Elwood Staffing Services, Inc. v. KGS2 Group, LLC et al
Filing
24
OPINION & ORDER: Elwood's Motion for a Temporary Restraining Order 7 and order to show cause why a preliminary injunction should not issue is Denied. Signed on 12/15/14 by Magistrate Judge Dennis J. Hubel. (gm)
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UNITED STATES DISTRICT COURT
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DISTRICT OF OREGON
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PORTLAND DIVISION
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ELWOOD STAFFING SERVICES, INC.,
an Indiana Corporation,
No. 3:14-cv-01270-HU
OPINION AND
ORDER
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Plaintiff,
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v.
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KGS2 GROUP, LLC, an Oregon
Limited Liability Company, d/b/a
EXPRESS EMPLOYMENT PROFESSIONALS;
THE STOLLER GROUP, INC., an
Oregon Corporation; and SUSAN
KONOPSKI, individually and in her
capacity as an agent and officer of
EXPRESS EMPLOYMENT PROFESSIONALS, INC.,
Defendants.
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COUNSEL
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Krishna Balasubramani and Sarah B. Ewing, Sather, Byerly &
Holloway, LLP, Portland, Oregon, for Plaintiff Elwood Staffing
Services, Inc.
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Lucas W. Reese, Garrett Hemann Robertson P.C., Salem, Oregon, for
Defendants KGS2 Group, LLC, d/b/a Express Employment Professionals,
and The Stoller Group, Inc.
Zachary J. Dablow, Zachary Dablow, Attorney at Law, Salem, Oregon,
for Defendant Susan Konopski.
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Page 1 - OPINION AND ORDER
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HUBEL, Magistrate Judge:
2
Plaintiff Elwood Staffing Services, Inc. (“Elwood”) brought
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this diversity action against Defendants KGS2 Group, LLC (“KGS2”),
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The Stoller Group, Inc. (“Stoller”) and Susan Konopski (“Konopski”)
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(collectively, “Defendants”) on August 6, 2014, alleging claims for
6
injunctive
7
intentional
8
confidential relationship, and misappropriation of trade secrets.
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Plaintiff now moves, pursuant to Federal Rule of Civil Procedure
10
(“Rule”) 65(a) and (b), for a temporary restraining order and an
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order to show cause why a preliminary injunction should not issue
12
in this proceeding.
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Elwood’s motion (Docket No. 7) for a temporary restraining order
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and order to show cause why a preliminary injunction should not
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issue is DENIED.
relief,
interference
16
17
breach
of
with
contract,
economic
promissory
relations,
estoppel,
breach
of
For the reasons explained more fully below,
I. FACTS AND PROCEDURAL HISTORY
Elwood is an Indiana Corporation that provides “temporary and
18
direct
staffing
19
companies
20
professional, and technical industries.”
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February 15, 2013, Elwood acquired non-party SOS Staffing Services,
22
Inc. (“SOS Staffing”) through a stock purchase.
(Compl. ¶ 9;
23
Basile
assigned
24
employees’ non-competition and non-solicitations agreements to
25
Elwood as part of the acquisition, including the agreement Konopski
26
signed on May 24, 2006, at the inception of her employment with SOS
27
Staffing.
.
Decl.
.
¶
services
.
,
1.)
to
primarily
SOS
a
variety
in
Staffing
the
of
industrial,
Page 2 - OPINION AND ORDER
client
clerical,
(Compl. ¶ 7.)
purportedly
(Compl. ¶¶ 8-9; Basile Decl. ¶ 1.)
28
business
On
its
1
2
3
4
The agreement signed by Konopski on May 24, 2006, provides in
relevant part:
[T]o protect our proprietary, confidential and/or trade
secret information, for the one-year period following the
termination of your employment with us, for any reason or
for cause, whether voluntary or involuntary, you agree:
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6
7
8
a. either directly or indirectly, in person or
through a third party or associate, not to call on,
solicit or otherwise deal with any of our customers
located within 60 miles of your territory, branch, or
specific location at which you worked for us, or any
other of our customers if you dealt with such customer
while employed by us;
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10
11
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b. either directly or indirectly, in person or
through a third party or associate, not to either solicit
for employment, employ in anyway or cause any employee to
be hired at your subsequent competing employer any of our
employees (including, without limitation, temporary
employees and/or staff employees) who were employed by us
during the period of time you were employed by us; and
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15
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c. in order to further protect our confidential,
proprietary and/or trade secret information, and as a
condition of employment, continued employment with us and
access to our proprietary and/or confidential information
and trade secrets, not to work for, consult with or be
employed by, directly or indirectly, any of our
competitors at any location within 60 miles of your
territory, branch, or specific location at which you
worked while employed by us.
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You agree that the term of this non-competition provision
is reasonable and that the limited geographic scope of
this non-competition provision does not preclude you from
working in your given field, and you represent that you
can seek employment with our competitors at a location
outside of the limited geographic limitations of this
non-competition provision. You agree that each of the
foregoing restrictive covenants are reasonable and will
not result in any undue hardship to you. You also agree
that the confidential, proprietary and/or trade secret
information obtained while working for us or our
affiliated companies will not be used in any way to the
detriment of our business, reputation or good standing at
any time in the future.
26
(Basile Decl. Ex. A at 1-2.) Notably, the agreement purports to be
27
legally binding on the employee, SOS Staffing, and SOS Staffing’s
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Page 3 - OPINION AND ORDER
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“subsidiaries or affiliates,” but it is silent with respect to
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assignees.
(Basile Decl. Ex. A at 1.)
3
When Elwood acquired SOS Staffing in February 2013, Konopski
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“received no pay increase, increase of duties, changes to [her]
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supervisors,
6
employment[.]”
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any new hire paperwork.
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time in March of 2013, Konopski was instructed to place a signature
9
block in all outgoing emails that referred to her as an employee of
or
other
changes
or
(Konopski Decl. ¶ 2.)
interruptions
in
[her]
Nor did Konopski complete
(Basile Decl. ¶ 1.)
At some unspecified
10
“SOS Employment Group[,] An Elwood Staffing Company.”
11
Decl.
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continues, to date, to be a wholly owned subsidiary of Elwood with
13
continued operations,” Elwood did not receive a certificate of
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authority to conduct business in Oregon until December 18, 2013.1
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(Kasten Decl. ¶¶ 4, 9.)
¶
4)
(emphasis
added).
Though
“SOS
Staffing
(Konopski
was
and
16
Five days later, on December 23, 2013, Konopski received an
17
email from Elwood’s employee relations manager, Fran Matragos
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(“Matragos”), that stated:
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As you are aware, the employment of all SOS Staffing
Services, Inc. staff employees will be transferred to
Elwood Staffing Services, Inc. effective January 1, 2014.
In order to accomplish this transition all current SOS
staff employees are required to sign the attached form,
entitled: Employees Acknowledgment of Employee Handbook;
Acknowledgment and Consent of Change of Employer; and
Assignment of Confidentiality and Non-Solicitation and/or
Non-Competition Agreement.
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. . . .
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1
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The parties do not dispute that, at all material times,
Konopski was an Oregon resident whose “[c]ustomers covered
territory from Downtown Portland, to Forest Grove, to Wilsonville,
Oregon.” (Compl. ¶¶ 2, 11.)
Page 4 - OPINION AND ORDER
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The agreement must be signed and returned by email . . .
or fax . . . no later than Thursday, December 26, 2013.
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Failure to submit this promptly may interfere with the
transfer of your employment from SOS to Elwood. If you
have questions please contact Human Resources.
4
5
(Matragos Decl. Ex. A at 1-2; Konopski Decl. ¶ 5.)
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7
The form attached to Matragos’ email, which was ultimately
signed by Konopski on January 2, 2014, stated:
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I . . . hereby acknowledge that effective January 1,
2014, I will be an employee of Elwood Staffing Services,
Inc. . . . I hereby consent to the assignment of my
employment from SOS Staffing Services, Inc. . . . to
Elwood Staffing. I understand and agree all compensation
paid to me after January 1, 2014, even if earned while
employed by SOS, will be paid by Elwood Staffing.
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I hereby consent to the assignment from SOS to Elwood
Staffing of the following agreement: Agreement Regarding
Non-Competition & Non-Solicitation of Customers and
Employees entered into between me and SOS at the time I
was employed by SOS or during the course of my employment
with SOS.
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15
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(Basile Decl. Ex. B at 1.)
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provided any type of job offer, written or otherwise, prior to
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being presented” with the assignment quoted above. (Konopski Decl.
19
¶ 5.)
Konopski maintains that she was “not
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Also in early January 2014, “all former SOS Staffing employees
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were directed to use a signature block that referred only to
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Elwood.”
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June 18, 2014, Konopski sent an email to her regional manager at
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Elwood, Tracie Basile (“Basile”), indicating that she was “ready to
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take that next step into management and . . . didn’t see any
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opportunities here in the Portland area with Elwood,” that she had
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been presented “a management offer” that would increase her base
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salary by $20,000, and that she was giving her two weeks notice.
(Kasten Decl. ¶ 7.)
Page 5 - OPINION AND ORDER
A little over six months later, on
1
(Basile Decl. ¶ 6, Ex. C at 1.)
2
explained that she was taking the branch manager position with
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Express Employment Professionals (“Express”).2 (Basile Decl. ¶ 6.)
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Later that same day, June 18, 2014, Konopski sent Elwood’s
resources
5
human
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resignation and a proposed waiver of “the non-competition portion
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of
8
Konopski
9
confidentially provisions.
our
department
now-terminated
agreeing
to
an
Basile then called Konopski, who
email
employment
adhere
to
attaching
agreement,”
the
in
a
letter
exchange
non-solicitation
(Compl. ¶ 16, Ex. D at 1.)
of
for
and
Konopski
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began working for Express on or about July 1, 2014, even though
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Elwood never signed or agreed to Konopski’s proposed waiver of the
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non-competition provision.
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the basis of the foregoing, Elwood filed the present action against
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Defendants on August 6, 2014.
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restraining order and order to show cause why a preliminary
16
injunction should not issue followed on September 16, 2014.
17
(Compl. ¶ 18; Basile Decl. ¶ 18.)
On
Elwood’s motion for a temporary
II. LEGAL STANDARD
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“A party seeking a temporary restraining order must make the
19
fourfold showing necessary for the issuance of a preliminary
20
injunction.”
21
2803017, at *1 (D. Or. June 19, 2014) (citing Stuhlbarg Int’l Sales
22
Co. v. John D. Brush & Co., 240 F.3d 832, 839 n.7 (9th Cir. 2001));
23
see also Alexander v. Williams, No. 6:11–cv–06215–PK, 2012 WL
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3527042, at *1 n.1 (D. Or. Aug. 14, 2012) (“[T]he standards for
Williamson v. Oregon, No. 3:14–cv–00591–PK, 2014 WL
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Express is
limited liability
corporation with
Tualatin, Oregon,
an assumed business name for KGS2, an Oregon
company. (Compl. ¶ 3.) Stoller, a closely held
its principal place of business located in
is a managing member of KGS2. (Compl. ¶ 4.)
Page 6 - OPINION AND ORDER
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issuance of a temporary restraining order are at least as exacting
2
as
3
Specifically, the plaintiff “must show ‘that he is likely to
4
succeed on the merits, that he is likely to suffer irreparable harm
5
in the absence of preliminary relief, that the balance of equities
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tips in his favor, and that an injunction is in the public
7
interest.’”
8
Trucking Ass’ns, Inc. v. City of L.A., 559 F.3d 1046, 1052 (9th
9
Cir. 2009)).
those
for
a
preliminary
injunction.”)
(citation
omitted).
Williamson, 2014 WL 2803017, at *1 (quoting Am.
10
III. DISCUSSION
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For the purposes of the pending motion, the parties have
12
agreed to limit the scope of their dispute to the enforceability of
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Konopski’s non-competition agreement.
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dispute requires this Court to address the legal ramifications of
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Elwood’s acquisition of SOS Staffing, as well as the potential
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validity or invalidity of any purported assignments of Konopski’s
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non-competition agreement.
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A.
19
Resolution of the parties’
The Stock Purchase Agreement
To invoke the requirements of the post-January 1, 2008 version
20
of
Oregon
Revised
Statute
(“ORS”)
653.295,
the
statute
that
21
establishes the requirements for a valid non-competition agreement
22
in Oregon, Konopski argues that her initial employment with Elwood
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began on February 15, 2013, when the stock purchase agreement
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between Elwood and SOS Staffing officially closed.3
According to
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“The Oregon legislature amended the [ORS 653.295] in 2007 to
expressly exclude from the statute’s scope a ‘covenant not
to . . . solicit or transact business with customers of the
employer.’”
Moreland v. World Commc’n Ctr., Inc., No. Civ.
09–913–AC, 2010 WL 4237302, at *2 (D. Or. Sept. 17, 2010) (citation
Page 7 - OPINION AND ORDER
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Konopski, “[p]articularly dispositive of this argument is that on
2
or about March 1, 2013, [she] was made to alter her public
3
signatures on all outgoing emails to reference that she now worked
4
for Elwood.”
5
(Def. Konopski’s Opp’n at 7.)
The Court is not convinced that Konopski’s employment with
6
Elwood
began
on
February
15,
2013.
“[T]here
is
a
strong
7
presumption that a parent company is not the employer of its
8
subsidiary’s employees.”
9
Works, 635 F.3d 440, 453 (9th Cir. 2011) (citation omitted); Frank
10
v. U.S. West, Inc., 3 F.3d 1357, 1362 (10th Cir. 1993) (stating
11
that there is “a strong presumption that a parent company is not
12
the employer of its subsidiary’s employees, and the courts have
13
found otherwise only in extraordinary circumstances.”).
City of Los Angeles v. Sand Pedro Boat
14
The record in this case indicates that, as of February 15,
15
2013, “SOS Staffing was and continues, to date, to be a wholly
16
owned subsidiary of Elwood with continued operations.”
17
Decl. ¶ 4.)
18
March 2013 to state that she was an employee of “SOS Employment
19
Group[,] An Elwood Staffing Company,” reflects nothing more than a
20
parent-subsidiary relationship between SOS Staffing and Elwood, not
21
an employee-employer relationship between Konopski and Elwood. The
22
Court
23
employment with Elwood began on February 15, 2013.
24
///
25
///
(Kasten
Having Konopski alter her electronic signature in
therefore
declines
to
conclude
that
Konopski’s
initial
26
27
28
omitted). This exclusion applies “only to agreements ‘entered into
on or after’ January 1, 2008, the effective date of the 2007 Act.”
Id.
Page 8 - OPINION AND ORDER
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B.
2
Assignability
Next,
the
parties
executed
by
dispute
Konopski
whether
on
May
the
24,
non-competition
3
agreement
2006,
was
even
4
assignable.
5
Or. 1965), Konopski maintains that, “[a]bsent a clause indicating
6
that the parties to an original non-compete agreement intended the
7
terms to inure to the benefit of their successors, such agreements
8
are not assignable under Oregon law.”
9
4.)
Citing Perthou v. Stewart, 243 F. Supp. 655, 659 (D.
(Def. Konopski’s Opp’n at
Konopski thus argues that the lack of an assignment clause in
10
the non-competition agreement renders it unenforceable by Elwood.
11
In Perthou, the federal district court addressed, among other
12
things, whether non-competition covenants were assignable. Perthou,
13
243 F. Supp. at 658.
14
view that personal service contracts cannot be assigned, regardless
15
of whether “the assignment be to a corporation or partnership with
16
a changed membership which carries on a business substantially in
17
the same way in which it was previously operated.”
18
the district court went on to explain, “[t]he fact that a person
19
may have confidence in the character and personality of one
20
employer does not mean that the employee would be willing to suffer
21
a restraint on his freedom for the benefit of a stranger to the
22
original undertaking.”
The district court essentially adopted the
Id. at 659.
As
Id.
23
Seven years later, in Mail-Well Envelope Co. v. Saley, 262 Or.
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143 (1972), the Oregon Supreme Court was presented with the
25
question of whether an employment agreement, including its non-
26
competition provisions, was assignable.
27
Supreme Court began by noting that there were two competing rules:
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the first being that “‘[r]ights which would not otherwise be
Page 9 - OPINION AND ORDER
Id. at 149.
The Oregon
1
capable of assignment . . . [m]ay be assigned or delegated [i]f the
2
contract so provides, or if in the absence of such a provision the
3
other
4
Contracts
5
“noncompetition
6
otherwise valid are assignable even in the absence of provisions
7
permitting the assignment of such contracts,” id. at 150 (citing 4
8
Corbin, Contracts § 885 (1951)).
9
held that, “[r]egardless of whether the proper rule should be as
10
stated by Williston or by Corbin, the employment contract in this
11
case, included a provision permitting assignment and was thus
12
assignable under either version of that rule.”
party
§
consents,’”
423
3d
id.
ed.
at
149-50
1960)),
provisions
in
and
(quoting
the
employment
3
second
Williston,
being
contracts
that
which
are
The Oregon Supreme Court then
Id.
13
The rule stated by Williston seems to be the more employee-
14
friendly of the two rules discussed by the Oregon Supreme Court in
15
Mail-Well, as it essentially requires the employee to assent to the
16
written
17
alternatively, to provide his consent in the absence of such a
18
provision.4
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expressly adopt the rule stated by Williston or by Corbin, the
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Court will apply the Williston rule here because it was clearly one
terms
of
an
Although
express
the
Oregon
assignment
Supreme
provision,
Court
declined
or,
to
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23
24
25
26
27
28
4
In Epiq Class Action & Claims Solutions, Inc. v. Prutsman,
No. CV 09–1185–MO, 2009 WL 3923413 (D. Or. Nov. 13, 2009), Judge
Mosman stated: “When read together, Perthou and Mail–Well suggest
that a personal service contract prohibiting competition against a
specific employer is only assignable if the employee is on notice,
at the time the employee signs the agreement, that he or she would
also be prohibited from competing with a subsequent assignee.” Id.
at *3 n.2. This Court’s combined reading of Perthou and Mail-Well
is not as restrictive as that announced in Epiq Class. This Court
also places more emphasis on Mail Well than on the federal district
court’s decision in Perthou, because the Oregon Supreme Court
ultimately determines Oregon state law.
Page 10 - OPINION AND ORDER
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of two options entertained by the Oregon Supreme Court, and because
2
it more adequately protects employees from surprise and oppressive
3
tactics.
4
(discussing
5
treatment of noncompetition agreements).
See
generally
Epiq
public
policy
the
Class,
2009
WL
considerations
3923423,
behind
at
*3
Oregon’s
6
The first purported assignment of Konopski’s non-competition
7
agreement, according to the complaint filed by Elwood, occurred on
8
or about February 15, 2013, when the Stock Purchase Agreement
9
officially closed: “On or about February 15, 2013, Elwood, through
10
a
11
assigned
12
Agreements to Elwood. No new hire paperwork was completed.” (Compl.
13
¶ 9.)
14
provision permitting assignment and SOS Staffing had not yet
15
attempted to obtain Konopski’s consent.
16
by SOS Staffing to Elwood in February 2013 was thus invalid.
17
Court is satisfied that this invalid assignment had no legal effect
18
on Konopski’s obligations to SOS Staffing who, as discussed above,
19
remained Konopski’s employer post-closure of the Stock Purchase
20
Agreement.
21
12–01695, 2013 WL 1390038, at *5 (C.D. Cal. Apr. 4, 2013) (holding,
22
in a different context, that an invalid assignment of a trust deed
23
had no effect on the borrower’s responsibilities).
24
stock
The
purchase,
its
acquired
employees’
SOS
Staffing
Non-Competition
stock.
and
SOS
Staffing
Non-Solicitation
Konopski’s non-competition agreement did not include a
See,
second
e.g.,
attempt
Williams
to
v.
assign
Any unilateral assignment
One
West
Konopski’s
Bank,
FSB,
The
No.
non-competition
25
agreement began with an email on December 23, 2013——five days after
26
Elwood received a certificate of authority to conduct business in
27
Oregon.
28
after Christmas to execute a form consenting to the assignment of
That email informed Konopski that she had until the day
Page 11 - OPINION AND ORDER
1
her non-competition agreement to Elwood, and that the failure to
2
promptly
3
employment.”
4
After “express[ing] [her] reservations at signing the document,”
5
Konopski ultimately signed the consent form on January 2, 2014,
6
which purported to assign her non-competition agreement to Elwood.
7
(Konopski Decl. ¶ 6; Basile Decl. Ex. B at 1; Matragos Decl. Ex. A
8
at 1-3.)
do
so
“may
interfere
with
the
transfer
of
[her]
(Matragos Decl. Ex. A at 1-2; Konopski Decl. ¶ 5.)
9
It’s clear to the Court that Konopski was under no legal
10
obligation to consent to the assignment of her non-competition
11
agreement to Elwood and, as previously discussed, SOS Staffing had
12
no right to unilaterally assign the non-competition agreement in
13
the absence of a provision expressly permitting it to do so. Faced
14
with the reality that it needed to obtain Konopski’s consent, it
15
appears that Elwood essentially presented Konopski with the option
16
of consenting to the assignment of her non-competition agreement,
17
or potentially risk being fired.
18
“Used in a purely legal context, ‘consent’ is defined as
19
‘capable, deliberate, and voluntary assent or agreement to, or
20
concurrence in, some act or purpose, implying physical and mental
21
power and free action.’”
22
(citation omitted).
23
the Court is compelled to conclude that Elwood failed to obtain
24
adequate consent from Konopski in this case.
25
that Konopski execute an assignment without suggesting that her job
26
could be impacted by the decision and not demanded a decision very
27
quickly over Christmas, perhaps this case would be different.
State v. Harrell, 353 Or. 247, 256 (2013)
Based on the circumstances described above,
28
Page 12 - OPINION AND ORDER
Had Elwood requested
1
Accordingly, the Court concludes any purported noncompetition
2
agreement between Elwood and Konopski is unenforceable.5
3
4
IV. CONCLUSION
For the reasons stated, Elwood’s motion (Docket No. 7) for a
5
temporary
restraining
6
preliminary injunction should not issue is DENIED.
7
Dated this
and
order
to
show
cause
why
a
IT IS SO ORDERED.
8
order
15th
day of December, 2014.
9
/s/ Dennis J. Hubel
_________________________________
DENNIS J. HUBEL
United States Magistrate Judge
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27
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5
The Court’s central holding has been fashioned in a way to
accommodate Elwood and Konopski’s joint request for the Court to
determine whether the noncompetition agreement is valid and
enforceable. Setting that request aside for a moment, the facts of
this case fall well short of the showing necessary to grant a
temporary restraining order which is an “extraordinary and drastic
remed[y] that may only be awarded upon a clear showing that the
moving party is entitled to relief.” Velasco v. Homewide Lending
Corp., No. 13-cv-698, 2013 WL 3188854, at *6 n.2 (C.D. Cal. June
21, 2013). Indeed, the circumstances surrounding Elwood’s attempt
to obtain Konopski’s consent (a necessary prerequisite to
enforceability given the absence of an assignment clause in the
underlying noncompetition agreement) negates the possibility that
Elwood has made “a clear showing” that it is entitled to relief.
They would similarly preclude the grant of a motion for summary
judgment in Elwood’s favor on the issue of enforceability.
Page 13 - OPINION AND ORDER
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