Robert Blair & Springshot, Inc. v. Inform Software Corp.
| Decision Date | 08 January 2023 |
| Docket Number | 22-cv-06000-LB |
| Parties | ROBERT BLAIR AND SPRINGSHOT, INC., Plaintiffs, v. INFORM SOFTWARE CORPORATION, Defendant. |
| Court | U.S. District Court — Northern District of California |
ORDER DENYING MOTION RE: ECF NO. 7
Plaintiff Robert Blair is a California-based sales executive who worked for defendant INFORM Software from 2014 through August 2022 and then left to work for plaintiff Springshot in September 2022. Both companies sell aviation software. In letters in August and September 2022, INFORM invoked non-competition and customer non-solicitation covenants in Mr. Blair's employment agreement. The plaintiffs then sued INFORM for declaratory relief to invalidate the covenants, charging that they violate California's Unfair Competition Law (UCL).
INFORM moved to dismiss on the ground that the employment contract - signed by Mr. Blair in 2014 in Florida, before he moved to California in 2015 - required him to arbitrate any dispute about his employment in Chicago, Illinois. (INFORM is incorporated in Illinois and headquartered in Georgia.) Alternatively, INFORM moved to compel arbitration. The plaintiffs countered that the forum-selection clause is invalid under California Labor Code § 925, which renders unenforceable any forum-selection clause that requires a California employee to adjudicate California claims in another state the clause is invalid in any event, and the arbitration agreement is unconscionable. The court denies the motion: the forum-selection clause is unenforceable (and is otherwise unconscionable, primarily because the parties and the dispute have no meaningful connection to the Illinois forum), and other contract provisions - one-way terms that favor INFORM costs shifted to Mr. Blair, and invalid waivers of unwaivable rights - render the arbitration clause unconscionable.
In 2014, Mr. Blair began working for INFORM as its Director of Business Development in North America, with duties that included managing the North American sales of INFORM software to aviation companies. He left INFORM on August 31, 2022 after giving a month's notice. On September 1, 2022, he joined Springshot, also selling software to aviation companies.[1]When he joined INFORM, he lived in Florida. He moved to California in 2015 with INFORM's approval and has lived here since.[2]
The 2014 employment agreement had the following provisions. First, it defined Mr. Blair's job responsibilities and compensation.[3] Second, it had a non-waiver clause providing that a failure by either party to enforce the contract terms is not a waiver of the terms.[4] Third, it had a severability clause providing that if any provision of the agreement were “held invalid, unenforceable, void, or voidable under any applicable law, such provision shall not affect the validity or enforceability of any other provision” of the agreement.[5] Fourth, it had an integration clause providing that any amendment must be written and signed by both parties.[6] Fifth, it had an arbitration clause providing for binding arbitration in Chicago, Illinois, under “the Arbitration Rules of the American Arbitration Association” (AAA) and the substantive laws of the state of Illinois.[7] Sixth, separately from the arbitration clause, it had a choice-of-law clause specifying that “[a]ll obligations” resulting from the agreement “are regulated exclusively by the substantive law of the State of Illinois.”[8] Seventh, it had a construction clause providing that the agreement “was the subject of preliminary drafts and review thereof by both parties and their attorneys.”[9] Finally, it had provisions about non-solicitation of INFORM's employees and customers and a covenant not to compete with INFORM during the employment and for one year after termination.[10]
The parties dispute the circumstances surrounding the signing of the agreement. INFORM contends that Mr. Blair's resume reflected that he was employed at another aviation-related business, emails show his active negotiation of the agreement, there were at least three draft agreements, and Mr. Blair sought and received concessions about health benefits and a higher salary.[11] Mr. Blair characterizes the agreement as a take-it-or-leave-it deal: he had been laid off recently, was unemployed, and told that to INFORM during the interview process. He thus lacked the financial ability to hire a lawyer to advise him about contract terms like the “mandatory” arbitration clause, and INFORM never gave him the relevant AAA rules. He negotiated a modest increase in salary. INFORM tried to hire him as a consultant without health benefits but ultimately hired him as an employee. INFORM drafted the agreement and did not discuss with him any aspects of it other than compensation and benefits.[12] The parties provided the following information about changes to the terms of Mr. Blair's employment. On June 6, 2016, after Mr. Blair moved to California, the parties executed a written addendum to the employment agreement memorializing salary and bonus increases.[13] INFORM then gave Mr. Blair regular increases to his salary (but not his bonus). These were not memorialized in any addendum to the employment agreement. INFORM says that it typically sent generic emails to employees telling them about the increases. Mr. Blair says that in his annual performance reviews, managers would tell him his next year's pay increase. In 2021, that manager was Dirk Stelzer.[14] According to Mr. Blair, INFORM promoted him to “VP Aviation North America” without an accompanying written addendum to the employment agreement.[15] INFORM says that it allowed him to use the title because he said that it would improve sales, but INFORM never changed the title officially, and the title change did not affect his job duties or compensation.[16]
On July 31, 2022, Mr. Blair told INFORM that he would resign effective August 31 and would join Springshot.[17] Springshot sells software with a different purpose: “INFORM claims their GroundStar software is the most comprehensive and scalable software suite for the optimization of aviation process[es] currently on the market[,] [w]hereas Springshot is a collaboration platform for real-time operations that engages mobile workers to perform the right physical tasks at the right time and place.” For that reason, Mr. Blair dealt with customers at INFORM (such as Delta Airlines) that were Springshot customers too. Springshot and INFORM share many customers.[18]
During his last month at INFORM, Mr. Blair worked hard to achieve a “seamless transition,” including by going to INFORM's principal place of business in Germany to facilitate the transition.[19] INFORM sent Mr. Blair letters in August and September 2022 threatening to enforce the noncompetition and customer non-solicitation covenants.[20] Mr. Blair has spent his entire career in the aviation industry. “For [him] to have no contact with Springshot's current customers would require start[ing] a new career” at age fifty.[21] This “would impose an enormous hardship” on his family: he is their sole provider. Also, his daughter “has a health condition that requires ongoing medical treatment.”[22]
The plaintiffs thus filed this declaratory-relief action. In claim one, they seek a declaration that enforcing the non-competition and customer non-solicitation covenants violates the UCL, Cal. Bus. & Prof. Code § 17200, and they ask the court to enjoin INFORM from enforcing the provisions. In claim two, they seek a declaration that the covenants are unenforceable under Cal. Bus. & Prof. Code § 16600 and estop INFORM from preventing Mr. Blair from accepting other employment. The plaintiffs seek their costs and attorney's fees as allowed by law, including under Cal. Civ. Proc. Code § 1021.5.[23]
INFORM is a German company. Its U.S. affiliate is an Illinois corporation headquartered in Georgia, with its principal place in Georgia. The plaintiffs are citizens of California.[24] They filed suit in state court and INFORM removed the case to federal court.[25] The parties do not dispute the court's diversity jurisdiction.[26] 28 U.S.C. § 1332. All parties consented to magistrate-judge jurisdiction under 28 U.S.C. § 636.[27] The court held a hearing on December 22, 2022.
There are two issues here: (1) whether the forum-selection clause is enforceable and (2) whether the arbitration agreement is enforceable. The court does not enforce the forum-selection clause: it is unenforceable under California Labor Code § 925, and it is in any event unconscionable. The arbitration clause has unconscionable terms. The court denies INFORM's motion.
The parties do not dispute that if Mr. Blair's employment contract was modified after 2017, then the forum-selection clause is unenforceable under California Labor Code § 925. The only argument that INFORM advanced in its motion is that the 2017 changes were not in writing and signed by the CEO, as the contract required.[28] A unilateral modification is binding, even if the underlying contract provides for modification only in writing. LGCY Power, LLC v. Super. Ct., 75 Cal.App. 5th 844, 867-68 (2022); Yeomans v. World Fin. Grp. Ins. Agency, Inc., No. 19-cv-00792-EMC, 2019 WL 5789273, at *7 (N.D. Cal. Nov. 6, 2019). INFORM's authority is distinguishable: they involve implied contracts that contradict a written agreement, not a fully executed express modification. See, e.g., Haggard v. Kimberly Quality Care, Inc., 39 Cal.App.4th 508, 521-22 (1995). Thus, the forum-selection clause is unenforceable under § 925. (As discussed below, the forum-selection clause also is invalid because it is unconscionable.)
Because the forum-selection...
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