California Resident Seeking to Challenge Non-Compete

Michael Jed Sewell, a California resident, responded to a breach of employment agreement claim with his own breach of contract, unjust enrichment, and California wage and hour claims.

The Case: LGCY Power, LLC v. Superior Court

The Court: Court of Appeal of the State of California, Fifth Appellate District

The Case No.: 20 ECG 01508

The Breach of Employment Agreement Claim:

A Utah limited liability company formed in Delaware and headquartered in Salt Lake City, Utah, LGCY, filed suit against Michael Jed Sewell, a California resident, and six other LGCY executives and managers after they left the company and started a competing company. Sewell was a former sales representative and eventually a sales manager for LGCY. In 2015, Sewell signed a “Solar Representative Agreement,” which included language about noncompetition, non solicitation and confidentiality as well as Utah choice of law and forum provisions. Four years later, in 2019, Sewell and several others at the company left to form a competing solar sales company. LGCY filed suit in Utah State Court against all seven former executives and managers citing breach of their employment agreements, breach of fiduciary duty, misappropriation of trade secrets, etc. Four of the defendants (not including Sewell) filed a joint cross-complaint against LGCY in the Utah court proceeding unsuccessfully seeking to dismiss LGCY’s action.

Filing a Cross-Complaint in California to Defend Against Claims:

Sewell did not join the cross complaint filed by four of his co-defendants in Utah court. Instead, Sewell filed a complaint in Fresno County Superior Court. Sewell’s complaint alleges almost identical claims as those filed by his co defendants in Utah.

Can Sewell File a Cross Complaint in California?

According to the Court of Appeal, California Labor Code Section 925 allows for an exception to California’s compulsory cross-complaint statute (Code Civ. Proc., Section 426.30) enabling an employee who comes within Section 925’s purview to file a California complaint based on allegations related to causes of action an employer filed against them in a pending action in a sister state. Additionally, the clause does not require California to extend credit or apply the sister state’s compulsory cross-complaint statute. LGCY petitioned for a writ of mandate, but their attempt to get Sewell’s California action dismissed was unsuccessful. The court found that the company did not demonstrate that the Fresno County Superior Court erred in overruling its demurrer.

The Findings of the Court:

The Court of Appeal denied LGCY’s writ petition based on Cal. Lab. Code Section 925 being an exception to Cal. Code Civ. Proc. Section 426.30(a), the compulsory cross-complaint rule that LGCY argued required Sewell to file cross claims in the Utah action. The court found that Sewell satisfied the requirement of Section 925 requesting the trial court void the contract under the statute (voiding the contract required a judicial determination). The court also noted that the changes in Sewell’s work responsibilities, title, and compensation since Section 925 went into effect sufficiently qualified the contract for the application of the statute. The California court also rejected LGCY’s claim that the full faith and credit clause of the U.S. Constitution required them to recognize Utah’s compulsory cross-complaint statute.

If you have questions about California employment law or need help filing a California employment law complaint, please get in touch with Blumenthal Nordrehaug Bhowmik DeBlouw LLP. Experienced employment law attorneys are ready to assist you in various law firm offices located in San Diego, San Francisco, Sacramento, Los Angeles, Riverside, and Chicago.