Arthur Andersen Reply Brief On The Merits

Case No. 8147190

IN THE SUPREME COURT OF THE STATE OF CALIFORNIA RAYMOND EDWARDS II, Plaintiffand Appellant, v.

ARTHUR ANDERSEN LLP, Defendant and Respondent.

REPLY BRIEF ON THE MERITS

After a Decision by the Court of Appeal, Second Appellate District, Division Three Case No. B 178246 Los Angeles Superior Court Case No. BC 255796 Honorable Andria K. Richey, Judge

Wayne S. Flick (SBN 149525) Yury Kapgan (SBN 218366) LATHAM & WATKINS LLP 633 West Fifth Street, Suite 4000 Los Angeles, California 90071-2007 Tel.: (213) 485-1234 Fax: (213) 891-8763 [email protected]

Sharon A. McFadden, Esq. ARTHUR ANDERSEN LLP 33 West Monroe Street, Floor 18 Chicago, IL 60603-5385

Kristine L. Wilkes (SBN 116693) Colleen C. Smith (SBN 231216) Shireen M. Becker (SBN 237930) LATHAM & WATKINS LLP 600 West Broadway, Suite 1800 San Diego, California 92101-3375 Tel.: (619) 236-1234 Fax: (619) 696-7419 kristine.wi [email protected]

TABLE OF CONTENTS

1.

INTRODUCTION

1

II.

REPLY STATEMENT OF THE CASE

3

III.

SECTION 16600 PERMITS REASONABLE NONCOMPETITION AGREEMENTS

4

A.

B.

C.

D. IV.

V.

SECTIONS 16600'S PLAIN LANGUAGE DOES NOT BAR ALL LIMITS ON EMPLOYEE MOBILITy 5 A CENTURY OF PRECEDENT UPHOLDS REASONABLE NON-COMPETITION AGREEMENTS 7 THE LEGISLATIVE HISTORY CONFIRMS THAT REASONABLE RESTRICTIONS ARE PERMITTED ....... 11 PUBLIC POLICY FAVORS PERMITTING 12 REASONABLE RESTRICTIONS

STANDARD FORM "ANY AND ALL" RELEASE CLAUSES SHOULD NOT BE RENDERED UNLAWFUL BY IMPLYING VOID TERMS

14

CONCLUSION

16

TABLE OF AUTHORITIES CASES Application Group, Inc. v. Hunter Group, Inc., 61 Cal. App. 4th 881 (1998) Arthur Andersen LLP v. United States, 544 U.S. 696 (2005) Bardin v. Lockheed Aeronautical Systems, 70 Cal. App. 4th 494 (1999)

13 3 15

Bosley Med. Group v. Abramson, 161 Cal. App. 3d 284 (1984)

6

Boughton v. Socony Mobil Oil Co., 231 Cal. App. 2d 188 (1964)

8

Chamberlain v. Augustine, 172 Cal. 285 (1916)

11

City o/Torrance v. Workers' Compo Appeals Bd., 32 Cal. 3d 371 (1982)

15

D'Sa v. Playhut, Inc., 85 Cal. App. 4th 927 (2000)

9

Edwards V. Arthur Andersen LLP, 47 Cal. Rptr. 3d 788 (2006)

4

Gen. Commercial Packaging, Inc. v. TPS Package Eng'g, Inc., 126F.3d 1131 (9thCir.1997) ; Golden State Linen Serv., Inc. 69 Cal. App. 3d 1 (1977)

V.

10

Vidalin, 8

Gordon Termite Control V. Terrones, 84 Cal. App. 3d 176 (1978)

10

Gordon v. Landau, 49 Cal. 2d 690 (1958)

8, 12

Howard V. Babcock, 6 Cal. 4th 409 (1993)

13

11

Int'l Bus. Mach. Corp. v. Bajorek, 191 F.3d 1033 (9th Cir. 1999)

10

King v. Gerold, 109 Cal. App. 2d 316 (1952)

8

Latona v. Aetna Us. Healthcare Inc., 82 F. Supp. 2d 1089 (C.D. Cal. 1999) Loral Corp. v. Moyes, 174 Cal. App. 3d 268 (1985)

11

7, 8, 9, 15

Metro TrajJic Control, Inc. v. Shadow TrajJic Network, 22 Cal. App. 4th 853 (1994)

6

More v. Bonnet, 40 Cal. 251 (1870)

12

Muggill v. Reuben H. Donnelley Corp., 62 Cal. 2d 239 (1965)

10

Wright v. Ryder, 36 Cal. 342 (1868)

12

STATUTES

passim

Cal. Bus. & Prof. Code § 16600 Cal. Civ. Code § 1643

15

Cal. Civ. Code § 1673

11,12

Cal. Civ. Proc. Code § 1858

15

Cal. Lab. Code § 2804

14, 15, 16

OTHER AUTHORITIES American Heritage Dictionary (4th ed. 2000)

5

C. O'Malley, Covenants Not to Compete in the Massachusetts

Hi-Tech Industry: Assessing the Needfor a Legislative Solution, 79 B.D. L. Rev. 1215 (1999)

III

13

J. Boatman,As Clear as Mud: The Demise ofthe Covenant Not to Compete in Oklahoma, 55 Okla. L. Rev. 491 (2002)

13

Miriam-Webster Online Dictionary (2007)

5

Oxford English Dictionary (2d ed. 1989)

5

R. Gibson, The Legal Infrastructure ofHigh Technology Industrial Districts: Silicon Valley, Route 128, and Covenants Not to Compete, 74 N.Y.U. L. Rev. 575 (1999)

IV

13

I.

INTRODUCTION

Invoking suggestions of a racial animus, which he knows to be unfounded because the trial court-in a decision not appealed-dismissed his discrimination claim, Raymond Edwards II seeks to affirm the Court of Appeal's decision by abandoning that court's reasoning. The Court of Appeal reconciled the case law by surmising that Section 16600 permits certain non-competition agreements within judge-made exceptions. Edwards jettisons that court's approach in favor of a brighter line, more absolute test: No non-competition agreements are permitted under Section 16600 unless expressly within the legislative exceptions. While Edwards's approach avoids the Court of Appeal's dilemma in reconciling enumerated statutory exceptions with judge-made ones, Edwards's analysis stumbles on a more problematic hurdle--over a century of Section 16600 precedent upholding non-competition agreements not within the statutory exceptions. By implying common law exceptions, the Court of Appeal's reasoning violated rules of statutory interpretation, but it at least accounted for the long line of authority upholding narrow noncompetition agreements. Edwards simply dismisses that authority, resting his proffered outcome on "public policy." And, ironically, Edwards's "policy" arguments rest on the success of existing law-allowing "unprecedented growth of California's economy"-when the law as it exists is not the absolute rule he proposes.

1

As shown by Arthur Andersen LLP, long-standing precedent permits narrow competitive restrictions, not as an exception to Section 16600, but as outside the scope of Section 16600's prohibition. Andersen's reading is the only interpretation that comports with the statutory language and intent, and precedent, without invoking improper common law exceptions. It is also the only reading that fairly balances the interests of employers (and others) in protecting their client relationships with the interests of employees in pursuing their careers. As· for his second argument, asserting the illegality of releasing "any and all" claims, even where the release does not purport to, and legally could not waive employee indemnification (and other non-waivable) rights, Edwards again fails to answer Andersen's dispositive points: •

This standard form release language is almost universally used, and a finding that such releases are unlawful unless they expressly preserve unwaivable rights would invalidate untold contracts and releases;

•

Contracts uniformly are read to presume that the parties both knew of and intended to comply with law; and

•

Under the Civil Code and unassailable contract interpretation principles, courts will not imply terms not written and must adopt the reading that renders the agreement lawful.

2

Andersen's Non-Compete Agreement ("Agreement") and Termination of Non-Compete Agreement ("TONC") are commonly-used, reasonable contracts-not grounds for tort liability.

II.

REPLY STATEMENT OF THE CASE After a multi-year employment relationship, in which Edwards

succeeded by his own account, I in 2002, Andersen closed its public accounting practice. 2 Andersen sold its Los Angeles tax practice to HSBC. App.686-87. To cushion the blow, Andersen arranged for all tax

employees (not just Edwards) to transfer to HSBC, if they wished. Edwards was not "sold" to HSBC-he was free to engage in his profession either at HSBC or elsewhere (which he, in fact, did).3 HSBC required the new employees to sign an HSBC noncompetition agreement (which Edwards did), and to obtain releases from the Andersen Agreement. App. 539,633, 721-25, 392-93, 639-40, 733-37. Andersen utilized the TONC to release all employees moving to HSBC, not

Answering Brief ("AB") at 4 ("Edwards rose to the position of senior manager in Andersen's Private Client Services practice group .... Edwards was on a fast track to becoming an Andersen partner"). Edwards discusses alleged illegal conduct by Andersen, but ignores the outcome: reversal of Andersen's conviction by the United States Supreme Court. See Arthur Andersen LLP v. United States, 544 U.S. 696 (2005).

2

3

Edwards testified: "there is enough business" in Los Angeles "to go around all the different C.P .A. firms." App. at 620-21. See also Opening Brief ("OB") at 42 n.15 (Edwards went to work for BDO Seidman). 3

just Edwards. Andersen had valid reasons for the TONC-including obtaining its former employees' cooperation in litigation. App. 500. 4 III.

SECTION 16600 PERMITS REASONABLE NONCOMPETITION AGREEMENTS Contrary to the Court of Appeal, Edwards contends there are no

non-statutory exceptions to Section 16600. 5 Therefore, Edwards claims, because Section 16600 prohibits all non-competition agreements, and Andersen's Non-Compete Agreement is not within any statutory exception, the Agreement violates Section 16600. Edwards's tidy syllogism sidesteps the glaring defect in the Court of Appeal's opinion of implied exceptions, but it ignores Andersen's point: Section 16600 does not bar all non-competition agreements, and Andersen's narrow Agreement was not within the scope of the prohibitions of Section 16600 in the first instance. See OB at 12, 40-45. Because

4

Edwards suggests that Andersen had no legitimate reason for the Agreement or the TONC because in 2002 Andersen was "withdrawing from a trade." AB at 26. That assertion unfairly blurs the two agreements. Edwards signed the Agreement (without protest) when Andersen hired him as a tax manager in 1997. App. 386-87, 706. Obviously, Andersen then had an ongoing interest in protecting its client relationships. In 2002, when closing its practice, Andersen had a strong interest in receiving, as consideration for release of the Agreement, employee cooperation in litigation, part of the separate TONC. E.g., AB at 1 ("There is ... no need to contort the plain language of section 16600 by implying a 'trade secrets exception"'). Compare Edwards v. Arthur Andersen LLP, 47 Cal. Rptr. 3d 788, 791 (2006) ("We conclude a noncompetition agreement ... is invalid under ... section 16600 unless it falls within the statutory or 'trade secret' exceptions to the statute") (emphasis added); id. at 796. 5

4

reasonable non-competition agreements are not prohibited by the statute, no improper judge-made exceptions are necessary. Jd. at 18, 25. The plain language, case law and legislative history confirm Andersen's view.

A.

SECTIONS 16600'S PLAIN LANGUAGE DOES NOT BAR ALL LIMITS ON EMPLOYEE MOBILITY

Edwards takes the remarkable position that Section 16600 unambiguously bars "all" "limits" on "employee mobility" as a matter of its plain language. AB at 11. How this is so when the statute uses none of

these words is unexplained. Instead, the statute provides: "[E]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." Cal. Bus. & Prof. Code § 16600. Obviously, there are several key words requiring interpretation. Edwards focuses solely on the term "restrain," and concludes that "restrain" must mean "limit," and therefore the statute bars all limits on employee mobility. While Edwards cites to one dictionary defining "restrain" as "limit," in fact "restrain" has multiple meanings, including "prevent." E.g., Oxford English Dictionary (2d ed. 1989) ("Restrain: To check, hold back, limit or prevent (a person or thing) from some course of action."); MiriamWebster Online Dictionary (2007) ("Restrain: To prevent from doing, exhibiting, or expressing something (i.e., restrained the child from jumping)"); American Heritage Dictionary (4th ed. 2000) ("To hold (a

5

person) back; prevent: restrained them from going.") (emphases added). This reading of "restrain" comports with the case law. See, e.g., Bosley Med. Group v. Abramson, 161 Cal. App. 3d 284,288 (1984) ("Section 16600 provides generally that contracts which prevent anyone from engaging in a lawful profession, trade or business are void.,,).6 As these definitions suggest, "restrain" standing alone is meaningless: The question is, restrainfrom what? The statute answers:

Restrainfrom engaging in a business, trade or profession. The statute does not-as Edwards reads it-say "all" restraints are invalid; it focuses on restraints from engaging in one's business or profession, and invalidates them to "that extent" only. Plainly, if a person can obtain employment with anyone of countless accounting firms in Los Angeles without restriction, 7 and can practice with access to virtually limitless clients, OB at 42, that person is not prevented from engaging in the accounting profession. As for narrow restraints, which do not preclude an employee from engaging in his chosen profession, Section 16600 is silent-not prohibitive. Indeed, reasonable competitive restrictions do not limit or preclude trade at 6

This comports with the statute's public policy impetus: To protect employees' ability to pursue their profession or calling (not their "mobility," as Edwards claims). See Metro Traffic Control, Inc. v. Shadow Traffic Network, 22 Cal. App. 4th 853, 859 (1994) (Section 16600 ensures "that every citizen shall retain the right to pursue any lawful employment and enterprise of their choice"). The Agreement did not restrict Edwards's employment opportunities in any way. OB at 41-42,44.

7

6

all-instead, they promote it, and they therefore do not violation Section

16600. See Loral Corp. v. Moyes, 174 Cal. App. 3d 268, 276 (1985) ("[Rjeasonably limited restrictions which tend more to promote than restrain trade and business do not violate the statute.") (emphasis added). There is another terminal problem with Edwards's "plain" reading: The statute is not limited to "employees"; it broadly applies to "every contract" and to "anyone." While Edwards and the Court of Appeal both ignore this linguistic hurdle, any valid interpretation must consider that the statute has universal application to the general commercial and employment context. 8 B.

A CENTURY OF PRECEDENT UPHOLDS REASONABLE NON-COMPETITION AGREEMENTS

Edwards pretends that Andersen is arguing for a narrow restraint

"exception" to Section 16600,9 and he seeks to capitalize on the prohibition against judge-made exceptions engrafted on the statutory ones. Edwards misses Andersen's point. Andersen is not arguing for a narrow restraint "exception" to Section 16600; rather, Section 16600 permits narrow non-

8

The Court of Appeal evaded this problem by limiting its holding to employment contracts, and Edwards takes the same way out. AB at 31 n.18. As discussed, however, OB at 15-16, the false dichotomy between employment and other contracts not only ignores the plain statutory language referring to "every contract," but it results in a rule created without reference to the broader realm in which Section 16600 operates.

E.g.} AB at 1 ("implying an open-ended exception to section 16600, even for 'narrow restraints,' would be bad public policy").

9

7

competition agreements because they are outside the scope of the statute's prohibition. See Boughton v. Socony Mobil OilCo., 231 Cal. App. 2d 188, 191-93 (1964) ("While the cases are uniform in refusing to enforce a contract wherein one is restrained from pursuing an entire business, trade, or profession, as falling within the ambit of section 16600, where one is barred from pursuing only a small or limited part of a business, trade or profession, the contract has been upheld as valid.") (citations omitted); Kingvo Gerold, 109 Cal. App. 2d 316, 318 (1952).10

These cases are not limited to the judge-made "trade secret" exception that the Court of Appeal tried to craft. See Gordon v. Landau, 49 Cal. 2d 690,694-95 (1958) (agreement restraining employee from soliciting former customers for one year following termination is valid; "[t]he contract did not restrain defendant from engaging in a lawful profession, trade or business within the meaning of section 16600"); Loral Corp., 174 Cal. App. 3d at 276 ("Section 16600 does not invalidate an employee's agreement ... not to solicit fformerJ customers.") (emphasis added); Golden State Linen Servo, Inc. Vo Vidalin, 69 Cal. App. 3d 1,9 (1977) (agreement enforceable "insofar as it provides that the affected

10

Edwards's "response" to Boughton is that "Section 16600 was not implicated; it was a land use case." AB at 23. King is "distinguished" as "an unfair competition case." Id. 8

employee will not solicit [employer's] customers after leaving its employ"). II The Court of Appeal's efforts to explain the long line of cases as "trade secret" cases at least had the benefit of accounting for some of the case law. Inexplicably, Edwards discounts all of that law, opining that judge-made exceptions are unnecessary given California trade secret law enacted in 1985. Edwards simply cannot account for the numerous cases allowing restrictions to protect trade secrets (and other interests), many post-dating the California trade secret law. 12 Thus, while Edwards's rejection of the Court of Appeal's logic solves that court's problem that judge-made exceptions should not be created when the statute has legislative exceptions, OB at 17-18, 25, his argument creates a bigger problem in that he is left with no explanation for

II

Edward's only response to Loral is that it involved a "provision against raiding employees from a former employer," AB at 30, contrary to the opinion. He attempts to distinguish the other cases (including Landau) in a footnote, wrongly stating that they merely involve "customer lists that amount to trade secrets." AB at 3 I n.!7 (emphasis added). Edwards does not explain how that argument squares with his assertion that Section 16600 is an absolute prohibition, with only statutory exceptions, and that, under his theory, there is no protection even for narrow agreements relating to trade secrets. See n.5, supra. 12

E.g., D'Sa v. Playhut, Inc., 85 Cal. App. 4th 927,935 (2000) ("[A] covenant not to compete will not be viewed as a violation of section 16600 if it is necessary to protect the employer's trade secrets....") (internal quotation marks omitted).

9

the many cases, trade secret and otherwise, which uphold narrow noncompetition agreements. 13 Edwards cannot cite a single case supporting the absolute ban he advocates. 14 Rather than Edwards's newly-created absolute rule, even the strictest cases focus on whether the agreement unreasonably precludes alternative employment. See Muggill v. Reuben H Donnelley Corp., 62 Cal. 2d 239, 242-43 (1965) (agreement precluding employee's future employment by competitor was an absolute prohibition on his pursuit of a trade and therefore within Section 16600); Gordon Termite Control v. Terrones, 84 Cal. App. 3d 176, 178 (1978) (invalidating agreement,

13

See also Int'! Bus. Mach. Corp. v. Bajorek, 191 F.3d 1033, 1040-41 (9th Cir. 1999) (restriction excluding former employee "from one small comer of the market [and] not preclud[ing] him from engaging in his profession, trade or business" outside the scope of Section 16600); Gen. Commercial Packaging, Inc. v. TPS Package Eng 'g, Inc., 126 F.3d 1131, 1133 (9th Cir. 1997). 14

Indeed, Edwards repeatedly has admitted that non-competition agreements protecting trade secrets are valid despite Section 16600. See, e.g., Appellant's Opening Brief at 34-35 ("[A] long line of well-settled and undisturbed California authority holds that an employer may not interfere with or restrict and employee's right to provide services to the employer's clients, except where necessary to protect the employer's trade secrets and therefore prevent unfair competition"); id. at 43 ("[T]he only valid employment restraints are those which are narrowly drawn to protect a trade secret."); Appellant's Reply Brief at 3 ("binding California precedent ... invalidates ... restrictions on an individual's right to compete ... unless the restrictions are necessary to preserve the employer's trade secret or other confidential information."); Answer to Petition for Review at 13 ("judicially created exception" to Section 16600 "is found where the particular restriction is 'narrowly drawn' and necessary to protect confidential information"); id. at 20. 10

unlimited as to time, prohibiting salesman from calling on his· former accounts); see also Latona v. Aetna Us. Healthcare Inc., 82 F. Supp. 2d 1089, 1094-96 (C.D. Cal. 1999) (restrictions prohibiting employment by competitor and contacting approximately 15,000 physicians was bar from profession).15 Edwards's approach would require this Court to overturn countless decisions spanning the last hundred years, in favor of an unprecedented and unnecessarily harsh rule. Given the statutory scope, that rule would apply uniformly to all commercial-not just employment-·relationships.

C.

THE LEGISLATIVE HISTORY CONFIRMS THAT REASONABLE RESTRICTIONS ARE PERMITTED

Edwards selectively quotes from the legislative history, omitting the critical portions. The Code Commission was concerned that the common law had, in some instances, gone too far, allowing very broad prohibitions, which precluded an employee from his livelihood. This was contrary to public policy to encourage industry. 16

15

Edwards also cites Chamberlain v. Augustine, 172 Cal. 285 (1916), but there the Court determined that the agreement effectively prohibited the seller from engaging in a lawful business, and therefore was void. Id. at 288. 16

The Commissioners observed that preventing individuals from working in their occupation would "tend[] to enforce idleness, and deprive the State of the services of its citizens." RJN, Ex. 2 at 7 (Cal. Civ. Code § 1673 (1872), Commissioner's Note). Edwards admits this legislative intent. See AB at 14 ("the right to work is paramount"). 11

What Edwards ignores, however, is that the Code Commission did

not reject reasonable restrictions. Rather, the express intent to maintain common law allowing narrow restrictions is evident from the Commission's approval of specific cases,17 and its recognition that certain restraints will be valid. 18 Thus, the legislature was concerned with the unwarranted expansion of restraints on trade, not with their use per se.

D.

PUBLIC POLICY FAVORS PERMITTING REASONABLE RESTRICTIONS

Public policy supports the long-standing California law allowing narrow non-competition agreements. Edwards does not and cannot dispute the legitimate business interests in protecting client relationships-an interest particularly intense in the professional context, such as accounting. Trade secret protection of confidential customer lists is insufficientbusinesses and employers have strong interests in preventing employees from raiding clients. See Gordon v. Landau, 49 Cal. 2d at 694 ("Plaintiffs' preferred customers are a real asset to their business and the foundation

17

The Commission approvingly cited Wright v. Ryder, 36 Cal. 342, 358 (1868), which states that: "[A]n agreement in partial restraint of trade, restricting it within certain reasonable limits or times, or confining it to particular persons, would, if founded upon a good and valuable consideration, be valid." See RJN, Ex. 2 at 7 (Cal. Civ. Code § 1673 (1872), Commissioner's Note). 18

The Code Commission wrote: "By the terms of this section ... , the restraint to be imposed would seem to be obliged to be limited to a specified county; and to this effect, also, are the cases of Wright v. Ryder, 36 Cal., p. 342, and [More] v. Bonnet, 40 Cal. 251 (1870)." RJN, Ex. 2 at 7 (Cal. Civ. Code § 1673 (1872), Commissioner's Note) (emphasis added). 12

upon which its success, and indeed its survival, rests"); cf Howard v.

Babcock, 6 Cal. 4th 409, 420 (1993) (non-competition agreements "address important business interests" including firm's "interest in the continued patronage of its clientele"). 19 To support his absolute prohibition, Edwards urges that case-by-case decision making is unwieldy. As shown, however, the common law standards, upholding reasonable restrictions (e.g., limited in scope and time) have proven workable over a century of Section 16600 jurisprudence. In the face of the decisions by this and other California courts, and the Ninth Circuit, the legislature has chosen not to alter Section 16600.10

19

Edwards's authorities recognize employer's interests. See R. Gibson, The Legal Infrastructure ofHigh Technology Industrial Districts: Silicon Valley, Route 128, and Covenants Not to Compete, 74 N.Y.D. L. Rev. 575, 628 (1999) (rather than a "blanket prohibition" on noncompetition agreements, courts should balance the employee's interest in mobility against the employer's interest in enforcing the covenant); C. O'Malley, Note, Covenants Not to Compete in the Massachusetts Hi-Tech Industry: Assessing the Needfor a Legislative Solution, 79 B.D. L. Rev. 1215, 1232 (1999) (broad prohibition on non-competition agreements would "void[] the agreements providing assurance that a company's investment will not easily defect to a competitor," and thereby "undermine pre-existing employer-employee relationships"). Application Group, Inc. v. Hunter Group, Inc., 61 Cal. App. 4th 881 (1998), cited by Edwards, involved choice of law principles, and merely recognized California law prohibiting restrictions on employment with a competitor, not an issue here. Contrary to Edwards's position that the common law is unworkable, the commentator he cites observes that the "dominant method of assessing the validity of most types of restrictive covenants" is derived from the common law. 1. Boatman, Note, As Clear as Mud: The Demise ofthe Covenant Not to Compete in Oklahoma, 55 Okla. L. Rev. 491, 496 (2002). 20

13

As for Edwards's assertion that the common law leaves affected parties guessing at their rights, by offering a "special" rule for "employment" relationships, Edwards invites chaos: Businesses, employers, independent contractors and other agents would need to predict whether they are barred from non-competition agreements, given, for instance, the equality of bargaining power inherent in a given contract. All interests are served by clarity in the scope of Section 16600, which this Court can provide. A rule permitting narrow restrictions based on precedent and legislative history, applicable to all contracts as required by the statute, once announced by this Court, will foster as much certainty as a purported "absolute" prohibition riddled with common law exceptions crafted in the "non-employment," "trade secret" or other contexts. IV.

STANDARD FORM "ANY AND ALL" RELEASE CLAUSES SHOULD NOT BE RENDERED UNLAWFUL BY IMPLYING VOID TERMS Edwards's second argument-that the TONC release constitutes a

wrongful act creating tort liability-also fails to answer Andersen's points. Edwards argues that "any and all" is broad language, which cannot be read to mean "some but not others." AB at 33. Edwards contendseven though the TONC is silent on employee indemnification rights-that the TONC forced him to waive those rights, when, by law, such aprovision . would have been null and void under Labor Code Section 2804. His argument fails under multiple rules of contract interpretation:

14

•

An agreement will not be read to imply terms not written;21

•

An agreement must be construed to be lawful, rather than unlawful;22 and

•

An agreement is always interpreted to presume that the contracting parties knew the law and complied with its terms. 23 While Edwards tries to avoid these rules by arguing that the TONC

was not a true contract, because he never executed it, he thereby destroys his own claim. Edwards alleged that the TONC is unlawful because it waived his indemnity rights under Section 2804. App. 11, 137,391,400. But Section 2804 explicitly relates only to employment contracts. See Labor Code § 2804 ("[a]ny contract or agreement ... made by any employee to waive the benefits of this article ... is null and void"). Thus, for Section 2804 to apply in the first instance, the TONC must be a contract, and by now claiming that the TONC is not a contract because he

Cal. Civ. Proc. Code § 185 8 (courts are "not to insert what has been omitted, or to omit what has been inserted."). 22 See, e.g., Loral Corp., 174 Cal. App. 3d at 278 ("contract must be construed to be lawful if possible"). See also Cal. Civ. Code § 1643. 23 E.g., City ofTorrance v. Workers' Camp. Appeals Bd., 32 Cal. 3d 371, 378 (1982) (all applicable laws are part of contract without any provision to that effect). Edwards cites Bardin v. Lockheed Aeronautical Systems, 70 Cal. App. 4th 494, 505 (1999), to support his contention that "any and all" language releases employee indemnification claims, but that case (which did not involve a release of unwaivable employee indemnification rights) recognizes that contracts are interpreted under existing law.

15

never signed it, Edwards defeats his own claim of unlawfulness under Section 2804. Finally, Edwards refuses to accept that the precise release language in question-releasing "any and all" claims-is standard form, recommended, and widely-utilized language. Edwards attempts to minimize the impact of invalidation by hypothesizing that "any and all" releases can be cured prospectively with addition of a tag line, stating that the release does not apply to claims to which it cannot legally apply. AB at 36. Not only is it senseless to add verbiage stating what the law already requires, but because Edwards's proposed standard for liability is the presumptively "ignorant" employee, a broad, general clause (omitting unspecified rights that cannot legally be waived) would hardly meet his exacting standard. What "ignorant" employee could possibly be informed by the addition of the clause, "except as otherwise prohibited by law,,?24

V.

CONCLUSION As shown, OB at 40-45,63-64, Andersen's Agreement is a narrow

non-compete agreement, limited both in scope and time, and the TONe is a standard "any and all" release. Neither is "unlawful," and Edwards has no meaningful contrary argument, much less any authority imposing tort liability for proposing such contracts. Because Andersen's standard

24

Andersen also adopts the public policy arguments of amici curiae. 16

contracts are not wrongful acts for a tortious interference claim, Edwards's sole remaining claim fails. Alternatively, should this Court prospectively find that either the Agreement or the TONC was a "wrongful act," the Court should nonetheless hold that use of such an agreement before this Court clarified the law does not support a wrongful interference claim against Andersen. The Court of Appeal's decision should be reversed, and the trial court's final judgment in favor of Andersen reinstated. Dated: April 13,2007

Respectfully submitted,

17

CERTIFICATE OF WORD COURT

Pursuant to the California Rules of Court, Rule 28.1, subdivision (d)(l), the text of this petition consists of 4,088 words as counted by the Microsoft Office Word 2003 word-processing program petition. Dated: April 13, 2007

18

PROOF OF SERVICE I am employed in the County of Los Angeles, State of California. I am over the age of 18 years and not a party to this action. My business address is Latham & Watkins LLP, 633 West Fifth Street, Suite 4000, Los Angeles, CA 90071-2007. On April!3, 2007, I served the following document(s) described as: REPLY BRIEF ON THE MERITS by serving a true copy of the above-described document in the following manner: I am familiar with the office practice of Latham & Watkins for collecting and processing documents for mailing with the United States Postal Service. Under that practice, documents are deposited with the Latham & Watkins personnel responsible for depositing documents with the United States Postal Service; such documents are delivered to the United States Postal Service on that same day in the ordinary course of business, with postage thereon fully prepaid. I deposited in Latham & Watkins ' interoffice mail a sealed envelope or package containing the above-described document and addressed as set forth below in accordance with the office practice of Latham & Watkins for collecting and processing documents for mailing with the United States Postal Service: Richard A. Love, Esq. Beth A. Shenfeld, Esq. Law Offices of Richard A. Love 11601 Wilshire Blvd., Suite 2000 Los Angeles, CA 90025 Attorneys for Plaintiff and Appellant Raymond Edwards II

Marc J. Poster, Esq. Greines, Martin, Stein & Richland LLP 5700 Wilshire Blvd., Suite 375 Los Angeles, CA 90036-3626 Attorneys for Plaintiff and Appellant Raymond Edwards II

Paul Grossman, Esq. California Employment Law Council Employers Group 515 S. Flower Street, 25 th Floor Los Angeles, CA 90071 Amicus Curiae Attorneys

Erika C. Frank, Esq. General Counsel California Chamber of Commerce 1215 K Street, Suite 1400 Sacramento, CA 95812-1736 Amicus Curiae Attorneys

LA\1629959.2

Jeffrey A. Berman, Esq. Sidley Austin LLP 555 W. Fifth Street, Suite 4000 Los Angeles, CA 90013-1010 Amicus Curiae Attorneys

Scott H. Dunham, Esq. Christopher W. Decker, Esq. D'Melveny & Myers LLP 400S. Hope Street Los Angeles, CA 90071-2899 Amicus Curiae Attorneys

Clerk of the Court California Court of Appeal Second District, Division Three Ronald Reagan State Building 300 South Spring Street, Second Floor Los Angeles, CA 90013

Clerk of the Court Superior Court of Los Angeles III N. Hill Street Los Angeles, CA 90012

I declare that I am employed in the office of a member of the Bar of, or permitted to practice before, this Court at whose direction the service was made and declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed. on April!3, 2007, at Los Angeles, California.

LA\1629959.2