Swenson v. File

In Swenson v. File (1970) 3 Cal.3d 389, the California Supreme Court explained the applicable version of section 16602 "substantially restricted the scope and effect" of the covenant not to compete at issue in the case. The covenant contained two provisions, a blanket prohibition on servicing the firm's current or former clients, and one restricting the departing partner from servicing clients within a 20-mile radius of the partnership offices. Neither provision appeared to fall within the section 16602 exception. At the time the partnership agreement was executed, section 16602 allowed partners to agree not to carry on a similar business "'within the same city or town or a specified part thereof, where the partnership business has been transacted.'" (Swenson, at p. 392.) The agreement at issue in Swenson restricted a departing partner from providing services to any partnership client, or to a non-partnership client which had its principal office within a 20-mile radius of any partnership office. (Id. at p. 391.) Yet, despite the infirmity of the provisions as written, section 16602 did not invalidate the covenant in its entirety, "for under section 16600 a contract in restraint of trade is only 'to that extent void.' Thus, the rule of severability may be invoked to uphold defendant's covenant to the extent that it falls within the limits permitted by section 16602." (Swenson, at p. 395.) The court noted the blanket prohibition on servicing the firm's clients was facially invalid due to the lack of any geographic restriction. Still, it reasoned both provisions could be upheld "to the extent that serving such clients would also constitute, under former section 16602, 'carrying on' an accounting business within the Cities of Pasadena or Azusa, where the partnership offices are located. But neither subsection may validly be construed as enjoining defendant from serving clients, regardless of the location of their offices, unless defendant 'carries on' business with those clients in Pasadena or Azusa." (Ibid.) The analysis then turned to whether the departing partner had carried on business with clients in Pasadena and Azusa. The court invoked the common law concept of reasonableness to answer that question. (Id. at pp. 396-397.)