March 18, 2013

Venable Defeats Non-Compete Injunction on Behalf of Employee; Court Finds Covenant Not to Compete Unenforceable

2 min

Los Angeles, CA (March 18, 2013) – Venable attorney Richard Frey won a denial of a temporary restraining order and preliminary injunction that would have enforced a non-compete covenant in the Superior Court of California, Los Angeles County, on behalf of his client, Robert Corenson.  Mr. Corenson previously owned Corenson & Associates and in 1998, USI of Southern California Insurance Services Inc. (USI) purchased the business and Mr. Corenson simultaneously joined USI as an employee.

The Stock Purchase Agreement between USI and Corenson & Associates contained a broad covenant not to compete with the intention of preventing Mr. Corenson from engaging in the insurance business for three years after the termination of his employment with USI.  The broad nature of the covenant, however, would have prevented Mr. Corenson from engaging in any business that provided services related to the services provided by USI. Corenson & Associates was primarily engaged in benefits insurance in contrast to the services provided by USI which included insurance, risk management, financial management, employee benefits, and asset management in several insurance categories.

Mr. Corenson terminated his employment with USI in January of 2013 and moved to Venbrook Insurance Services LLC at which point USI sought a temporary restraining order and preliminary injunction to enforce the covenant not to compete.  The court first denied the request for a temporary restraining order, and recently denied the request for a preliminary injunction. The court further declined to re-write the overly broad covenant to make it enforceable.

“The Court made the right decision in this case,” said Richard Frey. “California law generally prohibits covenants not to compete but does allow them in connection with the sale of a business in order to protect the sold business’s goodwill and prevent the seller from competing with the business he sold while the buyer is carrying on a similar business. In this case, the court found that this covenant did not fit within those parameters because it improperly prevented Corenson from competing with the buyer’s business instead of preventing him from competing with the business he sold.” 

Mr. Frey is a partner in Venable’s Los Angeles office.

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