## Facts

- Huong Que, Inc. distributed Vietnamese “Bloc” calendars and had developed a well-known brand and customer base over more than two decades.
- In 2003, Mui Luu and Cu Tu Nguyen sold the company to Con Tu under a written agreement that included:
  - installment purchase payments to the sellers,
  - additional promised compensation amounts to each seller, and
  - a four-year “Management Agreement” requiring the sellers to serve as managing agents and provide operational services.
- The sale agreement included a covenant not to compete providing that the sellers would not “directly or indirectly, carry on or engage in, as an owner, the business of publishing services,” with a limited exception for publishing Buddhist bibles and books.
- The agreement contained an integration clause stating it was the parties’ entire agreement regarding rights and obligations related to the stock sale, absent a later signed written modification.
- During the management period, a Huong Que employee discovered email evidence indicating Luu sought and received a customer address list connected to formation of a new calendar venture (“Pro Calendar”) in which Luu and Nguyen would be partners.
- Plaintiffs alleged the list comprised about 90% of Huong Que’s customers and constituted confidential information developed over many years.
- Plaintiffs sued for contract and tort claims, including breach of contract, breach of the implied covenant, breach of duty of loyalty, misappropriation of trade secrets, and interference with business relationships, and sought damages and injunctive relief.
- The trial court granted a preliminary injunction restricting specified competitive and disloyal activities by Luu and Nguyen.
- Luu and Nguyen appealed, challenging the trial court’s findings on likelihood of success and the balance of harms.

## Issues

1. Whether the trial court abused its discretion in finding plaintiffs showed a likelihood of success on claims tied to the noncompete, agents’ duty of loyalty, and trade secret misappropriation.
2. Whether the trial court reasonably concluded the balance of interim harms favored injunctive relief.
3. Whether the injunction’s scope was reasonably tailored to the alleged contractual and fiduciary breaches.

## Decision

- The Court of Appeal affirmed the order granting the preliminary injunction.
- The court held the trial court acted within its discretion in concluding plaintiffs showed a probability of prevailing on key claims, including breach of the noncompetition covenant, disloyal conduct by managing agents, and misappropriation of a customer list.
- The court held the trial court reasonably found plaintiffs faced harm to customer relationships and goodwill that was difficult to quantify, and that the injunction imposed limited, temporary restraints on defendants.
- Costs on appeal were awarded to plaintiffs.

## Legal Principles

- A preliminary injunction in California turns on (1) likelihood of success on the merits and (2) relative interim harms; appellate review is for abuse of discretion.
- Contract language in a sale-of-business transaction, including a noncompetition covenant and integration clause, may be enforced according to its terms at the preliminary stage when the trial court’s interpretation is reasonable.
- A noncompetition covenant connected to the sale of a business and its goodwill may fall within statutory exceptions permitting limited restraints ancillary to such sales.
- Managing agents owe duties of loyalty to their corporate principal; while they may make limited preparations to compete after the relationship ends, they may not compete with or undermine the principal during the agency.
- A customer list can qualify as a trade secret when it has independent economic value from not being generally known and is subject to reasonable secrecy measures; obtaining or using it for a competing venture can support a misappropriation claim.
- Using confidential customer information to solicit business for a competitor can support claims for interference with business relationships and supports injunctive relief where damages may be inadequate.

## Conclusion

The court upheld a preliminary injunction restraining former owners who remained as managing agents from using the company’s customer information and goodwill to launch a competing calendar business, finding a sufficient showing of probable success on contract, loyalty, and trade secret claims and a reasonable balance of interim harms favoring the buyer.


Huong Que, Inc. v. Luu, 58 Cal. Rptr. 3d 527 (Cal. Ct. App. 2007)