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AMN Healthcare, Inc. v. Aya Healthcare Services, Inc.
Citation: Not availableDocket: D071924
Court: California Court of Appeal; November 1, 2018; California; State Appellate Court
Original Court Document: View Document
AMN Healthcare, Inc. (AMN) filed an appeal against a judgment from the Superior Court of San Diego, which favored Aya Healthcare Services, Inc. and individual defendants Kylie Stein, Robin Wallace, Katherine Hernandez, and Alexis Ogilvie. The appeal challenges three main points: the judgment in favor of the defendants, an injunction preventing AMN from enforcing its nonsolicitation clause against its former employees, and the award of attorney fees to the defendants. AMN, engaged in providing healthcare professionals like travel nurses, claimed that the individual defendants, who were former travel nurse recruiters for AMN, violated a Confidentiality and Non-Disclosure Agreement (CNDA) by soliciting AMN employees after joining Aya. The CNDA included a nonsolicitation provision that restricted the individual defendants from recruiting AMN employees for at least one year. AMN's legal claims included breach of contract and misappropriation of confidential information under the Uniform Trade Secrets Act. The defendants countered with a cross-complaint for declaratory relief and unfair business competition, arguing that the nonsolicitation provision was an unlawful restraint on their professional activities under California Business and Professions Code section 16600. They successfully moved for summary judgment, leading the trial court to agree that AMN's contractual claims were invalid and that the information used by the defendants was not protected. The court granted summary judgment against AMN and enjoined it from enforcing the nonsolicitation clause, awarding attorney fees to the defendants. The appellate court affirmed the trial court's decisions, agreeing that the nonsolicitation provision was unenforceable and that the lower court acted within its discretion in its rulings. Between October 2012 and May 2014, AMN employed individual defendants in its travel nurse staffing department, where they were privy to AMN's trade secrets and confidential information as part of their job responsibilities. Each defendant signed a Confidentiality and Non-Disclosure Agreement (CNDA), which defined "confidential information" broadly to include customer lists, financial data, business methods, employee details, and marketing strategies. The CNDA mandated that employees must not disclose this information during and after their employment. Section 3.2 of the CNDA included a nonsolicitation clause, preventing employees from recruiting AMN staff for a period of one year or eighteen months following their departure. The allegations indicated that this clause aimed to protect AMN's travel nurses from being recruited by former employees. Defendant Stein resigned on June 22, 2015, and was accused of soliciting two AMN travel nurses, using proprietary information obtained during her employment. Similarly, on September 9, 2015, Wallace resigned and allegedly accessed confidential documents without approval, subsequently sending this information to her personal email for post-employment use. Both actions were considered violations of the CNDA's provisions aimed at protecting AMN’s confidential information and preventing solicitation of its employees. Wallace forwarded a confidential email from AMN senior manager Theresa Wilhelm to an Aya recruiter, which included strategies for competing with Aya. AMN claims this email and another document shared by Wallace contained confidential information as defined in the CNDA, including trade secrets. Hernandez resigned from AMN around June 25, 2015, and joined Aya, having solicited AMN travel nurse Kym Shay to leave AMN. Similarly, Ogilvie resigned in November 2015 and recruited Sarah Hennis to join Aya. AMN's FAC asserts 11 causes of action, seeking damages and injunctive relief. The first cause alleges breach of contract against Stein, Hernandez, and Ogilvie for soliciting AMN nurses, while Wallace is accused of breaching the CNDA by disclosing AMN's confidential information for personal gain. The second cause of action for misappropriation of trade secrets targets Stein, Wallace, and Aya for soliciting AMN's travel nurses and their employment conditions. The third cause focuses solely on Wallace, claiming she breached her duty of loyalty. The fourth and fifth causes allege intentional and negligent interference with AMN's relationships with travel nurses. The sixth through tenth causes exclusively target Aya, claiming it interfered with AMN's contracts, conspired with Wallace, and aided in her misappropriation of trade secrets and breach of loyalty. The eleventh cause alleges unlawful business practices based on Wallace's actions. Defendants argue that section 3.2 of the CNDA is an unenforceable restraint on trade, rendering AMN's breach of contract claim legally invalid, and assert that several other causes of action lack independent wrongful acts to support tortious interference claims. Defendants contended that they were not liable for extending job offers to at-will employees of AMN, as both parties had the right to recruit and hire travel nurses who had previously worked or were temporarily assigned to AMN. They argued that AMN's claims of wrongful conduct in recruiting did not hold because using non-protected information was permissible under California law. Regarding AMN's accusations of trade secret misappropriation, defendants asserted that the information in question was not private and that there was no evidence of actual misappropriation. AMN defended its nonsolicitation provision in the CNDA as valid, arguing it merely restricted defendants from soliciting current AMN employees, and claimed that there were triable facts concerning the alleged misappropriation of trade secrets, emphasizing that the identities of its travel nurses constituted trade secrets under section 16607. The court ultimately granted summary judgment for defendants and summary adjudication on their declaratory relief claim, ruling that the nonsolicitation provision constituted an unlawful restraint on trade, violating section 16600, as it hindered defendants from engaging in lawful recruitment practices for a year post-termination. The court also found that using non-trade secret information was protected by section 16600 and identified a lack of evidence supporting AMN's claims of misappropriation. The court's examination of evidence related to a specific email did not establish a trade secret, leading to the conclusion that summary judgment was appropriate. Summary judgment and summary adjudication serve to clarify whether a trial is necessary by allowing defendants to demonstrate the absence of merit in a plaintiff's claims or to present complete defenses. The party seeking summary judgment must initially demonstrate the absence of any material factual dispute. Specifically, the defendant needs to show that the plaintiff cannot prove at least one essential element of the claim. Once this burden is met, the plaintiff must then provide evidence that a triable issue of material fact exists regarding the claim or defense. A triable issue is established if the evidence allows a reasonable finding in favor of the plaintiff based on the applicable standard of proof. On appeal, the reviewing court independently assesses the trial court's summary judgment ruling using the same legal standard, examining all relevant evidence except that which has been objected to and sustained. The trial court's reasoning for granting summary judgment is not binding on the appellate court, which evaluates the ruling itself rather than the rationale. Regarding the nonsolicitation of employee provision, California law dictates that restraints on employment are generally void unless they fall under specific exceptions outlined in Business and Professions Code sections 16600-16602. Section 16600 establishes a strong public policy favoring open competition and employee mobility, making contracts that restrict lawful employment void unless they meet certain criteria. In the current case, the nonsolicitation provision in the CNDA is deemed void under section 16600, as it restricts former employees from soliciting travel nurses for at least one year, thereby limiting their ability to engage in their chosen profession and work effectively with a new staffing agency. The evidence indicates that this restriction would significantly hinder the recruitment capabilities of former AMN employees. Travel nurses are typically assigned by AMN for temporary 13-week periods, with some assignments potentially extended. AMN's enforcement of a one-year post-termination restriction on former recruiters from contacting these nurses effectively restricts their ability to engage in their profession for a minimum of four assignments. AMN argues that section 3.2 of its contract is valid as it aims to prevent the solicitation of its employees, citing Loral Corp. v. Moyes, where a former executive was restrained from recruiting employees from a previous employer. However, the Moyes decision highlighted that contracts restraining employment with competitors are invalid under California's section 16600, which prohibits such restraints. AMN's interpretation of section 16600 is challenged by the Edwards case, which determined that 'restrain' should not be interpreted as 'prohibit' and rejected any narrow-restraint exceptions. The current court expresses skepticism regarding Moyes' relevance post-Edwards. Even if Moyes' reasonableness standard was still applicable, the facts differ significantly, as the defendants in this case are engaged in recruiting medical professionals rather than holding executive positions. Consequently, enforcing section 3.2 would impede the defendants' ability to perform their chosen profession, rendering it void under section 16600. The court concludes that AMN's first cause of action for breach of contract, alleging that the defendants violated section 3.2 by soliciting AMN's employees, fails as a matter of law. Additionally, AMN's allegations related to unfair competition and other claims dependent on section 3.2's validity also lack merit, leading to a summary judgment in favor of the defendants. AMN's claims against individual defendants for nonsolicitation of employees and intentional interference fail because the defendants had the right under section 16600 to engage in their profession with Aya, including soliciting AMN's travel nurses. AMN's breach of duty of loyalty claim against Wallace is also unsuccessful, as any duty not to disclose confidential information derived from a CNDA and constitutes a contractual issue rather than a tort. Additionally, AMN's claim for misappropriation of trade secrets is legally insufficient because it did not adequately establish ownership or secrecy of the alleged trade secrets. The evidence indicates that the identities and contact information of the travel nurses in question were already known to Aya before the individual defendants joined the company, negating the claim that this information constituted a trade secret. Consequently, AMN's assertion that its customer list was a protected trade secret under section 16607 is similarly dismissed. Subdivision (a) of the statute classifies a customer list, which includes the names, addresses, and identities of employer customers who have job orders with an employment agency within 180 days prior to an employee's separation, as a trade secret and confidential information belonging to the agency. Even if AMN travel nurses are considered "customers," Aya has no record of traveler Shay ever working for or contacting Aya. Evidence indicates Shay contacted Hernandez directly and was not assigned or entered into Aya's database. AMN cannot legally claim the names and contact information of travel nurses Morris, Meyer, and Hennis in Aya's database as its trade secret, as these individuals were already known to Aya prior to their departure from AMN. The conclusion that the identities and contact information of AMN travel nurses known to Aya are not "secret" under Civil Code section 3426.1 is reinforced by evidence showing that travel nurses often work with multiple agencies, share information about competing offers, and have their contact information listed with various agencies simultaneously. Furthermore, many travel nurses, including Hennis, are part of a public social media group with over 30,000 members, making it easy for anyone to access their profiles. This group dynamic illustrates the transient nature of travel nurses, who frequently change employers and locations, complicating claims of confidentiality. Travel nurses utilize Gypsy Nurse to share job-related experiences and agency insights. Ogilvie checked Aya's database and confirmed that Hennis's information was present, subsequently contacting Hennis on social media due to their connection. This evidence indicates that AMN travel nurses' identities and contact details are not confidential or valuable trade secrets under Civil Code section 3426.1, subdivision (d). AMN cites ReadyLink Healthcare v. Cotton to argue that such information is protected; however, the facts in Cotton differ significantly, as it involved specific databases of employee information and compensation details that were misappropriated by a former employee. In contrast, the information concerning AMN nurses was publicly known or easily obtainable via social media and personal networks. Additionally, AMN claims that a confidential email prepared by Wilhelm on September 1, 2015, was misappropriated. The email, which Wallace forwarded to an Aya recruiter while still employed at AMN, discussed competitive practices of Aya regarding pricing and benefits. The court determined that this email does not constitute a trade secret, as it contained general information about Aya's recruiting tactics rather than proprietary data. The trial court initially sustained an objection regarding the foundation of an email presented as evidence, but the merits were still evaluated due to its inclusion in Aya's summary judgment papers. The email suggested questions for AMN recruiters to undermine competition in recruiting travel nurses, but the information was widely accessible and not economically beneficial to Aya, which considered it merely amusing. Consequently, the email did not qualify as a protectable trade secret of AMN. Additionally, the case involved a "Travelers on Assignment" (TOA) list that Wallace forwarded to her personal email before joining Aya. Although Wallace admitted it was imprudent to send the list, she claimed not to have used it for recruiting, instead relying on other sources. AMN disputed her assertion, highlighting her acknowledgment that the TOA list was confidential and her actions were inappropriate. However, regardless of whether the TOA list was a protected trade secret, the undisputed evidence indicated that AMN suffered no harm from the disclosure, nor did it significantly contribute to any presumed damage. The court concluded that Wallace's actions, while potentially wrong, did not constitute improper use of information, particularly since the travel nurse data was not secret and was available through Aya's database. Thus, the court found no basis for protecting the TOA list as a trade secret under relevant statutes. In the absence of a protectable trade secret, the right to compete fairly supersedes the employer's right to protect clients from competition by former employees. Summary judgment was appropriately granted on AMN's second cause of action for misappropriation of trade secrets, as the defendants did not misappropriate any trade secrets. Consequently, AMN's seventh and ninth causes of action against Aya also fail, since these claims were predicated on the existence of a viable trade secret allegedly misappropriated by Wallace. The eighth and tenth causes of action against Aya, which allege wrongful participation in a conspiracy and aiding and abetting Wallace's breach of duty of loyalty, also fail as a matter of law. These claims are based on the September 1 email, characterized as "confidential information" rather than a trade secret. However, this "confidential information" is encompassed within the definition of trade secrets in the CNDA. Any duty Wallace had to not disclose AMN's confidential information arises from the CNDA, meaning any breach would be a contractual issue, not a tort. Allegations of conspiracy or aiding and abetting do not convert a contract cause of action into a tort cause of action. Civil conspiracy requires the commission of a civil wrong resulting in damage, and merely alleging a conspiracy does not establish liability without an underlying tort. A person may be liable for aiding and abetting an intentional tort if they either (a) know that the conduct they are assisting constitutes a breach of duty and provide substantial support or encouragement, or (b) assist in achieving a tortious outcome while their own conduct also constitutes a breach of duty to a third party. The Unfair Competition Law (UCL), under section 17200, prohibits any unlawful, unfair, or fraudulent business act or practice, establishing three distinct categories of unfair competition. A practice can be deemed "unfair" or "deceptive" even if it is not classified as "unlawful." The UCL allows for violations of other laws, whether federal, state, or local, to serve as the basis for an actionable claim. If the underlying legal claim fails, any derivative UCL claim will also fail. Consequently, since all other claims by AMN are deemed legally insufficient, the derivative UCL claim must also be dismissed. In a related cross-complaint, defendants sought declaratory relief regarding their rights under a Confidentiality and Non-Disclosure Agreement (CNDA) with AMN, specifically concerning the enforceability of section 3.2. The UCL claim was based on AMN's attempts to enforce this section. Defendants requested injunctive relief and attorney fees. A prior case, AMN Services LLC v. Caitlan Grubaugh, concluded that section 3.2 was unenforceable under section 16600, as the previous court found that the former employee did not misappropriate trade secrets. Additionally, it was noted that during the ongoing case, AMN's in-house counsel sent cease-and-desist letters to former recruiters who sought employment with a competitor, Aya, referencing section 3.2. Defendants sought an injunction to prevent AMN from enforcing a specific contractual provision against not only the individual defendants but also all former AMN recruiters in California who had signed similar agreements. They argued that, without this injunction, AMN would persist in litigating against former employees who joined competitors. The court, after reviewing oral arguments, trial briefs, stipulated facts, and prior rulings deeming the provision void under section 16600, granted the injunction. This order prohibits AMN and its agents from enforcing any agreements that restrict former employees from soliciting AMN employees to leave. The court later awarded defendants approximately $169,000 in attorney fees under Civil Code section 3426.4 and Code of Civil Procedure section 1021.5, citing the significance of enforcing California's anticompetition law for public interest. The court stated AMN's practices adversely affected competitors and individual employees. On appeal, AMN contended the injunction was overly broad and challenged the attorney fee award. The appellate review of the injunction follows an abuse of discretion standard, requiring evidence support for the trial court's decision. Ultimately, the court affirmed that the injunction against AMN was justified, as section 3.2 is void under section 16600 regarding former employees in the recruiting profession. Evidence supports the court's discretion in the case against AMN, showing AMN's prior similar litigation against ex-employee Grubaugh, who also joined a competitor, and AMN's ongoing enforcement of section 3.2 against other former employees through cease and desist letters. The court rejected AMN's claims that the injunction was overbroad or imprudently granted. Regarding attorney fees, the general rule is that parties bear their own costs, as established in Gray v. Don Miller Associates, Inc. However, Code of Civil Procedure section 1021.5 provides an exception for public interest litigation, allowing a court to award attorney fees to a successful party if the action enforces an important public right and confers significant benefits. The requirements include being a successful party, enforcing an important right, conferring a significant benefit on the public, and justifying the fee award due to the necessity and financial burden of private enforcement. In this case, the court properly awarded attorney fees under section 1021.5, as defendants were successful, having won summary judgment and a declaratory relief action. The case involved an important public interest issue concerning the enforceability of section 3.2 of the CNDA, which restricted former AMN employees from recruiting AMN's travel nurses, impacting the public interest significantly. The court's discretion in this award was deemed appropriate, affirming that the action conferred substantial public benefits. Section 16600 embodies a strong public policy in California that should not be undermined by judicial decisions. The case involved significant benefits for a large group of individuals, specifically current and former AMN employees who signed a CNDA with a nonsolicitation provision similar to section 3.2, which limited their employment for at least one year post-termination. This also affected California-based competitors of AMN who wished to hire these former employees but were deterred by the potential legal consequences of enforcing section 3.2. The court found the award of attorney fees to the defendants justified due to the necessity and financial burden of private enforcement. Despite having achieved summary judgment against AMN, the defendants pursued their cross-complaint not for damages but to prevent AMN from enforcing section 3.2 against other former employees. The absence of an injunction would leave AMN free to threaten legal action against other former employees seeking employment with competitors. The court affirmed the judgment, which included the injunction against AMN and the attorney fees awarded to the defendants, and granted the defendants their costs on appeal.