Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—N.D. Cal.: Former employees lacked standing to assert that non-compete agreements were illegal, (Sep 6, 2013)

By Jody Coultas, J.D.

Former employees of K2 Pure Solutions, LP failed to state consumer protection law claims against K2 for allegedly violating California labor laws, the federal district court in has held (Khan v. K2 Pure Solutions, LP, September 3, 2013, Orrick, W.). The court also found that the former employees lacked standing to seek a declaratory judgment that K2’s non-compete agreements were illegal.

K2 required employees to sign a noncompetition and confidentiality agreement that prohibited employees, for one year after their employment ended, from competing with K2 in the manufacture, processing, or distribution of bleach and related chemical products to commercial customers within 300 miles of any existing plant operated by K2 or any location K2 identified for a future plant. The agreement also prohibited former employees from encouraging current employees to leave K2.

In a suit filed in Ohio, K2 sought to enforce its non-competition and non-solicitation agreements with the former employees based on their employment with Molycorp Minerals, LLC. After K2 reached a settlement with Molycorp, K2 voluntarily dismissed the entire Ohio action.

The former employees sought equitable relief related to the non-compete agreements and claimed violations of the California Labor Code, the California Unfair Competition Law, unjust enrichment, and conversion.

The court held that the former employees were not entitled to summary judgment on the claims because they lacked standing. Under the Declaratory Judgment Act, a federal court “may declare the rights and other legal relations of any interested party seeking such declaration” when there is an actual controversy. Two of the agreements had already expired, rendering the issue moot. Because K2 admitted the agreements were illegal, it was highly unlikely that K2 would reverse course, risk perjury, and attempt to enforce the agreements. The likelihood was too speculative and remote to sustain standing.

The former employees also were unable to state UCL claim against K2, according to the court. The only injury alleged was that the employees incurred a financial burden in pursuing the action. Attorney’s fees incurred merely by bringing this case are insufficient to establish the necessary injury necessary under the UCL.

The case is No. 12-cv-05526-WHO.

Attorneys: Amy Todd-Gher (Valdez Noor Todd & Doyle LLP) for Imtiaz Khan. Brian C. Boyle (Fulbright Jaworski LLP) for K2 Pure Solutions, LP.

Companies: K2 Pure Solutions, LP

Cases: StateUnfairTradePractices CaliforniaNews