Intellectual Property Law

California Court of Appeals Rejects Anti-SLAPP Motion in Trade Secrets/16600 Case

By Sheppard Mullin

In World Financial Group, Inc. v. HBW Insurance & Financial Services, Inc. the Court of Appeal for the Second Appellate District rejected an Anti-SLAPP motion to strike in a breach of contract, theft of trade secrets, and unfair competition case. The defendants moved to strike the complaint under the Anti-SLAPP statute, claiming that their activities in soliciting the customers and employees of their previous employer were protected speech involving a "matter of public interest," to whit, their pursuit of employment under the public policies expressed in California Business and Professions Code section 16600 (California's prohibition of covenants in restraint of trade). The court upheld the trial court's denial of the motion, finding that solicitation of customers in a business context was not protected activity for the purposes of anti-SLAPP.

A group of four employees left World Financial Group ("WFG") an insurance, pension, and financial services company for one of its direct competitors, HBW Insurance and Financial Services. During their employment with WFG, each employee signed an "Associate Membership Agreement" that included a provision prohibiting the employee, for a period of two years after termination, from soliciting customers of WFG, or soliciting or hiring employees of WFG. It also prohibited them from disseminating or disclosing any confidential information or trade secrets of WFG in perpetuity. When the employees began soliciting WFG clients for HBW, WFG sued, alleging breach of contract, breach of implied covenant, conversion, theft of trade secrets, unfair competition, intentional and negligent interference with prospective business advantage, and unjust enrichment.

In response, HBW and the employees employed an increasingly popular strategy; they moved to strike under California Code of Civil Procedure section 425.16, the anti-SLAPP statute. They argued that the conduct giving rise to WFG's claims (the use of information in solicitation of customers) was "protected activity" or protected speech for the purpose of anti-SLAPP. They tied this activity to "the pursuit of lawful employment pursuant to Business and Professions Code section 16600" and "workforce mobility and free competition," which are matters of public interest and are protected by public policy.

The court summarily rejected this argument. To begin with, the court stated that "the fact that a broad and amorphous public interest can be connected to a specific dispute is not sufficient to meet the statutory requirements of the anti-SLAPP statute." The court noted that the conduct and speech in question was entirely in a business context and done in the pursuit of private financial gain. The speech in question was "incidental" to the business torts on which the action was premised. The court noted that it was not as though the defendants were speaking about 16600, or informing the public about employee mobility, they were soliciting business for their new employer. In short, the solicitation of customers was not a matter of public interest, despite the fact that it was connected by a "broad generality" to the policies expressed by 16600.

The Second District's complete rejection of an anti-SLAPP motion based on 16600 calls into question the strategy of employing this type of motion in employee raiding, trade secrets, and confidential information cases. In essence, defendants can expect to lose unless they can show that the speech in question directly addressed or informed the public about a matter of public interest. Private speech, or speech in pursuit of business or commercial goals will not suffice, nor will tying the speech to a generalized matter of public interest.
 

Authored By:

Jennifer G. Redmond

(415) 774-2910

jredmond@sheppardmullin.com

and

Adam Tullman

(415) 774-2976

atullman@sheppardmullin.com

Full post as published by Intellectual Property Law on May 13, 2009 (boomark / email).