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§2.3.2 Exception for fundamental forum public policy
  • 1 § 2.3.2.1 Common law

    • 1.1 Brack v. Omni Loan Co. Ltd.

      164 Cal.App.4th 1312 (2008)
      JOSHUA W. BRACK, Plaintiff and Appellant,
      v.
      OMNI LOAN COMPANY, LTD., et al., Defendants and Respondents.
      No. D049198.

      Court of Appeals of California, Fourth District, Division One.

      June 17, 2008.

      [1316] Majors & Fox, Frank J. Fox, Lawrence J. Salisbury, Steven T. Wlodek; Law Office of Mary A. Lehman and Mary A. Lehman for Plaintiff and Appellant.

      Pillsbury, Winthrop, Shaw & Pittman, Richard M. Segal, Connie J. Wolfe; Diamond, McCarthy, Taylor, Finley & Lee, William T. Reid IV, Michael S. Truesdale and Lisa S. Tsai for Defendants and Respondents.

      Edmund G. Brown, Jr., Attorney General, Tom Greene, Chief Assistant Attorney General, Albert Norman Shelden, Ronald A. Reiter, Kathrin Sears and Michele R. Van Gelderen, Deputy Attorneys General, as Amicus Curiae.

      OPINION
      BENKE, Acting P. J.

      The principal defendant in this class action lawsuit, respondent Omni Loan Company, Ltd. (Omni),[1] a Nevada corporation, engaged in consumer lending in California. Although Omni's activities would otherwise be subject to the California Finance Lenders Law (Finance Lenders Law) (Fin. Code,[2] § 22000 et seq.), under choice-of-law provisions in Omni's loan agreements borrowers agreed Omni's loans would be governed by the law of Nevada. We conclude this choice of Nevada law is not enforceable.

      In general, California courts will enforce a contractual choice of law if the state whose law was chosen has an interest in the parties' controversy. However, if application of the chosen law conflicts with a fundamental policy of this state, our courts must consider the impact application of the law will have on California's interests. If California's interests are materially greater than the interests of the state whose law was chosen by the parties, California will apply its law.

      As we explain more fully below, here because application of Nevada law would conflict with fundamental California policy as manifested in the [1317] Finance Lenders Law and because California has a greater interest in the parties' transaction than Nevada, the parties' choice of law is not enforceable.

      FACTUAL AND PROCEDURAL BACKGROUND

      Omni is a Nevada corporation with its principal place of business in Las Vegas, Nevada.[3] Omni is in the business of providing consumer loans to members of the military. Typically, Omni's loans are between $900 and $1,800, have repayment schedules of between nine and 18 months, and are funded by Omni on the same day Omni receives a borrower's application. In California, Omni's borrowers are nonresident members of the military, most of whom agree to repay their loans by way of deductions from their military paychecks. Omni's borrowers must also provide Omni with a security interest in personal property.

      Commencing in July 1997 Omni attempted to obtain permission from the Commissioner of Corporations (the commissioner) to make loans in California to nonresident members of the military without complying with the requirements of the Finance Lenders Law. In seeking permission to make such loans, Omni relied on an early ruling the commissioner had provided to one of Omni's competitors, Pioneer Military Lending, Inc. (Pioneer). In 1996 Pioneer contacted the commissioner and described a loan program restricted to nonresident military personnel Pioneer planned to establish in California. Pioneer asked the commissioner for a ruling that its loan program was not subject to the Finance Lenders Law, and the commissioner provided it with such a ruling. In a letter to Pioneer, the commissioner stated "it is difficult to discern what the interest is of the State of California so as to require licensure of Pioneer under [Finance Lenders Law]." Thus, the commissioner advised Pioneer its loan program was not finance lending within the meaning of the Finance Lenders Law.

      The commissioner declined to provide Omni with a ruling permitting it to operate its loan programs in California without a Finance Lenders Law license. In declining to grant Omni's request, the commissioner stated: "Omni's proposed lending activities are similar to Pioneer's, in that both lenders have represented to the Department that they will only be making loans to military personnel who are not residents of California. However, Omni appears to propose a greater business presence in California than Pioneer proposed to the Department. Pioneer represented to the Department that its loan paperwork would not be processed in California, and that the loans would be funded out-of-state. Thus, Pioneer represented that it would [1318] be making the loans from out-of-state to nonresidents stationed in California, and that its business activities within California would be minimal. Omni appears to propose a main California office to perform all functions related to making loans, and to further propose contracting with one to two independent contractors to facilitate the lending through the California main office. Omni is proposing to engage in more lending activities within the state of California than Pioneer, and is therefore more likely to be engaged in the business of a finance lender in California than Pioneer. In short, Omni has not chosen to structure its California lending activities in a manner identical to the Pioneer structure set forth in [the Pioneer letter]."

      Omni challenged the commissioner's conclusion its business plan was materially different from Pioneer's. However, the commissioner declined to alter the Department of Corporations' determination: "As noted in [our earlier letter to you], the Department is unwilling to expand the reasoning in [the Pioneer letter] to include expanded business activity in California merely because the lending is to non-resident military personnel. Under the [Finance Lenders Law], California has a number of state interests in licensing finance lending activities beyond the protection of its citizens; therefore, any expansion of the business presence and business activities in California related to loans to non-resident military personnel could impact the state's interests and thus the Department would require licensure under the [Finance Lenders Law]."

      Notwithstanding the commissioner's refusal to provide Omni with a ruling permitting it to operate in California without a license, in 2000 Omni opened a loan office in Oceanside, and in 2002 it opened another office in San Diego. In addition to the loan offices, Omni developed a retail partners program with California retailers by which Omni financed retail purchases by nonresident members of the military. Although Omni restricted lending from its California offices to nonresident members of the military, when California members of the military came into one of the Omni's offices, the California residents were directed to a computer terminal in the office and advised to go online and obtain financing through Omni's online affiliate, Militaryloans.com.

      Plaintiff and appellant Joshua W. Brack was a nonresident member of the military stationed at Camp Pendleton. Brack initially applied electronically for a loan from Omni but was directed to complete his loan application at Omni's Oceanside office. Brack was not advised until he was presented with the loan agreement the interest rate would be 34.89 percent per annum. The loan was secured by Brack's personal property and included a $104.63 charge for property insurance and a prepaid finance charge. Like all of Omni's loans, Brack's loan agreement contained a choice-of-law provision, which stated: "You agree that this loan contract is subject to Nevada State law." Brack repaid his loan in October 2002.

      [1319] In December 2003 Brack filed a class action lawsuit against Omni. Brack's principal allegation was that Omni's practices violated borrower's rights under the Finance Lenders Law. Brack alleged Omni's violations of the Finance Lenders Law gave rise to claims under the Consumers Legal Remedies Act (Civ. Code, § 1750 et seq.) and the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.) as well as under the Finance Lenders Law itself. Among other allegations, Brack alleged Omni was engaged in the business of a finance lender without obtaining a license from the commissioner and failed to prominently display in its offices a full and accurate schedule of its interest rate and other charges.

      Omni answered the complaint and denied its material allegations. In addition, Omni asserted as an affirmative defense its contention that Brack's loan and all the loans of the putative class members contained a choice-of-law provision under which the borrowers agreed the loan would be governed by the law of Nevada. Omni also asserted Brack's claims were barred by the commerce clause of the United States Constitution.

      Omni stipulated to class certification. The trial court then ordered trial of Omni's choice of law and commerce clause defenses be bifurcated from trial of Brack's affirmative claims. Omni's defenses were tried first by the court.

      The trial court found Nevada had a substantial relationship to the loan agreements because Omni Loan Company, Ltd., was incorporated in Nevada and the loans were approved in Nevada. In its principal finding, the court determined California had no fundamental interest in the loan transactions which would require that its laws be applied in place of the law selected under the terms of the loan agreements. In reaching this conclusion, the trial court considered three circumstances. First, it looked to the fact that the department had permitted Pioneer to operate in California without a license and in many respects OMNI's activities were similar to what the department had authorized in its Pioneer letter. Secondly, the trial court found that, in any event, Omni's licensing status was strictly a regulatory matter and not a matter to be considered with respect to the enforceability of the choice-of-law provisions of Omni's loan agreements. Finally, aside from the requirement that finance lenders doing business here obtain a California license, the trial court found that the only difference between California and Nevada law which Brack established at trial was California's requirement that lenders post signs fully and accurately setting forth loan charges and the method of computing charges.

      Although the trial court found California did not have a fundamental interest in applying its law, the trial court nonetheless found that because the loan agreements were made in California by consumers located here, [1320] California had a materially greater interest in the loan transactions than Nevada. In light of California's interest in the transactions, the trial court rejected Omni's commerce clause defense. The trial court entered judgment in favor of Omni.

      Shortly after the judgment was entered, the commissioner rescinded the Pioneer letter. In its rescission letter, the commissioner set forth a number of interests it believed California has in applying its laws to transactions involving nonresident members of the military. By its terms, the rescission letter had no impact on Pioneer's prior business practices in California. In light of the rescission, Brack moved to set aside the judgment on the grounds the trial court could no longer rely on the Pioneer letter. The trial court denied Brack's motion.

      Brack filed a timely notice of appeal.[4]

      DISCUSSION
      I
      Standard of Review

      The interpretation of a choice-of-law provision on undisputed facts presents a purely legal question and is reviewed de novo. (Hambrecht & Quist Venture Partners v. American Medical Internat., Inc. (1995) 38 Cal.App.4th 1532, 1539, fn. 4 [46 Cal.Rptr.2d 33]; American Home Assurance Co. v. Hagadorn (1996) 48 Cal.App.4th 1898, 1907, fn. 6 [56 Cal.Rptr.2d 536].) Moreover, whether, on undisputed facts, the contractual choice-of-law provision supplants the law which would otherwise apply is also a question of law reviewed de novo. (See Hughes Electronics Corp. v. Citibank Delaware (2004) 120 Cal.App.4th 251, 257 [15 Cal.Rptr.3d 244].)

      On the other hand, the trial court's resolution of disputed factual matters is subject to review under the substantial evidence standard. (Integral Development Corp. v. Weissenbach (2002) 99 Cal.App.4th 576, 585 [122 Cal.Rptr.2d 24].) Under this familiar standard, evidence must be reviewed in the light most favorable to the prevailing party, giving the benefit of any reasonable inferences and resolving all conflicts in favor of the trial court's finding. (SFPP v. Burlington Northern & Santa Fe Ry. Co. (2004) 121 Cal.App.4th 452, 461-462 [17 Cal.Rptr.3d 96].)

      [1321] II
      Contractual Choice of Laws
      A. Restatement Second of Conflict of Law Section 187

      (1) The parties largely agree the choice-of-law issue confronting us is governed by the holdings in Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 464-469 [11 Cal.Rptr.2d 330, 834 P.2d 1148] (Nedlloyd), and Washington Mutual Bank v. Superior Court (2001) 24 Cal.4th 906, 914-919 [103 Cal.Rptr.2d 320, 15 P.3d 1071] (Washington Mutual). In Nedlloyd a Hong Kong shipping company entered into a contract with three Dutch shipping companies. The contract contained a choice-of-law provision which required the contract be governed by Hong Kong law. When the Hong Kong company sued the other companies, it argued that notwithstanding the choice-of-law provision, its claims for breach of the covenant of good faith and fair dealing and breach of fiduciary duty should be governed by California law. In rejecting the Hong Kong companies' contention and finding the choice-of-law provision enforceable, the court held that in determining the enforceability of the contractual choice-of-law provisions, "California courts shall apply the principles set forth in Restatement section 187, which reflects a strong policy favoring enforcement of such provisions.

      "More specifically, Restatement section 187, subdivision (2) sets forth the following standards: `The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either [¶] (a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties choice, or [¶] (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.'

      (2) "Briefly restated, the proper approach under Restatement section 187, subdivision (2) is for the court first to determine either: (1) whether the chosen state has a substantial relationship to the parties or their transaction, or (2) whether there is any other reasonable basis for the parties' choice of law. If neither of these tests is met, that is the end of the inquiry, and the court need not enforce the parties' choice of law. If, however, either test is met, the court must next determine whether the chosen state's law is contrary to a fundamental policy of California. If there is no such conflict, the court shall [1322] enforce the parties' choice of law. If, however, there is a fundamental conflict with California law, the court must then determine whether California has a `materially greater interest than the chosen state in the determination of the particular issue....' (Rest., § 187, subd. (2).) If California has a materially greater interest than the chosen state, the choice of law shall not be enforced, for the obvious reason that in such circumstance we will decline to enforce a law contrary to this state's fundamental policy." (Nedlloyd, supra, 3 Cal.4th at pp. 464-466, fns. omitted.)

      Of some significance here, in discussing whether there was a conflict between the law chosen by the parties and a fundamental policy of California, the court stated: "We perceive no fundamental policy of California requiring the application of California law to Seawinds's claims based on the implied covenant of good faith and fair dealing. The covenant is not a government regulatory policy designed to restrict freedom of contract, but an implied promise inserted in an agreement to carry out the presumed intentions of contracting parties. [Citation.]" (Nedlloyd, supra, 3 Cal.4th at p. 468, italics added.)

      In Washington Mutual the subject contracts were consumer loans which contained uniform preprinted choice-of-law provisions. The plaintiffs alleged the defendant bank acted unlawfully under California law in placing property insurance, and the trial court certified a nationwide class without determining what law would apply to their claims. Notwithstanding the substantially different contexts, the court in Washington Mutual found that, as in Nedlloyd, enforceability of the choice-of-law provisions was governed by section 187 of the Restatement Second of Conflict of Laws (Restatement). "Even though Nedlloyd was decided in the context of a negotiated arm's length transaction between sophisticated business entities, its analysis appears suitable for a broader range of contract transactions. California, we observe, has no public policy against the enforcement of choice-of-law provisions contained in contracts of adhesion where they are otherwise appropriate. [Citations.] More importantly, Nedlloyd's analysis contains safeguards to protect contracting parties, including consumers, against choice-of-law agreements that are unreasonable or in contravention of a fundamental California policy. [Citation.] Under Nedlloyd, which adopted the Restatement approach and found the enforceability of choice-of-law clauses closely related to that of forum-selection clauses [citation], the weaker party to an adhesion contract may seek to avoid enforcement of a choice-of-law provision therein by establishing that `substantial injustice' would result from its enforcement (Rest., § 187, com. (b), p. 562) or that superior power was unfairly used in imposing the contract [citation]. In light of these protections, we conclude Nedlloyd's analysis is properly applied in the context of consumer adhesion contracts." (Washington Mutual, supra, 24 Cal.4th at pp. 917-918, fn. omitted.) Thus the Supreme Court directed the certification order be vacated and the trial court [1323] first consider what law would apply in light of the choice-of-law provisions in the class member's loan agreements.

      B. States' Fundamental Policies

      Because the trial court's judgment was based on its determination that no fundamental policy of California required that California law be applied to Omni's loan agreements, we must of necessity carefully consider this aspect of section 187 of the Restatement.

      (3) To be fundamental, within the meaning of section 187 Restatement, a policy must be a substantial one. (Rest., § 187, com. g, p. 568.) Thus "a policy of this sort will rarely be found in a requirement, such as the statute of frauds, that relates to formalities .... Nor is such policy likely to be represented by a rule tending to become obsolete, such as a rule concerned with the capacity of married women ..., or by general rules of contract law, such as those concerned with the need for consideration...." (Ibid.) On the other hand the policy need not be as strong as is required when a state refuses to permit its courts to be used to prosecute a foreign cause of action. (Rest., § 187, com. g, p. 569.) In such cases, in which a state's obligations under the full faith and credit clause of the United States Constitution are implicated, the policy must involve "`some fundamental principle of justice, some prevalent conception of morals, some deep-seated tradition of the commonweal.'" (Rest., § 90, com. c, p. 267.)

      The relative significance of a particular policy or statutory scheme can be determined by considering whether parties may, by agreement, avoid the policy or statutory requirement. In Hall v. Superior Court (1983) 150 Cal.App.3d 411, 418-419 [197 Cal.Rptr. 757], the court found the express antiwaiver provisions in the Corporate Securities Law of 1968 (Corp. Code, § 25000 et seq.) prevented enforcement of choice of law and forum selection clauses in a contract for the sale of securities. The court stated: "California's policy to protect securities investors, without more, would probably justify denial of enforcement of the choice of forum provision, although a failure to do so might not constitute an abuse of discretion; but [Corporations Code] section 25701, which renders void any provision purporting to waive or evade the Corporate Securities Law, removes that discretion and compels denial of enforcement." (Hall, at p. 418.) Relying on Hall v. Superior Court, the court in America Online, Inc. v. Superior Court (2001) 90 Cal.App.4th 1, 15 [108 Cal.Rptr.2d 699], reached the same conclusion with respect to the antiwaiver provisions of the Consumers Legal Remedies Act (CLRA): "[E]nforcement of AOL's forum selection clause, which is also accompanied by a choice of law provision favoring Virginia, would necessitate a waiver of the statutory remedies of the CLRA, in violation of that law's antiwaiver [1324] provision (Civ. Code, § 1751) and California public policy. For this reason alone, we affirm the trial court's ruling." (See also Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 174 [30 Cal.Rptr.3d 76, 113 P.3d 1100].)[5]

      Consistent with Hall v. Superior Court and America Online, Inc. v. Superior Court, the requirements of a statute may also be fundamental when the Legislature provides that an agreement entered into in violation of the statute is void. (See Interinsurance Exch. v. Bailes (1963) 219 Cal.App.2d 830, 836-837 [33 Cal.Rptr. 533]; Rest., § 187, com. g ["a fundamental policy may be embodied in a statute which makes one or more kinds of contracts illegal ..."].) When the Legislature acts in this manner, it is clear it has found the particular policies which underlie a statute are more important than the more general policy in favor of the freedom to contract. (See, e.g., Application Group, Inc. v. Hunter Group, Inc. (1998) 61 Cal.App.4th 881, 900-901 [72 Cal.Rptr.2d 73] (Application Group).)

      The holding in Application Group is illustrative of the kind of policy which is fundamental within the meaning of section 187 of the Restatement. (Application Group, supra, 61 Cal.App.4th at pp. 899-901.) In Application Group the court considered an employment contract, which, by its terms, was governed by the law of Maryland. The contract contained a noncompetition clause, which, although lawful under Maryland law, violated the provisions of Business and Professions Code section 16600. The court found Business and Professions Code section 16600 reflected a fundamental policy within the meaning of section 187 of the Restatement such that it prevented use of the noncompetition clause in an action against an employee who had accepted a job from a California employer. (Application Group, supra, 61 Cal.App.4th at pp. 899-901.) "`California courts have consistently declared this provision an expression of public policy to ensure that every citizen shall retain the right to pursue any lawful employment and enterprise of their choice. Section 16600 has specifically been held to invalidate employment contracts which prohibit an employee from working for a competitor when the employment has terminated, unless necessary to protect the employer's trade secrets. [Citation.] The corollary to this proposition is that [a competitor] may solicit another's employees if they do not use unlawful means or engage in acts of unfair competition.' [Citation.]" (Id. at p. 900.)

      [1325] IV

      Applying the foregoing principles to this record, we conclude the trial court erred in enforcing the choice-of-law provisions of Omni's loan agreements.

      Admittedly, because Omni is a Nevada corporation, there is a substantial relationship with Nevada such that the choice of Nevada law in the loan agreements was reasonable. (See Nedlloyd, supra, 3 Cal.4th at p. 467.) Thus under section 187 of the Restatement we must next determine whether Nevada's law conflicts with the fundamental policy of California, and, if there is such a conflict, whether California has a materially greater interest in the transactions than Nevada. (3 Cal.4th at p. 467.) We find there is such a conflict and that California's interest in the loan agreements is greater than Nevada's.

      A. Finance Lenders Law

      As we explain more fully below, in determining whether Nevada law conflicted with the fundamental policy of California, the trial court erred in its choice-of-law analysis. Rather than determining whether the application of the chosen state's law violated a fundamental policy of California, it isolated the difference between California's and Nevada's laws controlling finance lenders and then analyzed whether the isolated difference in the two states' laws—namely signage—was a fundamental policy. This approach led the trial court to consider each portion of the law separately and thereby minimize the impact of any deviation from the requirements of the law. As our analysis discloses, this approach was erroneous because it failed to consider the law as an integral whole, the particular parts of which reinforce each other.

      In enacting the Finance Lenders Law, the Legislature directed that it "(a) ... be liberally construed and applied to promote its underlying purposes and policies, which are:

      "(1) To ensure an adequate supply of credit to borrowers in this state.

      "(2) To simplify, clarify, and modernize the law governing loans made by finance lenders.

      "(3) To foster competition among finance lenders.

      "(4) To protect borrowers against unfair practices by some lenders, having due regard for the interests of legitimate and scrupulous lenders.

      [1326] "(5) To permit and encourage the development of fair and economically sound lending practices.

      "(6) To encourage and foster a sound economic climate in this state...." (§ 22001.)

      The expressly articulated policies set forth in section 22001—assuring an adequate supply of credit to consumers and protection of consumers from unfair practices—are on their face of some consequence. Here, in addition to the Legislature's statement of purposes, the remedies which the Legislature has provided and the enforcement mechanism it has created make it clear not only that the requirements of the Finance Lenders Law are matters of fundamental public policy which cannot be waived by way of agreement between the parties, but that the provisions of the law must be viewed together.

      (4) We begin with section 22324, which states: "Any person who contracts for or negotiates in this state a loan to be made outside the state for the purpose of evading or avoiding the provisions of this division is subject to the provisions of this division." Section 22324, by expressly preventing parties from avoiding the strictures of the Finance Lenders Law by booking or otherwise making a loan out of state, strongly suggests the Finance Lenders Law may not be circumvented by a contractual choice-of-law provision.

      The fundamental and unwaivable character of the Finance Lenders Law is also suggested in section 22750. Under section 22750 contracts made in willful violation of the Finance Lenders Law, including in particular violation of the requirement that a lender have a license issued by the commissioner, are void. If the violations are not willful, the lender must nonetheless forfeit any interest or charges. (§ 22752.) In addition, willful violations of the Finance Lenders Law are punishable with both civil and criminal penalties. (§§ 22713, 22753.)

      Our conclusion that the provisions of the Finance Lenders Law are fundamental, unwaivable and integrated is buttressed by considering the licensing requirements of the law and the role licensing plays in enforcing the substantive provisions of the law. Section 22100 provides: "No person shall engage in the business of a finance lender or broker without obtaining a license from the commissioner." A finance lender is entitled to receive a license upon satisfying the commissioner that no one who has more than a 10 percent interest in the lender has been convicted of a crime or committed an act of dishonesty or fraud related to consumer lending. (§ 22109.) A licensee is required to make an annual report to the commissioner and maintain records of its transactions so the commissioner can determine whether the [1327] licensee is complying with the Finance Lenders Law and regulations promulgated by the commissioner. The commissioner may revoke or suspend a license whenever, among other matters, the commissioner finds "[t]he licensee has violated any provision of this division or any rule or regulation made by the commissioner under and within the authority of this division." (§ 22714, subd. (a)(2).)

      Significantly, the substantive and procedural obligations of the Finance Lenders Law are imposed on licensees and subject to enforcement by the commissioner. Under section 22150, "The commissioner may make general rules and regulations and specific rulings, demands, and findings for the enforcement of this division, in addition to, and within the general purposes of, this division." Section 22163 provides: "The commissioner may require that rates of charge, if stated by a licensee, be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers." Section 22165 provides: "No advertising copy shall be used after its use has been disapproved by the commissioner and the licensee is notified in writing of the disapproval." Article 3 of the Finance Lenders Law, section 22300 et seq., imposes limitations on the conditions, rate of interest and charges licensees may impose on borrowers.[6] Finally, the commissioner is given the power to suspend or revoke any license if the commissioner finds: "The licensee has violated any provision of this division or any rule or regulation made by the commissioner under and within the authority of this division." (§ 22714, subd. (a)(2).) There would be little, if any, utility in establishing this thorough licensing scheme and giving the commissioner power over licensees, if the licensing requirements of the law and the power of the department could be waived by simple agreement between lender and borrower.

      (5) In sum, the Legislature, in expressly preventing any attempt to avoid its provisions by making loans outside the state, in voiding contracts made in violation of the Finance Lenders Law and in creating a licensing scheme through which it directly regulates the finance lenders market, has made it clear that the Finance Lenders Law is a matter of significant importance to the state and, like the provisions of Corporate Securities Law of 1968 and the CLRA, is fundamental and may not be waived. Just as importantly, it is obvious the statutory scheme, which depends upon both private remedies and administrative enforcement, is an integrated system of limitations and regulation which depend upon each other to achieve the overall goals of the [1328] Legislature. Although the Finance Lenders Law does not contain an express antiwaiver provision, as did the statutes analyzed in Hall v. Superior Court and America Online, Inc. v. Superior Court, when the statutory scheme is reviewed as a whole, it is clear it represents a fundamental policy of this state.

      (6) Application of the choice-of-law provision in the Omni loan agreements would undermine the fundamental policy expressed in the Finance Lenders Law. Contrary to the findings of the trial court, the conflict between Nevada law and California law is far wider than simply differing standards as to signage. As we have seen, operation of the Finance Lenders Law depends in large measure upon private enforcement, licensing and the considerable power the corporation's commissioner exercises over licensees. The choice-of-law provisions in Omni's loan agreements immunized Omni's activities in this state from this entire regulatory scheme and thereby conflicted with it in a substantial manner.

      B. California's Interest in Enforcing Its Law Is Greater Than Nevada's Interest in Enforcing Its Laws

      (7) Importantly, we must recognize our analytical responsibility is not complete upon finding a conflict exists between a fundamental policy of California and the law selected by the parties. (Rest. § 187, subd. (2)(b).) Put more narrowly, a California consumer cannot avoid the obligations of a contract with an out-of-state business by simply arguing the transaction was covered by a California licensing and regulatory scheme. Under Restatement section 187, subdivision (b)(2), we must also determine whether California's interest in enforcing its law is greater than Nevada's interest in enforcing its laws. As the court in Application Group, supra, 61 Cal.App.4th at pages 898 to 899, stated: "[A] court can decline to enforce the parties' contractual choice-of-law provision only if the interests of the forum state are `materially greater' than those of the chosen state, and the forum state's interests would be more seriously impaired by enforcement of the parties' contractual choice-of-law provision than would the interests of the chosen state by application of the law of the forum state." (Fn. omitted.)

      The trial court found and the record shows that in the broadest sense California has a materially greater interest in Omni's loan transactions than Nevada. As the trial court noted, Omni's 12,000 California loans were made to California consumers, secured with collateral located in California, and provided cash that was likely spent in this state. Moreover, Omni's California competitors who are subject to California's regulatory scheme were deprived of the opportunity to make those 12,000 loans. Nevada's interest is limited to the out-of-state activities of one of its corporate citizens.

      [1329] In this regard, we reject Omni's reliance on the Pioneer letters as governing California's interest in its loan activities. The most relevant aspect of the commissioner's administrative decisionmaking is the commissioner's dogged refusal to give Omni an interpretative opinion permitting it to operate in California without a license. To the extent the commissioner's opinion was relevant in determining California's interest in Omni's activities, the commissioner's views about Omni's activities are clearly entitled to far more weight than the commissioner's views about a third party. Of course, further undermining the value of the Pioneer letter as an expression of California's interest in loans to nonresident members of the military is the fact that the commissioner has abandoned the reasoning in that letter.

      (8) In any event, although relevant, the question we confront is more nuanced than simple consideration of which state has a greater economic interest in or connection to the parties' dispute. (See Application Group, supra, 61 Cal.App.4th at p. 903.) Rather, we must consider which state, in the circumstances presented, will suffer greater impairment of its policies if the other state's law is applied. (Ibid.)[7] Here, application of Nevada law would deprive a substantial segment of the borrowing public in this state of the substantive and regulatory protection California affords all of its other consumers. Nevada on the other hand has no policy which prevents its lenders from subjecting themselves to the regulatory authority of other states. That is to say, nothing in Nevada law prevented Omni from fully complying with California law. Rather, Nevada's interest in applying its law is limited to its more general interest in enforcing the provisions of contracts made by one of its citizens. Given these circumstances, application of Nevada law would impair California's regulatory interests to a far greater extent than application of California law would impair Nevada's interests.

      In sum, although there was a reasonable basis for selecting Nevada law in the loan agreements, its application here conflicted with a fundamental policy of this state in circumstances in which California has a greater interest than Nevada. Hence the choice-of-law provisions of Omni's loan agreements are not enforceable here. (See Nedlloyd, supra, 3 Cal.4th at p. 465.) Thus we reverse the judgment of dismissal. Plaintiff may proceed with the lawsuit. In [1330] doing so, we express no opinion as to Omni's liability, if any, or any other affirmative defense Omni may assert.

      DISPOSITION

      Judgment reversed.

      Plaintiff to recover his costs of appeal.

      Haller, J., and Irion, J., concurred.

      [1] Omni Loan Company, Ltd., and Omni Financial Corporation were founded by Fred Nives, who was the principal shareholder of both corporations. All references to Omni include Omni Financial Corporation unless otherwise indicated.

      [2] All further statutory references are to the Financial Code unless otherwise specified.

      [3] Omni Financial Corporation is headquartered in New Rochelle, New York, and provides a variety of management services to Omni Loan Company and its affiliates.

      [4] Omni filed a notice of cross-appeal from that portion of the trial court's judgment which rejected its commerce clause defense. However, according to its respondent's brief, Omni has elected not to appeal the trial court's judgment.

      [5] We note many out-of-state cases have refused to enforce choice-of-law provisions because they would conflict with the antiwaiver provisions of applicable statutory schemes. (See Cottman Transmission Systems, LLC v. Kershner (E.D.Pa. 2007) 492 F.Supp.2d 461; Volvo Const. Equip. North America v. CLM Equip. (4th Cir. 2004) 386 F.3d 581, 607-610; Cromeens, Holloman, Sibert, Inc. v. AB Volvo (7th Cir. 2003) 349 F.3d 376, 391; Wright-Moore Corp. v. Ricoh Corp. (7th Cir. 1990) 908 F.2d 128, 132; Pinnacle Pizza Co. v. Little Caesar Enterprises (D.S.D. 2005) 395 F.Supp.2d 891, 898.)

      [6] Sections 22300, 22301, 22303, 22304, and 22305 limit the charges and interest licensees may receive for small loans. Section 22320.5 regulates the amount of late fees and delinquency fees a licensee may charge. Section 22334 regulates the maximum term of small loans. Section 22337 regulates the documentation licensees must provide when a loan is made and when it has been paid.

      [7] As the court in Application Group noted: "One of the difficulties in these cases is that the `materially greater interest' test of subdivision (2)(b) of section 187 of the Restatement overlaps with the `governmental interest' and `comparative impairment' analyses that must be conducted in California to determine which state `would be the state of the applicable law in the absence of an effective choice of law by the parties' [citation]. [None of the cases] disclosed by our research ... discusses the relationship between and among these tests. The approach utilized by the Ninth Circuit for dealing with that problem ... appears to have been to first examine the respective `governmental interests' of the chosen and forum states and then determine the extent to which those interests would be impaired by application of the other state's laws. [Citation.]" (Application Group, supra, 61 Cal.App.4th at p. 898, fn. omitted.)

    • 1.2 Wright-Moore Corp. v. Ricoh Corp.

      1
      908 F.2d 128 (1990)
      2
      WRIGHT-MOORE CORPORATION, Plaintiff-Appellant, Cross-Appellee,
      v.
      RICOH CORPORATION, Defendant-Appellee, Cross-Appellant.
      3
      Nos. 89-2784, 89-2854.
      4

      United States Court of Appeals, Seventh Circuit.

      5
      Argued April 9, 1990.
      6
      Decided July 16, 1990.
      7
      As Amended July 30, 1990.
      8
      As Amended on Denial of Rehearing and Rehearing August 28, 1990.
      9

      [129] Philip A. Whistler, Cory Brundage, Fred R. Biesecker, Ice, Miller, Donadio & Ryan, Indianapolis, Ind., Vincent J. Backs, Beers, Mallers, Backs, Salin & Larmore, Fort Wayne, Ind., for plaintiff-appellant, cross-appellee.

      10

      James P. Fenton, Robert S. Walters, Barrett & McNagny, Fort Wayne, Ind., for defendant-appellee, cross-appellant.

      11

      Before BAUER, Chief Judge, and FLAUM and RIPPLE, Circuit Judges.

      12

      As Amended on Denial of Rehearing and Rehearing En Banc August 28, 1990.

      13
      FLAUM, Circuit Judge.
      14

      This case arises out of defendant Ricoh Corporation's ("Ricoh") refusal to renew its national distributorship agreement with plaintiff Wright-Moore Corporation ("Wright-Moore") after the expiration of its one year term. On a motion for summary judgment, the district court, applying Indiana law, held that Ricoh had good cause not to renew Wright-Moore's franchise agreement and did so without bad faith or discrimination, in compliance with the Indiana franchise statutes. See IND.CODE §§ 23-2-2.5-1, et seq., 23-2-2.7-1, et seq. The court further held that Ricoh did not breach its contract with Wright-Moore and did not engage in fraud or misrepresentation with respect to the contract. Finally, the court refused to estop Ricoh from not renewing Wright-Moore based on oral representations made prior to the formation of the contract. Wright-Moore appeals the grant of summary judgment and Ricoh cross-appeals claiming that, in the event we hold for Wright-Moore, venue was improper. We affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.

      15
      I.
      16

      Wright-Moore is an Indiana corporation having its principal place of business in Fort Wayne, Indiana. It is an independent distributor of copiers, related parts, and supplies. Wright-Moore has developed a network of independent, authorized dealers to purchase and resell its products which it supports by providing service training for the products they handle and offering the independent dealers favorable credit terms and minimal inventory requirements. Ricoh is a New York corporation with its principal place of business in West Caldwell, [130] New Jersey. It manufactures copiers, related parts and supplies, and distributes them both through independent distributors (such as Wright-Moore) and its own network of retail dealers.

      17

      In early 1984, the parties entered into a one year agreement whereby Wright-Moore agreed to distribute Ricoh 3000 Series copiers. In July, 1984, the parties entered into a second (and superceding) one year agreement under which Wright-Moore was appointed a national distributor of both the Series 3000 and the Series 4000 Ricoh copiers. Under the agreement, Wright-Moore was required to purchase 2,850 copiers during the one year contract term and to bear the costs of providing Ricoh-prescribed training courses for the service personnel of each dealer to whom Wright-Moore sold a Series 4000 machine. To meet this requirement, Wright-Moore, at its own cost, sent employees to Ricoh's headquarters for training and these employees, in turn, trained the service personnel of each dealer. The agreement also required Wright-Moore to maintain an extensive inventory of copier parts.

      18

      According to the agreement, the sole relationship between the parties was that of supplier and distributor. Wright-Moore's territory was defined as the continental United States, and Wright-Moore was permitted to sell as a wholesaler to retailers not affiliated with Ricoh. Wright-Moore was forbidden from using any Ricoh trademark in connection with Wright-Moore's name but was permitted to state that it was authorized to distribute certain Ricoh products. The agreement provided that the courts of Manhattan would have exclusive jurisdiction over any controversy arising out of the agreement and that New York law would govern any disputes. The agreement also contained an integration clause nullifying all prior agreements and understandings.

      19

      A second, related agreement, styled a "letter agreement," was completed simultaneously with the distributorship agreement. Wright-Moore agreed in the letter agreement to purchase immediately 1,200 machines towards the 2,850 requirement. The letter agreement also provided Wright-Moore with "price protection" in the event of a price change and allowed Wright-Moore to purchase more copiers on the same credit terms as the 1,200 machines provided for in the letter agreement.

      20

      Wright-Moore performed up to Ricoh's expectations during the contract term. At the end of the term, however, Ricoh refused to renew the distributorship and Wright-Moore filed this suit against Ricoh in the Northern District of Indiana. It claimed violations of the Sherman Act and the Indiana franchise statutes, breach of contract, fraud, misrepresentation and estoppel and sought compensatory and punitive damages. Wright-Moore claimed that it had been assured by Ricoh that its relationship with Ricoh would be long term and that under Ricoh policy, Wright-Moore's national distributorship would be renewed as long as it satisfied its financial obligations to Ricoh and met its minimum purchase agreements. Wright-Moore contended that the continued success of its dealers caused dealers in Ricoh's own network to complain that its aggressive pricing policy cut into their profits. As a result, Ricoh and its authorized dealers conspired against it, culminating in Ricoh's refusal to perform its obligations under the letter agreement (specifically, Ricoh changed the credit terms and did not give it price protection) and refusal to renew the distributorship agreement as contemplated by the parties.

      21

      As a defense, Ricoh offered evidence that the refusal to renew was based on a change in marketing strategy. In early 1985, James Ivy, Ricoh's new vice-president for sales and marketing, undertook a review of Ricoh's distribution system to determine whether the existing distribution network was appropriate for the effective marketing of Ricoh's copiers. At that time, Wright-Moore, together with three other independent dealers, served as national distributors of the Ricoh 3000 and 4000 Series copier. These machines were also marketed through regional distributors and through Ricoh's own dealer network. The overlap of responsibility between the national and regional distributorships [131] along with the resulting competition prevented the development of strong regional distributors which Ivy believed could best market the products. Ivy, therefore, decided that Wright-Moore and the other national distributorship agreements should not be renewed. In January of 1985, a meeting was held between Ricoh and Wright-Moore at which Wright-Moore was informed that Ricoh was considering removing the 3000 and 4000 Series copiers from national distribution. Ricoh discussed with Wright-Moore several alternatives, including regional distributorships of the 3000 and 4000 Series copiers or a national distributorship for two other copier models, but no agreement was reached.

      22

      Based on this evidence, Ricoh moved for summary judgment. The district court determined that there was no evidence of a conspiracy in violation of the Sherman Act. With respect to the Indiana franchise statutes, the court held that the choice of law clause in the contract was contrary to Indiana public policy as stated in the franchise statutes and, therefore, it would apply Indiana law rather than New York law. It further held that there was a material issue of fact with respect to Wright-Moore's qualification as an Indiana franchise. It found, however, that the evidence established that Ricoh was motivated by its economic self-interest and did not act in bad faith or with discriminatory purpose. Economic self-interest, the court held, was sufficient to satisfy the good cause requirement of the Indiana franchise statutes.

      23

      With respect to the breach of contract claims, the court determined that, on its face, the letter agreement's credit terms for future orders of copiers might have been breached but that properly interpreted in conjunction with the distributorship agreement, it was, in fact, not breached because the distributorship agreement allowed Ricoh to unilaterally change terms of credit. The court further determined that the price protection clause of the letter agreement had not been breached because it only provided price protection if Ricoh were to offer a lower price to another distributor, a condition precedent which had not occurred.

      24

      The court also found no fraud or misrepresentation because Ricoh had made statements only with respect to its future actions and Indiana law expressly prohibits fraud or misrepresentation claims based on representations of future actions. The court held that the same was true for the Indiana franchise statute's fraud provision. Finally, the court held that Ricoh is not estopped from not renewing the contract because Wright-Moore could not reasonably rely on Ricoh's oral representations made prior to formation of the contract. The court, therefore, granted Ricoh summary judgment. The court expressly refrained from reaching the forum selection clause of the distributorship agreement.

      25

      Wright-Moore appeals claiming that there were material issues of fact with respect to the franchise, contract, fraud and misrepresentation claims. In addition, Wright-Moore maintains that the district court made errors of law. Specifically, Wright-Moore claims that: (1) under Indiana franchise law, economic self-interest is not good cause for nonrenewal of a contract; (2) the court misinterpreted the letter agreement by reading it in conjunction with the distributorship agreement; and (3) the court's reading of the agreement was in violation of Indiana franchise law. Wright-Moore has abandoned the Sherman Act counts on appeal. Ricoh cross-appeals, arguing that, in the event that we hold for Wright-Moore, the forum selection clause requires a change in venue.

      26
      II.
      27
      A. Indiana Franchise Law Claims
      28

      Wright-Moore's appeal raises several significant issues under the Indiana franchise laws. IND.CODE §§ 23-2-2.5-1, et seq., 23-2-2.7-1, et seq. Wright-Moore argues that the district court erred as a matter of law in holding that non-renewal for the economic purposes of the franchisor consitutes good cause under IND.CODE § 23-2-2.7-1(7). In addition, Wright-Moore claims that summary judgment was improper because there were material issues of fact with respect to Ricoh's good [132] faith during termination and with respect to the claim of discrimination. Ricoh supports the district court's holding but argues in the alternative that the contractually chosen New York law applies rather than Indiana law and, in addition, that Wright-Moore was not a franchise.

      29
      1. Choice of Law
      30

      We begin with the choice of law question. Wright-Moore claims Indiana franchise law applies, despite the choice of New York law in the agreement, on the ground that the Indiana franchise statutes prohibit waiver of its protections and prohibit "limiting litigation brought for breach of the [franchise] agreement in any manner whatsoever." IND.CODE § 23-2-2.7-1(10). Ricoh argues that the express choice of law provision of the contract should govern. The district court held that Indiana has articulated a strong public policy against allowing parties to contract out of the protections of its franchise law and that this public policy overrides the choice of law provided for in the agreement.

      31

      Indiana has long adhered to the "most intimate contacts" test for choice of law. W.H. Barber v. Hughes, 223 Ind. 570, 63 N.E.2d 417 (1945). This approach has since been elaborated in the Restatement (Second) Conflict of Laws § 188 (the "Restatement"). See Utopia Coach Corp. v. Weatherwax, 177 Ind.App. 321, 325, 379 N.E.2d 518, 522 (1978) (the Restatement approximates Indiana law). Under this approach, "the court will consider all acts of the parties touching the transaction in relation to the several states involved and will apply as the law governing the transaction the law of that state with which the facts are in most intimate contact." W.H. Barber, 63 N.E.2d at 423. This approach also recognizes that parties may expressly choose the applicable law through a contract. "The law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue." Restatement § 187(1). Typical issues that cannot be determined by explicit agreement include capacity, formalities, substantial validity, and illegality, but the set issues which cannot be contractually chosen is determined by local law. Id. at comment d. If the issue is one which could not have been explicitly resolved by the contract, the choice of law provisions of the contract will still apply unless the "chosen state has no substantial interest" in the litigation or "application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of applicable law in the absence of an effective choice of law by the parties." Id. at § 187(2).

      32

      We agree with the district court that enforcement of the choice of law provision in the distributorship agreement would be contrary to Indiana's express public policy. Indiana has made it unlawful to enter into a franchise agreement "requiring the franchisee to prospectively assent to a release ... [or] waiver ... which purports to relieve any person from liability to be imposed by this chapter" or to enter into an agreement "limiting litigation brought for breach of the agreement in any manner whatsoever." IND.CODE § 23-2-2.7-1(10). We owe deference to the district judge's interpretation of the law of the state in which the judge sits, see, e.g., Moore v. Tandy Corp., 819 F.2d 820, 823 (7th Cir.1987), and the district judge here found that these provisions articulated a strong state policy against allowing contractual choice of law provisions to control the applicability of these provisions to Indiana franchises. The public policy, articulated in the nonwaiver provisions of the statute is clear: a franchisor, through its superior bargaining power, should not be permitted to force the franchisee to waive the legislatively provided protections, whether directly through waiver provisions or indirectly through choice of law. This public policy is sufficient to render the choice to opt out of Indiana's franchise law one that cannot be made by agreement.

      33

      Indiana law, following the Restatement, however, permits state public policy to override the contractual choice of law [133] only if the state has a materially greater interest in the litigation than the contractually chosen state. Thus, for the Indiana public policy to control the choice of law, Indiana must have a materially greater interest in the litigation than does New York. We conclude that this is the case here. Wright-Moore is potentially a franchisee and is incorporated and located in the state of Indiana; its witnesses and documents are there; the contract negotiations occurred there; and the contract was, in part, performed there. New York's only connection to this litigation is that the defendant is incorporated in New York. The defendant's principal place of business is New Jersey. Indiana, therefore, has a materially greater interest in the litigation than New York. Since Indiana has a materially greater interest than New York and application of New York law would be contrary to a fundamental Indiana policy, Indiana franchise law governs this case.[1]

      34

      Ricoh offers Modern Computer Systems, Inc. v. Modern Banking Systems, Inc., 871 F.2d 734 (8th Cir.1989) (en banc), for the proposition that the contractual choice of law should apply in this case. In Modern Computer, the Eighth Circuit held that Minnesota franchise law did not override the choice of law provision in the parties' contract. The court, relying on a Sixth Circuit case, Tele-Save Merchandising Co. v. Consumers Distribution Co., 814 F.2d 1120 (6th Cir.1987), gave four reasons for its decision: the parties had agreed to the choice of law in the contract; the contracts between the forum and the competing states were evenly divided; the parties were not of unequal bargaining power; and the application of the law chosen in the contract was not against Minnesota's public policy. Modern Computer, 871 F.2d at 738-39. The court noted that Minnesota's strong public policy in favor of recognition of contractual choice of law outweighed Minnesota's policy against waiver of its franchise law's provisions. Minnesota has, however, legislatively overruled Modern Computer. The statute now reads "any condition, stipulation or provision, including any choice of law provision, purporting to bind any person ... is void." Minn.Stat. § 80C.21 (emphasis added).

      35

      Insofar as the case remains a valid interpretation of Minnesota law prior to these changes in the statute (a questionable assumption given the immediacy of the changes after the case), Ricoh argues that its logic still applies here. We are not convinced, however, that Indiana would apply the Modern Computer analysis to determine its choice of law, at least insofar as it conflicts with the "most intimate contacts" test. Even under such an analysis, [134] Indiana and not New York law would apply. The strength of nonwaiver provisions among states varies. For example, Wisconsin does not permit parties to avoid the effects of its franchise law through contractual choice of law provisions; Wisconsin law governs all Wisconsin franchises. See Bush v. National School Studios, Inc., 139 Wis.2d 635, 407 N.W.2d 883, 886 (1987). Wisconsin bases this decision on the belief that most franchisors are more powerful than franchisees, and for the law to have any impact, the parties must not be able to contract out of its protections. See Wis.Stat. § 135.025(3). Minnesota has now followed Wisconsin by explicitly amending its statute. Indiana has also articulated a strong public policy with respect to contractual waiver of actions under its franchise law. Indiana has made it unlawful to require the franchisee to enter into an agreement "limiting litigation brought for breach of the agreement in any manner whatsoever." IND.CODE § 23-2-2.7-1(10) (emphasis added). Indiana has also made it unlawful for a franchise agreement to "requir[e] the franchisee to prospectively assent to a release, ... waiver, or estoppel which purports to relieve any person from liability to be imposed by this chapter." Id. at 1(5). We believe that these statements evince a legislative policy against waiver of Indiana franchise law through choice of law provisions and, therefore, we are not convinced that Modern Computer applies to Indiana.[2]

      36
      2. Wright-Moore's Qualifications as a Franchisee
      37

      Ricoh argues that Wright-Moore is not a franchisee and, therefore, Indiana franchise law does not apply. To qualify as a franchisee under Indiana law, three requirements must be satisfied: (1) the franchisee must be granted the right to engage in the business of dispensing goods or services under a marketing plan; (2) under the marketing plan, the franchisee must be substantially associated with the franchisor's trademark; and (3) the franchisee must pay a franchise fee.[3] IND.CODE § 23-2-2.5-1(a). The district court held that there were sufficient issues of material fact under these elements to preclude summary judgment on Wright-Moore's fulfillment of these requirements.

      38

      Ricoh vigorously contests this conclusion. Primarily, it argues that Wright-Moore does not intuitively match the type of entity the Indiana legislature envisioned when writing the statute. Invoking the image of a "mom and pop" franchisee, Ricoh maintains that Wright-Moore was instead a national wholesale distributor of equal bargaining power to Ricoh and therefore bears none of the "hallmarks" of a franchisee. While this argument has some appeal, it is up to the Indiana legislature to decide what the "hallmarks" of a franchisee are and it has done so through its three statutory requirements. Ricoh's arguments are best addressed to these requirements and we address each element in turn.

      39

      With respect to the right to dispense goods, Ricoh argues that there is no evidence that Wright-Moore was constrained by a marketing plan. In Master Abrasives [135] Corp. v. Williams, 469 N.E.2d 1196, 1200 (Ind.App.1984), the Indiana Court of Appeals held that a marketing plan existed where the agreement allowed the franchisor to prescribe sales territories and sales quotas, approve sales personnel, and establish mandatory training. Our review of the record indicates that there is evidence that these elements are present here: Wright-Moore had a quota of copiers to sell; its territory was national; and Ricoh required personnel to go through mandatory training before allowing them to sell copiers. This is sufficient under Master Abrasives to establish a marketing plan.

      40

      Ricoh also contends that Wright-Moore was not substantially associated with its trademark. Ricoh primarily points to Article 6(b) of the distributorship agreement which prohibited Wright-Moore from using Ricoh's name or trademark in any manner. The same clause of the distributorship agreement, however, permits Wright-Moore to state in writing that it is an authorized distributor for certain Ricoh products. Moreover, Wright-Moore was provided with advertising materials with Ricoh's trademark. In Master Abrasives, the court held that "distribution of products or services covered by [the franchisor's] trademark" was sufficient to satisfy the substantial association requirement. Id. at 1199. Wright-Moore clearly meets this standard.

      41

      Finally, Ricoh contends that Wright-Moore did not pay a franchise fee. Indiana defines a franchise fee as:

      42
      any fee that a franchisee is required to pay, directly or indirectly, for the right to conduct a business to sell, resell, or distribute goods, services or franchises under a contract agreement including, but not limited to, any such payment for goods or services.
      43

      IND.CODE § 23-2-2.5-1(i). The statute expressly states that franchise fees do not include "the purchase or agreement to purchase goods at a bona fide wholesale price." Id. at 1(i)(3). Wright-Moore admits that it did not pay a direct franchise fee, but maintains that it paid indirect fees by way of payments for training, payments to maintain excess inventory, and ordinary business expenses.

      44

      To date, there is no published Indiana case that considers indirect franchise fees and the term is given little definition in the statute. The statute simply indicates that purchases at bona fide wholesale prices are not indirect fees. Since Indiana's franchise law has no legislative history, we interpret Indiana's law by reference to similar laws in other states and the purposes behind those laws.

      45

      The general policy behind franchise laws is particularly helpful in delineating the scope of the franchise fee requirement. The purpose of most franchise laws is to protect franchisees who have unequal bargaining power once they have made a firm-specific investment in the franchisor. See Note, Constitutional Obstacles to State "Good Cause" Restrictions on Franchise Terminations, 74 COLUM.L.REV. 1487 (1974). For example, the Wisconsin statute expressly states that its purpose is to protect dealers against "unfair treatment" from franchisors who "inherently have superior economic power and superior bargaining power." Wis.Stat. § 135.025(2). Our cases reflect this policy. "[W]e have deduced from the structure and history of the [Wisconsin] statute a central function: preventing suppliers from behaving opportunistically once franchisees or other dealers have sunk substantial resources into tailoring their business around, and promoting, a brand." Kenosha Liquor Co. v. Heublein, Inc., 895 F.2d 418, 419 (7th Cir.1990) (citations omitted). "The franchisor (supplier) may be able to change the terms for the worse after the franchisee (dealer) has invested much of its capital in firm-specific promotion, training, design, and other features. Once the dealer is locked into the supplier, the supplier may seek to extract what an economist would call a quasi-rent." Fleet Wholesale Supply v. Remington Arms Co., 846 F.2d 1095, 1097 (7th Cir.1988). The reason for the franchise fee requirement, in this light, is to insure that only those entities that have made a firm-specific investment are protected under the franchise laws; where there is no investment, there is no fear of inequality of bargaining [136] power. Id. Wright-Moore's alleged fees must, therefore, show evidence of unrecoverable investment in the Ricoh distributorship.

      46

      Wright-Moore's first alleged fee was the cost of excess inventory. Courts and administrative bodies that have considered excess inventory requirements have held that the costs of required excess inventory can constitute a franchise fee, and we agree. For example, the Illinois franchise statute, which is almost identical to Indiana's statute, contains regulations interpreting the Illinois definition of franchise fees. 1211/2 ILL.REV.STAT. § 1703(14). These regulations explicitly include excess inventory, stating that "an indirect franchise fee ... is present despite the bona fide wholesale or retail price exceptions if the buyer is required to purchase a quantity of goods so unreasonably large that such goods may not be resold within a reasonable time." 14 Ill.Adm.Code, Ch. II § 200.108. Minnesota courts agree with Illinois that excess inventory can constitute a franchise fee. See American Parts System, Inc. v. T & T Automotive, Inc., 1984 Bus. Franchise Guide (CCH) ¶ 8262 (Minn.App.1984); see also Schultz v. Onan Corp., 737 F.2d 339, 346-47 (3rd Cir.1984). The purpose of the fee requirement also indicates that, depending on the particular facts of a case, investments in excess inventory may constitute an indirect franchise fee. If, for example, the excess inventory were not liquid or were such that the franchisor could prevent it from being liquid (perhaps by preventing the franchise from claiming it is an authorized dealer), then the excess inventory might be a franchise fee. A normal sales quota, however, is not enough to create a franchise fee because of the bona fide wholesale price exception. The quantity of goods must be so unreasonably large that it is illiquid.

      47

      Costs incurred in training, Wright-Moore's second alleged fee, may, for the same reasons, also result in an indirect franchise fee. Training can be highly firm-specific. Technicians trained to service Ricoh copiers may not be able to service other copiers. Costs incurred during training may be substantial and unrecoverable, locking the franchise into the franchisor.

      48

      Wright-Moore's third alleged franchise fee is simply ordinary business expenses. We noted in Communications Maintenance, Inc. v. Motorola, Inc., 761 F.2d 1202, 1206 n. 3 (7th Cir.1985), that business expenses in the form of a discount given by the franchisee on goods or services it is required to tender to the franchisor would constitute an indirect franchise fee. Nevertheless, unless the expenses result in an unrecoverable investment in the franchisor, they should not normally be considered a fee. The bona fide wholesale price exception confirms this. In addition, the language of the statute indicates that ordinary business expenses may not be indirect fees. The statute defines a franchise fee as a fee paid for the right to do business, not as fees paid during the course of business. IND.CODE § 23-2-2.5-1(i); see also RJM Sales & Marketing v. Banfi Products Corp., 546 F.Supp. 1368, 1373 (D.Minn.1982) (ordinary business expenses are not franchise fees).

      49

      The evidence on each of these alleged fees is unclear at this point in the litigation. For example, there is conflicting evidence about whether the amount Wright-Moore was required to purchase was excessive. Similarly, there is conflicting evidence about the nature and extent of the training program and we know almost nothing about the ordinary business expenses. Each of these matters is very fact specific and calls for judgment based on the individual circumstances of each case. We conclude, as did the district court, that summary judgment was not appropriate on the issue of whether Wright-Moore was a franchisee.

      50
      3. Nonrenewal of the Distributorship Agreement
      51

      IND.CODE §§ 23-2-2.7-1(7) and (8) declare unlawful any provision in a franchise agreement which permits the franchisee to be terminated or not renewed "without good cause or in bad faith." The district court found that Wright-Moore did not put forth sufficient evidence to show that its nonrenewal was in bad faith. The [137] court found instead that Wright-Moore's nonrenewal was based on economic reasons internal to Ricoh, which the court held was good cause in compliance with IND.CODE § 23-2-2.7-1(7). The district court also found that Wright-Moore was not discriminated against in violation of IND.CODE § 23-2-2.7-2(5) because none of Ricoh's national distributors were renewed and consequently Wright-Moore cannot show treatment different from similarly situated franchises. Wright-Moore contests these conclusions.

      52

      Wright-Moore argues that it has put forth sufficient evidence of a vendetta between executives of Ricoh and Jack Wright, the president of Wright-Moore, for a jury to conclude that bad faith motivated its nonrenewal. Specifically, Wright-Moore relies largely on a claim that Edward Kane, the eastern zone manager for Ricoh, testified (albeit under a hearsay objection) that Ricoh's national sales manager, Bill Johnson, had a personal dislike for Jack Wright. We believe that this evidence is insufficient to survive a motion for summary judgment. Our inquiry under Rule 56 is "the threshold inquiry of determining whether there is the need for a trial — whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). "The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff." Id. 106 S.Ct. at 2512. Kane's lone statement is contradicted by affidavits from Ricoh and by other statements within Kane's own deposition. In addition, Kane's statements about Johnson are hearsay as they are merely Kane's feelings about unstated feelings of Johnson about a third party. Wright-Moore has put forth no direct or substantial evidence of bad faith and bald assertions will not suffice. This simple statement of Kane's belief about someone's personal dislike is insufficient to overcome a summary judgment motion. The district court did not engage in the weighing of evidence and credibility to come to its conclusion; were a jury to conclude that Ricoh terminated Wright-Moore in bad faith, the district court would be compelled to grant a directed verdict. The district court, after an extensive review of the evidence, concluded that Ricoh terminated Wright-Moore to implement what it thought was a more effective marketing plan, and we agree.

      53

      Wright-Moore also argues that the district court erred in holding that termination for the franchisor's own economic reasons constitutes good cause. The statute defines good cause to "include[] any material violation of the franchise agreement." IND.CODE § 23-2-2.7-1(7). There is no evidence that Wright-Moore breached the franchise agreement, so Ricoh's actions did not fall within the plain terms of the statute. Good cause, however is defined to include breach of the franchise agreement. The language of the statute does not indicate that it is limited to breach. The question is whether good cause also includes termination for the benefit of the franchisor's balance sheet.

      54

      Indiana courts have not yet considered this issue. We believe, however, that the language and structure of the Indiana law, along with the guidance provided by interpretation of franchise laws in other states, compel a conclusion that the internal economic reasons of the franchisor are not, by themselves, good cause for termination or nonrenewal of a franchise. Primarily, Ricoh's suggested conclusion that the franchisor's economic reasons would constitute good cause directly contravenes the very purpose of franchise statutes and would render the statutes ineffective. As noted above, franchise statutes are designed to prevent franchisors from extracting quasi-rents from franchisees. They are designed to ensure fair dealing between the parties. If the business reasons of the franchisor were sufficient, the protections of the statute would be meaningless since it is in the franchisor's short term business interest (and therefore good cause) to act opportunistically. (While this may not be effective in the long term as the franchisor may lose reputation or good will, a court is unlikely to make this determination.) Even absent opportunistic behavior, a franchisor could [138] virtually always claim a plausible business reason for termination. Without a smoking gun, it would be difficult, if not impossible, for a franchisee to prove that a particular action is not in the business interests of the franchisor. Ricoh's suggested reading would, therefore, allow franchisors to extract rents from franchisees, the very behavior the statutes are designed to prevent.

      55

      This reasoning is supported by the decisions of several courts. In Kealey Pharmacy & Home Car Services, Inc. v. Walgreen Co., 761 F.2d 345 (7th Cir.1985), we held that Walgreen's termination of all its Wisconsin franchises and replacement with Walgreen-owned stores was not supported by good cause. Walgreen had valid business reasons to make this change. Nevertheless, we held that because Walgreen intended to appropriate the good will established by the franchisees, Walgreen's behavior was opportunistic and therefore, economic justifications alone were not sufficient. See also Remus v. Amoco Oil Co., 794 F.2d 1238, 1241 (7th Cir.1986) (good cause is limited to faults with the franchisee); Carlos v. Philips Business Sys., 556 F.Supp. 769, 776 (E.D.N.Y.1983), aff'd, 742 F.2d 1432 (2nd Cir.1983) (restructuring designed to "address the market place as it exists today" is not good cause under the New Jersey franchise act); General Motors Corp. v. Gallo GMC Truck Sales, 711 F.Supp. 810 (D.N.J.1989) ("It is a violation of the [New Jersey franchise] Act, [] to cancel a franchise for any reason other than the franchisee's substantial breach ...").

      56

      In addition, the structure of the Indiana statute indicates that good cause refers only to problems with the performance of the franchisee. Sections 23-2-2.7-1(7) and (8) prohibit termination or nonrenewal without good cause and list material violations of the franchise agreement as an example of good cause. The language of the statute is inclusive; the statute does not say material violations of the agreement are the sole legal cause for termination. The statute simply says that good cause includes material violations of the agreement. But as an example of the type of cause that the legislature had in mind, this indicates that the statute may be limited to other problems with the performance of the franchisee. Economic reasons internal to the franchisor do not fit this pattern; they generally have nothing to do with the performance of the franchisee.

      57

      Other franchise statutes have been interpreted in this manner. In Solman Distributors Inc. v. Brown-Forman Corp., 888 F.2d 170, 172 (1st Cir.1989), the First Circuit held that business reasons of the franchisor were not good cause under the Maine franchise statute. The court examined the structure of the Maine franchising statute to determine that the franchisor's business needs are not cause for termination. Similarly, in Remus, 794 F.2d at 1240, we examined the structure of the good cause in Wisconsin to find that good cause is limited to the errors and omissions of the franchisee. We held that the statute gave dealers a kind of "tenure" where good cause "refers only to errors and omissions of the dealer." Id.

      58

      The district court relied on American Mart Corp. v. Joseph E. Seagram & Sons, Inc., 824 F.2d 733, 734 (9th Cir.1987) (per curiam) for its holding. In American Mart, the Ninth Circuit held that Seagram's adoption of a new, nationwide marketing plan justified its termination of its Nevada franchises on the basis that the terminations were warranted by compelling business considerations and constituted a valid business judgment. American Mart is contrary to the majority of cases, as cited above, and does not provide any reasoning for its holding. To the extent that it is contrary to our holding, we find it unpersuasive.[4]

      59

      [139] In sum, we believe that the structure of the Indiana statute, and the policies behind the law, are sufficient to determine that under Indiana law, economic reasons internal to the franchisor are not sufficient to meet the good cause requirement. The purpose of the franchise statute is to protect the franchisee, and Ricoh's suggested reading of the statute is contrary to this purpose and would effectively nullify the statute. The structure of the statute further supports this result. We recognize Ricoh's concern that this decision makes the business decision to terminate or not renew a franchise that has not breached the franchise agreement much more expensive, but this concern is best addressed to the Indiana legislature.

      60

      Finally, with respect to the Indiana franchise laws, Wright-Moore claims that it was unfairly discriminated against in violation of IND.CODE § 23-2-2.7-2(5) which prohibits "discriminating unfairly among ... franchisees...." It claims that there were four national distributors and while all were terminated, at least one was offered a regional distributorship after its termination as a national distributor. This evidence, however, does not support the claim of discrimination. "Discrimination among franchisees means that as between two or more similar franchisees, and under similar financial and marketing conditions, a franchisor engaged in less favorable treatment towards the discriminatee than towards other franchisees."[5] Canada Dry v. Nehi Beverage Co., 723 F.2d 512, 521 (7th Cir.1983). "Thus, proof of discrimination requires a showing of arbitrary disparate treatment among similarly situated individuals or entities." Id.

      61

      The evidence does not support Wright-Moore's claim. Most of the evidence relied on by Wright-Moore is the same evidence that it argued supported its claim of bad faith termination. As we noted above, this evidence was insufficient to create a material issue of fact with respect to bad faith. More importantly, Wright-Moore admits that it was the only true national distributor; all the other so-called national distributors only operated in smaller regions of the country. There is, therefore, no similarly situated distributor. Finally, even if all the so-called national distributors are considered similarly situated, none of them were renewed. This is strong evidence that there was no discrimination. While one of the national distributors became a regional distributor, this is not sufficient evidence of discrimination against Wright-Moore; it shows that failure to grant regional distributorships was the rule rather than the exception. We conclude that there is no issue of material fact with respect to discrimination and Ricoh was entitled to summary judgment on this count.

      62
      B. Contract Claims
      63

      Wright-Moore raises two contract claims, both involving the letter agreement. First it argues that Ricoh breached the terms of the letter agreement when it unilaterally changed the terms of credit. Second, it argues that Ricoh failed to provide it with "price protection" by not preserving Wright-Moore's discount margin over other distributors. The district court held that [140] Ricoh had the power to unilaterally change the terms of credit under the distributorship agreement, which it determined controls the interpretation of the letter agreement, and that price protection did not require Ricoh to preserve Wright-Moore's margin, but rather only required Ricoh to refrain from selling copiers to anyone else at a lower price.

      64

      With respect to the unilateral change in the credit terms, we need not reach the issue of whether the letter agreement is controlled by the clause in the distributorship agreement permitting unilateral modification, which was the basis of the district court's holding. Indiana franchise law makes it unlawful for a contract to allow "substantial modification of the franchise agreement by the franchisor without the consent in writing of the franchisee" IND.CODE § 23-2-2.7-1(3). The distributorship agreement could not lawfully allow substantial changes in the contract. Ricoh contends that the modification was not substantial. This is, however, a mixed question of fact and law and there is no evidence in the record on this issue. Summary judgment, therefore, was not appropriate with respect to this contract claim.[6]

      65

      Wright-Moore's second contract claim does not survive summary judgment. The letter agreement simply provides that Ricoh "will provide [Wright-Moore] with price protection" on the purchase of 1,200 copiers. Price protection is not defined in the letter agreement, but it is defined in the accompanying distributorship agreement. Article 2(b) of the distributorship agreement provides that "[i]f Ricoh lowers the price of any product within 60 days of its acceptance of an order from distributor for that product, such lower price shall apply to that previously accepted order." As the district court noted, in Indiana, "[w]hen writings are executed at the same time and relate to the same transaction or subject matter, they must be construed together in determining the contract ..." Goeke v. Merchants Nat'l Bank & Trust Co., 467 N.E.2d 760, 768 (Ind.App.1984). The documents here should be read together under Goeke and because the cursory use of the term "price protection" in the letter agreement indicates that its definition is contained elsewhere in the parties' various agreements. In this case, Article 2(b) provides that price protection merely insures that no one else receives a lower price, not that Wright-Moore's margin be protected. If the parties had desired to protect Wright-Moore's margin, it would have been simple to say so. Instead, nothing in the letter agreement gives any indication of this intent and the distributorship agreement specified protection of price, not margin. Wright-Moore has not put forth evidence that any party was offered a lower price, so summary judgment was appropriate.

      66

      Wright-Moore's only argument against this conclusion is that the past practices of the parties indicate a different intent. When the agreement is clear on its face, we need not reach the intent of the parties, but in any case, the past practices do not reveal a different intent. Wright-Moore claims that Ricoh once offered other distributors a price break in the form of a "baker's dozen" whereby they could purchase thirteen machines for the price of twelve. Wright-Moore was also offered this deal, even though the deal had not lowered the price below that offered to Wright-Moore and, therefore, would not have caused the price protection clause to operate. While this action did preserve Wright-Moore's margin, there is no evidence that this action was required by or triggered by the price protection clause. There is also no evidence that this was the usual practice rather than an exception. We conclude that summary judgment was appropriate on the price protection claim.

      67
      C. Estoppel and Fraud
      68

      Wright-Moore claims that Ricoh must be estopped from not renewing the contract based on its representations that [141] the agreement would be renewed absent poor performance by Wright-Moore. Specifically, Wright-Moore alleges that Ricoh's representatives informed it on numerous occasions "that plaintiff's distributorship would be renewed as long as plaintiff met its minimum purchase requirements and fulfilled its financial obligations to Ricoh, and that defendant terminated dealer or distributor contracts only for poor performance." Wright-Moore maintains that it "relied on those promises and representations and that therefore the defendant must be equitably estopped to deny the binding nature of its promises and representations."

      69

      Under Indiana law, "the following elements must exist to constitute equitable estoppel: there must be a false representation or concealment of material facts made with knowledge of the facts; the representation must have been made with the intention that it should be acted upon; the party to whom the representation was made must have been without knowledge or the means [to obtain] knowledge of the real facts; and that party must have relied on the representation to its prejudice." Warner v. Riddell Nat'l Bank, 482 N.E.2d 772, 775 (Ind.App.1985). "The real inquiry in most instances, then, is whether the complaining party acted reasonably when he relied on those he now seeks to estop rather than employing some other means to obtain the information." Azar's v. United States Postal Serv., 777 F.2d 1265, 1270 (7th Cir.1985).

      70

      The district court held that Wright-Moore did not act reasonably when relying on Ricoh's alleged statements, and we agree. The agreement was specifically for one year; had Ricoh intended a longer term agreement, it could have been provided for. Moreover, the agreement contained an integration clause which provided that the agreement was "intended to be the full and complete statement of the obligations of the parties relating to the subject matter" and "supercede[d] all previous agreements, understandings, negotiations and proposals as to this agreement." Wright-Moore was not a novice in the business world and was or should have been familiar with contracts and their operation. We recently noted that Indiana courts have never abrogated a written agreement based on an oral promise made prior to the written agreement, Vickers v. Henry County Savings & Loan Ass'n, 827 F.2d 228, 233 (7th Cir.1987), and none of the cases cited by Wright-Moore support our doing so now. There is no evidence to contradict these facts and consequently, summary judgment was appropriately granted on the estoppel count.

      71

      Wright-Moore also raises two fraud claims, one based on Indiana common law and the other based on the Indiana franchise statutes. Wright-Moore claims that Ricoh misrepresented its intent to renew the agreement when it made statements that the agreement would be renewed absent poor performance. With respect to the common law claim, the Supreme Court of Indiana has stated that "actionable fraud cannot be predicated upon a promise to do a thing in the future, although there may be no intention of fulfilling the promise." Sachs v. Blewett, 206 Ind. 151, 185 N.E. 856, 858 (1933). We have noted that "it has long been the law in Indiana that an action for fraud cannot based upon promises to be performed in the future." Vaughn v. General Foods Corp., 797 F.2d 1403, 1412 (7th Cir.1986) (citations omitted). It is clear that Wright-Moore's claim of common law fraud cannot survive because it alleges a promise to act.

      72

      Wright-Moore's statutory fraud claim fairs no better. Indiana has defined fraud to "include[] any misrepresentation in any manner of a material fact, [or] any promise or representation or prediction as to the future not made honestly or in good faith...." While the state fraud provision does cover statements about future actions, and while there is evidence in the record that Ricoh did make a false prediction, there is no evidence that the prediction was not in good faith at the time it was made. This is an essential element of the claim on which Wright-Moore has failed to submit any evidence. Moreover, as noted above with respect to the estoppel claim, there was no reasonable reliance on this statement. [142] Without reasonable reliance on Ricoh's statements, Wright-Moore cannot show that it was damaged. Summary judgment was appropriate on the statutory fraud claim.

      73
      III.
      74

      The case is remanded for proceedings consistent with this opinion.[7]

      75

      RIPPLE, Circuit Judge, dissenting.

      76

      The task that the court undertakes in this case is indeed a most difficult one. At the heart of this litigation are the Indiana franchise laws — legislation that has been subject to little relevant interpretation by the Indiana courts. This statutory scheme is important to the State of Indiana. It embodies crucial policy choices affirmatively made by the legislature in an effort to balance, in a way that makes sense in the commercial and social life of Indiana, the freedom to enter into contracts and the need to regulate the practices of the franchise industry. In undertaking the task of deciding this appeal, the court resolves definitively two issues of statutory interpretation: (1) whether the Indiana franchise laws would recognize the choice of law clause in the contract; (2) whether "good cause" in the statutory scheme refers only to problems with the performance of the franchisee. With respect to both questions, the court does not have, as it never has when it deals with Indiana law, the assistance of legislative history. Nor does it have any significant judicial interpretation from the Indiana courts. It must therefore turn to analytical tools that are far less precise — reliance on bits and pieces of statutory language, analogous case law from other jurisdictions, and the pronouncements of United States district judges sitting in the State of Indiana.

      77

      All of these devices are legitimate tools of the jurist faced with the task of dealing with the black hole of legislative ambiguity. Indeed, they are often the only tools available. However, they do have their distinct infirmities. The perils of relying on bits and pieces of statutory language cut adrift from their moorings in the statute are well known and need little elaboration here. Reasoning by analogy to the case law developed in other jurisdictions is perilous because we do not know whether those jurisdictions made the same policy choices as did Indiana.[8]

      78

      It certainly is appropriate to give significant weight to the views of our colleagues on the district bench in Indiana. See PPG Indus., Inc. v. Russell, 887 F.2d 820, 823 (7th Cir.1989). We must remember, however, that at times this practice amounts to the blind leading the blind. For reasons not entirely clear to me, Indiana has not given federal district courts within the state the power to certify questions of state law to the Indiana courts and, consequently, the judges of those courts must do the best they can without such assistance.[9] [143] The majority appears to recognize the hazards of depending on the pronouncements of district judges under these circumstances because, while relying on such a methodology with respect to the choice of law question (despite the uncertainty as to how all the district judges who have ruled on the matter would decide the issue before us),[10] the majority pointedly declines to follow the district court's interpretation of the statute with respect to the good cause termination argument.

      79

      If the court had used all the tools at its disposal, one might have to conclude that, while the issues are indeed close calls, the court had done all that it could with the materials at hand. However, unlike our colleagues in the district court, we can do more. Indeed, there are very clear signs that the legislature of Indiana, and, by their passage of a constitutional amendment, the people of Indiana, would like us to do more. By two separate provisions of law, Indiana has made it clear that it very much cares that ambiguities in the law of the state be clarified on a regular basis by the supreme court of the state. The legislature has enacted a statute that permits this court to certify a controlling question of state law to the Supreme Court of Indiana.[11] More recently, the constitution of the state has been amended to ensure that the Supreme Court of Indiana has sufficient control of its own docket to permit it to spend the time needed to clarify important points of state law in civil litigation.[12]

      80

      Of course, we cannot — and indeed should not — certify every issue on which there is some ambiguity. After all, the constitution gives us independent responsibility for the adjudication of cases properly within our diversity jurisdiction. Moreover, we must be respectful of the workload of our colleagues in the state courts. Nevertheless, despite these considerations, we must balance these concerns against the manifest concern of Indiana that it be allowed to develop its own jurisprudence. A good starting point in striking that balance would be to identify those areas of state jurisprudence where there is a particular need or manifest state interest in controlling the development of the law. We also ought to attempt to identify those areas where the very nature of the litigation makes it evident that a good number of the cases will be brought in the federal courts and where, unless certification is used to resolve major issues, the federal courts, simply by virtue of the choice of forum, will have a virtual monopoly over the development of the law in that field.[13] When these two concerns are present, there is an especially good case for certification.

      81

      Such a situation exists in the present case. We are not dealing here with some esoteric, nonrecurring question of common law. Rather, we are dealing with the interpretation of a statutory scheme enacted by the state legislature to deal with an important area of commerce that has been the scene in modern of times of much abuse and where the need for a careful balance between freedom of contract and governmental regulation is particularly acute. It is also an area where the very nature of the litigation — often involving national franchisors and local franchisees and significant [144] amounts of money — makes diversity jurisdiction quite probable. Under these circumstances, certification of the controlling points of law is, in my view, the appropriate course. Accordingly, I respectfully dissent.

      82

      [1] No Indiana court has applied a contractual choice of law provision to an entity that would, under Indiana law, qualify as a franchise. Two federal district courts (other than the district court in this case), sitting in diversity, have considered the issue. In Sheldon v. Munford, Inc., 660 F.Supp. 130 (N.D.Ind.1987), the court held that the contractual choice of Georgia law controlled because Indiana did not have a public policy against the contractual provisions at issue, namely exclusive territory and noncompetitor-franchisor clauses and, therefore, these issues were issues where the choice of law could be chosen by contract. Unlike Sheldon,the provisions of the contract at issue here are potentially in violation of Indiana public policy; renewal without good cause violates IND.CODE § 23-2-2.7-1(7) which requires good cause for termination of a franchise, and a unilateral change of credit terms violates IND.CODE § 23-2-2.7-2(2).

      83

      In Sullivan v. Savin Business Machines, Corp., 560 F.Supp. 938 (N.D.Ind.1983), the plaintiff alleged that the agreement was an adhesion contract and, therefore, the choice of law provisions were void. The court held that the parties were of equal bargaining power so the agreement was not an adhesion contract and consequently it applied the contractual choice of law. Sullivan is not apposite because the plaintiff in that case did not claim that the contract was in violation of Indiana public policy but rather claimed that the contract was an adhesion contract. While the contract in the present case is most likely not an adhesion contract (this issue is not before us), other Indiana public policies not considered in Sullivan, such as those concerning unilateral termination of contracts, are at issue here. Consequently, neither of these cases provide influential precedent on the issue before us.

      84

      South Bend Consumer's Club v. United Consumer's Club, 572 F.Supp. 209, 214 (N.D.Ind.1983) is closer to the case at hand. In South Bend Consumer's Club the district court applied Indiana law despite a contractual choice of Illinois law because Indiana had a public policy against restrictive covenants. The court held that, as evidenced by Indiana statutes, the policy of Indiana was opposed to the enforcement of the covenant at issue and therefore, the parties could not contractually choose Illinois law.

      85

      [2] Application of Indiana franchise law to control who sells copiers in other states may present difficulties under the commerce clause. See Healy v. Beer Institute, Inc., ___ U.S. ___, 109 S.Ct. 2491, 2497, 105 L.Ed.2d 275 (1989) ("the `Commerce Clause ... precludes the application of a state statute to commerce that takes place wholly outside of the State's borders, whether or not the commerce has effects within the State.'") (citations omitted). It may be the case the Wright-Moore's incorporation and principal place of business in Indiana give Indiana sufficient connection to all products sold by Wright-Moore to apply its own law. The import of the commerce clause on the application of Indiana law, however, was not considered by the district court and was not fully briefed here. Consequently, we reserve this issue for another day when it is more squarely presented.

      86

      [3]Specifically § 23-2-2.5-1(a) provides that a "`franchise' means a contract by which:

      87

      (1) a franchisee is granted the right to engage in the business of dispensing goods or services, under a marketing plan or system prescribed in substantial part by a franchisor;

      88

      (2) the operation of the franchisee's business pursuant to such a plan is substantially associated with the franchisor's trademark, service mark, trade name, logotype, advertising, or other commercial symbol designating the franchisor or its affiliate; and

      89

      (3) the person granted the right to engage in this business is required to pay a franchise fee."

      90

      [4] In Medina & Medina v. Country Pride Foods, LTD., 858 F.2d 817 (1st Cir.1988), a case not cited by either party or the district court, the Puerto Rican Supreme Court, on a certified question from the First Circuit, held that good faith withdrawal from the market did not violate the Puerto Rican franchise act. Medina deals with the special situation where the franchisor completely withdraws from the market. This situation is unique because there is a small chance that the franchisor is acting opportunistically when completely withdrawing from the market. Since the franchise statutes require fair dealing and market withdrawals carry little chance of unfair dealing, courts have considered market withdrawals to constitute good cause. This position is reflected in Remus, 794 F.2d at 1240-41, where we held that the Wisconsin statute allows termination only based on behavior of the franchisee and yet we specifically reserved the question of whether market withdrawal is good cause. Medina, therefore, is not directly relevant to the issue before us. Ricoh did not withdraw from the market; it simply changed distribution systems. On its facts, our case is closer to Kealey, 761 F.2d at 350, where Walgreen attempted to replace its franchisee with Walgreen-owned stores, than it is to Medina. Market withdrawal is not before us and we leave this issue for another case.

      91

      [5] It should be cautioned that the requirement of a similarly situated party does not carry over to all areas of law where discrimination is prohibited. For example, a minority employee who is terminated because of minority status is discriminated against even when there is no similarly situated person. The discrimination provision in this statute, however, makes it unlawful for the franchisor to "discriminat[e] unfairly among its franchisees ..." IND.CODE § 23-2-2.7-2(5). This language indicates the necessity of a similarly situated franchisee. The situation analogous to a lone minority employee is where a single franchise is terminated for an unlawful reason and this situation falls under the good cause requirement.

      92

      [6] We do not analyze this or the remaining claims under New York law as Wright-Moore alleges that Indiana law applies and Ricoh agreed to assume that Indiana law applies to these claims for the purposes of appeal.

      93

      [7] We do not reach the cross-appeal's change of venue claim. It was not considered by the court below and is not appropriately considered for the first time on appeal. In addition, in light of our remand, we do not reach Wright-Moore's punitive damage claim.

      94

      [8] As a practical matter, this process of reasoning by analogy often is flawed by overdependence on the law of other jurisdictions within the circuit. This overdependence is quite natural because the circuit judges are more familiar with the law of the other states within their circuit. However, we must acknowledge that, as Justice Schaefer of the Illinois Supreme Court pointedly reminded us, "[t]here is no element of sovereignty in a federal judicial circuit." Schaefer, Reducing Circuit Conflicts, 69 A.B.A. J. 452, 454 (April 1983). It is simply an administrative subdivision of the federal judiciary. A state within the circuit need not see policy matters the same way as the other states grouped together by the Congress for the purpose of administering federal law. We must be careful not to permit our dependence on analogous sources of interpretation to result in a "law of the circuit" with respect to a matter of state law. See Chang v. Michiana Telecasting Corp., 900 F.2d 1085, 1087 (7th Cir.1990) ("We certify questions to ensure that `the law we apply is genuinely state law, and not a federal court's perception of what state judges ought to hold.'") (quoting Covalt v. Carey Canada Inc., 860 F.2d 1434, 1441 (7th Cir.1988)) (emphasis supplied by Covalt court).

      95

      [9] See Ind.Code Ann. § 33-2-4-1 (providing statutory authorization for the Supreme Court of Indiana to answer certified questions from the Supreme Court of the United States, any United States circuit court of appeals, and the court of appeals of the District of Columbia, but omitting any reference to the United States district courts); Indiana Rule of Appellate Procedure 15(O) (incorporating the statutory authorization).

      96

      [10] See cases cited supra, p. 133, note 1. To the degree these cases exhibit differing views among the district judges of Indiana, the case for certification is indeed stronger.

      97

      [11] See supra note 2.

      98

      [12] See Ind. Const. art. 7, § 4 (West Supp.1989) (before the 1988 amendment to this section, the appellate jurisdiction of the Supreme Court of Indiana extended to criminal cases in which a sentence of greater than ten years was imposed; the section as amended reduces the scope of appellate jurisdiction to cases in which a sentence of greater than fifty years was imposed.

      99

      [13] Cf. Covalt v. Carey Canada Inc., 860 F.2d 1434, 1440 (7th Cir.1988) (issue concerning the interplay between a "discovery rule" of limitations for disease based tort actions and Indiana's ten year statute of repose was certified to the Indiana Supreme Court in a situation where the law of asbestos litigation in Indiana had been developed exclusively through federal diversity cases).

    • 1.3 Cherry, Bekaert & Holland, v. Brown

      1
      582 So.2d 502 (1991)
      2
      CHERRY, BEKAERT & HOLLAND
      v.
      J. Charles BROWN.
      J. Charles BROWN
      v.
      CHERRY, BEKAERT & HOLLAND.
      3
      89-1004, 89-1015.
      4

      Supreme Court of Alabama.

      5
      May 31, 1991.
      6

      [503] Victor T. Hudson and William W. Watts III of Reams, Vollmer, Phillips, Killion, Brooks & Schell, Mobile, for appellant/cross appellee.

      7

      Steve Olen and George W. Finkbohner III of Finkbohner, Lawler & Olen, Mobile, for appellee/cross-appellant.

      8
      ADAMS, Justice.
      9

      The accounting firm of Cherry, Bekaert & Holland, (hereinafter "CB & H"), appeals from the trial court's summary judgment in favor of J. Charles Brown in his action for a judgment declaring that paragraph 15.9 of the CB & H partnership agreement entered into by Brown after he began work with CB & H constituted an unenforceable covenant not to compete under Alabama law. Brown cross-appeals from the trial court's entry of summary judgment in favor of CB & H on his claim that CB & H had tortiously interfered with his business. We affirm.

      10

      In 1979, Brown became a partner in CB & H's Mobile, Alabama, office. In 1980, he was made an equity partner in CB & H, and he executed CB & H's partnership agreement in 1981. Article 15 of the partnership agreement contained the following paragraphs relevant to this appeal:

      11
      "15.8 For a period of three (3) years after the termination of his relationship with the partnership, the withdrawing or expelled partner will neither, for himself or any other accountant, solicit or perform any bookkeeping, auditing, accounting, tax consultant work, or accounting services of any other kind, either on his own account or for any other person, firm, or corporation in any capacity or relationship, within a ten (10) mile radius of the Cherry, Bekaert & Holland office in which such withdrawing or expelled partner was last stationed, except that there shall be no geographic restriction on a partner expelled without cause pursuant to Section 15.2 above, nor will he solicit or perform such accounting services for himself or any other accountant, from or for any client of the partnership without prior written consent of the Executive Board....
      12
      "15.9 In the event that a court of competent jurisdiction shall determine that the covenant not to compete contained in Paragraph 15.8 is invalid with respect to a withdrawing or expelled partner, it being agreed that within the State of Alabama the courts have determined that such a covenant is invalid, then, in that event, a withdrawing or expelled partner shall not be subject to the above covenant not to compete but shall be subject to the buy/sell agreement embodied in this paragraph.... In either event, said withdrawing or expelled partner shall pay to the partnership, [504] for the purchase of any client served (as defined in Paragraph 15.8 above) by said partner within a three (3) year period following the termination of his relationship with the partnership, an amount not less than one hundred fifty percent (150%) of the fees charged said client by the partnership during the last twelve (12) month period during which the partnership served said client prior to said client being served by the said partner plus an amount representing the excess, if any, of the fees charged by the said partner for the twelve (12) month period commencing with the time said partner first served said client over the fees charged by the partnership referred to above."
      13

      Brown signed the agreement in Mobile and sent it to CB & H's main office in Charlotte, North Carolina, to be executed by the managing partner. The agreement then became effective on January 14, 1981, after it was signed by the managing partner. The agreement also specified that the parties agreed that it was made in North Carolina and that its validity and construction were governed by North Carolina law.

      14

      In January 1988, Brown withdrew from CB & H. Some of the clients Brown served while working for CB & H retained him after he left CB & H. On March 15, 1989, CB & H sued Brown in North Carolina, seeking $259,801.50, an accounting, and specific enforcement of paragraph 15.9 of the partnership agreement. CB & H alleged that Brown took 100 CB & H clients when he left the partnership, without paying for them. On May 18, 1989, Brown sued in Mobile Circuit Court, alleging tortious interference with his business and seeking a judgment declaring that paragraph 15.9 of the CB & H partnership agreement was a covenant not to compete—a restraint of trade—and was void and unenforceable under Alabama Code 1975, § 8-1-1. On August 2, 1989, Brown filed a motion for a summary judgment on his claim that paragraph 15.9 was void under Alabama law. CB & H filed a motion to dismiss the Alabama proceeding for lack of subject matter jurisdiction, based on the prior pending suit in North Carolina. On February 21, 1990, the trial court entered a summary judgment in favor of Brown on his claim that paragraph 15.9 was void under Alabama law as a covenant not to compete. The trial court also denied CB & H's motion to dismiss for lack of subject matter jurisdiction, but entered a judgment in favor of CB & H on Brown's allegation of tortious interference with his business.

      15

      CB & H appeals that portion of the summary judgment declaring that paragraph 15.9 constitutes a covenant not to compete and denying CB & H's motion to dismiss. Brown cross-appeals from the judgment in favor of CB & H on his claim of tortious interference with business. CB & H raises the following issues for our review: (1) whether the trial court lacked subject matter jurisdiction over a declaratory judgment action filed subsequent to the filing of the North Carolina action at law involving the same parties and the same issues; (2) whether the validity of paragraph 15.9 under Alabama law was a moot question—not properly the subject of declaratory relief; i.e., whether North Carolina law would govern the validity of the provision in the North Carolina proceedings; (3) whether, the requested declaratory relief was furthermore moot on the grounds that, under Alabama choice of law principles, North Carolina law governed the validity of an agreement to pay money that was made in North Carolina and that made the money payable to a North Carolina partnership; and (4) whether an agreement by a withdrawing accountant to purchase any clients of his former partnership that he elects to continue to serve is an unenforceable covenant not to compete under Ala.Code 1975, § 8-1-1(a). On his cross-appeal, Brown raises the issue of whether the trial court erred in entering a judgment in favor of CB & H on his claim of tortious interference with business; he argues that there was no motion or pleading before the court upon which to base such a ruling.

      16

      CB & H first argues that the trial court lacked subject matter jurisdiction over this action because of the prior pending action in North Carolina involving the [505] same parties and the same issues. CB & H's argument on this point is unpersuasive. While it is true that CB & H filed an action in North Carolina prior to Brown's action in Alabama, the mere fact that there is a prior pending action in another state does not divest the trial court of subject matter jurisdiction. In Galbreath v. Scott, 433 So.2d 454 (Ala.1983), this Court addressed a similar situation of a prior suit pending in another state. Finding that the prior suit, filed in Florida and involving the same parties and the same issues, did not bar a subsequently filed suit in Alabama, the Court stated:

      17
      "`The mere pendency of an action in one state has no effect upon the right to bring an action in another. Whichever suit is first carried to judgment then bars the other, but it is only the rendition of judgment which has that effect. Until judgment is rendered, successive suits may be brought on the same cause of action in a dozen different states. While rendition of judgment on a prior judgment from another state as a cause of action does not discharge the prior judgment by merger or otherwise, the satisfaction of either judgment will discharge both.'"
      18

      Galbreath, 433 So.2d at 456 (quoting R. LeFlar, American Conflicts Law § 75 (3d ed. 1977). In the present case, CB & H's prior suit is still pending in North Carolina, as no judgment has been rendered in it. Thus, the prior pending suit in North Carolina has no effect on Brown's right to bring suit in Alabama, and the trial court properly retained jurisdiction over the action.

      19

      Having concluded that the trial court did have jurisdiction over Brown's suit, we must now focus on CB & H's partnership agreement, specifically paragraph 15.9. Although CB & H raises several issues related to paragraph 15.9 for our review, the essential question we must resolve is whether paragraph 15.9 is a covenant not to compete and whether it is enforceable under applicable Alabama law. We begin our analysis with Ala.Code 1975, § 8-1-1, the relevant statute concerning covenants not to compete. Section 8-1-1 provides:

      20
      "(a) Every contract by which anyone is restrained from exercising a lawful profession, trade or business of any kind otherwise than is provided by this section is to that extent void.
      21
      "(b) One who sells the good will of a business may agree with the buyer and one who is employed as an agent, servant or employee may agree with his employer to refrain from carrying on or engaging in a similar business and from soliciting old customers of such employer within a specified county, city or part thereof so long as the buyer, or any person deriving title to the good will from him, or employer carries on a like business therein.
      22
      "(c) Upon or in anticipation of a dissolution of the partnership, partners may agree that none of them will carry on a similar business within the same county, city or town, or within a specified part thereof, where the partnership business has been transacted."
      23

      Subsection (a) provides the general prohibition of covenants not to compete and expressly applies to professionals. Subsections (b) and (c) provide limited exceptions to the general prohibition in subsection (a). However, these exceptions do not apply to professionals. Thompson v. Wiik, Reimer & Sweet, 391 So.2d 1016 (Ala.1980); Odess v. Taylor, 282 Ala. 389, 211 So.2d 805 (1968). Because the present case involves a professional, an accountant, the exceptions contained in subsections (b) and (c) do not apply, and we are left with the general prohibition of covenants not to compete. See Mann v. Cherry, Bekaert & Holland, 414 So.2d 921 (Ala.1982); Thompson v. Wiik, Reimer & Sweet, 391 So.2d 1016 (Ala.1980); Gant v. Warr, 286 Ala. 387, 240 So.2d 353 (1970). It is in light of this policy disfavoring covenants not to compete embodied in § 8-1-1 that we must view paragraph 15.9 of the CB & H partnership agreement.

      24

      CB & H stipulates that paragraph 15.8 contains a covenant not to compete, but it maintains that paragraph 15.9 is an alternative [506] to 15.8 and is merely a "buy/sell" agreement, which, by its terms, becomes effective only upon the determination by a court of competent jurisdiction that 15.8 is void and unenforceable as a covenant not to compete. CB & H also recognizes in paragraph 15.9 the Alabama policy disfavoring such covenants. These two paragraphs presumably ensure CB & H that it will be able to enforce one of the two provisions against the withdrawing partner in every state, regardless of a particular state's laws concerning covenants not to compete.

      25

      While paragraph 15.9 does not explicitly contain a covenant not to compete, the requirements of the paragraph are tantamount to a covenant not to compete and operate in the same manner. Paragraph 15.9 requires that the withdrawing partner purchase any former CB & H client he serves within a 3-year period following his withdrawal from the partnership for an amount equal to 150% of the fees charged to the client by CB & H during the last 12-month period when CB & H served the client. The withdrawing partner must also pay to CB & H the excess of any fees charged by him to the former CB & H client over the fees charged to that client by CB & H. Paragraph 15.9 is clearly an attempt by CB & H to subvert and circumvent the laws and policies of Alabama regarding covenants not to compete. CB & H's attempt to validate this paragraph by admitting that paragraph 15.8 contains the covenant not to compete and recognizing its unenforceability under Alabama law and phrasing 15.9 as a "buy/sell agreement" falls far short. The "purchase" requirements placed on a withdrawing partner by paragraph 15.9 operate as a harsher form of restraint on the practice of accounting than paragraph 15.8. Although paragraph 15.9 does not restrict the practice of accounting on a geographic basis, as in 15.8, it restricts that practice on a much broader monetary basis. The requirements of 15.9 are so harsh and punitive in nature that they virtually operate to prevent the practice of accounting by the withdrawing partner totally. We agree with the trial court's determination that paragraph 15.9 is a covenant not to compete, and, as such, is void and unenforceable under Alabama law. This determination does not, however, end our inquiry into paragraph 15.9. The question now becomes whether to give effect to the parties' choice of North Carolina law to govern this agreement.

      26

      CB & H argues that Brown's declaratory judgment action raises a moot question because, it says, North Carolina law governs the construction and validity of the partnership agreement and Brown's requested relief is further moot because, it says, Alabama's choice of law principles require the application of North Carolina law to this agreement. We conclude, however, that CB & H has misstated the law on this point.

      27

      The partnership agreement specifies that the parties agree that North Carolina law will govern the construction and validity of the agreement. Alabama follows the principle of "lex loci contractus," which states that a contract is governed by the laws of the state where it is made except where the parties have legally contracted with reference to the laws of another jurisdiction. Macey v. Crum, 249 Ala. 249, 30 So.2d 666 (1947); J.R. Watkins Co. v. Hill, 214 Ala. 507, 108 So. 244 (1926). Alabama law has long recognized the right of parties to an agreement to choose a particular state's laws to govern an agreement. Craig v. Bemis Co., 517 F.2d 677 (5th Cir.1975). Thus, North Carolina law would seem to govern the present agreement, because CB & H and Brown have apparently chosen the laws of North Carolina to govern it. However, this principle is qualified by the principles set out in Blalock v. Perfect Subscription Co., 458 F.Supp. 123 (S.D.Ala. 1978), and the cases following it.

      28

      In Blalock, although the parties to an agreement, which contained a covenant not to compete, chose Pennsylvania law (which enforces covenants not to compete) to govern the agreement, the United States District Court for the Southern District of Alabama held that where the parties' choice of law would be contrary to the fundamental public policies of the forum state, Alabama, the parties' choice of law [507] could not be given effect and that the laws of the forum must control the agreement. That case involved a contract between an Alabama resident and a Pennsylvania corporation. The Blalock court referred to the Restatement Second of Conflict of Laws, §§ 187 and 188 for guidance. Section 187 provides, in part:

      29
      "(1) The law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue.
      30
      "(2) The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either
      31
      "(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or
      32
      "(b) application of the law of the above chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties."
      33

      Comment (g) to § 187 states further:

      34
      "Fulfillment of the parties' expectations is not the only value in contract law; regard must also be had for state interests and for state regulation. The chosen law should not be applied without regard for the interests of the state which would be the state of the applicable law with respect to the particular issue involved in the absence of an effective choice by the parties. The forum will not refrain from applying the chosen law merely because this would lead to a different result than would be obtained under the local law of the state of the otherwise applicable law. Application of the chosen law will be refused only (1) to protect a fundamental policy of the state which, under the rule of § 188, would be the state of the otherwise applicable law, provided (2) that this state has a materially greater interest in the determination of the particular issue."
      35

      The comments to § 187 also provide that in order for a policy to be considered fundamental it must be "a substantial one" and "may be embodied in a statute which makes one or more kinds of contracts illegal or which is designed to protect a person against the oppressive use of superior bargaining power." The Blalock court went on to hold that because the covenant not to compete, which would be enforced under Pennsylvania law, "flies directly in the face of the public policy of Alabama as set out by statute," the parties' choice of law could not be given effect, and the law of Alabama, namely § 8-1-1, governed the agreement. See also Hughes Associates, Inc. v. Printed Circuit Corp., 631 F.Supp. 851 (N.D.Ala.1986).

      36

      We are faced with a similar situation here. While parties normally are allowed to choose another state's laws to govern an agreement, where application of that other state's laws would be contrary to Alabama policy, the parties' choice of law will not be given effect and Alabama law will govern the agreement. In this case, because the parties have chosen North Carolina law to govern the agreement and North Carolina law would enforce the covenant not to compete set out in paragraphs 15.8 and 15.9, the parties' choice of law must fall. This Court finds that Alabama's policy against covenants not to compete is a fundamental public policy; that Alabama law would be applicable but for the parties' choice of North Carolina law; and that Alabama has a materially greater interest than North Carolina in the determination of this issue, because CB & H is attempting to enforce a covenant not to compete in Alabama and against an Alabama resident. Furthermore, application of North Carolina law, enforcing the covenant not to compete, clearly "flies directly in the face of the public policy of Alabama." Blalock, 458 F.Supp. at 127. Therefore, we hold that the contractual choice of North Carolina [508] law cannot be given effect and that Alabama law will govern this agreement; therefore, § 8-1-1 is to be enforced. Under that provision, paragraph 15.9 is void and unenforceable and Brown cannot be bound by its terms.

      37

      Brown cross-appeals, arguing that the trial court erroneously entered the judgment in favor of CB & H dismissing his claim alleging tortious interference with business. We disagree.

      38

      Brown alleged in his complaint that CB & H, through its attempt to enforce paragraph 15.9 of the partnership agreement, tortiously interfered with his business relations and sought to restrain his practice of accounting. Tortious interference with business requires that the plaintiff prove: "(1) The existence of a contract or relation; (2) defendant's knowledge of the contract or business relation; (3) intentional interference by the defendant with the contract or business relation; and (4) damage to the plaintiff as a result of defendant's interference." Lowder Realty, Inc. v. Odom, 495 So.2d 23, 25 (Ala.1986). See also Gross v. Lowder Realty, 494 So.2d 590 (Ala.1986). After examining the record, we conclude that Brown offered no proof of any intentional interference by CB & H with his business relations. CB & H merely attempted to enforce the partnership agreement, but did not engage in any activity that would amount to intentional interference. The trial court correctly entered a judgment in favor of CB & H on Brown's claim of tortious interference with business.

      39

      For the reasons stated in this opinion, the judgment of the trial court is affirmed.

      40

      AFFIRMED.

      41
      HORNSBY, C.J., and ALMON, STEAGALL and INGRAM, JJ., concur.
    • 1.4 Application Group Inc. v. Hunter Group Inc.

      1
      61 Cal.App.4th 881 (1998)
      2
      APPLICATION GROUP, INC., et al., Plaintiffs and Respondents,
      v.
      HUNTER GROUP, INC., Defendant and Appellant.
      3
      Docket No. A071528.
      4

      Court of Appeals of California, First District, Division Three.

      5
      February 23, 1998.
      6

      [884] COUNSEL

      7

      Thelen, Marrin, Johnson & Bridges, Charles S. Birenbaum and Thomas M. McInerey for Defendant and Appellant.

      8

      Stephen E. Taylor, Jan J. Klohonatz and Paul Beach for Plaintiffs and Respondents.

      9

      OPINION

      10
      PHELAN, P.J.
      11

      The Hunter Group, Inc. (Hunter or appellant), timely appeals from a judgment by which the San Francisco Superior Court declared that covenants not to compete contained in the employment contracts of Hunter consultants who do not reside in California are illegal in the circumstances of this case, and cannot be enforced against respondents The Application Group, Inc. (AGI), a California-based corporation, and Dianne Pike (Pike), a resident of Maryland and former Hunter consultant who was recruited to work for AGI in California in 1992. The trial court's judgment [885] was based on sections 16600 and 17200 of the California Business and Professions Code.[1]

      12

      On appeal, Hunter contends: (1) There is no "actual controversy" between or among the parties and, therefore, certain of AGI's and Pike's claims for declaratory and injunctive relief are not justiciable; (2) the enforceability of the relevant covenants not to compete must be determined under the law of Maryland, not California; and (3) under Maryland law, the covenants not to compete are lawful and enforceable.

      13

      We conclude the trial court did not abuse its discretion in determining that AGI's claims are justiciable. We further conclude, in agreement with the trial court, that California law may be applied to determine the enforceability of a covenant not to compete, in an employment agreement between an employee who is not a resident of California and an employer whose business is based outside of California, when a California-based employer seeks to recruit or hire the nonresident for employment in California. However, we agree with Hunter that the trial court abused its discretion by granting declaratory relief in favor of Pike, whose individual claims became moot during the pendency of the proceedings below. Accordingly, we vacate those portions of the judgment relating to Pike's individual claims for relief. As thus modified, the judgment will be affirmed.

      14
      I. FACTUAL AND PROCEDURAL BACKGROUND
      15
      A. The Parties.
      16

      Hunter is a privately held Maryland corporation, with its headquarters in Maryland. It provides computer consulting services for businesses that use human resources software, including software manufactured by the California-based company, PeopleSoft, Inc. Hunter maintains a branch office in San Francisco, California, as well as in Georgia, Illinois, New York, and Massachusetts. Hunter frequently competes with AGI and other California-based companies for consulting projects. Although its business is centered primarily in the eastern United States, Hunter has provided and continues to provide consulting services to customers in California.

      17

      Between October 1992 and July 1993, Hunter employed six computer consultants and one administrative assistant who were California residents. [886] None of these employees had a covenant not to compete in their employment agreements. However, all of Hunter's employees who reside outside of California and work primarily in other states do so under covenants not to compete, which prevent them from working for any of Hunter's competitors for up to one year from termination unless the employee is laid off for economic reasons.

      18

      Between August 1993 and May 1994, Hunter performed no billable work in California.[2] However, in 1994, Hunter again attempted to enter the California computer consulting market. By late 1994, Hunter had ninety employees nationwide, only two of whom resided in California, and five California-based customers. At this time, too, the employment agreements of all of Hunter's non-California resident employees contained covenants not to compete, but those of the two California residents did not. To increase its capacity in California, Hunter assigned temporary projects in California to employees from other states.

      19

      AGI is a California corporation, with its headquarters in San Francisco, California. It is a subsidiary of Automatic Data Processing, a publicly held corporation, and maintains offices in Georgia, Illinois, and New Jersey. Like Hunter, AGI provides its customers with the services of trained, specialized computer consultants who frequently travel substantial distances to work directly at the customer's premises. Sometimes these consultants travel from their home state to the customer's location for a project of extended duration. Competition for the limited number of qualified computer consultants among prospective employers — including Hunter and AGI — is "stiff." As of the end of 1994, AGI employed 106 consultants nationwide, 30 of them in California.

      20

      AGI and Hunter are structured differently and manage their employees in different ways. AGI conducts both its in-state and out-of-state business from its San Francisco headquarters. AGI's employees are treated as California employees; all AGI employees are residents of, work in, or are managed from California, and, with one exception, have employment agreements governed by California law. Unlike Hunter, AGI does not vary the terms of its employment agreements depending upon the employee's state of residence. AGI does not require a covenant forbidding employment with its competitors.

      21

      Pike is a consultant who is skilled in computerized human resources management systems, the field in which Hunter and AGI compete. She has [887] been a resident of Maryland since 1963, and was hired by Hunter in 1991. During the 16 months she was employed by Hunter, Pike worked at Hunter's Baltimore offices and at various customer sites in Arizona, Colorado, Massachusetts, and New York. It is undisputed that Pike never set foot in California, even for pleasure, during the time she was employed by Hunter.

      22

      Hunter objected to AGI's recruitment and hiring of Pike, and demanded she withdraw her resignation and continue service under her employment contract. When Pike refused, Hunter sued her in the Circuit Court for Montgomery County, Maryland, in an action entitled Hunter Group, Inc. v. Pike (No. 95647), for breach of the covenant not to compete contained in her employment agreement. Hunter also sued AGI for unlawful interference with that contractual relationship. That action was concluded in May 1994, following presentation of the plaintiff's case, when the Maryland court granted Pike's and AGI's motion for judgment because of Hunter's failure to present any evidence of damages.[3]

      23
      B. Hunter's Covenant Not to Compete.
      24

      The covenant not to compete contained in Pike's employment contract is similar to those used by Hunter with respect to all of its employees who may or may not work in, but are not residents of, California. The covenant in Pike's employment contract provided: "During the term of [her] employment, and for a period of [one year] after the date of its termination, [Pike] agrees that [she] will not render, directly or indirectly, any services of an advisory or consulting nature, whether as an employee or otherwise, to any business which is a competitor of [Hunter]." The noncompetition clause does not apply where the employee is "terminated by [Hunter] for economic or budgetary reduction purposes." Pike's employment contract expressly provided it was to be "governed by and construed in accordance with the laws of the State of Maryland."

      25

      Hunter uses the covenant not to compete for the admitted purpose of deterring and preventing the solicitation, recruitment and hiring of Hunter's employees by its competitors, especially those in California. Hunter intends [888] that the covenant not to compete will serve as a complete barrier between its competitors and all of its employees. Hunter's use of the covenants not to compete also allows it to avoid a "bidding war" that would increase the salary of its consultants. Hunter has admitted its consultants cannot, and do not, shop for a potential offer from a competitor to obtain leverage in salary negotiations with Hunter. Hunter has objected, and continues to object, to what Hunter calls AGI's "poor business practice" of "trying to hire [Hunter's] people and steal them away from all their competitors." Indeed, Hunter's president testified that the covenant not to compete was designed to "scare [AGI] away" from soliciting its employees and that, until the Maryland action, Hunter's strategy had "worked quite well for three years."

      26

      Hunter endeavors to assure the efficacy of its covenant not to compete by repeatedly notifying competitors in California, including AGI, that they are not to solicit, recruit, or hire any Hunter employee in California. For example, in a letter of July 20, 1989, Hunter warned AGI, as follows: "[Y]ou should be aware [Hunter] has secured very strict employment agreements with each staff that disallows working for a competitor company or in a competitive position upon leaving Hunter. We would seek an injunction barring any provision of similar services by Hunter employees hired by [AGI]." Similarly, during the pendency of this action in August 1994, Hunter warned AGI in writing to "cease and desist its solicitation of [Hunter] employees." Hunter's covenant not to compete has, in fact, chilled the interest of Hunter's consultants to seek employment with its competitors, and has chilled AGI's efforts to solicit and recruit such consultants.

      27
      C. The Instant Action.
      28

      AGI and Pike filed their original verified complaint in San Francisco Superior Court on April 16, 1993, seeking a declaratory judgment that section 16600, and not Maryland law, applied to Pike's covenant not to compete and AGI's recruitment of Pike. At that time the Maryland action was still pending, and Hunter successfully moved the San Francisco court on forum non conveniens grounds for a stay of the action pending completion of Maryland litigation. On January 20, 1994, AGI and Pike jointly filed a verified first amended complaint for declaratory relief.

      29

      In their amended complaint, AGI and Pike first sought a declaration that California law, specifically sections 16600 and 17200, and not Maryland law, applied to Pike's covenant not to compete, and that Hunter would be prohibited from enforcing any judgment obtained in the Maryland action. Second, AGI sought a declaration that these California statutes provided it with a "privilege" to contact and recruit any Hunter consultant, wherever he [889] or she resided or worked, who was employed under a covenant not to compete. Third, AGI sought a declaration that, by including an illegal noncompetition provision in its employees' contracts, Hunter was engaging in "unfair competition" within the meaning of section 17200. Finally, AGI sought a declaration that, pursuant to sections 16600 and 17200, Hunter was precluded from enforcing in California any out-of-state judgment or injunction it "might obtain" which upholds the validity of its covenant not to compete.

      30
      D. The Trial Court's Orders.
      31

      The parties filed cross-motions for summary judgment or, in the alternative, summary adjudication, in the law and motion department of the San Francisco Superior Court. On December 13, 1994, the Honorable William Cahill issued an order granting AGI's motion in part, ruling as follows: (1) As a matter of law, California law applies to the actions of AGI in calling and recruiting from California, any Hunter consultants or former consultants who have covenants not to compete in their employment contracts. (2) Sections 16600 and 17200 permit AGI to recruit and hire from California any Hunter consultants who are residents of California, and the use by Hunter of covenants not to compete, for such employees, is illegal under sections 16600 and 17200. (3) California law applied to Pike's covenant not to compete, which was "invalid and unenforceable in California" as to her but, in any event, the covenant with Hunter no longer prohibited her from working for AGI. Judge Cahill denied AGI's motion to the extent it sought a declaration that Hunter's covenant is unenforceable against its consultants "who work or have worked in California, or who report to or are managed from, or have reported to or have been managed from, any [Hunter] California office," ruling that "[a] case-by-case evaluation is needed for these individuals." Judge Cahill also ruled that case-by-case evaluation would be necessary for any out-of-state judgment or injunction against AGI because of its recruitment or hiring of a Hunter employee who has a covenant not to compete. Finally, Judge Cahill declined to recognize a "privilege," based on sections 16600 and 17200, in favor of AGI.[4]

      32

      The balance of the case proceeded to trial in January 1995 before the Honorable Roy Norman, an assigned judge. The matter was submitted after a half-day of live testimony by AGI's president, William Campbell, and the filing of a stipulated statement of facts.

      33

      On January 30, 1995, Judge Norman issued a statement of decision, denying AGI's claims for declaratory relief. However, on April 5, 1995, [890] in response to AGI's objections to the proposed statement of decision, Judge Norman issued a revised statement of decision which, for the most part, adopted the rationale of Judge Cahill's prior ruling. Judge Norman also ruled — for the first time — that Hunter's covenant not to compete is an "unenforceable contract[] to restrain trade," the use of which constitutes "unfair competition" in violation of section 17200. More specifically, in his final statement of decision, Judge Norman ruled that AGI was entitled to a declaratory judgment, as follows:

      34

      "1. California law applies to [AGI's] hiring of [Hunter] employees to engage in a profession or business in California. The reason is that California has a strong public policy concerning contracts which would prohibit employment in California regardless of where the parties exchanged promises. The fact that [AGI] does the hiring itself from California is not an operative fact. The operative fact is that California is precluded from the benefits of a business or profession by contract.

      35

      "2. Sections 16600 and 17200 of the Business and Professions Code respectively do not confer a privilege. The former deprives certain contract provisions of legal recognition. The latter is a definition. Each separate [sic] and in combination are limitations on conduct to promote public policy. Under Section 17203, [AGI] is given the privilege of enforcing that public policy in its own interest to prevent its breach. The effect of Business and Professions Code section 16600 can be imagined to be an addendum to [Hunter's] non-compete clause to add the words `void in California.' That neither gives the privilege to recruit or hire, it simply renders that promise unenforceable in California.

      36

      "3. With respect to [Hunter] employees who work or have worked or who report to or are managed from [Hunter's] California office, neither Business and Professions Code sections 16600 or 17200 state or imply that, foreign contracts valid where made, are vitiated by engaging in business in California. California's concern is to prevent the offending term from enforcement to the detriment of its citizens. The operative fact is not its offensive language but its offensive effect. [¶] [AGI's] recruitment efforts to secure employees for employment in California are protected indirectly by invalidating employment contracts which seek to preclude acceptance of such offers. Such efforts are not dependent on the employee's domicile nor his contacts with California. On the other hand, [AGI's] recruitment for employment beyond the borders of California are not brought under California law so as to apply California employment restrictions of Business and Professions Code section 16600 simply because that party has California connections.

      37

      [891] "4. [Hunter] is bound by California law only to the extent that its consultants are free from the stricture against employment by a competitor in a business to be performed in California. This is so without reference to present residence or employment location and whether or not the employee has engaged in any of [Hunter's] business in California.

      38

      "5. No controversy exists at this time with regard to an existing out-of-state injunction or judgment against [AGI] enforcing [Hunter's] non-compete provision. The Court therefore declines to make any declaration with respect to such injunctions or judgments.

      39

      "6. The Court declines to render declaratory relief as specifically requested in paragraphs 50-52 and 55-57[[5]] of the First Amended Verified Complaint since these paragraphs, as specifically worded, are inconsistent with the law of California as this Court understands it to be and as stated herein."

      40

      Finally, Judge Norman was careful to add that the revised statement of decision, filed April 5, 1995, superseded his prior statement of decision, and that it was not intended to modify, vacate or change Judge Cahill's orders of December 13, 1994, and January 30, 1995, on the parties' cross-motions for summary judgment and summary adjudication of issues. On June 15, 1995, [892] judgment was entered based on Judge Norman's revised statement of decision and Judge Cahill's orders. Hunter timely filed a "Notice of Partial Appeal," specifying portions of this judgment.

      41
      II. DISCUSSION
      42

      This appeal raises one of the many interesting and difficult legal questions created by the rapid expansion of computer technology. It involves what might be called the "virtual employer," one whose employees work out of their homes, or from branch offices scattered throughout the country, or at customer sites in various states, as necessary to provide "consulting" services with respect to the customers' computerized human resources systems. Competition among such employers is fierce, both for customers and for qualified employees. The situation gives rise to potential conflicts among the laws governing solicitation, recruitment, and employment in the various states where the employees, employers and customers can be said to "reside."

      43

      In this case, we must decide whether California law may be applied to determine the enforceability of a covenant not to compete, in an employment agreement between an employee who is not a resident of California and an employer whose business is based outside of California, when a California-based employer seeks to recruit or hire the nonresident for employment in California. Before proceeding to the merits of the parties' dispute on that issue, however, we must address a few preliminary questions.

      44
      A. Although Pike's Individual Claims Are Moot, the Trial Court Did Not Err in Adjudicating the Issue of Enforceability of Hunter's Noncompetition Clause When Invoked to Preclude Employment in California.
      45

      (1a) Hunter contends that certain of AGI's claims about the enforceability of its covenants not to compete are not justiciable. Specifically, Hunter challenges those portions of the declaratory judgment relating to Hunter consultants who are residents of California, contending they reflect a decision on issues as to which there was and is no "actual controversy." Hunter also contends that Pike's individual claims are moot.

      46

      (2) Code of Civil Procedure section 1060 confers standing upon "[a]ny person interested under a ... contract" to bring an action for declaratory relief "in cases of actual controversy relating to the legal rights and duties of the respective parties." "Whether a determination is proper in an action for declaratory relief is a matter within the trial court's discretion ... and the [893] court's decision to grant or deny relief will not be disturbed on appeal unless it be clearly shown ... that the discretion was abused." (Hannula v. Hacienda Homes (1949) 34 Cal.2d 442, 448 [211 P.2d 302, 19 A.L.R.2d 1268]; see also General of America Ins. Co. v. Lilly (1968) 258 Cal. App.2d 465, 471 [65 Cal. Rptr. 750].) Whether an action is justiciable for purposes of Code of Civil Procedure section 1060 is also a matter entrusted to the sound discretion of the trial court. (See Tehachapi-Cummings County Water Dist. v. Armstrong (1975) 49 Cal. App.3d 992, 998 [122 Cal. Rptr. 918].) (1b) In this case, we conclude the trial court did not abuse its discretion either by finding AGI's claims to be justiciable, or by granting declaratory relief in AGI's favor.

      47

      Hunter does not appear to challenge AGI's standing as a "person interested under" the noncompetition agreement. Nor does Hunter raise any issue about the justiciability of the parties' dispute about the enforceability of covenants not to compete in the employment agreements of its nonresident employees.[6] Hunter simply contends that any controversy over the use of covenants not to compete for its employees residing in California is purely "conjectural" because, as a matter of corporate policy, Hunter never has and never will include a noncompetition clause in the employment agreements of its employees who reside in California.

      48

      In this regard, Hunter's justiciability argument is beside the point. It is true that Hunter never really disputed and, indeed, conceded it cannot lawfully require a covenant not to compete in the employment agreement of any employee who is a California resident. Ordinarily, declaratory relief would be inappropriate in such a situation. (See Auberry Union School Dist. v. Rafferty (1964) 226 Cal. App.2d 599, 602-603 [38 Cal. Rptr. 223].) However, in this case, it was necessary for the trial court to determine as a [894] preliminary matter whether the particular noncompetition clause used by Hunter would be enforceable if required of California employees. If so, there would have been no need to decide the central issue raised by AGI's and Pike's complaint: Whether the covenant is enforceable with respect to Hunter's nonresident employees who — like Pike — maintain their foreign domicile, but seek to engage in a business or profession in California. (§ 16600.)[7] That the trial court chose to articulate a logical premise of its declaratory judgment was not error.

      49

      As to Hunter's mootness argument, it is true the one-year term stated in Pike's covenant had expired, and final judgment had been entered in her favor in the Maryland lawsuit, by the time the summary judgment proceedings commenced below. There is nothing to indicate that Pike faces any further liability under her noncompetition pledge, or that she is interested in becoming reemployed by Hunter (or by any other out-of-state company that requires covenants not to compete from its consultants) any time in the near future. Thus, as Hunter contends, Pike's individual claims for declaratory relief under Code of Civil Procedure section 1060, for the alleged violations of sections 16600 and 17200, were and are entirely moot.[8] Of course, there is little to be gained by vacating those portions of Judge Cahill's order relating to Pike's noncompetition agreement. As we discuss in part II.B, post, the declaratory judgment in favor of AGI with respect to nonresident employees necessarily implies Hunter's noncompetition clause would not be enforceable to prevent the recruitment and hiring of any employee situated precisely as was Pike. Nevertheless, this court is not in the business of deciding issues that have lost their vitality as matters in "actual controversy." Accordingly, we will vacate those portions of the judgment relating to Pike's individual claims for declaratory relief.

      50
      B. The Trial Court Did Not Err in Concluding That California Law Governs the Issues Presented in This Appeal.
      51

      (3a) Hunter's principal contention on appeal is that the trial court erred in its application of conflict of laws principles to this case. AGI counters [895] that there is no true conflict of laws issue because all of the rulings by the trial court govern conduct and activities that occur exclusively in California. We reject both of these arguments but nevertheless conclude that the trial court did not err in applying California law to the issues raised by the complaint.

      52

      It is important at the outset to clear away issues we need not decide to resolve the conflict of laws issue presented. As we have noted, there is no real dispute about the enforceability of a covenant not to compete in the employment agreement of Hunter employees who are residents of California. To the extent AGI and Pike alleged that Hunter requires a covenant not to compete from its employees who are California residents, Hunter has conceded that California law invalidates such provisions. It is quite clear that a covenant prohibiting a California employee from working for a competitor after termination of his or her employment violates section 16600, except in two circumstances not present here. (Muggill v. Reuben H. Donnelley Corp. (1965) 62 Cal.2d 239, 242 [42 Cal. Rptr. 107, 398 P.2d 147, 18 A.L.R.3d 1241]; Metro Traffic Control, Inc. v. Shadow Traffic Network (1994) 22 Cal. App.4th 853, 860 [27 Cal. Rptr.2d 573].) Nor is there any genuine dispute about AGI's recruitment of Hunter consultants exclusively "for employment beyond the borders of California." Judge Norman clearly ruled that California law does not apply to or regulate such recruitment or employment, and AGI does not object to that aspect of the trial court's judgment.

      53

      What is at issue is the trial court's ruling that Hunter's noncompetition clause is rendered unenforceable by sections 16600 and 17200 as against its nonresident consultants (such as Pike) when a California employer (such as AGI) seeks to hire them for employment in California.[9] Hunter does not suggest any theory under which this use of its covenant not to compete would survive challenge if California law applies. Hunter simply contends the trial court should have decided this issue under Maryland law — in accordance with the contractual choice-of law-provision in the employment agreements of Hunter's nonresident employees — and, thus, found its noncompetition covenant to be enforceable in the present context. (See Holloway v. Faw, Casson & Co. (1990) 319 Md. 324 [572 A.2d 510, 515] [noncompetition agreements are enforceable so long as they are reasonable in scope and duration]; Ruhl v. F.A. Bartlett Tree Expert Co. (1967) 245 Md. 118 [225 A.2d 288, 291] [same].) AGI, for its part, does not dispute that [896] Hunter's covenant not to compete would be enforceable in these circumstances if Maryland law applies, but contends that application of Maryland law to the parties' dispute would be contrary to fundamental public policy of California. Thus, we must decide whether California or Maryland law applies to a dispute over the enforceability of Hunter's noncompetition clause when a California employer (such as AGI) seeks to hire one of Hunter's nonresident consultants (such as Pike) for employment in California.

      54
      1. California Choice-of-Law Principles.
      55

      (4) Perhaps the most comprehensive statement of the California choice of laws principles applicable to this case can be found in a federal court opinion upon which Hunter places heavy reliance. In S.A. Empresa, etc. v. Boeing Co. (9th Cir.1981) 641 F.2d 746 (S.A. Empresa), the court observed: "California does not apply a mechanical test to choice-of-law questions. Rather, it employs the `governmental interest analysis.' Under this approach, California law will be applied unless the foreign law conflicts with California law and California and the foreign jurisdiction have significant interests in having their law applied. [Citations.] Where significant interests conflict, the court must assess the `comparative impairment' of each state's policies. [Citations.] The law applied will be that of the state whose policies would suffer the most were a different state's law applied. [Citations.] A separate choice-of-law inquiry must be made with respect to each issue in a case. [Citation.] [¶] The preceding rules apply regardless of whether the dispute arises out of contract or tort. [Citation.] An exception applies, however, in the case of contracts with choice-of-law provisions. California will apply the substantive law designated by the contract unless the transaction falls into either of two exceptions: [¶] 1) the chosen state has no substantial relationship to the parties or the transaction, or [¶] (2) application of the law of the chosen state would be contrary to a fundamental policy of the state. [Citations.] Under the second exception, where application of a choice-of-law provision would result in the contravention of California's public policy, the provision will be ignored to the extent necessary to preserve public policy. [Citations.]" (Id. at pp. 749-750; see also Bernhard v. Harrah's Club (1976) 16 Cal.3d 313, 319-321 [128 Cal. Rptr. 215, 546 P.2d 719] ["governmental interest" and "comparative impairment" approaches to choice of law problems]; Sommer v. Gabor (1995) 40 Cal. App.4th 1455, 1468 [48 Cal. Rptr.2d 235] [summarizing "comparative impairment" test]; North American Asbestos Corp. v. Superior Court (1986) 180 Cal. App.3d 902, 905 [225 Cal. Rptr. 877] [application of comparative impairment test in "`true'" conflict situation]; Dixon Mobile Homes, Inc. v. Walters (1975) 48 Cal. App.3d 964, 972 [897] [122 Cal. Rptr. 202] ["comparative impairment" approach applies to both tort and contract cases].)

      56

      Recently, the S.A. Empresa court's exposition and application of California choice of laws rules met with the approval of our Supreme Court. (Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 464-466 & fn. 1 [11 Cal. Rptr.2d 330, 834 P.2d 1148] (Nedlloyd).) The Nedlloyd court recognized that, although the Ninth Circuit did not expressly say so, it was applying the "modern, mainstream" approach of section 187 of the Restatement Second of Conflicts of Laws (hereinafter Restatement), and, more particularly, subdivision (2) of that section.[10] (Nedlloyd, supra, 3 Cal.4th at pp. 464-466, fns. 1 & 6; see also S.A. Empresa, supra, 641 F.2d at p. 749, citing Gamer v. duPont Glore Forgan, Inc. (1976) 65 Cal. App.3d 280, 287-288 [135 Cal. Rptr. 230] [explicit reference to Rest. § 187].)

      57

      The Nedlloyd court elaborated: "[T]he proper approach under Restatement section 187, subdivision (2) is for the court first to determine either: (1) whether the chosen state has a substantial relationship to the parties or their transaction, or (2) whether there is any other reasonable basis for the parties' choice of law. If neither of these tests is met, that is the end of the inquiry, and the court need not enforce the parties' choice of law.... If, however, either test is met, the court must next determine whether the chosen state's law is contrary to a fundamental policy of California.... If there is no such conflict, the court shall enforce the parties' choice of law. If, however, there is a fundamental conflict with California law, the court must then determine whether California has a `materially greater interest than the chosen state in the determination of the particular issue....' (Rest., § 187, subd. (2).) If California has a materially greater interest than the chosen state, the choice of law shall not be enforced, for the obvious reason that in such circumstances we will decline to enforce a law contrary to this state's fundamental policy." (Nedlloyd, supra, 3 Cal.4th at p. 466, italics in original, fns. omitted.)

      58

      Although the Nedlloyd court thus outlined the analytical approach to cases involving contractual choice-of-law provisions, it expressly declined to [898] decide how the principles of subdivision (2)(b) of section 187 of the Restatement would apply to cases in which the interests of the chosen state clash with a "fundamental policy" of California, because the court found that no "fundamental policy" of California was implicated in the case before it. (Nedlloyd, supra, 3 Cal.4th at pp. 466, fn. 6, 468.) However, in dicta, the Nedlloyd court cited S.A. Empresa, supra, 641 F.2d 746, as an example of a case involving such a conflict and, indeed, suggested that the Ninth Circuit had properly enforced the parties' contractual choice-of-law provision after finding that the interests of the chosen state (Washington) were materially greater than those of the forum state (California) even though "fundamental policy" of California may have been implicated in the parties' dispute. (Nedlloyd, supra, at p. 466, fn. 6; S.A. Empresa, supra, at pp. 750-753.)

      59

      One of the difficulties in these cases is that the "materially greater interest" test of subdivision (2)(b) of section 187 of the Restatement overlaps with the "governmental interest" and "comparative impairment" analyses that must be conducted in California to determine which state "would be the state of the applicable law in the absence of an effective choice of law by the parties" (see Dixon Mobile Homes, Inc. v. Walters, supra, 48 Cal. App.3d at p. 972). Neither Nedlloyd nor S.A. Empresa, nor any other case disclosed by our research, discusses the relationship between and among these tests. The approach utilized by the Ninth Circuit for dealing with that problem in the S.A. Empresa case appears to have been to first examine the respective "governmental interests" of the chosen and forum states and then determine the extent to which those interests would be impaired by application of the other state's laws. (See S.A. Empresa, supra, 641 F.2d at pp. 752-753.)[11] Under this approach, a court can decline to enforce the parties' contractual choice-of-law provision only if the interests of the forum state are "materially greater" than those of the chosen state, and the forum state's interests would be more seriously impaired by enforcement of the parties' contractual [899] choice-of-law provision than would the interests of the chosen state by application of the law of the forum state.[12]

      60
      2. Application of California Choice-of-Law Rules to This Case.
      61

      (3b) Hunter is correct that the trial court did not explicitly undertake any formal choice-of-law analysis, as prescribed by the foregoing case law, but that does not mean the trial court came to the wrong conclusion.[13] There is no dispute that the chosen state — Maryland — has a "substantial relationship" to the parties and their transaction. There is also no dispute that there is a "reasonable basis" for the parties' contractual choice-of-law provision. Indeed, the mere fact that one of the parties to the contract is incorporated in the chosen state is sufficient to support a finding of "substantial relationship," and the mere fact that one of the parties resides in the chosen state provides a "reasonable basis" for the parties' choice of law. (Nedlloyd, supra, 3 Cal.4th at pp. 467-468.)

      62

      The parties also agree that California and Maryland are "potentially concerned" states with diametrically opposed laws regarding the enforceability of Hunter's noncompetition clause. (See Sommer v. Gabor, supra, 40 Cal. App.4th at p. 1467; North American Asbestos Corp. v. Superior Court, supra, 180 Cal. App.3d at p. 905.)[14] As we have noted, with certain limited exceptions, California law renders void such provisions (§ 16600), while [900] Maryland law permits them so long as they are reasonable in scope and duration (Holloway v. Faw, Casson & Co., supra, 572 A.2d 4th at p. 515; Ruhl v. F.A. Bartlett Tree Expert Co., supra, 225 A.2d at p. 291). Furthermore, as we will discuss, each state purports to have significant interests in having its law applied. Thus, the real issues for decision are whether Maryland's law is contrary to a fundamental policy of California and, if so, which state has a "materially greater interest" in the determination of the issue and which state's interests would be more seriously impaired if its policy were subordinated to the policy of the other state. (Bernhard v. Harrah's Club, supra, 16 Cal.3d at p. 320; Sommer v. Gabor, supra, 40 Cal. App.4th at p. 1468.) As our Supreme Court has instructed, "careful consideration" of California policy and Maryland's interests is required in order to resolve these issues. (Nedlloyd, supra, 3 Cal.4th at p. 466, fn. 6.)

      63

      AGI is correct when it argues that section 16600 reflects a "strong public policy" of the State of California. (KGB, Inc. v. Giannoulas (1980) 104 Cal. App.3d 844, 848 [164 Cal. Rptr. 571]; Frame v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1971) 20 Cal. App.3d 668, 673 [97 Cal. Rptr. 811] (Frame); Scott v. Snelling and Snelling, Inc. (N.D.Cal. 1990) 732 F. Supp. 1034, 1042.) Indeed, the strength of California's policy interest was the explicit basis for Judge Norman's rulings on the applicability of California law to Hunter's noncompetition covenants insofar as it affects employment in California. As the Second Appellate District recently observed: "California courts have consistently declared this provision an expression of public policy to ensure that every citizen shall retain the right to pursue any lawful employment and enterprise of their choice. Section 16600 has specifically been held to invalidate employment contracts which prohibit an employee from working for a competitor when the employment has terminated, unless necessary to protect the employer's trade secrets. [Citation.] The corollary to this proposition is that [a competitor] may solicit another's employees if they do not use unlawful means or engage in acts of unfair competition." (Metro Traffic Control, Inc. v. Shadow Traffic Network, supra, 22 Cal. App.4th at p. 859.) In Diodes, Inc. v. Franzen (1968) 260 Cal. App.2d 244 [67 Cal. Rptr. 19], the court further explained the policy underpinnings of section 16600, as follows: "The interests of the employee in his own mobility and betterment are deemed paramount to the competitive business interests of the employers, where neither the employee nor his new employer has committed any illegal act accompanying the employment change." (Diodes, Inc. v. Franzen, supra, at p. 255.) It follows that California has a strong interest in [901] protecting the freedom of movement of persons whom California-based employers (such as AGI) wish to employ to provide services in California, regardless of the person's state of residence or precise degree of involvement in California projects, and we see no reason why these employees' interests should not be "deemed paramount to the competitive business interests" of out-of-state as well as in-state employers. (Ibid.)

      64

      To the extent it is invoked by a California employer to protect itself from "unfair competition," moreover, section 16600 (as implemented through sections 17200 and 17204) is all the more important as a statement of California public policy which ensures that California employers will be able to compete effectively for the most talented, skilled employees in their industries, wherever they may reside. In this day and age — with the advent of computer technology and the concomitant ability of many types of employees in many industries to work from their homes, or to "telecommute" to work from anywhere a telephone link reaches — an employee need not reside in the same city, county, or state in which the employer can be said to physically reside. California employers in such sectors of the economy have a strong and legitimate interest in having broad freedom to choose from a much larger, indeed a "national," applicant pool in order to maximize the quality of the product or services they provide, as well as the reach of their "market." California has a correlative interest in protecting its employers and their employees from anticompetitive conduct by out-of-state employers such as Hunter — including litigation based on a covenant not to compete to which the California employer is not a party — who would interfere with or restrict these freedoms.

      65

      Hunter suggests, however, that Maryland has an equally strong public policy favoring the use and enforcement of its noncompetition covenants, insofar as they serve the interests of Maryland employers in preventing recruitment of employees who provide "unique services," and the misuse of trade secrets, routes, or lists of clients, or solicitation of customers. (Fowler v. Printers II (1991) 89 Md. App. 448 [598 A.2d 794, 799]; Becker v. Bailey (1973) 268 Md. 93 [299 A.2d 835]; Holloway v. Faw, Casson & Co., supra, 572 A.2d at p. 515.) However, there is nothing in the record of this case to support a finding that failure to enforce Hunter's noncompetition covenant would significantly impair either of the asserted interests. We have no reason to doubt the parties' showing that highly skilled consultants such as Pike are a scarce resource. But, with all due respect to Ms. Pike, there is no showing [902] that she performed "unique services" for Hunter.[15] There is also no showing that Pike was attempting to exploit Hunter's trade secrets or other protected information about its customers. In any event, should such concerns arise with respect to the recruitment of other Hunter consultants for employment in California, Hunter has recourse under both Maryland and California law. (See, e.g., Morlife, Inc. v. Perry (1997) 56 Cal. App.4th 1514 [66 Cal. Rptr.2d 731].)

      66

      We are, therefore, convinced that California has a materially greater interest than does Maryland in the application of its law to the parties' dispute, and that California's interests would be more seriously impaired if its policy were subordinated to the policy of Maryland. Accordingly, the trial court did not err when it declined to enforce the contractual conflict of law provision in Hunter's employment agreements. To have done so would have been to allow an out-of-state employer/competitor to limit employment and business opportunities in California. As the Nedlloyd court held, California courts are not bound to enforce a contractual conflict of law provision which would thus be "contrary to this state's fundamental policy." (Nedlloyd, supra, 3 Cal.4th at p. 466, fn. omitted; see also Frame, supra, 20 Cal. App.3d at p. 673; Hollingsworth Solderless Terminal Co. v. Turley (9th Cir.1980) 622 F.2d 1324, 1338; Davis v. Jointless Fire Brick Co. (9th Cir.1924) 300 F. 1, 2-3; Scott v. Snelling and Snelling, Inc., supra, 732 F. Supp. at pp. 1039-1040, 1041.)

      67

      Frame, supra, 20 Cal. App.3d 668, is closely on point. In that case, the plaintiff brought an action seeking a determination that a portion of an agreement between the plaintiff and his former employer, a stock brokerage, was void under section 16600 to the extent it provided for forfeiture of profit-sharing rights by any employee who voluntarily terminated his employment and went to work for a competitor. (20 Cal. App.3d at p. 670.) The trial court and the court of appeal agreed with the plaintiff, and rejected the employer's argument that the forfeiture clause was valid under New York law and, thus, enforceable under a clause in the profit-sharing plan designating New York law as governing their rights under the contract. (Id. at p. 673.) The Frame court held that it could not allow New York law to defeat the "strong public policy" embodied in section 16600 and, thus, declined to give effect to the parties' contractual choice-of-law provision. (20 Cal. App.3d at p. 673; see also Davis v. Jointless Fire Brick Co., supra, 300 F. at pp. 2-3.) It is noteworthy that the court in S.A. Empresa, supra, 641 F.2d [903] 746, cited Frame for the proposition that "... where application of a choice-of-law provision would result in the contravention of California's public policy, the provision will be ignored to the extent necessary to preserve public policy." (Id. at p. 749, cited with approval in Nedlloyd, supra, 3 Cal.4th at pp. 464-466, fns. 1 & 6.)

      68

      In defense of its noncompetition clause, Hunter does not rely heavily upon a claim that the State of Maryland has legitimate and compelling interests in the enforcement of the covenant, beyond a general interest in the enforceability of a contract valid where made. Hunter simply suggests that we should focus our attention on the "relevant contacts" of the parties with California and Maryland (see Robert McMullan & Son, Inc. v. United States Fid. & Guar. Co. (1980) 103 Cal. App.3d 198, 205 [162 Cal. Rptr. 720], citing Dixon Mobile Homes, Inc. v. Walters, supra, 48 Cal. App.3d at p. 972, fn. 4), and, on that basis, conclude the trial court erred by reading section 16600 as a "super-statute" applicable to out-of-state contracts as to which California has no interest. In a related argument, Hunter suggests that Maryland law was the "only law apparently applicable" at the time of contracting and that we must honor the expectations of the parties in that regard. (See Bernkrant v. Fowler (1961) 55 Cal.2d 588, 594-595 [12 Cal. Rptr. 266, 360 P.2d 906].)[16] It is only by exaggerating and distorting the reach of the trial court judgment, and by ignoring important features of "relevant contacts" analysis, that Hunter can take this position.

      69

      (5) "With the governmental interest approach, `relevant contacts' stressed by the Restatement Second of Conflict of Laws are not disregarded, but are examined in connection with the analysis of the interest of the involved state in the issues, the character of the contract and the relevant purposes of the contract law under consideration." (Dixon Mobile Homes, Inc. v. Walters, supra, 48 Cal. App.3d at p. 972, fn. omitted.) In contract cases, these "relevant contacts" include: "`(a) the place of contracting, [¶] (b) the place of negotiation of the contract, [¶] (c) the place of performance, [¶] (d) the location of the subject matter of the contract, and [¶] (e) the domicil, residence, nationality, place of incorporation and place of business of the parties.'" (Id., at p. 972, fn. 4, quoting Rest. § 188, subd. (2).)

      70

      [904] (3c) In essence, Hunter suggests this court should mechanically apply an outdated — or at least incomplete — "choice-of-laws" test which, it contends, would result in a choice of Maryland law because that was the place where the contract was negotiated, entered into and performed, as well as "the domicil, residence, nationality, place of incorporation and place of business" of the parties to the contract, i.e., Hunter and Pike. While partially correct, this argument indicates that Hunter's focus is on the wrong "contract." There is no issue in this case about the enforceability of Pike's employment agreement, only of the covenant not to compete.[17] That covenant was negotiated and signed in Maryland, which is both Pike's and Hunter's state of residence, but Maryland was not the exclusive place of business of either Hunter or Pike and was not necessarily the place where the covenant was to be "performed." In this case, moreover, the contracting parties were undoubtedly well aware that the purpose of the noncompetition clause was to prevent Hunter's competitors, especially those in California, from recruiting and hiring Hunter's consultants. Thus, the parties were or should have been alerted to the possibility that California law could come into play in the course of their relationship. In fact, the issue of "performance" arose — at least in part — in California when Pike was recruited by and accepted employment with a California employer to perform services in California. Similarly, although Hunter overlooks this aspect of the Restatement test, "the subject matter of the contract" is arguably subsequent employment which was, in this case, employment by a competitor who is "located" in California.[18]

      71

      Even more fundamentally, however, Hunter overlooks the facts that AGI is a key player in this drama. AGI is a California employer against whom Hunter has repeatedly threatened and attempted to "enforce" the relevant "contract" — a contract, as we have noted, to which AGI is not even a party. We simply cannot ignore AGI's interests, and those of the state of California, with respect to enforceability of Hunter's noncompetition covenants as it affects employment and business opportunities in California.

      72

      Nor can we overlook the fact that Hunter itself has significant "contacts" with California. Hunter maintains an office in California, conducts business in California, competes head-to-head with AGI for California customers, and [905] maintains close relationships with California software companies whose products it supports. Hunter also freely admits it has actively sought to recruit AGI employees who, under California law and AGI policy, cannot be saddled with a covenant not to compete. Indeed, Hunter even pays its current employees a reward for referring any AGI consultant who is successfully recruited for employment by Hunter. Thus, if we were to engage only in the "relevant contacts" analysis Hunter urges, we would not find error in the trial court's decision to apply California law.

      73

      Finally, Hunter contends that the trial court's declaratory judgment was "woefully vague and ambiguous" and, for that reason, unenforceable. We disagree. It is true that, to fall within the scope of the trial court's declaratory judgment, a recruited employee need not have had any prior contact with California, so long as the goal of the solicitation is "employment in California," or employment in "business to be performed in California." As to any such employee, the trial court declared that Hunter's covenant not to compete is invalidated by section 16600. In essence, the trial court acted to protect AGI's freedom to solicit or recruit out-of-state consultants for employment in California, as well as the rights of non-California residents, who are prospective employees of a California company, to engage in a business or profession in California if they so choose. (§ 16600.) Under Judge Norman's ruling, however, it is plainly not sufficient simply to be employed by a California-based employer such as AGI, or to be treated as a California employee for tax and other legal purposes, if the employee is to perform services exclusively "beyond the borders of California."

      74

      Under Hunter's own reasoning, it could not enforce its noncompetition covenant against a former consultant who accepts a position with AGI after moving to California and becoming a "citizen" of this state — even if the consultant does 100 percent of his or her work outside the State of California. But we agree with the trial court that the enforceability of Hunter's noncompetition covenant does not turn on whether the recruited employee physically resides in California. The concept of "employment in California" is broader than that, at least in the expansive and dispersed industry with which we deal in this case. It must also take into account the location of the employer, and the location of the employer's vendors and customers. Viewing the larger picture, the trial court did not err in concluding that an employee of a California-based employer, who performs services for California-based customers, is "employed in California" and, thus, "engage[d] in a business or profession" in California, so as to enjoy the protection of section 16600.[19]

      75
      [906] C. The Trial Court Did Not Err in Finding That Hunter's Unlawful Use of Covenants Not to Compete to Preclude Employment in California Also Violates Section 17200.
      76

      (6a) Hunter also contends the trial court erred when it concluded that, in addition to violating section 16600, Hunter's use of its noncompetition covenant to prevent its former consultants from obtaining employment by AGI in California violates the Unfair Practices Act (UPA) (§ 17200 et seq.).[20] Section 17200 expresses California public policy against unfair [907] competition, and prohibits "wrongful business conduct in whatever context such activity might occur." (Stoiber v. Honeychuck (1980) 101 Cal. App.3d 903, 927 [162 Cal. Rptr. 194].) Section 17200 defines unfair competition as, inter alia, any "unlawful, unfair or fraudulent business practice." (7a) "The `unlawful' practices prohibited by section 17200 are any practices forbidden by law, be it civil or criminal, federal, state, or municipal, statutory, regulatory, or court-made. [Citation.] It is not necessary that the predicate law provide for private civil enforcement. [Citation.] As our Supreme Court put it, section 17200 `borrows' violations of other laws and treats them as unlawful practices independently actionable under section 17200 et seq. [Citation.]" (Saunders v. Superior Court (1994) 27 Cal. App.4th 832, 838-839 [33 Cal. Rptr.2d 438].)

      77

      (6b) In this case, Judge Norman expressly found that, to the extent Hunter requires a covenant not to compete in the employment agreements of employees who are not California residents, but who seek employment in California with a California-based employer, the noncompetition agreement is an "unenforceable contract[] to restrain trade," use of which constitutes "unfair competition" in violation of section 17200. AGI contends, more broadly, that use of a covenant not to compete in this context is both "unlawful" and "unfair" within the meaning of section 17200.

      78

      (7b) California courts have recognized that an employer's business practices concerning its employees are within the scope of section 17200. (Hudgins v. Neiman Marcus Group, Inc. (1995) 34 Cal. App.4th 1109, 1126 [41 Cal. Rptr.2d 46]; Wilkinson v. Times Mirror Corp. (1989) 215 Cal. App.3d 1034, 1052 [264 Cal. Rptr. 194]; People v. Los Angeles Palm, Inc. (1981) 121 Cal. App.3d 25, 32-33 [175 Cal. Rptr. 257].) For example, where the employer's policy or practice is forbidden by or found to violate the Labor Code, it may also be held to constitute an "unlawful business practice" subject to redress under the UPA. (See Hudgins v. Neiman Marcus Group, Inc., supra, 34 Cal. App.4th at p. 1126 [employer policy of deducting losses for unidentified returns when calculating employees' wages violates both Labor Code section 221 and Business and Professions Code section 17200]; People v. Los Angeles Palm, Inc., supra, 121 Cal. App.3d at pp. 32-35 [employer practice of crediting tips of restaurant employees against their minimum wage violates both Labor Code section 351 and Business and Professions Code section 17200].) The reasoning of these cases applies as well to contractual provisions that are found to violate the Business and Professions [908] Code. (See Saunders v. Superior Court, supra, 27 Cal. App.4th at pp. 838-839; but cf. Californians for Population Stabilization v. Hewlett-Packard Co., supra, 58 Cal. App.4th at pp. 287-292.)[21]

      79

      (6c) Of course, the twist in this case is that the employer whose practice is being challenged as "unfair competition" is not a California-based employer. But Hunter presents no authority that holds or suggests that nonresident businesses cannot be held to account for "wrongful business conduct" affecting California employers and employees (Stoiber v. Honeychuck, supra, 101 Cal. App.3d at p. 927), and none is disclosed by our research. Indeed, one California court has held that the law of the state in which a "restraint of trade" will occur overrides that of other states with more limited contacts with the transaction at issue. (Bushkuhl v. Family Life Ins. Co. (1969) 271 Cal. App.2d 514, 521 [76 Cal. Rptr. 602]; cf. Birbrower, supra, 17 Cal.4th at pp. 128-129 [section 6125 regulates out-of-state attorneys, and invalidates fee agreement made with out-of-state law firm to the extent contract is for legal representation "in California"].) We have already discussed at length the interests of California and Maryland in the enforceability of Hunter's noncompetition covenant in the circumstances of this case and have concluded that California's interests should prevail. For similar reasons, we conclude California law may be applied to AGI's claim of unfair competition and that, thus, the trial court did not err in finding Hunter's use of a covenant not to compete in violation of section 16600 to be a violation of section 17200 as well.[22]

      80
      [909] III. CONCLUSION
      81

      The judgment shall be modified to delete those portions relating to Pike's individual claims for relief. As thus modified, the judgment will be affirmed. The parties shall bear their own costs.

      82

      Parrilli, J., and Walker, J., concurred.

      83

      Appellant's petition for review by the Supreme Court was denied May 13, 1998.

      84

      [1]All statutory references are to the Business and Professions Code unless otherwise indicated.

      85

      In relevant part, section 16600 provides: "[E]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." Section 17200 defines "unfair competition." It "... include[s] any unlawful, unfair or fraudulent business act or practice...." (Ibid.)

      86

      [2] Between July 1991 and the end of 1993, 14 Hunter employees performed 12,250 hours of billable service for its California-based customers. Two of these employees, who were responsible for 3 percent of Hunter's billings in California during the same period, worked under covenants not to compete.

      87

      [3] In the course of argument on the motion for judgment, the Maryland court found that the covenant not to compete in Pike's employment agreement was valid on its face and enforceable, at least under Maryland law. However, as far as this record discloses, the parties did not actively litigate, and the Maryland court did not actually decide, the choice-of-laws issue presented in the instant action. Even if it did decide that Maryland law determines the enforceability of Hunter's covenant not to compete in all circumstances, the court's ruling on the choice-of-laws issue was not essential to the judgment in favor of Pike and AGI and, thus, need not be given issue preclusive (collateral estoppel) effect. (See Lumpkin v. Jordan (1996) 49 Cal. App.4th 1223, 1230 [57 Cal. Rptr.2d 303]; Rest.2d Judgments, § 27.)

      88

      [4] A final order on the parties' cross-motions for summary judgment and summary adjudication of issues was not filed until February 22, 1995, after the trial of this action was completed.

      89

      [5] These paragraphs were part of the prayer for relief, as follows: "50. For a declaration that Business and Professions Code sections 16600 and 17200 give AGI a privilege, with respect to any of [Hunter's] computer consultants and former consultants, to call and recruit such consultants from California; [¶] 51. For a declaration that Business and Professions Code sections 16600 and 17200 permit AGI to recruit and hire, from California, any [Hunter] computer consultants and former consultants who are residents of California, who work or have worked in California, or who report to or are managed from, or have reported to or have been managed from, any California office, whether or not such employees have a Covenant Not To Compete with [Hunter]; [¶] 52. For a declaration that, under California law, [Hunter] may not attempt to enforce in California any out-of-state judgment or injunction which [Hunter] might obtain against AGI for AGI's recruitment or hiring of any [Hunter] computer consultant who has a Covenant Not To Compete with [Hunter]; [¶] ... [¶] 55. For a declaration that [Hunter] is bound by the law of the State of California, specifically Business and Professions Code sections 16600 and 17200, with respect to its computer consultants who are residents of California, or who work or have worked in California, or who report to or are managed from, or have reported to or have been managed [from a Hunter] office in California. [¶] 56. For a declaration that with respect to [Hunter's] computer consultants who are residents of California, or who work or have worked in California, or who report to or are managed, or have reported to or been managed from, [a Hunter] office in California, [Hunter's] use of Covenants Not To Compete with such consultants is illegal, invalid and unenforceable under Business and Professions Code sections 16600 and 17200. [¶] 57. For a declaration that, under California law, [Hunter] may not attempt to enforce in California any out-of-state judgment or injunction which [Hunter] might obtain against AGI for interference in [Hunter's] Covenant Not To Compete."

      90

      [6] Nor could it. AGI seeks declaratory relief regarding the enforceability of a specific contract, under which Hunter has made multiple threats of litigation and has on at least one occasion brought suit against AGI, and as to which AGI and Hunter will continue to have run-ins as they compete for employees to work on projects for their customers, and otherwise conduct their business in California. In these respects, we cannot fairly conclude that the trial court abused its discretion to grant declaratory relief. This is not a case in which the court is being called upon to "imagine a myriad of hypotheticals," or to speculate on the application of law to such hypotheticals. (Cf. BKHN, Inc. v. Department of Health Services (1992) 3 Cal. App.4th 301, 309-310 [4 Cal. Rptr.2d 188]; see also Brownfield v. Daniel Freeman Marina Hospital (1989) 208 Cal. App.3d 405, 410-411 [256 Cal. Rptr. 240].) The trial court had before it evidence of the very real and concrete controversy over Pike's recruitment by AGI. The court reasonably could find that the dispute over Pike's employment is typical of controversies that will almost certainly continue to arise between AGI and Hunter over nonresident employees. Furthermore, it is essentially a pure question of law whether Hunter's covenant not to compete is enforceable when invoked to prevent a California-based competitor from soliciting or recruiting a current or former Hunter consultant for employment in California. Plainly, AGI is such a competitor and it has been and will continue to be subject to litigation in this precise factual context.

      91

      [7] In addition, there is the issue of enforceability of Hunter's covenants not to compete as to former consultants who may relocate to become residents of California during the period of noncompetition stated in their employment agreements, insofar as such nonresident employees may wish to become employed in California.

      92

      [8] There is no argument that Pike's claim is "capable of repetition, yet evading review" (Gannett Co. v. DePasquale (1979) 443 U.S. 368, 377 [99 S.Ct. 2898, 2904, 61 L.Ed.2d 608]), or that the controversy was of such short duration so as to preclude normal appellate review (In re Willon (1996) 47 Cal. App.4th 1080, 1089 [55 Cal. Rptr.2d 245]; cf. Press-Enterprise Co. v. Superior Court (1986) 478 U.S. 1, 6 [106 S.Ct. 2735, 2739, 92 L.Ed.2d 1]; San Jose Mercury-News v. Municipal Court (1982) 30 Cal.3d 498, 501, fn. 2 [179 Cal. Rptr. 772, 638 P.2d 655]).

      93

      [9] Again, this statement of the issue encompasses former Hunter employees who may relocate from out of state to become California residents during the period of noncompetition stated in their employment agreements.

      94

      [10] In relevant part, Restatement section 187, subdivision (2), provides that the law of the chosen state will be applied unless: "(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or [¶] (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which ... would be the state of applicable law in the absence of an effective choice of law by the parties." (Italics added.)

      95

      [11] In that regard, the S.A. Empresa court apparently found that Washington had a materially greater interest in having its law determine the validity of an exculpatory clause in a contract for sale of a plane that later crashed, i.e., a clause which effectively immunized the Washington-based airplane manufacturer against a breach of warranty suit filed by a foreign purchaser (a Brazilian corporation) and, thus, required the purchaser to bear the entire loss even if misconduct by the manufacturer caused the crash. (641 F.2d at p. 753.) Indeed, the S.A. Empresa court did not consider California as having any significant interest in the dispute because its public policy was designed to protect its citizens and the plaintiff purchaser was not even a California corporation. Accordingly, even though California public policy may have prohibited enforcement of the exculpatory clause (see Civ. Code, § 1668), and despite the probability that application of the chosen state's laws would produce a result in conflict with a "fundamental policy" of California, the S.A. Empresa court held that it was proper to apply the law of the chosen state, Washington. (S.A. Empresa, supra, 641 F.2d at p. 753.)

      96

      [12] It is efficient to begin the analysis under Restatement section 187, subdivision (2)(b), with the standard "governmental interest" and "comparative impairment" tests because an early determination that the chosen state and the state that would provide "the applicable law in the absence of an effective choice of law by the parties" are one and the same, or a finding that the chosen state is the only state with a significant interest in having its law applied, obviates any need to weigh the forum's public policy interests against the chosen state's interests or to determine which state has the "materially greater interest" in having its law applied.

      97

      [13] Furthermore, it is clear Judge Norman did consider both the interests of the concerned states, and the parties' "contacts" and "connections" with those states. That he did not analyze the issues precisely as Hunter would have liked did not render his statement of decision, or the judgment, deficient in any way.

      98

      [14] Thus, this is a "`true' conflict" case. (See Sommer v. Gabor, supra, 40 Cal. App.4th at p. 1467; North American Asbestos Corp. v. Superior Court, supra, 180 Cal. App.3d at p. 905.) There are other "potentially concerned" states including, for example, the ones in which other nonresident Hunter employees may reside, which may have interests, like Maryland's, in the enforceability of covenants not to compete, valid where made, and the competitive advantages of such provisions. On the other hand, other "potentially concerned" states may broadly prohibit covenants not to compete, as does California, with the result being no real "choice-of-law" issue. Or the "other" states might allow "reasonable" restrictions on the Hunter employee's freedom to compete after termination, but may find one year too long a period or the geographical reach of the covenant too broad. However, the parties focus their choice of laws arguments on California and Maryland as the two "potentially concerned states" with respect to the enforceability of Pike's covenant not to compete, and agree that these laws call for diametrically opposite results on that issue. For that reason, our discussion will maintain the same focus.

      99

      [15] It appears that Hunter's real concern about Pike's recruitment was that it would have to pay more for a replacement than it was paying her. But, in light of the "no damages" judgment in the Maryland court, even that concern did not materialize.

      100

      [16] Hunter also relies on Roesgen v. American Home Products Corp. (9th Cir.1983) 719 F.2d 319, a case in which the Ninth Circuit affirmed a trial court's ruling that New York law applied to a forfeiture provision in an employment agreement, which was triggered by the employee's subsequent employment by a California-based competitor of the first employer. That reliance is misplaced. The federal appellate court applied the highly deferential "clear error" standard of review to the trial court's ruling, one which Hunter insists is inappropriate in the conflict of laws context. Indeed, application of such a lenient standard of review may well have resulted in an erroneous decision under California law by a federal court, which we need not follow. (Cf. Muggill v. Reuben H. Donnelley Corp., supra, 62 Cal.2d at p. 242; Frame, supra, 20 Cal. App.3d at pp. 672-673.)

      101

      [17] Thus, we express no opinion about the enforceability of other provisions in the employment agreements of Hunter consultants who may perform services in California but whose contracts expressly state that they are to be "governed by and construed in accordance with the laws of the State of Maryland."

      102

      [18] In these respects, Bernkrant v. Fowler, supra, 55 Cal.2d 588, is distinguishable because the contract in that case was a "purely local transaction" made and performed in Nevada, involving the refinancing of obligations arising from the sale of Nevada land and secured by interests therein. (Id. at pp. 594-595.)

      103

      [19] We note that Judge Norman did not attempt to define what it means to be employed "in California." We express no opinion as to the precise contours of that concept, leaving it to the parties to raise the issue in the future if and when a dispute over that issue should arise in connection with the declaratory judgment in this case. We note, however, that our Supreme Court recently decided a case which may provide some guidance on the issue. In Birbrower, Montalbano, Condon & Frank v. Superior Court (1998) 17 Cal.4th 119 [70 Cal. Rptr.2d 304, 949 P.2d 1] (Birbrower), the court held that whether an attorney may be deemed to be practicing law "in California" for purposes of section 6125 (requiring State Bar membership) will be determined on a case-by-case basis using a "sufficient contacts" analysis, as follows: "In our view, the practice of law `in California' entails sufficient contact with the California client to render the nature of the legal service a clear legal representation. In addition to a quantitative analysis, we must consider the nature of the unlicensed lawyer's activities in the state. Mere fortuitous or attenuated contacts will not sustain a finding that the unlicensed lawyer practiced law `in California.' The primary inquiry is whether the unlicensed lawyer engaged in sufficient activities in the state, or created a continuing relationship with the California client that included legal duties and obligations. [¶] Our definition does not necessarily depend on or require the unlicensed lawyer's physical presence in the state. Physical presence here is one factor we may consider ..., but it is by no means exclusive. For example, one may practice law in [California] although not physically present here by advising a California client on California law in connection with a California legal dispute by telephone, fax, computer, or other modern technological means. Conversely, although we decline to provide a comprehensive list of what activities constitute sufficient contact with the state, we do reject the notion that a person automatically practices California law `in California' whenever that person practices law anywhere, or `virtually' enters the state by telephone, fax, e-mail, or satellite. [Citations.]" (17 Cal.4th at pp. 128-129, italics in original.)

      104

      [20] Just prior to oral argument on November 25, 1997, AGI and Pike moved to dismiss this appeal on the grounds that Hunter failed to notify the Consumer Law Section of the Office of the Attorney General and the San Francisco District Attorney of the pendency of this "appellate proceeding," as required by section 17209 when the "application or construction" of the UPA is in issue. In Californians for Population Stabilization v. Hewlett-Packard Co. (1997) 58 Cal. App.4th 273 [67 Cal. Rptr.2d 621], the Sixth Appellate District held that a notice served pursuant to section 17209 will be deemed timely if it is served within three days of the filing of the appellant's opening brief on appeal, but that failure to give timely notice is not a jurisdictional defect. (58 Cal. App.4th at pp. 284-285.) Counsel for Hunter candidly admits he was unaware of the requirements of section 17209, and that the statutory notices were not served until November 18, 1997, long after the case had been fully briefed and calendared for oral argument. We are not convinced that Hunter has made an adequate showing of good cause for an extension of time to serve the required notices. Nevertheless, based on the proofs of service filed in this court, we are satisfied that the relevant public prosecutors have had ample time to seek permission to participate as amici curiae or otherwise influence the prosecution of this appeal. Accordingly, we will deny AGI's motion to dismiss and proceed to the merits of Hunter's claims of error under section 17200. Should the Attorney General or the San Francisco District Attorney wish to intervene prior to entry of final judgment in this case, we will entertain a timely petition seeking rehearing on that basis, as to those portions of the opinion dealing with the UPA.

      105

      [21] Hunter quotes language from Californians for Population Stabilization v. Hewlett-Packard Co., supra, 58 Cal. App.4th 273, for the proposition that "The mere fact that certain provisions were unenforceable in California does not render the use of the documents an unfair business practice." (58 Cal. App.4th at p. 293.) This passage appears, at first blush, to support a conclusion that Hunter's use of covenants not to compete does not violate section 17200. Upon closer examination, however, the Sixth Appellate District's holding follows from the fact that the plaintiff failed to prove any of its claims that the contractual provisions at issue were "unlawful" under various California statutes, including section 16600, leaving it with only the "unfair" business practice prong of section 17200 as a basis for obtaining relief. (58 Cal. App.4th at pp. 287-293.) The instant challenge is different in that AGI is claiming, and proved to the satisfaction of the trial court, that Hunter's covenant not to compete (as it was used against Pike and AGI) is not simply "unfair" or "unenforceable" but, rather, violates a specific statute (§ 16600) and is, thus, to that extent "unlawful" under section 17200. Of course, the Californians for Population Stabilization court also stated, in dictum, that it is questionable whether violations of the statutes at issue there (§ 16600; Civ. Code, §§ 1670.5, 1671) can support a cause of action under 17200 for an "unlawful" business practice. (58 Cal. App.4th at p. 287.) As with most dicta, this statement is deserving of little or no weight in our analysis.

      106

      [22] We need not decide, and express no opinion on, two additional issues raised by Hunter in its briefs. We do not construe the trial court's judgment as including declaratory relief with respect to either the "full faith and credit" owed to any judgment Hunter "might obtain" against AGI or Pike, or the existence of a "privilege" under California law to disregard Hunter's covenant not to compete. AGI and Pike have conceded as much.

  • 2 § 2.3.2.2 Uniform Commercial Code

    The Uniform Commercial Code governs many aspects of commercial law including the sale of goods. Section 1-105 contains a choice-of-law-provision applicable to agreements not regulated by specific provisions of the UCC. That section was superseded by §1-301 in 2001 when the Uniform Law Commission decided to modernize the choice-of-law rules governing contracts for the sale of goods. However, the substance of §1-301 was rejected by almost every jurisdiction. Most states simply kept the language of §1-105 but renumbered it as §1-301. Some states objected to allowing the parties to choose the law of a state that had no reasonable relation to the parties or their agreement. Other states objected to the provisions giving greater protection to consumers and limiting the ability of companies to opt out of state laws designed to protect consumers. In light of its almost uniform rejection, the Uniform Law Commission amended §1-301 in 2008 to go back to wording similar to the original §1-105. See Jack M. Graves, Party Autonomy in Choice of Commercial Law: The Failure of Revised U.C.C. §1-301 and a Proposal for Broader Reform, 36 Seton Hall L. Rev. 59 (2005).

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