Kgb, Inc. v. Giannoulas

• Citation: 164 Cal.Rptr. 571,104 Cal.App.3d 844
• Court: California Court of Appeals Court of Appeals
• Decision Date: 21 April 1980
• Parties: , 211 U.S.P.Q. 285 KGB, INCORPORATED, Plaintiff and Respondent, v. Ted GIANNOULAS, Defendant and Appellant. Civ. 22129.

Page 571

164 Cal.Rptr. 571

104 Cal.App.3d 844, 211 U.S.P.Q. 285

KGB, INCORPORATED, Plaintiff and Respondent, v. Ted GIANNOULAS, Defendant and Appellant.

Civ. 22129.

Court of Appeal, Fourth District, Division 1, California.

April 21, 1980.

As Modified April 28, 1980.

Hearing Denied July 16, 1980.

Sullivan, Jones & Archer, Christopher Q. Britton, Richard W. Page and William J. Tucker, San Diego, for defendant and appellant.

Sandler & Rosen and Richard V. Sandler, Los Angeles, and John D. Butler, San Diego, for plaintiff and respondent.

GERALD BROWN, Presiding Justice.

Viewed in its most obvious aspect, this controversy about a chicken suit poses the simple issue whether a local radio station may prevent its ex-employee/mascot from wearing a chicken suit. Silly though the issues appear at first glance, the underlying principles are serious. We deal with a conflict between an employer's asserted contract rights and the fundamental rights of an employee to earn a living, even in possible violation of the employer's bargain with him. We are also concerned with interpreting the application of California's restraint of trade statute (BUS. & PROF. CODE, S 16600)¹ to an entertainment contract which ostensibly restricts the entertainer from continuing to perform after a breach.

Appellant Ted Giannoulas seeks a writ of supersedeas to stay a preliminary injunction which he has appealed.

While employed by respondent radio station, KGB, Inc., Giannoulas made public appearances as a character known as the "KGB Chicken," a costumed chicken performing comic routines. Giannoulas stopped working for KGB. The station brought this lawsuit alleging breach of employment contract, unfair competition, servicemark infringement, and other causes. KGB sought both damages and an injunction preventing Giannoulas from appearing in a chicken suit. Although at present all counts of the complaint except that for breach of contract have been dismissed on demurrer with leave to amend, the trial court granted KGB a preliminary injunction. Paragraph (1) ² of the injunction prevents Giannoulas from appearing anywhere wearing the "KGB Chicken Ensemble," a described costume which includes a vest bearing the KGB initials. Subsection (c) of paragraph (1) forbids appearing in a chicken costume "substantially similar" to the KGB chicken costume registered as a servicemark. Paragraph (2) restrains Giannoulas from appearing in "any chicken ensemble or suit whatsoever" in San Diego County or any adjacent county. Paragraph (3) similarly forbids appearances in any chicken suit at any sports or public event where a team from San Diego County appears. The trial court found "likelihood of confusion" in the public mind if Giannoulas appears in the manner forbidden. The meaning of that finding is when Giannoulas appears locally in a chicken suit the public probably thinks about KGB and may believe Giannoulas still works there.

We have decided to issue a writ of supersedeas to stay subsection (c) of paragraph (1) and all of paragraphs (2) and (3) of the injunction pending appeal. Those provisions, preventing appearances in any chicken suit whatsoever, invalidly restrict Giannoulas' rights to earn a living and to express himself as an artist. The burden is on KGB to justify an injunction restricting such vital rights. When the injunction issued, KGB had not so much as pleaded a good cause of action for unfair competition or infringement. Its factual showing to date is inadequate to sustain a prohibitory injunction, for reasons we will state.

Public policy disfavors injunctions restraining the right to pursue a calling. On the national scene, the weight of authority shows great reluctance to issue such restraints unless the former employer can show irreparable injury. (See, e. g., 11 Williston on Contracts (3rd ed. 1968) § 1423, pp. 789-791, 1044; Restatement of Contracts, § 380, Comm. (g), (1932); Arthur Murray Dance Studios of Cleveland v. Witter (Ohio Comp. Pl. 1952) 105 N.E.2d 685.) California goes beyond judicial reluctance to possible illegality of such injunctions, under Business and Professions Code section 16600, which provides in relevant part:

"Invalidity of contracts. Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business or any kind is to that extent void."

This statute presents an absolute bar to post-employment restraints and represents a strong public policy of this state (Golden State Linen Service, Inc. v. Vidalin, 69 Cal.App.3d 1, 12-13, 137 Cal.Rptr. 807; Muggill v. Reuben H. Donnelley Corp., 62 Cal.2d 239, 242, 42 Cal.Rptr. 107, 398 P.2d 147; Ware v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 24 Cal.App.3d 35, 43, 100 Cal.Rptr. 791, aff'd., 414 U.S. 117, 94 S.Ct. 383, 38 L.Ed.2d 348). Although there are a few statutory exceptions to the ban against restraints of trade, none of them apply to this situation, where the employer seeks to restrain a performer from continuing to perform after the term of employment expires. Here it expired in September 1979.

The classic exposition of the topic of enforcement of employee covenants not to compete is Arthur Murray Dance Studios of Cleveland v. Witter, supra, 105 N.E.2d 685, decided in a state (Ohio) which did not have a statute like California's Business and Professions Code section 16600. That case, with wit but also much scholarly erudition, documented the "sea" of authority evidencing judicial reluctance to enforce such covenants. According to the court, this hostility first judicially appears in the reign of Henry V in 1415, when a guild sought to restrain a dyer from working in a town for half a year, enraging the judge, who "in bad French . . . cursed the deal void: 'By God, if the plaintiff were here he should go to prison until he paid a fine to the king.' " (Id. at p. 691.) Since then the courts have become more temperate, and will sometimes enforce such covenants at least in states not having statutes like Business and Professions Code section 16600, if such enforcement is reasonable; but even in those states, reasonableness is not lightly decreed, and always, the burden rests on the person seeking such a restraint to justify it. Further, of the many circumstances relevant to reasonableness (detailed in the Arthur Murray case, supra ), the most important is irreparable harm to the employer. Nothing less justifies preventing an employee from continuing to work. The court in that case compared the so-called sale covenant with the employee covenant and explained the stronger aversion to enforcing the latter:

"In contrasting the employee covenant with the sale covenant, some of the typical pronouncements are the employee covenant is more critically examined, more strictly construed it is construed favorably to the employee it is viewed with askance and more jealousy it is not viewed as liberally or with the same indulgence it is looked upon with less favor, more disfavor courts are more loathe, less disposed and more reluctant to sustain or enforce it not identical tests but different considerations apply there is more freedom of contract between seller and buyer than between employer and employee, the latitude of permissible restraint is more limited between employer and employee, greater between seller and buyer. The following are some of the reasons given for making the above distinction. The average, individual employee has little but his labor to sell or to use to make a living. He is often in urgent need of selling it and in no position to object to boiler plate restrictive covenants placed before him to sign. To him, the right to work and support his family is the most important right he possesses. His individual bargaining power is seldom equal to that of his employer. Moreover, an employee ordinarily is not on the same plane with the seller of an established business. He is more apt than the seller to be coerced into an oppressive agreement. Under pressure of need and with little opportunity for choice, he is more likely than the seller to make a rash, improvident promise that, for the sake of present gain, may tend to impair his power to earn a living, impoverish him, render him a public charge or deprive the community of his skill and training. The seller has the proceeds of sale on which to live during his period of readjustment. A seller is usually paid an increased price for agreeing to a period of abstention. The abstention is a part of the thing sold and is often absolutely necessary in order to secure to the buyer the things he has bought. Usually the employee gets no increased compensation for agreeing to the abstention; it is usually based on no other consideration than the employment itself." (Arthur Murray Dance Studios of Cleveland v. Witter, supra, 105 N.E.2d at pp. 703-704.)

In California under section 16600, even reasonableness may not save an injunction like that here. There is authority in California for enjoining employee performance, after breach of an entertainment contract, during the term of the contract, under Civil Code section 3423, permitting injunctions for breach of special service contracts. (See MCA Records, Inc. v. Newton-John, 90 Cal.App.3d 18, 23, 153 Cal.Rptr. 153.) The court in MCA Records, however, expressed grave doubts whether such an injunction would be legal beyond the term of the employment contract. (Id. at p. 24, 153 Cal.Rptr. 153.) Those doubts are shared by the court in Lemat Corp. v. Barry, 275 Cal.App.2d 671, 679, 80 Cal.Rptr. 240; see also dictum in Loew's Inc. v. Cole (9th Cir. 1950) 185 F.2d 641, 657. Here the written contract of employment expired on September 15, 1979, if it was not sooner terminated, as alleged, in late May 1979.

Further, even if the injunction were permissible despite section 16600, such an injunction must rest on a finding of injury to KGB. As the court said in Arthur Murray, supra, we must consider whether an ...