A buyer of a business sued the seller’s owner to stop him from competing against the owner’s old business.
This case involved the sale of a seafood distribution business. The seller was a San Francisco based organic seafood supplier to restaurants across the U.S. via foodservice distributors. The co-founder and president of the seller had been working in the seafood industry for approximately thirty-nine years. He knew all his company’s suppliers and customers and he had a pre-existing relationship with many of them.
The buyer is a Boston based wholesale seafood supplier to high-end restaurants. Buyer purchased the assets of the seller in April 2018 pursuant to an asset purchase agreement. The seller’s owner worked for the buyer after the sale for a year. He then left and formed his own company and started to compete against his old business.
The buyer sued the seller’s owner accusing him of stealing the sold company’s trade secrets before he left the buyer and using it to fulfill orders to buyer’s customers with his new company. The buyer claimed that this diversion of business away from the buyer caused the buyer’s “revenue to drop precipitously.”
The buyer asked the San Francisco federal district court to issue a temporary restraining order and preliminary injunction to stop the seller’s owner from using the buyer’s trade secrets and stop soliciting and contacting the buyer’s customers. The court said no saying that buyer will probably lose its lawsuit.
Why? Because the buyer’s allegations did not identify any trade secrets that the seller’s owner stole; meaning buyer information that was valuable and secret. The court noted that the buyer’s customer list could be a trade secret, but the buyer had not claimed that the customer list was not “readily ascertainable through public sources.” And the names of buyer suppliers could not be a trade secret because those supplier names were on the buyer’s website, and “the key players in the seafood industry are well-known, and pricing in the industry is standard and not unique.”
This case is referred to CleanFISH, LLC v. Sims, Case No. 19-cv-03663-HSG, United States District Court, N.D. California, (June 28, 2019) https://scholar.google.com/scholar_case?case=10000178774886670925&q=%22asset+purchase+agreement%22&hl=en&scisbd=2&as_sdt=2006&as_ylo=2017#
The buyer could have stopped the owner’s competition with a covenant not to compete. A covenant not to compete would be enforceable against the seller’s owner in California because it would have been given in connection with sale of the owner’s business. Apparently, the buyer did not get a noncompetition covenant from seller’s owner.
By John McCauley: I help companies and their lawyers minimize legal risk associated with small U.S. business mergers and acquisitions (transaction value less than $50 million).
Telephone: 714 273-6291
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