Ocean Beauty Seafoods, LLC v. Pacific Seafood Group Acquisition Co.

FILED
NOT FOR PUBLICATION MAY 08 2015
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
OCEAN BEAUTY SEAFOODS, LLC, an No. 14-35950
Alaska limited liability company, and
MICHAEL COULSTON, an individual, D.C. No. 2:14-cv-01072-RSM
Plaintiffs -counter-defendants
Appellees, MEMORANDUM*
v.
PACIFIC SEAFOOD GROUP
ACQUISITION COMPANY, INC., an
Oregon corporation, d/b/a Pacific Seafood
Group, and DULCICH, INC., d/b/a Pacific
Seafood Group, an Oregon corporation,
Defendants -counter-claimant-
Appellants.
On Appeal from the United States District Court
for the Western District of Washington
Ricardo S. Martinez, District Judge, Presiding
Argued and Submitted May 5, 2015
Seattle, Washington
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Before: FARRIS, and GOULD Circuit Judges, and BLOCK, District Judge.**
This is an appeal from the district court’s denial of a preliminary injunction
motion brought by Pacific Seafood Group Acquisition Company, Inc. (“Pacific
Seafood”). Pacific Seafood sought to enjoin a former employee, Michael Coulston
(“Coulston”), from working for Ocean Beauty Seafoods, LLC (“Ocean Beauty”)
under a non-compete clause (the “Non-Compete Clause”). Pacific Seafood also
appeals the district court’s denial of its motion to supplement the record. We have
jurisdiction under 28 U.S.C. § 1292(a)(1). We vacate and remand.
1. We review a district court’s denial of a preliminary injunction motion for
abuse of discretion. Shell Offshore, Inc. v. Greenpeace, Inc., 709 F.3d 1281, 1286
(9th Cir. 2013). We review a district court’s legal conclusions de novo and its
findings of fact for clear error. Alliance for the Wild Rockies v. Cottrell, 632 F.3d
1127, 1131 (9th Cir. 2011). A district court abuses its discretion when it bases its
decision on an erroneous legal standard or a clearly erroneous finding of fact. Id.
The district court committed factual and legal errors in finding that Pacific
Seafood was not likely to succeed in enforcing the Non-Compete Clause under
Oregon law. The district court first held that the Non-Compete Clause was likely
unenforceable because it encompassed an overly broad territory. In making this
**
The Honorable Frederic Block, Senior United States District Judge for
the Eastern District of New York, sitting by designation.
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determination, the district court noted that Coulston worked “primarily [in] the
Clackamas County area of Oregon State, and potentially the Puget Sound area of
Washington.” However, record evidence shows that Coulston actually worked in
Pacific Seafood’s “Clackamas Region,” which includes “Oregon, southwest
Washington, northern California and Boise, Idaho.” As such, the district court
misapprehended the scope of the area in which Coulston worked in finding that the
Non-Compete Clause was likely unenforceable due to geographic overbreadth.
Moreover, even if the Non-Compete Clause covered an overly broad territory, that
does not automatically render it unenforceable under Oregon law. See Lavey v.
Edwards, 505 P.2d 342, 344 (Or. 1973).
The district court next found that Pacific Seafood had failed to show a
“legitimate interest” that would satisfy Oregon’s common law requirements for
restraints on trade. Nike, Inc. v. McCarthy, 379 F.3d 576, 584 (9th Cir. 2004). This
finding was inconsistent with its earlier conclusion that Pacific Seafood had a
“protectable interest” under Oregon’s statutory criteria for noncompetition agreements
in information Coulston had about its “marketing plans and product allocation.”
O.R.S. § 653.295(c). The district court also made a factual error in distinguishing
McCarthy on the ground that the instant case involves only commodities and not
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branded products, as there is evidence that the parties sell branded products.
Finally, the district court noted that the Non-Compete Clause was likely
unenforceable because of “drafting problems.” In making this determination, the
district court found that Coulston’s 2014 offer letter (the “Offer Letter”) did not
condition his promotion to Assistant General Manager on the Non-Compete Clause.
The record belies this finding. Coulston’s 2011 employment agreement had a
“Standard Terms and Conditions” section that contained the Non-Compete Clause,
and the Offer Letter stated that Coulston’s promotion was “subject to all standard
terms and conditions of employment with [Pacific Seafood].”
The district court also made a legal error when it held that Pacific Seafood
failed to establish a likelihood of irreparable harm because it did not show evidence
of actual harm. See Diamontiney v. Borg, 918 F.2d 793, 796 (9th Cir. 1990).
2. The district court further erred when it denied Pacific Seafood’s motion to
supplement the record with Ocean Beauty’s discovery responses. We review the
district court’s denial of the motion to supplement the record for abuse of discretion.
E.E.O.C. v. Peabody W. Coal Co., 773 F.3d 977, 982 (9th Cir. 2014).
The district court stated that it denied the motion to supplement the record
because it did not need additional evidence to consider the preliminary injunction
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motion, and simultaneously denied the preliminary injunction motion for lack of
evidence. The incongruity is compounded by the fact that some of the excluded
documents – particularly Coulston’s resume and the “National Sales Manager” job
description – were highly relevant to the issues the district court weighed in denying
the preliminary injunction. Considering that Pacific Seafood timely moved to
supplement the record the day after it received Ocean Beauty’s discovery responses
and fifty-four days before oral argument on the preliminary injunction, the district
court’s denial of the motion to supplement the record was an abuse of discretion.
3. Because the district court relied on clearly erroneous findings of fact and
failed to consider the documents in the motion to supplement the record, the matter
must be remanded to the district court for reconsideration of the preliminary
injunction motion.1 See Arc of California v. Douglas, 757 F.3d 975, 992 (9th Cir.
2014) (“Where the propriety of an injunction raises intensely factual issues, the matter
should be decided in the first instance by the district court.”) (internal alteration and
citation omitted). Notably, a covenant not to compete is not satisfied by a mere
promise to refrain from soliciting a former employer’s customers and disclosing its
confidential information.
1
If the district court grants preliminary injunctive relief, it should consider
whether the noncompete term may be equitably extended under Oregon law.
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VACATED AND REMANDED.
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