Recent appellate decision highlights challenges small business owners face during divorce
The latest divorce case of the day involves the state’s policy favoring an individual’s right to freely practice his or her chosen trade profession.
The case of Marriage of Greaux and Mermin (2014 DJDAR 1871) was released on February 19, 2014 in the daily appellate report. The husband (T. Mermin) and wife (J. Greaux) jointly operated a business selling a type ofalcoholic spirits called “rhumagricole.” According to the infallible source Wikipedia this is a type of sugar cane rum that is popular in the Caribbean.
Greaux filed for divorce in 2009, and at the same time also filed a petition for dissolution of the business, plus lawsuits accusing product suppliers, corporate officers, and corporate counsel of fraud and conspiracy. Greaux further disrupted business operations by withdrawing operating capital and making statements to employees discussing the demise of the business. Then, she accused her husband of failing to properly run the business after their separation, without acknowledging the crippling impacts of her own actions. Greaux asked the court to award the business to her at zero value.
Trial courts are so backlogged that if a litigant brings a battle that is more about revenge than commonsense trial, courts often get frustrated. Unsurprisingly, the court ruled that Greaux should not receive the business as her husband had demonstrated a greater commitment to running it even under very difficult conditions.However,the trial court overstepped its bounds in barring Greaux from working in the same type of business anywhere for 5 years.
California’s settled public policy in favor of competition requires that a person be allowed to engage in a lawful profession, trade or business. Given the strong policy underlying the right to work, unlimited non-competition provisions cannot generally be supported by legal reasoning. This is the last in a long series of appeal cases invalidating non-competition clauses. Business and professions code section 16600 renders void any agreement that restrains an individual from engaging in a lawful occupation or enterprise.
The Court of Appeal was not completely unsympathetic to Mermin’s argument that this California law applies only to agreements or contracts, not court orders issued in a divorce case. Certainly family law courts have broad powers to make orders that are fair and equitable. In that context it was possible that California law section 16600 could have inferred an exception based on the language in the provision that says that non-competition clauses could be allowed if separately provided for in specific law.
However, ultimately the appeals court determined that the family court did not have the ability to make such a broad non-compete provision. It directed the trial court to limit any noncompetition to a specific justifiable geographic area and time.
It cited the case of Marriage of Lord 454 A.2d 830, a Maine case which discussed a 60 mile radius and a seven-year time period as being unduly harsh. Each case must be separately considered with an adequate evidentiary basis being provided for the necessity of any non-compete provisions.
Once again we see affirmation of a long tradition in American jurisprudence of allowing the trial court latitude but expecting the court to provide a rationale supported by sound evidence if it restricts the American right to life, liberty, and the pursuit of happiness.
