents' employment and post-employment restricted period.

The court held that the fee-sharing provisions were enforceable under California law, allowing Octagon to claim fees from contracts negotiated during the agents' employment and post-employment restricted period.

Who won?

Octagon, Inc. prevailed in part as the court upheld the enforceability of the fee-sharing provisions in the employment agreements. The court's ruling emphasized that the provisions were consistent with California's public policy favoring open competition and employee mobility, thus allowing Octagon to recover fees from contracts negotiated during the agents' employment.

Octagon, Inc. prevailed in part as the court upheld the enforceability of the fee-sharing provisions in the employment agreements. The court's ruling emphasized that the provisions were consistent with California's public policy favoring open competition and employee mobility, thus allowing Octagon to recover fees from contracts negotiated during the agents' employment.

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