A recent California reported decision highlights the risks that a business faces when it includes an
unenforceable non-compete provision in a business agreement, and thereafter takes action to try
to enforce the same.

California law generally prohibits the enforceability of a non-compete clause absent a specific
statutory exemption related to the sale of the goodwill interest of a business.

The decision, Robinson v. U-Haul Company of California, 4 Cal. App. 5th 304 (2016), is the
culmination of almost ten years of continued litigation between U-Haul and one of its former
dealers, Robinson. In his dealer contract, Robinson had agreed to not compete with U-Haul
after termination of the contract during the period in which Yellow Page advertising was current
which was paid for by U-Haul and promoted Robinson's U-Haul location. In 2006, Robinson
terminated his dealer contract with U-Haul, and shortly thereafter began renting competing Budget
trucks. U-Haul, which had paid for Yellow Pages advertising in effect at the time, sent Robinson a
'shot across the bow' letter, in which U-Haul stated that it was "the policy of U-Haul to aggressively
protect its legitimate business interests by seeking to enforce the non-competition provision".
Thereafter, U-Haul brought a lawsuit to try to enforce the non-competition clause, which was
ultimately unsuccessful, as the clause was found to violate California law.

This case dealt with the appeal of a subsequent lawsuit brought by Robinson against  U-Haul. In
the subsequent lawsuit, Robinson had been awarded at trial $195,310 in damages for tortious
malicious prosecution. Additionally, Robinson had been awarded attorneys' fees of $834,008.09
in connection with obtaining, as a 'private attorney general', an injunction against U-Haul under the
California unfair competition statute, enjoining U-Haul from attempting to enforce the non-compete
clause against other dealers in the future.

The appeal dealt with the attorneys' fees related to the injunction. U-Haul's lawyers made a number
of arguments on appeal. One of those was that the injunction should not have been issued by the
trial court, because during the pendency of the litigation the non-competition covenant had been
amended by U-Haul to provide that it was "void where prohibited". However, the trial judge had not
been impressed with this argument, in that U-Haul had failed to provide "clear evidence" that
"confirmed" to its California dealers that it would not seek to enforce the non-compete clause
(particularly in view of U-Haul's historically aggressive approach to attempting to enforce the
non-compete clause, both against Robinson and against other California U-Haul dealers). Rather,
the trial court had found that to avoid an injunction U-Haul should have made an "across-the-board
notification" to its California dealers that it had corrected its anticompetitive behavior.

The Court of Appeal affirmed the trial court's ruling. U-Haul wound up paying not only its own
attorneys' fees, but over a million dollars to Robinson in damages and attorneys'  fees—all over a
non-compete provision which was not enforceable.