Radiant Industries, Inc. v. Skirvin

Opinion

KINGSLEY, J.

This is an appeal from an order of the superior court, in an action to enforce a covenant not to compete, which order modified, favorably to defendants, a preliminary injunction theretofore issued. We affirm the order.

Defendant Skirvin and Alfred T. Schmidt were the original organizers of Radiant Industries and theiy technical skills were responsible for the development of the products which it manufactured and sold. In 1968 the business was incorporated, Skirvin and Schmidt each receiving 500,000 shares of stock; about 16,000 shares were sold to others. Skirvin was an officer and director of the corporation. Late in 1968, 20th Century Engineering Corporation (hereinafter 20th Century) entered into an arrangement whereby Skirvin and Schmidt each exchanged 410,000 of their shares of stock for stock in 20th Century. As an integral part of that arrangement, Skirvin and Schmidt entered into an employment contract with Radiant and each entered into a covenant not to compete with Radiant until January 1, 1974. Subsequently, 20th Century merged with plaintiff corporation, Skirvin apd Schmidt receiving the appropriate num

[403]

ber of shares in the new corporation for their 20th Century shares. On May 23, 1970, Skirvin’s employment by plaintiff under the employment contract was terminated by mutual consent, although Skirvin remained as an officer and director of plaintiff until March 1971. In the termination agreement the covenant not to compete was restated with exceptions as to certain products not herein involved.

The present action, filed on February 4, 1972, alleged that Skirvin, and the codefendant Skirvin Development Corporation as his

alter ego,

were breaching the covenant and prayed for an injunction and damages. A preliminary injunction issued as prayed but, on defendants’ motion, it was modified so as to allow Skirvin and his corporation to compete despite violation of the covenant.

The modification was based on the expressed determination by the trial court that the covenant was unenforceable under section 16600 of the Business and Professions Code, not being within the exception to the general prohibition set forth in section 16601.