Latona v. Aetna U.S. Healthcare Inc.

• Decision Date: 27 September 1999
• Docket Number: No. CV 98-0066 NM (RZX).,CV 98-0066 NM (RZX).
• Citation: 82 F.Supp.2d 1089
• Parties: Diane LATONA, Plaintiff, v. AETNA U.S. HEALTHCARE INC., Defendant.
• Court: U.S. District Court — Central District of California

82 F.Supp.2d 1089

Diane LATONA, Plaintiff, v. AETNA U.S. HEALTHCARE INC., Defendant.

No. CV 98-0066 NM (RZX).

United States District Court, C.D. California.

September 27, 1999.

Michael A. Brewer, Michael C. Denlinger, Hornberger Ghazarians & Brewer, Los Angeles, CA, for Diane L. Latona, plaintiffs.

John J. Swenson, Peter N. Greenfeld, Wendy A. Lutzker, Georgiana G. Rodiger, Gibson Dunn & Crutcher, Los Angeles, CA, for Does, 1 through 100 inclusive, Aetna U.S. Healthcare of California Inc, defendants.

ORDER RE ENFORCEABILITY OF AETNA'S NON-COMPETE AND CONFIDENTIALITY AGREEMENT

MANELLA, District Judge.

I. Introduction

A. Factual Background

Aetna Healthplans merged with U.S. Healthcare in early 1997, forming Aetna U.S. Healthcare, Inc. ("Aetna"). After the merger, Aetna sought to continue U.S. Healthcare's policy of requiring all employees with access to confidential, proprietary, or trade secret information to sign its Non-Compete and Confidentiality Agreement ("Agreement"). In May 1997 Aetna asked its employees to sign the Agreement. Plaintiff refused, leading Aetna to terminate her on August 8, 1997.¹ Latona brought this action in state court on November 24, 1997, alleging, inter alia, that Aetna had violated California Business and Professions Code Section 16600. Section 16600 provides, "[E]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." Cal. B & P Code § 16600. Aetna removed the case to federal court on January 6, 1998. On April 8, 1998, Judge Real granted in part Aetna's 12(b)(6) motion to dismiss several claims in Latona's complaint without leave to amend. Among the claims dismissed was Latona's cause of action alleging a violation of section 16600. The case was transferred to this Court on January 14, 1999.

B. The Agreement

The Agreement contained several clauses at the heart of this controversy. The first paragraph (the "non-compete clause") states:

[S]o long as I am employed with the Company and for a period of six months after my resignation, the termination of my employment with the Company or my negotiated departure from employment with the Company, I shall not, directly or indirectly, ... (b) become an employee of or (c) act as a consultant or contractor to, any competitor of the Company engaged in health care business ("Competitor"). Notwithstanding the foregoing, nothing in this Agreement shall prohibit me from becoming (i) an employee of an independent and separate subsidiary or division of a Competitor if I do not engage in any business activity of the Competitor that is competitive to any aspect of the Company's health care businesses; (ii) an employee of a Competitor if the Competitor's office from which I will work is not located within the state in which the Company maintains an office which engages in health care business and from which I worked as an employee of the Company at any time during the 24-month period immediately prior to the date of termination of my employment with the Company; or (iii) an employee of a Competitor if I do not have any responsibility for or significant involvement with any area which is within a Restricted Area (as defined below) or within 50 miles thereof. As used in this Agreement, "Restricted Area" means any Aetna U.S. Healthcare area over which or in which I had responsibility or significant involvement during the 24-month period immediately prior to the date of termination of my employment with the Company. As used herein, a Competitor does not include any hospital, private medical practice or academic institution that does not own or operate (directly or indirectly) and is not otherwise an affiliate of, a health insurance company, a managed care company or a health benefit plan (including an HMO, POS or PPO plan).

P's Exh. A.

In Paragraph 3 of the Agreement (the "anti-solicitation clause"), the employee agrees not to "directly or indirectly solicit or aid in the solicitation on behalf of any competitor of the Company engaged in health care business" any entity or individual who was an Aetna employee, customer, or provider of health care services to Aetna within the year prior to leaving the company. The employee is constrained in this way for twelve months after termination of employment "for any reason, whether with or without cause and whether voluntarily or involuntarily." Id.

Paragraph 2 states that employees terminated but entitled to a continuation of salary or severance payment, and those terminated without cause, are not subject to the terms of paragraph 1 (though they are still subject to the paragraph 3 restrictions).

Paragraph 4 (the "confidentiality clause") provides a non-exclusive list of trade secrets, confidential information, and proprietary materials. It concludes, "I covenant and agree to hold all of the foregoing ... in the strictest confidence and shall not disclose, divulge or reveal the same to any person or entity during the term of my employment with the Company or any time thereafter."

II. Analysis

As the parties have laid out their arguments, there are four primary grounds of dispute: whether precedent dictates finding no violation of public policy, whether the issue is ripe, whether California public policy would indeed condemn the Agreement, and whether the allegedly violative provisions of the Agreement are severable from the rest of the document.

A. Weight of Precedent

This Court is not bound by any previous decisions in this or related cases. The Court may, and in this case believes it must, make its own determination of the enforceability of the Agreement. Plaintiff's original complaint alleged claims for both termination in violation of public policy and termination without good cause. By the time the case was reassigned to this Court, Judge Real had already dismissed the former cause of action. With respect to the remaining cause of action, the fact remained that if the Agreement violated public policy, defendant's firing plaintiff for refusing to sign it could not, as a matter of law, constitute good cause. Even if plaintiff were an at-will employee, as Aetna alleges, terminating her for refusing to sign a non-compete clause that violated public policy would be actionable. Because the issue was a legal one, and required resolution before the case could proceed to trial, the Court ordered additional briefing and indicated its intention to decide the issue.

B. Ripeness

As defendant acknowledges, "No California court has directly addressed ... whether merely requiring an employee to sign an agreement containing a non-compete provision is illegal." Def. at 16. However, Baker Pacific Corp. v. Suttles, 220 Cal.App.3d 1148, 269 Cal.Rptr. 709 (1990) provides a close parallel. Baker examined whether requiring employees to sign a waiver that contravened public policy as a condition of employment violated the law.² The employer in that case, like Aetna here, argued that the challenged provision, if in fact unenforceable, by definition would have no effect on the prospective employees: Accordingly, no violation of law could occur unless and until the employer attempted to enforce the invalid provision. The court soundly rejected this contention: "We find this argument circular and unintelligible. Since we have determined the release as proffered is violative ... it follows that requiring prospective employees to sign an illegal agreement as a condition of employment is contrary to law." Baker, 220 Cal. App.3d at 1154, 269 Cal.Rptr. 709. The court found that denial of an employment opportunity (stemming from the prospective employees' refusal to sign the invalid contract) constituted an illegal application of the release: "The `pistol to the head' approach to an employment relationship, where hiring is conditioned on acceptance of statutorily proscribed terms, is not acceptable to us." Id. at 1155, 269 Cal.Rptr. 709.

Here, Aetna did more than decline to hire plaintiff; it fired her for refusing to sign the non-compete Agreement. The consequences for plaintiff are neither hypothetical nor conjectural. Thus, while the ripeness doctrine is designed to "prevent the courts ... from entangling themselves in abstract disagreements," BKHN, Inc. v. Department of Health Servs., 3 Cal.App.4th 301, 309, 4 Cal.Rptr.2d 188 (1992), there is nothing abstract about this case.

Aetna nevertheless contends that the Court cannot conduct an enforceability determination without knowing whether a former employee is indeed engaged in competition with it, has threatened to disclose its proprietary information, or has actually disclosed such information. As a preliminary matter, the Court notes that the validity of non-compete clauses may be appropriate for summary adjudication. See Scott v. Snelling and Snelling, Inc., 732 F.Supp. 1034, 1038 (N.D.Cal.1990). Contrary to Aetna's assertions, the issue here is not whether plaintiff's actions violated her employment agreement, but whether the Agreement, on its face, purports to bar employees from engaging in lawful conduct, in clear derogation of section 16600. Thus, in this analysis the application of the Agreement is secondary to its facial validity.

Aetna's argument that ripeness concerns require an employee to sign the Agreement, violate its provisions, and be sued before a court may analyze the provision's enforceability ignores the express purpose of section 16600: to prohibit contracts that restrain employees from engaging in their lawful professions. Under Aetna's scenario, an employee required to sign an Agreement that violates California's strong public policy against such restraints would have the following choices:

(1) She could refuse to sign the Agreement (as Ms. Latona and others did) and be fired;

(2) She could sign the Agreement and, upon leaving Aetna, engage in conduct prohibited by the Agreement, secure in the knowledge that after incurring costly legal bills defending a...