California Court of Appeal Rules That Partial Sale of Business Can Bind Seller-Owner to a Noncompetition Agreement
Author: Destiny Aigbe
September 5, 2024
In a landmark decision, the California Court of Appeal in Samuelian v. Life Generations Healthcare, LLC, — Cal. App. 5th —, 2024 WL 3878448 (Cal. App. Aug. 20, 2024), addressed two critical questions regarding noncompetition agreements in the context of the partial sale of a business. The court held that:
- A partial sale of an ownership interest may support a noncompetition agreement under the "rule of reason," even though the statutory exception under Business & Professions Code Section 16601 requires the sale of an entire business interest for a noncompete to be enforceable.
- An LLC member’s fiduciary obligations, if contractually imposed, may allow for a noncompete during the period of membership.
In this case, two LLC members sold part of their interest while retaining a minority stake with fiduciary obligations and voting rights. The operating agreement included a noncompetition clause for members, which became the focal point of the dispute. The court ruled that such noncompetition agreements, particularly in partial sales, must be assessed for reasonableness, weighing their competitive benefits against any potential harm to competition.
This decision highlights the importance for businesses to carefully structure noncompetition agreements and consult legal counsel to ensure compliance with California law, especially following partial sales of business interests.
About the Author
Destiny Aigbe
Managing Partner
Aigbe Law PLLC | Dark Alpha Capital
A Corporate and Securities Law Firm
With a robust foundation in law and finance, Destiny Aigbe has carved a distinguished career, underpinned by his pivotal role in orchestrating and managing complex transactions that have propelled companies to significant growth and market prominence. As a seasoned attorney and strategic advisor, Destiny has been instrumental in facilitating over $75 million in capital raises, demonstrating a keen acumen for securing funding and fostering investor confidence.
Destiny's leadership in the execution of six successful public listings, through meticulously structured reverse mergers and registration statements, showcases his adeptness in navigating the intricacies of the public markets and his capacity to guide companies through transformative growth phases. His involvement in five mergers as an operator further illustrates his versatile skill set, extending beyond legal expertise to include hands-on management and operational strategy, though these ventures did not involve funding.
Destiny's professional journey is marked by a commitment to excellence and a diverse range of experiences, from representing a wide spectrum of clients including public and private companies, and investment firms, to holding significant roles within the US government. His tenure with the US Department of State and the National Institutes of Health highlights his adaptability and his contribution to the advancement of entrepreneurial ventures in sectors like biotechnology and nanotechnology through strategic funding initiatives.
An alumnus of Vanderbilt University Law School, Destiny focused on Finance and Mergers & Acquisitions, further honing his expertise with a certificate in Law and Business. His foundational education in Finance was obtained with honors from the University of Maryland's Robert H. Smith School of Business, which laid the groundwork for his subsequent achievements in investment banking and legal practice.
Residing in the Washington, D.C. area, Destiny Aigbe continues to leverage his extensive experience and insightful leadership to drive innovation, growth, and success for his clients and the ventures he is involved with.
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