Unpublished Disposition, 934 F.2d 324 (9th Cir. 1991)

MEMORANDUM^* 

Robert Giddens appeals the district court's grant of summary judgment in favor of Shaklee, Inc. on Shaklee's claim and Giddens' counterclaim for breach of contract. Giddens also appeals the district court's grant of summary judgment against Giddens on his claim of intentional interference with advantageous business relationships, and its denial of Giddens' motion to file a second amended counterclaim. We affirm.

Background

Giddens acted as a distributor for Shaklee from 1970 until 1988, pursuant to a distributor agreement providing, inter alia, that " [i]f this agreement or any Company rule is violated, Shaklee products may cancel this distributorship...."

In 1988 Shaklee terminated Giddens' distributorship after Giddens recruited other Shaklee distributors to become distributors for other non-competing direct sales companies. That termination was based on Giddens' violation of section 4 of Shaklee's "Statement of Privileges and Responsibilities" ("P & R"), prohibiting Shaklee distributors from promoting another direct selling company "while remaining a Shaklee Family Member." That same provision expressly enumerates termination as a sanction for violation of section 4.

Shaklee brought this action seeking declaratory and injunctive relief against Giddens' continued promotion of other direct sale companies by recruiting other Shaklee distributors while remaining a Shaklee distributor himself. While this action was pending, Shaklee terminated Giddens. It then amended its action, seeking declaratory relief and damages for breach of contract. The district court granted summary judgment in favor of Shaklee on Shaklee's claims that Giddens had breached the distributor contract, and that Shaklee was authorized by that contract to terminate Giddens' distributorship. The district court denied summary judgment on contract damages, however, ruling that the amount of damages was too speculative to determine on the state of the record at that time. After the district court certified its summary judgments under Fed. R. Civ. P. 54(b), Giddens appealed the grant of summary judgment on the breach of contract claims.

Shaklee also claimed damages for intentional interference with advantageous business relationships and sought recovery of moneys for failure of consideration. The district court granted summary judgment in favor of Giddens on those charges, and those rulings have not been appealed.

Giddens counterclaimed for breach of contract, breach of fiduciary duty and the duty of good faith and fair dealing, conversion, fraud, intentional interference with advantageous business relationships, and unjust enrichment. The district court granted summary judgment against Giddens on all of his counterclaims, except his claim for conversion, for which it granted Giddens summary judgment, awarding him approximately $12,000. Giddens appeals the summary judgment awards on the breach of contract and tortious interference counterclaims.

Giddens sought leave to file a second amended counterclaim, which the district court denied. Giddens appeals that ruling.

Discussion

The District court properly ruled that Giddens was contractually bound to the provision in section 4 of the 1985 version of the P & R, entitled "Unfair Competitive Activity," which states that " [a] Shaklee Family Member may not promote ... another direct selling company ... while remaining a Shaklee Family Member." That conclusion rests both on the provision in Giddens' original employment contract, binding him to "any company rule," and on Giddens' acceptance of that rule by continuing to perform and receive compensation after the promulgation of the rule and by complying with an enforcement of the rule against his earlier recruiting of other distributors for a different direct-sale company. Calif.Civil Code Sec. 1621; Caron v. Andrews, 133 Cal. App. 2d 412, 416-17 (1955).

There was no genuine issue of material fact as to whether the rule was a binding contractual term, nor was there any dispute that the rule prohibits recruiting other Shaklee distributors for other direct selling companies, and that Giddens knowingly violated the rule. Giddens has offered no evidence sufficient to raise factual questions on these points. Thus, Shaklee was within its contractual rights in terminating Giddens' distributorship for breach of contract. Calif.Civil Code Sec. 1689(b) (2); Pennel v. Pond Union School Dist., 29 Cal. App. 3d 832, 838 (1973).

Giddens' argument that this rule is too ambiguous to be enforced is contradicted both by the language of the rule, and by Giddens' knowledge of its meaning and consequences. Giddens focuses on the "should resign" language of the rule as suggesting that the provision was merely precatory. That language, however, precedes the following unambiguous terms: "A Shaklee Family Member may not promote, directly or indirectly, another direct selling company or its products while remaining a Shaklee Family Member." (Emphasis added). Section 4 concludes with the provision that " [v]iolation of the provisions of this Section by any Shaklee Family Members may subject their distributorship to any sanction specified in Section 5, including termination of their distributorship for cause." Giddens' other argument that the rule quoted above was merely prefatory to other more specifically enumerated rules, which could be enforced by termination, is contradicted by the plain language of section 4.

Finally, any ambiguity regarding those terms is contradicted by Shaklee's prior enforcement of the rule against Giddens regarding Giddens' promotion of K-Comp, with which Giddens complied, and Shaklee's repeated attempts, short of termination, to enforce the rule against his promotion of ATR and Eagle Shield.¹ 

The district court granted summary judgment against Giddens on his counterclaim of intentional interference with advantageous business relationships, because the requisite showing of intent was lacking. Additionally, the district court ruled that Giddens' allegations failed to establish the requisite showing that interference be either unlawful or lacking in sufficient justification. We agree.

Giddens insists that there is a disputed issue of fact as to Shaklee's intent in terminating his distributorship, yet he offers no relevant evidence, other than bare allegations, that the intent of Shaklee was anything other than to enforce its contractual right to prevent its distributors from recruiting other Shaklee distributors for other direct sales operations.

As we have already noted, an alleged intent to terminate Giddens as a reprisal for his criticism of Shaklee's management or policies does not deprive Shaklee of the right to enforce its contract terms. Neither does it render the disruption of Giddens' relationship with his downline distributors unlawful or lacking in sufficient justification to make out a claim of tortious interference. "The exercise of a contractual right cannot be the basis for a claim of tortious interference." Computer Place, Inc. v. Hewlett-Packard Co., 607 F. Supp. 822, 835 (N.D. Cal. 1984), aff'd 779 F.2d 56 (9th Cir. 1985); Accord Rickel v. Schwinn Bicycle Co., 144 Cal. App. 3d 648, 660 (1983).

Giddens sought leave to file a second amended counterclaim, adding two allegations. First, Giddens' proposed second amended counterclaim alleged that section 4 of the P & R violates the public policy set forth in California Business and Professions Code, section 16600, which provides that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." Second, Giddens' proposed second amended counterclaim alleged entitlement to vested "retirement benefits." The district court denied leave to amend because such amendment would be futile. We agree.

a. Section 16600

California cases clearly establish that contractual prohibitions against current employees' competing with their employers do not violate section 16600. See, e.g. Fowler v. Varian Assoc's Inc., 196 Cal. App. 3d 34, 44 (1987). The reasoning of those cases applies equally to supplier-distributor relationships such as that between Giddens and Shaklee, and Giddens has provided no authority suggesting otherwise. The relationship between section 16600 and post-termination anti-competition agreements is less clear, but that issue is not presented here. Amending Giddens counterclaim to add this allegation would have been futile.

b. Retirement benefits

Adding an allegation that Giddens was entitled to "retirement benefits" would also have been futile. The benefits to which Giddens claims entitlement are characterized in the 1985 P & R as "Residual Bonuses," and are described in section 39 of that document as "extended bonuses paid on the continuing performance of [downline distributors] after the Senior Coordinatorship has been approved for reduced activity status." ER 10 at 38. Section 29 goes on to provide that

[p]articipation in the residual bonus program is available only to [those eligible, who] continue to meet the following qualifications:

Comply with Shaklee rules and regulations; ...

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Continue to comply with all the provisions of Sections 3 and 4 throughout the duration of their special reduced activity status."

Finally, Section 39 states that

[r]esidual bonuses will cease if any member of the distributorship on reduced activity status violates Section 3 or 4, or enters into any business that conflicts with Shaklee, or engages in activities that discredit the Shaklee name or undermine the morale of other Shaklee distributors.

Giddens was bound by the terms of the 1985 P & R. He was in violation of Section 4. The express terms of the P & R thus demonstrate that amending Giddens' complaint to seek entitlement to these residual benefits would be futile. The district court did not abuse its discretion in denying leave to amend.

Conclusion

The rulings of the district court are AFFIRMED.