Nutri-Metics Intern., Inc. v. Carrington Laboratories, Inc.

• Decision Date: 22 December 1992
• Docket Number: No. 89-56253,NUTRI-METICS,89-56253
• Citation: 981 F.2d 1259
• Parties: NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel. INTERNATIONAL, INC., a California corporation, Plaintiff-Counter-Defendant-Appellant, and Mulford J. Nobbs, Counter-Defendant-Appellant, v. CARRINGTON LABORATORIES, INC., a Texas corporation; Clinton H. Howard, Defendants, and Gigi Enterprises, Inc., a Texas corporation; Bea Behring; Ramona Pollock; Art Benson, Defendants-Counter-Claimants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1259

981 F.2d 1259

NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel.

NUTRI-METICS INTERNATIONAL, INC., a California corporation Plaintiff-Counter-Defendant-Appellant and Mulford J. Nobbs, Counter-Defendant-Appellant, v. CARRINGTON LABORATORIES, INC., a Texas corporation; Clinton H. Howard, Defendants and Gigi Enterprises, Inc., a Texas corporation; Bea Behring Ramona Pollock; Art Benson, Defendants-Counter-Claimants-Appellees.

No. 89-56253.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Jan. 9, 1992.

Decided Dec. 22, 1992.

Before POOLE, WIGGINS and LEAVY, Circuit Judges.

MEMORANDUM ^*

Nutri-Metics International, Inc. ("Nutri-Metics"), a company engaged in the direct sales of skin care products, and its President, Mulford J. Nobbs, appeal a jury verdict in favor of Gigi Enterprises ("Gigi"), Bea Behring, and Ramona Pollock. Shortly after Nutri-Metics had purchased a direct sales skin care business, Avacare, from Carrington Laboratories, Inc. ("Carrington"), Nobbs terminated Behring and Pollock, both former Avacare officials. Subsequently, Behring and Pollock formed Gigi, a competing skin care company.

Following the formation of Gigi, Nutri-Metics filed an action against Carrington, Gigi, Behring, and Pollock alleging that Gigi's presence in the skin care market breached the Noncompetition Agreement entered into by Nutri-Metics with Carrington, in violation of various federal and state commerce and contract laws. Gigi responded by filing counter-claims against Nutri-Metics alleging, inter alia, unfair competition, interference with business and contractual relationships, defamation, and infliction of emotional distress.

Prior to trial, Carrington was granted partial summary judgment on whether it violated the Noncompetition Agreement when it sold certain products to Gigi, who competed with Nutri-Metics in the skin care industry. Following the court's grant of summary judgment, but prior to trial, Nutri-Metics and Carrington reached a settlement on all claims remaining as between them. Carrington also settled with Gigi during the pendency of the trial on the claims asserted by Gigi against it.

Following a two and one-half month trial, a jury returned verdicts in favor of Gigi on its counter-claims against Nutri-Metics. It awarded Gigi $3.5 million in compensatory damages and $2 million in punitive damages. Following the district court's denial of its motions for a new trial and judgment n.o.v., Nutri-Metics filed a timely notice of appeal from the jury verdict and the district court's judgment.

DISCUSSION

A. Noncompetition Agreement

1. Summary Judgment

As a threshold matter, Nutri-Metics challenges the district court's grant of partial summary judgment in favor of Carrington. It contends the district court erred when it determined that Gigi and Carrington were not involved in direct sales in violation of the Noncompetition Agreement and granted Carrington's motion for partial summary judgment. Nutri-Metics argues the court's conclusion that Gigi was not involved in direct sales of products manufactured by Carrington was based on the misapprehension that "private label" and "direct sales" were mutually exclusive methods of doing business.

We decline to review the merits of the district court's grant of partial summary judgment in favor of Carrington. Having settled with both Nutri-Metics and Gigi pursuant to Fed.R.Civ.P. 41(a)(1)(ii), Carrington is no longer a party to these proceedings. Following the grant of partial summary judgment, Nutri-Metics and Carrington stipulated to a voluntary dismissal with prejudice of all claims. Normally, a plaintiff may not appeal a voluntary dismissal because it is not an involuntary adverse judgment against it. Seidman v. City of Beverly Hills, 785 F.2d 1447, 1448 (9th Cir.1986) (per curiam); accord Plasterers Local Union No. 346 v. Wyland Enters. Inc., 819 F.2d 217, 218-19 (9th Cir.1987) ("[G]enerally a party may not gain review of a stipulated judgment."); Unioil, Inc. v. E.F. Hutton & Co., 809 F.2d 548, 555 (9th Cir.1986) (same), cert. denied, 484 U.S. 822 and 823 (1987).

Nor does it appear under Seidman that Nutri-Metics could appeal the grant of partial summary judgment after the entry of dismissal. While it is true that Nutri-Metics could have sought and obtained intermediate review of that judgment under Fed.R.Civ.P. 54(b), its decision to forgo that opportunity and enter into the stipulated judgment dismissing all claims with prejudice effectively rendered a final judgment that was not adverse to Nutri-Metics' interests. See Seidman, 785 F.2d at 1448; Plasterers, 819 F.2d at 218-19. Accordingly, we do not have jurisdiction to review the district court's grant of partial summary judgment. ¹

Further, on appeal, Nutri-Metics readily acknowledges that it has abandoned its offensive claims against Gigi and is seeking only to challenge the judgment entered against it pursuant to the jury's verdict in this case. As such, the essence of Nutri-Metics' challenge to the grant of partial summary judgment is the propriety of the admission of that evidence at trial.

2. Admission at Trial ²

The court's ruling on the partial summary judgment was read to the jury, both during the trial and as part of the instructions. Regardless of the fact that we are precluded from reviewing the merits of the grant of summary judgment, the decision by the court to inform the jury that "[t]he court has found that Gigi and Carrington were not engaged in direct sales prohibited by the Noncompetition Agreement" constituted a separate ruling at trial that is reviewable.

3. Merits

A noncompetition agreement is a restraint of trade contract, subject, at a minimum to statutory and common law rules of contract interpretation. ³ Additionally, California Business and Professions Code § 16600 provides: "Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." Cal.Bus. & Prof.Code § 16600. An exception to the strict prohibition of section 16600 is set forth in section 16601, which permits an agreement not to compete made by a party when it is subordinate to the sale of the goodwill of the business or all the shares held in a corporation. See Cal.Bus. & Prof.Code § 16601. The parties do not dispute the inherent validity of the Noncompetition Agreement at issue in this case. Presumably, they agree that the circumstances of their Agreement bring it within the exception set forth in section 16601.

Sections 16600 and 16601 simply codify common law. As such, those sections must be construed and interpreted in accordance with the common law decisions concerning noncompetition agreements. See Vacco Indus., Inc. v. Van Den Berg, 6 Cal.Rptr.2d 602, 609 (Cal.Ct.App.1992). California courts have held that a restrictive covenant that attempts to prohibit competitive business activity is invalid per se. See, e.g., Loral Corp. v. Moyes, 219 Cal.Rptr. 836, 844 (Cal.Ct.App.1985); Bosley Medical Group v. Abramson, 207 Cal.Rptr. 477, 479-80 (Cal.Ct.App.1984); Radiant Indus., Inc. v. Skirvin, 109 Cal.Rptr. 96, 97 (Cal.Ct.App.1973). At common law, a restraint against competition was valid to the extent it reasonably provided protection for a valid interest of the party in whose favor the restraint ran. Monogram Indus., Inc. v. Sar Indus., Inc., 134 Cal.Rptr. 714, 718 (Cal.Ct.App.1976). In order to protect a buyer from unfair competition and ensure he receives the full value of his purchase, the purchaser of a business may negotiate and enforce a covenant not to compete with the seller that is reasonable and necessary in terms of time, activity, and territory. Id.; accord Vacco, 6 Cal.Rptr.2d at 609.

The relevant provision in the Noncompetition Agreement provided that Carrington shall not:

2(a)(i) Directly or indirectly, engage or participate in, and/or conduct, operate or otherwise perform (A) any marketing aspect of the business of Selling Directly cosmetics, vitamins or food supplements of any kind or nature, or (B) any Direct Sales business, operation or activity competitive with any of the businesses, operations or activities described in Paragraph 2(a)(i)(A) hereof;

Direct Sales was defined by the Noncompetition Agreement to mean:

(b) a marketing program whereby (i) products are sold at wholesale prices to individuals, who in turn, as independent distributors, sell the products directly to consumers, and (ii) rewards are provided to those individuals for recruiting new distributors.

Also, the Noncompetition Agreement provided for the following exception to section 2(a)(i) above:

2(a)(i)(d) Nutri-Metics understands that Avacare is engaged in, and will continue to be engaged in: (i) pharmaceutical research and development and the marketing of prescription drugs and nonprescription drugs and products developed as a result of such research and development activities; and (ii) the business of processing aloe vera leaves and manufacturing and supplying aloe vera gel and other products (including on a "private label" basis) for wholesalers, who may compete with Nutri-Metics, and Nutri-Metics agrees that the provisions of this Paragraph 2 shall not be deemed to restrict or prohibit Avacare or Howard, as a director, officer, employee, or shareholder of Avacare, or in any other capacity with respect to Avacare, from engaging in any such activities.

Although the term "private label" basis is not defined in the Agreement, Carrington explained in its motion for summary judgment that the sale of aloe vera products on a "private label" basis meant the goods were manufactured for a particular customer under that customer's business name/label and sold by the...