Strategix, Ltd. v. Infocrossing West, Inc.

Matthew Aarsvold, Strategix, Ltd., and ePassage, Inc. (appellants), appeal from an order granting a preliminary injunction to respondents Infocrossing West, Inc., and Infocrossing Services West, Inc. (respondents). 1 The court enforced nonsolicitation covenants contained in *1071 agreements by which Strategix, with the consent of its parent company, ePassage, sold its goodwill and substantially all of its assets to Infocrossing’s predecessor, Systems Management Specialists (SMS). The preliminary injunction barred appellants from soliciting Infocrossing’s employees or customers.

The nonsolicitation covenants are unenforceable because they are broader than permitted by the statute that authorizes noncompetition covenants reached in connection with the sale of a business, Business and Professions Code section 16601. 2 Section 16601 allows a seller to agree not to compete with the buyer in the geographic location where the seller had carried on business. The permissible scope of the covenant is thus tied to the sold business. The nonsolicitation covenants here wrongly barred appellants from soliciting the buyer’s employees and customers, rather than the former employees and…