Edwards Answer To Petition For Review

8147190

IN THE SUPREME COURT OF THE STATE OF CALIFORNIA

RA YMOND EDW ARDS II, Plaintiff and Appellant, vs. ARTHUR ANDERSEN, LLP, Defendant and Respondent.

Appeal From Los Angeles County Superior Court Andria K. Richey, Judge

ANSWER TO PETITION FOR REVIEW; REQUEST TO ADDRESS ADDITIONAL ISSUES IN THE EVENT THAT REVIEW IS GRANTED

Richard A. Love (#61944) Beth A. Shenfeld (#116223) LAW OFFICES OF RICHARD A. LOVE 11601 Wilshire Boulevard, Suite 2000 Los Angeles, California 90025-1756 Telephone: (310) 477-2070 Facsimile: (310477-3922 Attorneys for Plaintiff and Appellant Raymond Edwards II

TABLE OF CONTENTS

Page No. INTRODUCTION

1

A.

Statement of the Case

2

B.

Appellate Court Decision

6

C.

The Petition for Review Should be Denied

7

LEGAL DISCUSSION

8

I.

THERE ARE NO GROUNDS FOR SUPREME COURT REVIEW " 8

II.

THERE IS NO BASIS FOR REVIEW OF THE APPELLATE COURT'S DETERMINATION THAT §16600 INVALIDATED THE NON-COMPETEINON-SOLICITATION AGREEMENT .... 11 A.

B.

The Law Prohibiting Restrictive Cov~nants in the Employment Context Is Neither Unsettled nor Subject to Conflicting Opinions By the California Courts

12

An Exception Validating "Narrow Restraints" Is Contrary to the Law and Policy

15

1. 2.

3.

Narrow Restraint Exception Neither the Statute nor Precedent Supports the Judicial Creation of the "Narrow Restraint" Exception Proposed by Petitioner . . . . . . . . . . . . . . . . . .. (a) The statutory language expressly precludes any additional exceptions . . . . . . . . . . . . . . . . . . . . . . .. (b) There is No California Judicial Precedent for Utilizing a "Narrow Restraint" Test In the Con text of Routine Employee Non-C ompete Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Significant Policy Concerns Militate Against the Construction Urged by Petitioner

i

15

18 18

19 21

TABLE OF CONTENT (CON'T)

Page No.

III.

THERE IS NO BASIS FOR REVIEW OF THE APPELLATE COURT'S DETERMINATION THAT THE PROPOSED RELEASE ENCOMPASSED A WAIVER OF STATUTORY INDEMNITY RIGHTS A.

B.

Review is Not Necessary to Resolve Any Conflict or Unsettled Area of Law

23

The Appellate Court Correctly Determined the Legal Effect of Petitioner's Conduct in Interposing the TONC as a Condition of Edwards' Employment with HSBCIWTAS ..... 24 1.

2. C.

22

The Appellate Court Properly Construed the Broad Release Language to Encompass Waiver of Indemnity Rights No post hoc narrow construction

The Appellate Court Holding is Narrow, Confined to the Unique Facts of This Case

25 26

29

CONCLUSION

30

REQUEST FOR REVIEW OF ADDITIONAL ISSUES

31

ISSUES PRESENTED

31

WHY REVIEW SHOULD BE GRANTED

32

LEGAL DISCUSSION

32

I.

CARTWRIGHT ACT PROHIBITIONS APPLY TO EMPLOYMENT BOYCOTT

CONCLUSION

32 35

II

TABLE OF AUTHORITIES Page Nos.

Cases

Application Group, Inc. v. Hunter Group, Inc., 61 Cal.App.4th 881 (1998) ..... 9 Armendariz v. Foundation Health Psychcare Services, Inc., 24 Ca1.4th 83 (2000)

27

Baker Pacific Corp. v. Suttles, 220 Cal.App.3d 1148 (1990) .. 2,10,11,23,26,27 Bardin v. Lockheed, 70 Cal.AppAth 494 (1999)

25

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

16

Campbell v. Trustees ofLeland Stanford Jr. Univ., 817 F.2d 499 (9 th Cir. 1987)

15-17

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

10, 20

Chavez v. Whirlpool Corp., 93 Cal.AppAth 363 (2002)

32

Cianci v. Superior Court, 40 Ca1.3d 903 (1985)

33

D'Sa v. Playhut, Inc., 85 Cal.App.4th 926 (2003)

2,9-11,23,26

General Commercial Packaging, Inc. v. TPS Package Engineering, 126 F.3d 113 (9 th Cir. 1997)

17

Golden State Linen Servo Inc. v. Vidalin, 69 Cal.App.3d 1 (1977)

13

Gordon Termite Controlv. Terrones, 84 Cal.App.3d 176 (1978) ..... 1,10,12,13 Howard v. Babcock, 6 Cal.4th 409 (1993) IBM v. Bajorek, 191 F.3d 1033 (9 th Cir. 1999) Jacobs

V.

Freeman, 104 Cal.App.3d 177 (1988)

John F. Matull & Assoc., Inc. v. Cloutier, 194 Cal.App.3d 1049 (1987) iii

9, 13 17, 18,20 27 13

TABLE OF AUTHORITIES (CON'T)

Page Nos.

Cases

KGB, Inc. v. Giannoulas, 104 Cal.App.3d 844 (1980)

10,20

King v. Gerold, 109 Cal.App.2d 361 (1952)

16

Kolani v. Gluska, supra, 64 Cal.App.4th 407

9

Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134 (2003)

7

Latona v. Aetna U.S. Healthcare, Inc., 82 F.Supp.2d 1089 (C.D. Cal. 1999). 17,28 Loral Corp. v. Moyes, 174 Cal.App.3d 268 (1985)

" 13

Marin County Board ofRealtors, Inc. v. Palsson, 16 Cal.3d 920 (1976) .... 32,33 Metro Traffic Control, Inc. v. Shadow Traffic Network, 27 Cal.App.4th 853 (1994) Morris v. Harris, 127 Cal.App. 476 (1954)

10, 12 1, 10, 12,20

Moss, Adams & Co. v. Shilling, 179 Ca1.App.3d 124 (1986)

12

Mugill v. Rueben H. Donnelly Corp., 62 Cal.2d 239 (1965)

20

Nichols v. Spencer Intern. Press, Inc., 371 F.2d 332 (7th Cir. 1967)

33

Nichols v. Spencer International Press, Inc., 371 F.2d 332 (7th Cir. 1967)

33

Ostrofe v. H.S.Crocker Company, Inc., 740 F.2d 739 (9 th Cir. 1984) People v. Standish, 38 Ca1.4th 858 (2006) PG&E v. Thomas Drayage Co., 69 Cal.2d 33 (1968) Quinonez v. National Association of Securities Dealers, Inc., 540 F .2d 824 (5 th Cir.1976) iv

33,34 9, 19 26

33, 34

TABLE OF AUTHORITIES (CON'Tl Cases

Page Nos.

Radovich v. NFL, 352 U.S. 445 (1957)

33,34

Rojas v. Superior Court, 33 Ca1.4th 407 (2004)

9, 19

Roman v. Cessna Aircraft, 55 F.3d 542 (10th Cir. 1995)

33,34

S.Bay Radiology Med. Assoc. v. Asher, 220 Cal.App.3d 1074 (1990) State ex rei Van De Kamp v. Texaco, Inc., 46 Ca1.3d 1147 (1988) Stephens v. County of Tulare, 38 Ca1.4th 793 (2006)

13 32,34, 35 9

Thompson v. Impaxx, Inc., 113 Cal.App.4th 1425 (2003) ... 1,2, 11,12,24,26,27 Vacco Indus. Inc. v. Van Den Berg, 5 Cal.App.4th 34 (1994)

Page Nos.

Statutes Business Business Business Business

13

& & & &

Professions Professions Professions Professions

Code §16600 Code §16601 and §16602 Code, §16700 et seq Code, §§16720, 16726

1,6,9-15,17,19,20,35 9, 13, 18 32 32

California Rules of Court, Rule 28(b) California Rules of Court, Rule 28(a)(2)

8, 29 31,36

Civil Code §1638 Civil Code §1673

25 14,20

Labor Code §2802 Labor Code §2804

5,7, 10 10

v

INTRODUCTION

The petition by defendant Arthur Andersen, LLP seeks review of two findings in the appellate court's decision confIrming, on the particular facts presented, that an employer's interference with an employee's prospective employment subjects the employer to liability where the employer (1) asserts the provisions of an overly broad and impermissible non-compete agreement as an impediment to the employment; or (2) requires the employee sign an overly broad release relinquishing nonwaivable statutory rights as a condition of future employment. The decision does not, as petitioner suggests, "transform" California law or depart from the applicable precedent. Indeed, there is nothing particularly radical about the decision which confirms: (1) In the employer/employee context, broad covenants not to compete - such as the one presented in this case - are unenforceable under the clear and express language of Business and Professions Code § 16600 (See, e.g., Morris v. Harris, 127 Ca1.App. 476 (1954) - ban on client solicitation invalid; Gordon Termite Control v. Terrones, 84 Ca1.App.3d 176 (1978) - anti-solicitation covenant invalid; Thompson v. Impaxx, Inc., 113 Ca1.App.4th 1425 (2003)).

1

(2) An employer may not penalize an employee who refuses to execute an agreement which contains illegal provisions where the employer presents the agreement on a take-it-or-leave-it basis, refuses to negotiate the offending terms, or otherwise clarify its intent not to enforce the impermissible terms. Baker Pacific Corp. v. Suttles, 220 Ca1.App.3d 1148, 1155 (1990); D'Sa v. Playhut, Inc., 85 Ca1.App.4th 926 (2003); Thompson v. Impaxx, Inc., 113 Ca1.App.4th 1425 (2003). A.

Statement of the Case

Plaintiff Raymond Edwards was employed as a Tax Manager by petitioner Arthur Andersen in Los Angeles. Appx. 1249-1250, 1264. Following its indictment on federal charges, Andersen began selling off its practice groups to various entities. Appx. 1252-1254. Certain employees, including Edwards, were offered employment by WTAS/HSBC, the company acquiring Edwards' particular practice group; Edwards accepted the offer. Appx. 1260,1264, 1304-1308,1320-24. However, as a condition of employment by WTAS, Andersen required that its employees, including Edwards, secure Andersen's release from a broad non-compete agreement previously executed as a condition of employment with Andersen [Appx. 1441, 1452]; this requirement was curious, as Andersen was transferring the practice group to WTAS for compensation, and had no apparent interest in

2

preventing its former employees who were hired by WTAS from providing tax/accounting services to former clients. Rather than provide Edwards with a release, Andersen presented him - and the other employees - with a proposed agreement entitled "Termination of Non-compete" ("TONC") which, among other matters, required Edwards to "waive" his rights to compensation or indemnification from Andersen for any penalties or losses arising from the tax practice and advice provided to clients at the direction of Andersen (and its partners and principals), and to release Andersen from any liability for any civil wrongs or illegal acts Andersen may have committed against him. Appx. 961, 96365,968,1441,1452,1407-1408. The release was as broad as it could be, with only two express exceptions: (1) claims arising out of Andersen's obligations under the TONC, or (2) claims for accrued salary or other benefit or compensation owing to the employee as of the date of the agreement: "Notwith.standing anything to the contrary herein, Employee, on behalf of Employee, Employee's heirs, administrators, estates, executors, personal representatives, successors and assigns, does hereby release and forever

3

discharge AA, Andersen Worldwide Society Cooperative ("AW") and their respective affiliated firms, and each of their respective assigns, past or present partners, officers, principals, directors, employees, agents, successors (whether at law, equity or otherwise), and affiliates (collectively, the "Released Parties") from any and all actions, causes ofaction, claims, demands, debts, damages, costs, losses, penalties, attorneys fees, obligations, judgments, expenses, compensation or liabilities of any nature whatsoever, in law or equity, whether known or unknown, contingent or otherwise, that Employee now has, may have ever had in the past or may have in the future against any of the Released Parties by reason of any act, omission, transaction, occurrence, conduct, circumstance, condition, harm, matter, cause or thing that has occurred form the beginning of time up to and including the date

4

hereof, including, without limitation, claims that in any way arise from or out of, are based upon or relate to Employee's employment by, association with or compensation from AA or any of its affiliated firms, except for claims (1) arising out of AA's obligations set forth in the Agreement or (ii) for any accrued and unpaid salary or other employee benefit or compensation owing to Employee as of the date hereof ..." [emphasis added]

Appx. 1407-1408. Andersen prepared the TONC and made receipt of the executed TONC an express condition in the acquisition documents, which prohibited WTAS/HSBC from hiring any Andersen employee who did not sign the

TONC. Appx. 961, 963-65, 968,1027-28,1035-36,1254-56,1441,145152. When Edwards voiced his concern about the scope of the release provisions which purported to waive his statutory right to indemnity under Labor Code §2802, Andersen did not dispute his interpretation, refused to negotiate the scope of the release to exempt the indemnity waiver, and

5

insisted that Edwards accept the terms as written. Appx. 1262-67, 1310, 1316-17, 1264. When he refused, Andersen closed the HSBCIWTAS transaction excluding Edwards from the list of employees to transfer [Appx. 1035,1195-1200,1202-3,1424], WTAS/HSBC revoked his employment

offer [Appx. 1264, 1265-66], and Andersen terminated his employment. Andersen also denied Edwards termination benefits, asserting that his refusal to sign the TONC was a "resignation". Appx. 1182, 1264-65. The trial court dismissed Edwards' claim alleging anti-trust violations at the pleading stage. During pre-trial proceedings, and without taking any evidence, the trial court ruled, as a matter of law, that Edwards could not establish that Andersen engaged in any "wrongful conduct" when it refused to release Edwards from the illegal non-compete, and required execution of the TONC as a condition for Edwards' employment by WTAS/HSBC.

B.

Appellate Court Decision

The Court of Appeal, in a thoughtful and well-reasoned opinion, reversed, finding, among other matters: 1. The broad non- compete was invalid under Business and Professions Code § 16600 and against public policy, and requiring Edwards to execute the TONC in order to secure release from the noncompete was

6

an "independently wrongful act" for purposes of the elements of the intentional interference claim (142 Cal.App.4th 625-627); 2. The broad release in the proposed TONC purported to waive Edwards' unwaivable statutory indemnity rights (Labor Code §2802); therefore, Andersen's requirement that Edwards execute the TONC as a condition of employment with HSBC was also an independently wrongful act supporting the intentional inference claim. J (142 Cal.App.4th at 631)

c.

The Petition for Review Should be Denied

First, petitioner contends that review is necessary to resolve an important issue of unsettled law concerning the enforceability of broad noncompete agreements. In fact, there is no conflict among the California appellate courts as to the validity of the type of non-compete agreement at issue here: without exception, every court that has considered such an agreement has held it invalid. Andersen also challenges the appellate court's finding that the broad The elements of a claim for wrongful interference with prospective economic advantage are: (1) an economic relationship between plaintiff and a third party with the probability of future economic benefit to plaintiff; (2) defendant's knowledge of the relationship; (3) an intentional wrongful act by defendant designed to disrupt the relationship; (4) actual disruption; and (5) economic harm to plaintiff proximately caused by defendant's conduct. Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134, 1153-54 (2003). The trial court had concluded, as a matter of law, that plaintiff could not establish the third element - independently wrongful act. 7

release encompassed an impermissible waiver of statutory indemnity rights, and argues that review is necessary to provide "clarification and uniformity" on the issue of standard contractual release language. This case, however, does not present an appropriate vehicle for "clarification" of the rules of interpretation of release language in executed agreements for the simple reason that there was no executed release here. It was not, as petitioner suggests, employment contract provisions in

executed agreements which were deemed to be "wrongful acts", but petitioner's conduct, in refusing to release Edwards from invalid provisions, and requiring his assent to additional invalid provisions which were "wrongful acts" supporting the interference claim - a conclusion which finds ample judicial precedent. The appellate decision was properly limited to these peculiar facts, and does not implicate the concerns raised by petitioner. Supreme Court review is neither necessary nor appropriate. LEGAL DISCUSSION I.

THERE ARE NO GROUNDS FOR SUPREME COURT REVIEW

Review should be denied here for the simple reason that it is unnecessary to decide an important or novel legal question or secure uniformity in case law. (See, Ca1.Rules of Court, Rule 28(b))

8

The appellate court's holding rests upon the following well-settled and uncontroversial principles: (1)

The Court interprets a statute according to the plain meaning

of the words of the statute which are the expression of legislative intent behind the statute: if the language is unambiguous, the inquiry ends.

Stephens v. County of Tulare, 38 Ca1.4th 793,801 (2006). Where exceptions to a general rule are specified by statute, other exceptions are not to be implied or presumed unless a contrary legislative intent is evident.

People v. Standish, 38 Ca1.4th 858, 870 (2006); Rojas v. Superior Court, 33 Ca1.4th 407, 424 (2004). (2)

Except as provided in §16601 and §16602 (validating

reasonable restraints in connection with sale of goodwill of a business or dissolution of a partnership - neither of which are applicable here), Business & Professions Code §16600 invalidates "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind". Howard v. Babcock, 6 Ca1.4th 409, 416 (1993); Application

Group, Inc. v. Hunter Group, Inc., 61 Cal.App.4th 881, 900 (1998); Kolani v. Gluska, supra, 64 Cal.App.4th 407, D'Sa v. Playhut, supra, 85 Cal.App.4th at 933. (3) The California courts agree that, in the employment context, the

9

provisions of Bus & Prof Code§ 16600 presents "an absolute bar to postemployment restraints"; the statute makes no exception for "partial" restraints (Morris v. Harris, 127 Cal.App.476 (1954); Chamberlain v. Augustine, 172 Cal. 285 (1916)) or even those which are "reasonably limited in time and geographic scope" (KGB, Inc. v. Giannoulas, 104 Cal.App.3d 844, 848 (1980)). Indeed, no California court has validated a non-compete or non-solicitation in the absence of a showing (not made here) that the restriction was necessary to protect trade secret - the only judicially recognized limitation on §16600. See, e.g., Metro Traffic Control, Inc. v. Shadow Traffic Network, 27 Cal.App.4th 853, 861 (1994); Gordon Termite Control v. Terrones, supra, 84 Ca1.App.3d at 178.

(4) An

employer who conditions employment upon execution of an agreement containing illegal provisions engages in wrongful conduct that violates public policy.

Baker Pacific Corp. v. Suttles, 220 Ca1.App.3d 1148, 1155

(1990); D'Sa v. Playhut, Inc., 85 Ca1.App.4th 927 (2003). (5)

California Labor Code §2802 requires an employer to

indemnify its employees for losses incurred in consequence of the discharge of his duties; any agreement to waive these benefits is void. Labor Code §2804; (6)

Where an employer presents an employee with a proposed

10

agreement on a

take~it~or-Ieave·it

basis, the court will not reform the

proposed contract or engage in "post hoc narrow construction" to validate an illegal provision, particularly where the employer has refused to negotiate the offending terms, or otherwise clarify its intent not to enforce the impermissible terms. Baker Pacific Corp. v. Suttles, 220 Cal.App.3d 1148, 1155 (1990); D'Sa v. Playhut, Inc., 85 Cal.AppAth 926 (2003);

Thompson v. Impaxx, Inc., 113 Cal.AppAth 1425 (2003). Guided by this precedent and the unambiguous language of the relevant statutes, the appellate court correctly concluded that §16600 invalidated the restrictive covenants and that the broad release language of the TONC impermissibly encompassed a waiver of statutory indemnity rights.

II.

THERE IS NO BASIS FOR REVIEW OF THE APPELLATE COURT'S DETERMINATION THAT §16600 INVALIDATED THE NON-COMPETE/NON-SOLICITATION AGREEMENT

2

Petitioner apparently concurs that if the agreement was invalid, its conduct in refusing to release Edwards would constitute wrongful conduct. The issue presented by petitioner solely addresses the scope and interpretation of §16600 and whether it "prohibits all employee non-competitions agreements (except those within the statutory exceptions of Sections 16601 and 16602 or the judge-made "trade secrets" exception) as the Court of Appeal held, or does Section 16600 invalidate non~ competition agreements only to the extent that they prevent the pursuit of a 2

11

A.

The Law Prohibiting Restrictive Covenants in the Employment Context Is Neither Unsettled nor Subject to Conflicting Opinions By the California Courts

Petitioner asserts that the appellate decision "upends" the law, creating a conflict among the district courts and requiring this Court's immediate intervention. Nothing could be further from the truth. In fact, it is petitioner's argument that departs from the statutory language and upends precedent in order to conform the law to immunize its conduct. The courts have uniformly interpreted the provisions of section 16600 broadly to protect an individual's right to employment in the business of his/her choice even where he competes with his former employer. Metro Traffic Control Inc. v. Shadow Network, supra, 22 Cal.AppAth 853; Gordon Termite Control v. Terrones, supra, 84 Cal.App.3d 176. And the appellate courts have repeatedly invalidated restrictive covenants similar to those presented here. See, Morris v. Harris, supra, 127 Cal.App. 476; Gordon Termite Control v. Terrones, supra, 84 Cal.App.3d 176 - anti-solicitation covenant; Moss. Adams & Co. v. Shilling, 179 Cal.App.3d 124 (1986) - anti-solicitation covenant; Thompson v. Impaxx, Inc., supra, 113 Cal.App.4th 1425 - anti-solicitation covenant. In fact, petitioner cites to no California appellate case upholding similar restrictions in the lawful trade, profession or business". [Petition for Review ("Petition), p. 1]

12

employer/employee context in the absence of a showing that the restrictions were necessary to protect trade secrets. The only judicially created exception to the statutory prohibition is found where the particular restriction is "narrowly drawn" and necessary to protect confidential information - an argument not presented here. Indeed, the vast majority of the cases upholding restrictions (and which petitioner cites as evidence of the "conflict" among the courts) fall within this category. See, e.g., Gordon v.

Landau, 49 Ca1.2d 690 (1958); John F. Matu/l & Assoc., Inc. v. Cloutier, 194 Cal.App.3d 1049 (1987); Golden State Linen Servo Inc. v. Vida lin , 69 Cal.App.3d 1

(1977); Loral Corp.

V.

Moyes, 174 Cal.App.3d 268 (1985).

The distinction is significant; when considered in the context of the particular facts presented, the cases are clearly harmonized and present no conflict requiring resolution. 3 In the face of this precedent, petitioner valiantly attempts to manufacture a "conflict" by suggesting that the appellate courts have taken different positions on whether the statutory scheme was a codification of the common law or a rejection of it. See, Petition, p. 17-20. The analysis by the court of appeals here, recounting The other cases cited by Petitioner as evidence of the "conflict" are inapposite. For example: Vacco Indus. Inc. v. Van Den Berg, 5 Cal.App.4th 34 (1994), S.Bay Radiology Med. Assoc. v. Asher, 220 Cal.App.3d 1074 (1990), and Howard V. Babcock, 6 Ca1.4th 409 (1993) all involved construction of the statutory exceptions (§§16601, 16602) to §16600. 13

the common law development in the area of restrictive covenants, confirms that any difference stems from the changing nature of the common law in the 19 th century, and, not, as petitioner suggests, from any disagreement about the public policy underlying the statute or the scope of the prohibition: 4 These authorities may easily be harmonized. As we have observed, the common law rule changed over time. Wright v. Ryder, supra, 36 Cal. at p. 357.) Fairly read, the foregoing authorities suggest section 16600 embodies the original, strict common law antipathy toward restraints of trade, while the section 16601 and 16602 exceptions incorporated the later common law "rule of reasonableness" in instances where those exceptions apply." 142 Cal.App.4th at 623, fn.6. Indeed, it was the erosion ofthe common law prohibition against restraints which prompted the legislature to enact Civil Code §1673 (the predecessor to §16600)which was designed, not to relax such prohibitions, but to clarify the public policy against employment restraints. See discussion at 142 Cal.AppAth at 622-623.

Andersen's suggestion that the appellate court failed to "grapple seriously" with the legal precedent [Petition, p. 19] is particularly curious given the court's exhaustive and scholarly review of the authorities construing §16600. See, 142 Cal.AppAth at 624-623 4

14

B.

An Exception Validating "Narrow Restraints" Is Contrary to the Law and Policy

The appellate court's holding reflects nothing more than a routine application of § 16600's broad prohibition against restrictive covenants in conformity with the statute and relevant case authority. Obviously unhappy with that result, petitioner seeks a radical change in the law, asking the Court to imply an exception to the prohibitions where none exists, by validating "narrow restraints". As the appellate court correctly concluded, to the extent that the "narrow restraint" exception created by the federal courts would operate to validate the restrictions here, it must be rejected; the result sought by Andersen can only be reached only through a misapplication of California law and an abandonment of well settled principles and precedent. 1.

Narrow Restraint Exception

The "narrow restraint" exception urged by petitioner evolved from a series of cases out of the Ninth Circuit. The genesis of these cases is detailed in the decision below. The court in Campbell v. Trustees ofLeland Stanford Jr. Univ., 817 F.2d 499 (9 th Cir. 1987) recognized that California law rejected the common law rule allowing "reasonable" restraints of trade, yet nonetheless concluded that the restraint would be valid if it barred the employee from pursuing "only a small or limited part of the business, trade or profession", and remanded the case for trial on

15

that issue. The Campbell court found support for its reasoning in the decisions of Boughton v. Socony Oil, 231 Cal.App.2d 188 (1964), and King v. Gerold, 109

Cal.App.2d 361 (1952), neither of which involved restrictive covenants in the employment context prohibiting employment by competitors, or solicitation of, or employment by past clients. The appellate court here properly concluded that those cases provided no support for the sweeping conclusions of the Campbell court: "While not expressly based upon the trade secret exception, King v. Gerold obviously falls within its reach; the appellant's transgression in that case was not simply manufacturing house trailers, but manufacturing trailers using a design substantially similar to the respondent inventor's [citation] "In Boughton the restriction was not upon the plaintiff's practice of a profession or trade, but on the use of the land, a distinction which formed the crux of the court's

holding [citation] As support for its alternative holding that a covenant not to compete is not invalid if the prohibition is only upon "a small or limited part of a business, trade or profession [citation], Boughton relied

16

upon King v. Gerold. But, as noted, King does not stand for such a broad proposition. To the contrary, as applied to an employee's noncompetition agreement, Boughton's analysis contradicts Chamberlain v. Augustine, supra, 172 Cal. 285 ... Chamberlain reasoned. .. 'The statute makes no exception in favor of contracts only in partial restraint of trade.' [citation]"

Campbell was followed by General Commercial Packaging, Inc. v. TPS Package Engineering, 126 F.3d 113, (9 th Cir. 1997) (validating a restrictive covenant between General Commercial Packaging and its subcontractor, TPS, because it did not "completely restrain" defendant from plying its trade), IBM v. Bajorek, 191 F.3d 1033 (9 th Cir. 1999) (approving a restraint requiring a former employee to forfeit options if employee worked for a competitor), and Latona v. Aetna U.S. Healthcare. Inc., 82 F.Supp.2d 1089 (C.D. Cal. 1999) (refusing to validate six month prohibition on employment by competitors and prohibition on solicitation of customers under narrow restraint exception). Although purporting to permit only "narrow restraints" under § 16600, this "exception" has morphed into a rule which allows all restrictions unless the employee can prove he has been "completely barred" from practicing his trade or

17

profession. See, e.g., IBM v. Bajorek, 191 F.3d 1033, 1040 (9 th Cir. 1999) [emphasis added] Under this formulation, the broad prohibition against employment restrictions is read narrowly, and the default mode is in favor ofsuch

restrictions unless the employee can prove a total bar. Such an interpretation turns the statute on its head, and, the appellate court did not err in rejecting it. 2.

Neither the Statute nor Precedent Supports the Judicial Creation of the "Narrow Restraint" Exception Proposed by Petitioner (a)

The statutory language expressly precludes any additional exceptions

Here, the statutory language is unambiguous: "Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." [emphasis added] The words are simple and clearly convey the legislative intent to invalidate "every" contract which attempts to restrain a person's employment. And, the fact that the statute expressly sets forth exceptions - §§ 16601, 16602 (validating geographic restrictions in connection with the sale of goodwill of

18

a business or dissolution of partnership)5 - confirms the legislative intent to prohibit all other restraints. People v. Standish, 38 Ca1.4th 858, 870 (2006); Rojas v.

Superior Court, 33 Ca1.4th 407, 424 (2004). It is thus not surprising that the appellate decision here "adopts a bright line test"; it is, however, disingenuous of petitioner to content that this test "conflicts with the plain language of the statute". [Petition, p. 16t In the face of such clear legislative intent, the court should not imply the broad exception proposed here which will effectively eviscerate the proscriptions of §16600, thereby rendering it meaningless. Almost any "restraint" can be characterized as "narrow" - indeed such an exception would have validated many of restraints which the courts have routinely held improper. (b)

There is No California Judicial Precedent for Utilizing a "Narrow Restraint" Test In the Context of Routine Employee Non-Compete Agreements

Even if one looks beyond the legislative intent as reflected in the language of the statute, no California judicial precedent supports the expansive interpretation

As Edwards was neither a shareholder nor a partner of Andersen, the statutory exceptions have no application to the non-compete at issue here. 6 Indeed, while repeatedly asserting that the decision "conflicts" with the plain language of the statute nowhere does petitioner actually explain how it conflicts, most likely because there is no conflict.

19

urged by petitioner. The California courts agree that the statute presents "an absolute bar to post-employment restraints", and makes no exception for "partial" restraints (Morris v. Harris, 127 Cal.App.476 (1954); Chamberlain v. Augustine, 172 Cal. 285 (1916)7) or even those which are "reasonably limited in time and geographic scope" (KGB, Inc. v. Giannoulas, 104 Cal.App.3d 844, 848 (1980)). Indeed, no California case has validated an employment non-compete or nonsolicitation in the absence of a showing (not made here) that the restriction was

necessary to protect trade secret - the only judicially recognized limitation on §16600. The broad language of federal cases is especially troubling: it ignores the statutory language, fails to recognize California's strong public policy in favor of mobility in the workforce and discards well settled judicial precedent. Indeed, the holding in IBM v. Bajorek - validating a covenant which required a former employee to forfeit profits from stock options ifhe went to work for a competitordirectly contradicts the holding of Mugill v. Rueben H. Donnelly Corp., 62 Cal.2d 239 (1965) where this Court expressly concluded that §16600 "invalidates

7 In Chamberlain v. Augustine, 172 Cal. 285 (1916) the Supreme Court expressly held that Civil Code §1673 - the predecessor to § 16600 - "Makes no exception in favor of contracts only in partial restraint of trade." The statutory language of § 1673 - "Every contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, otherwise than is provided by the next two sections, is to that extent void" - is virtually identical to that of §16600. 20

provisions in employment contracts prohibiting an employee from working for a competitor after completion of his employment or imposing a penalty if he does so." To the extent it would validate the broad restrictions of the Andersen noncompete, the "narrow restraint" exception created by the federal courts represents a significant departure from California law.

3.

Significant Policy Concerns Militate Against the Construction Urged by Petitioner

Petitioner wholly ignores the policy concerns identified by the appellate court which further militate against adoption of the Ninth Circuit's approach. First, as noted above, the exception urged by petitioner will overturn an entire body of precedent in this area, creating uncertainty surrounding the determination as to what restrictions will be deemed "narrow" enough to survive. Furthermore, it will only create an incentive for employers to draft agreements pushing the envelope of the "narrowness" requirement, leaving employees in confusion as to what competition is permitted. At best, these employees will be forced to bear the cost of challenging the validity of the restrictions. Those who cannot afford to do so will find their employment prospects severely restricted if not completely eliminated, and prospective employers will find the pool of available talent severely limited. The potential impact on the business community cannot be overstated:

21

"Perhaps most troubling, prospective future employers may be reluctant to hire an employee who has signed a questionable noncompetition agreement, in order to 'avoid the expense and energy of defending a lawsuit in which they are likely to be joined. ,,, Edwards v. Andersen, 142 Cal.AppAth at 622. The appellate decision was correct, rests upon sound legal principles in conformity with the overwhelming precedent. As there is no "conflict" to resolve there are no grounds for review of this issue.

III.

THERE IS NO BASIS FOR REVIEW OF THE APPELLATE COURT'S DETERMINATION THAT THE PROPOSED RELEASE ENCOMPASSED A WAIVER OF STATUTORY INDEMNITY RIGHTS

In conformity with California precedent (and in the face of no contrary authority) the appellate court held under the particular facts of the case, that an employer engages in wrongful conduct when it requires an employee, as a condition of future employment, to execute a broad release which purports to relieve the employer of its statutory obligation to indemnify the employee; although such a release is invalid, and therefore might never be enforced, the employer's insistence

22

upon inclusion of the offending term is wrongful. Petitioner challenges the appellate court's finding that the broad release language encompassed an impermissible waiver of indemnity rights and asks this Court to revisit the appellate court's interpretation of the proposed TONC, A.

Review is Not Necessary to Resolve Any Conflict or Unsettled Area of Law

Sixteen years ago, in Baker Pacific Corp. v. Suttles, 220 Ca1.App.3d 1148 (1990), the Court declared a pre-employment release tendered to a prospective employee as contrary to public policy, and decried the '''pistol to the head' approach to an employment relationship, where hiring is conditioned on acceptance of statutorily proscribed terms", finding it "not acceptable to us." Id. at 1155. Ten years later, in D'sa v. Playhut, Inc., 85 Ca1.App.4th 927 (2000) the Court reaffirmed such coercive conduct was disfavored when it held that an employee terminated because he refused to sign an unenforceable covenant not to compete could pursue a claim for wrongful termination in violation of public policy: the Court specifically held that "an employer cannot lawfully make the signing of an employment agreement, which contains an unenforceable covenant not to compete, a condition of continued employment, even if such agreement contains choice of law or severability provisions which would enable the employer to enforce the other provisions of the employment agreement." Id. at 935. And, three years ago, in

23

Thompson v. Impaxx, Inc., 113 Ca1.App.4th 1425 (2003), the appellate court again confirmed that an employer who attempts to condition employment upon agreement to an unenforceable (because illegal) provision engages in wrongful conduct which violates public policy. Petitioner's conduct holding Edward's employment prospects hostage to secure the illegal release was virtually indistinguishable from that of the employers in the above-referenced cases, and the appellate court appropriately found in accordance with this authority that such conduct was wrongful, subjecting petitioner to liability on the interference claim. There is thus no uncertainty or conflict among the appellate courts that would justify review of the court's interpretation of the release.

B.

The Appellate Court Correctly Determined the Legal Effect of Petitioner's Conduct in Interposing the TONC as a Condition of Edwards' Employment with HSBC/WTAS

Petitioner does not dispute that an employer has no right to condition employment upon execution of an agreement containing illegal provisions but contends that the appellate court's interpretation of the TONC was flawed. This argument finds no support in the facts or law.

24

1.

The Appellate Court Properly Construed the Broad Release Language to Encompass Waiver of Indemnity Rights

Petitioner correctly notes that interpretation of a contract must begin with its express terms (Cal. Civil Code §1638), but then proceeds to ignore those terms, urging the court to imply an exception where none is expressed. It is well settled that a broadly worded release, such as a release of all claims, covers all claims within the scope of the language, even if it does not expressly release the particular claim. Bardin v. Lockheed, 70 Cal.AppAth 494,505 (1999). The release proposed in the TONC was as broad as it could be, releasing all claims/liabilities - both past and future - of any nature arising from the Edwards' employment by Anderson except for claims: (1) arising out of Andersen's obligations set forth in the Agreement or (2) for any accrued and unpaid salary or other employee benefit or compensation owing to Employee as of the date of the agreement. No express reference to indemnity rights was necessary in the face of this broad language. As the appellate court noted, "[i]t is difficult to imagine a theory under which indemnity rights would not be covered, given this broad language." 142 Cal.App.4th at 628. The inclusion of exceptions, expressly referenced in the proposed TONC, further confirms no other exceptions were intended; had petitioner intended to except indemnity rights from the release, it

25

could easily have included such an exception, particularly where it knew of Edwards' concerns regarding the scope of the release. Furthermore, petitioner's own conduct confirmed a waiver was intended. When Edwards conveyed his concerns about the scope of the release, petitioner did not dispute Edwards' interpretation, offered no assurances, and refused to discuss or negotiate the terms. And, when another employee expressed similar concerns, petitioner entered into a separate indemnity agreement. See, e.g., PG&E v. Thomas Drayage Co., 69 Ca1.2d 33, 39-40 (1968) - circumstances of transaction offered to prove intent of the contracting parties. The express language of the release as well as the circumstances of the transaction clearly supports the appellate court's conclusion that the broad release language encompassed a waiver of indemnity rights. 2.

No post hoc narrow construction

Notwithstanding overwhelming authority to the contrary (see, e.g., Thompson v. Impaxx, Inc., supra, 113 Cal.App.4th 1431, Baker Pacific Corp. v. Suttles, supra, 220 Cal.App.3d at 1148; D'Sa v. Playhut, Inc., supra, 85 Cal.App.4th at 934), petitioner contends that the court should have validated or "saved" the improper provision through "post hoc" narrow construction of the proposed terms. The problem with this approach was noted by the court in Thompson v. Impaxx, Inc.:

26

"[The employee] was presented with the contract is it was written and ... was fired for refusing to sign it, as written. The question ... is the legal effect of those acts, a question which cannot be addressed by a post hoc narrow construction of the contract." Thompson v. Impaxx, Inc., supra, 113 Ca1.App.4th at 1431. The common thread supporting the Courts' refusal to reform the contracts in these cases is the parties' position vis-a-vis the challenged contract. Because of the offending language, the parties never actually entered into the transaction or agreed to the challenged terms. It is this factual context - involving a proposed agreement, presented on a take it or leave it basis - that distinguishes this case from those cited by petitioner in which the courts construe contractual terms narrowly, choosing a lawful interpretation over one which would invalidate the contract. The policies underlying the "lawful" construction urged by petitioner here - to "save" the contractual relationship and protect the expectations of the parties (see, Jacobs v. Freeman, 104 Ca1.App.3d 177,188 (1988), Armendariz v. Foundation Health Psychcare Services, Inc., 24 Ca1.4th 83, 123-124 (2000)) do not attain where, as here, the offending agreement was never accepted: there is no contractual relationship to save and no expectations to protect. See, e.g., Thompson v. Impaxx, Inc., supra, 113 Ca1.App.4th at 1431; see, also, Baker Pacific Corp. v. Suttles,

27

supra, 220 Cal.App.3d at 1155 - distinguishing the case from other authorities because it tested the validity of the agreement prior to the parties' entering into the agreement. The decisions also recognize the significant incentive for employers to overreach and bind employees to illegal terms in the hope that they would never be challenged; if they were, the only consequence for the employer would be a subsequent declaration that the objectionable terms were unenforceable. On the other hand, the employee faced with such an overreaching provision faces the stark choice of adhering to the illegal terms or foregoing employment. If, like Edwards, he stands on his rights and refuses to sign, he has no recourse for the lost employment opportunity if the employer can, after the fact, rely upon a narrow construction to "save" the contract. The employee who signs on remains subject to the illegal terms, and is put to the burden and expense of obtaining a determination of invalidity. Either result is intolerable, particularly where the employer could easily remedy the situation by excising or clarifying the offending terms. Also troubling is the chilling effect on the exercise of employment rights and the substantial risk that the "in terrerom" effect of the agreement will secure employee compliance with illegal terms. Latona v. Aetna U.S. Healthcare, Inc., supra, 82 F.Supp.2d at 1096. In the face of the foregoing authorities, the appellate court could not, as

28

petitioner asserts, "easily" have construed the release clause to be valid, but was compelled to rule as it did.

C.

The Appellate Court Holding is Narrow, Confined to the Unique Facts of This Case

Petitioner forecasts great uncertainty in the drafting of contracts - even those outside the employment context - under the court's decision, and suggests that parties drafting general releases will have to include all manner of exceptions for unwaivable claims. [Petition, p. 35] Amicus likewise envisions a flood of litigation and uncertainty as plaintiffs counsel "excited by the prospect that they can sue for claims thought finally resolved" 8 race to the courthouse to nullify scores of settlement agreements containing broad release language. [Amicus letter, p. 7] This hysteria is speculative, premature and unfounded. The holding here is clearly limited to the unique factual context - where an employer insists upon execution ofthe agreement, and refuses to remove the offending terms; it is not unreasonable to require an employer, when put on notice of illegal provisions in employment contracts that it prepared, to act affirmatively to excise the offending provisions and bring the contracts into conformity with the law.

Of course, counsel's level of excitement (or for that matter, lack thereof) over a particular decision hardly furnishes grounds for review. See, California Rules of Court, Rule28(b).

29

Significantly the appellate court did not even purport to address the situation posited by Amicus - how the court should interpret a fully executed contract containing an overlybroad release. Indeed, it is unlikely such a contract would be completely nullified because of the very interpretation rules asserted by petitioner severance, lawful construction to save the contract - all of which are appropriate to consider when interpreting an executed agreement.

CONCLUSION There is no basis for review of the appellate court's decision which, grounded upon well-settled precedent, was thorough, well-reasoned and correct. In , contrast, it is petitioner that advocates for a radical change in the law, seeking to overturn decades ofjudicial precedent by creating a statutory exception where none exists in order to immunize itself from liability for its improper conduct. For the reasons stated herein, Edwards respectfully requests that this Court deny the Petition for Review. Respectfully submitted, DATED: October 30,2006 LAW OFFlCES OF RICHARD A . LOVE

By:46e~· Beth A. Shenfeld Attorneys for Plaintiff and Appellant· 30

REQUEST FOR REVIEW OF ADDITIONAL ISSUES (Ca. Rules of Court, Rule 28(a)(2» Pursuant to California Rules of Court, Rule 28(a)(2) Edwards respectfully requests that, if the Court grants Andersen's petition for review, the court additionally address the following issue found in the unpublished portion of the Court of Appeals' opinion:

ISSUES PRESENTED "Is an employer who agrees with another entity to restrict employment opportunities for an employee effectively agreeing to an employment boycott entitled to an exemption from anti-trust liability based upon a "bona fide sale" as the Court of Appeal held, where although the employer transfers a portion of its business, the challenged combination is not the "sale" but employment boycott which results in actual harm to the employee in the form of restricted employment opp ortunities."

31

WHY REVIEW SHOULD BE GRANTED

The collusive "no-hire" agreement between Andersen and HSBC implicates the broad public policy in favor of open competition as reflected in the Cartwright Act (Ca. Bus. & Prof Code, §16700 et seq.) prohibiting combinations which create restrictions in trade. The Appellate Court's determination that the no-hire agreement was effectively a "merger" and therefore exempt from the Cartwright Act prohibitions fundamentally misconstrues the decision of this Court in State ex rei Van De Kamp v. Texaco, Inc., 46 Ca1.3d 1147, 1163 (1988), creating an exemption where none exists.

LEGAL DISCUSSION I.

CARTWRIGHT ACT PROHIBITIONS APPLY TO EMPLOYMENT BOYCOTT

Edwards sought damages under the Cartwright Act which prohibits "combinations" in restraint of trade. (Bus. & Prof Code, §§ 16720, 16726) The purpose of the Act is to protect and promote competition. Chavez v. Whirlpool Corp., 93 Cal.App.4th 363, 369 (2002). Since the two statutory schemes share similar language and objectives, California courts often look to federal precedent under the Sherman Act for guidance.

Id.; Marin County Board ofRealtors, Inc. v.

Palsson, 16 Ca1.3d 920, 925 (1976).

32

The Cartwright Act applies to the sale of human services; there is no exception for the professions. Marin County Board ofRealtors, Inc. v. Palsson, supra, 16 Ca1.3d at 925; Cianci v. Superior Court, 40 Ca1.3d 903,925 (1985) [medical profession] The federal courts, interpreting the similar language of the Sherman Act, have long recognized that emp loyment boycotts, whether in the form of blacklisting former employees of competitors (see, e.g., Radovich v. NFL, 352 U.S. 445 (1957), "no switching" agreements under which competitors agree not to hire each other's employees for a specified period of time (Roman v. Cessna Aircraft, 55 F.3d 542 (10 th Cir. 1995), Nichols v. Spencer International Press, Inc., 371 F .2d 332

(7th

Cir. 1967», or agreements by competitors not to hire employees

terminated or rejected by member firms (Quinonez v. National Association of Securities Dealers, Inc., 540 F.2d 824 (5 th Cir.1976), Ostrofe v. H.S.Crocker Company, Inc., 740 F.2d 739, 742-3 (9 th Cir. 1984», operate as a restraint on trade in the labor market for services and run afoul of the anti-trust statutes. The challenged combination here was the agreement between HSBC and Andersen to restrict the future employment prospects of Andersen employees who did not sign the TONC - in effect a "no-hire agreement" - that was prohibited under the provisions of the Cartwright Act. That agreement operated to restrain the labor market of which Edwards was a member; as a direct victim of the boycott, Edwards had standing to sue under the Cartwright Act. See, e.g., Nichols v.

33

Spencer Intern. Press, Inc., 371 F .2d 332 (7th Cir. 1967); Roman v. Cessna Aircraft Company, 55 F.3d 542 (10thCir. 1995); Quinonez v. National Association of Security Dealers, 540 F .2d 824 (5th Cir. 1976); Radovich v. National Football League, 352 U.S. 445 (1957); Ostrofe v. B.S. Crocker Company, Inc., 740 F.2d 739 (9th Cir. 1984). 9 The appellate court, relying on the decision in State ex rei. Van De Kamp v. Texaco, Inc., 46 Ca1.3d 1147,1163 (1988), held that because Andersen transferred assets to HSBC the "combination" was exempt from the provisions of the Cartwright Act. In its action to enjoin an anticipated sale of Getty Oil to Texaco, the Attorney General in Texaco alleged that the merger might substantially lessen competition in the state market for crude oil and related products - in other words, the merger posed an "incipient threat" to competition. The Court held that a merger - where the entities lose their separate identities and become a single entity - was not a "combination of capital" prohibited under the Cartwright Act, particularly where the merger is challenged as posing an incipient threat to competition, rather than effecting an actual restrain t of trade. The appellate court clearly misapplied the Texaco holding. Here, Edwards The trial court concluded that Edwards did not have standing to bring the Cartwright Act claim. The appellate court did not adopt the trial court's reasoning but concluded that, irrespective of Edwards' standing to sue, the combination was "exempt" as a "bona fide merger or sale" 9

34

did not challenge the transfer (or sale) to HSBC as posing an incipient threat to competition in the provision of accounting services (the commodity offered for sale). Indeed, it was not the acquisition, but the agreement between HSBC and

Andersen concerning the conditions under which Andersen employees could be hired by HSBC - the employment boycott - which was intended to, and did, effect an actual, rather than threatened, unreasonable restraint, in the labor market as demonstrated by HSBC's withdrawal of the its employment offer. Thus, Texaco is inapposite.

CONCLUSION

The appellate court's conclusion that the no-hire agreement was a "bona fide" sale or merger, and therefore exempt from the proscriptions of the Cartwright Act, has broad implications which extend beyond the confines of this case. The Cartwright Act, like the provisions of Bus & Prof Code, §16600 further the fundamental public policy in favor of free competition, and against agreements which restrict that competitions. Validation of a no-hire agreement necessarily implicates these policy concerns as it directly impacts the free flow of workers in the market place. Review is necessary to clarify the scope of the exemption recognized by the Court in Texaco, and to provide guidance in its interpretation. For the reasons stated herein, Answering Party Edwards respectfully requests

35

pursuant to Rules of Court, Rule 28(a)(2) that, in the event this Court determines to accept Andersen's petition for review, it also accept for review the appellate court's ruling affirming dismissal of the Cartwright Act claim.

Respectfully submitted, DATED: October 30, 2006 LAW OFFICES OF RICHARD A . LOVE

By:0-~~

Beth A. Shenfeld Attorneys for Plaintiff and Appellant

36

Rt.Ct.\~t.\l st? '/.1 CERTIFIED FOR PARTIAL PUBLICATION IN TIIE COURT OF APPEAL OF THE STATE. OF CALIFORNIA .

.......•.. i

~.l:.:l

SECOND APPELLATE DISTRICT DIVISION TIiREE Oe;J~:Y

RAYMOND

~DWARDS

II,

Plaintiff and Appellant,

B178246 (Los Angeles County Super. Ct. No. BC294853)

v. ARlHURANDERSEN LLP,

ORDER MODIFYING OPINION [NO CHANGE IN JUDGMENT]

Defendant and Respondent.

THE COURT: The opinion in the above-entitled matter filed on August 30, 2006 is hereby modified as follows: On page 2, line 22, "16000" is changed to "16600.". On page 5, lines 19 through 21, the sentence beginning "As a result ..." is modified to read: "Allegedly as a result, HSBC withdrew its employment offer." 6n page 9, line 26, "16001 " is changed to "16601." On page 9, line 27,

"16002'~

is changed to "16602."

On page 32, line 5, the word "Andersen'·s" is changed to "Edwards's." This modification does not affect the judgment.

Clerk

.Jt

PROOF OF SERVICE 1013A(3) C.C.P. Reviscd1)S7oI/88 STATE OF CALIFORNIA, COUNTY OF LOS ANGELES I am employed in the County of Los Angeles, State of California. I am over the age of 18 and not a party to the within action; my business address is 11601 Wilshire Boulevard, Suite 2000, Los Angeles, California 90025. On October 30, 2006, I served the foregoing document described as ANSWER TO PETITION FOR REVIEW; REQUEST TO ADDRESS ADDITIONAL ISSUES IN THE EVENT THAT REVIEW IS GRANTED on the interested party or parties in this action by placing [ ] the original and/or [X) a true copy thereof, enclosed in a sealed envelope, and addressed as follows:

Clerk of the Superior Court for the Hon. Andria K. Richey Department 31 III N. Hill Street Los Angeles, CA 90012

Clerk of the Court California Court of Appeal Second District, Division Three 300 South Spring Street North Tower, Second Floor Los Angeles, California 90013

[Xl

(BY MAIL) I am "readily familiar" with the firm's practice of collection and processing correspondence for mailing. Under that practice it would be deposited with the U.S. postal service on that same day with postage thereon fully prepaid at Los Angeles, California in the ordinary course ofbusiness. I am aware that on motion of the party served, service is presumed invalid if postal cancellation date or postage meter date is more than one day after date of deposit for mailing in affidavit.

[Xl

(STATE) I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed on October 30, 2006, at Los A1]~~

PROOF OF SERVICE 1013A(3) C.C.P. Revised 05/01/88 STATE OF CALIFORNIA, COUNTY OF LOS ANGELES I am employed in the County of Los Angeles, State of California. I am over the age of 18 and not a party to the within action; my business address is 11601 Wilshire Boulevard, Suite 2000, Los Angeles, California 90025. On October 30, 2006, I served the foregoing document described as ANSWER TO PETITION FOR REVIEW; REQUEST TO ADDRESS ADDITIONAL ISSUES IN THE EVENT THAT REVIEW. IS GRANTED on the interested party or parties in this action by placing [ ] the original and/or [x] a true copy thereof, enclosed in a sealed envelope, and addressed as follows: Attorneys for Defendant and ReSjlondent ARTHUR ANDERSEN LLP Wayne S. Flick, Esq. Yury Kapgan, Esq. LATHAM & WATKINS LLP 633 W. Fifth Street, Suite 4000 Los Angeles, CA 90071 []

(BY MAIL) I am "readily familiar" with the firm's practice of collection and processing correspondence for mailing. Under that practice it would be deposited with the U.S. postal service on that same day with postage thereon fully prepaid at Los Angeles, California in the ordinary course of business. I am aware that on motion of the party served, service is presumed· invalid if postal cancellation date or postage meter date is more than one day after date of deposit for mailing in affidavit.

[X]

(BY FEDERAL EXPRESS) I deposited the document in a fully sealed Federal Express envelope in the box regularly maintained by Federal Express at the above-referenced place of business with delivery fees .provided for and addressed to the person(s) on whom the document is to be served.

[X]

(STATE) I declare under penalty ofpeIjury under the laws of the State of California that the foregoing is true and correct. Executed on October 30, 2006, at Los/~l~es,.,