District Court Shows Way to Obtain Non-Solicitation Injunction in California


Companies seeking to prohibit unlawful solicitation of customers should be encouraged by a recent federal court decision.  In the U.S. District Court for the Eastern District of California, Magistrate Judge Hollows issued an injunction that prohibited the defendant from directly or indirectly initiating any contact with any current Northern California or Hawaii customer of the plaintiff with whom he had contact or for whose accounts he had responsibility while employed by the plaintiff, for the purpose of encouraging, inviting, suggesting or requesting transfer of their business from plaintiff.  The Pyro Spectaculars North, Inc. v. Steven Souza [pdf] court distinguished its case from the decision in Retirement Group v. Galante 176 Cal. App. 4th 226 (2009), finding that California Business and Professions Code section 16600 does not constrain a court in equity from fashioning an appropriate remedy for tortious conduct in violation of the California Uniform Trade Secret Act.  The case provides a clear rebuke to the now common argument that Galante prohibits non-solicitation restraints.

The defendant in Pyro Spectaculars North, Inc. downloaded and retained detailed information on the plaintiff's customers. The court found that the information downloaded provided "a virtual encyclopedia of specific PSI customer, operator and vendor information at a competitor’s fingertips, allowing the competitor to solicit both more selectively and more effectively without having to expend effort to compile the data."  The evidence also showed that the defendant solicited numerous customers of the plaintiff using the stolen information.  The court also found that the conduct explicitly targeted the plaintiff’s customer goodwill and therefore supported the existence of irreparable harm for preliminary injunction.

The court declined to adopt a narrow reading of Galante that would effectively bar any non-solicitation restrictions under Business and Professions Code section 16600. The court noted that the paramount issue is how a court might fashion an appropriate relief via injunction.  While a court should be cognizant of the policies embodied in section 16600, that section does not constrain a court in equity from fashioning an appropriate remedy to prevent the misappropriation of trade secrets.  The court concluded "that a narrow, time-limited non-solicitation restriction is necessary to prevent defendant's misuse of PSI trade secret information in competing with PSI.”

For those practitioners attempting to prevent someone who stole trade secrets from soliciting customers, this case provides clear guidance of the evidence needed to support a non-solicitation injunction and how to fashion such an injunction. The case provides a much needed counterpoint and balanced view as to the scope of remedies available to a court to prevent the misappropriation of trade secrets.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.