A California Court of Appeal affirmed a summary judgment ruling that rejected various competition claims brought by CBD Franchising, Inc. (CBDF), franchisor of the Closets By Design custom closet businesses, against One Day Doors & Closets, Inc. CBD Franchising, Inc. v. One Day Doors & Closets, Inc., 2026 WL 2427625 (Cal. Ct. App. Aug. 19, 2026). CBDF had alleged that One Day interfered with a post-term noncompete by former franchisees William and Mary Conway. After terminating their franchise agreement with CBDF, the Conways entered into a license agreement with One Day to operate a door and closet business. CBDF sued, alleging the Conways’ activities violated their two-year post-term noncompete and that One Day tortiously interfered by continuing to do business with the Conways.
CBDF’s franchise agreement contained a choice-of-law provision specifying that New Jersey law would apply to issues involving the noncompete covenants. Applying the Restatement (Second) of Conflict of Laws § 187, the trial court declined to enforce that choice. The court found that doing so would violate California’s fundamental policy favoring free competition as embodied in California’s Business and Professions Code § 16600. On appeal, CBDF argued the trial court erred by failing to address whether California had a “materially greater interest” than New Jersey. The Court of Appeal held that CBDF forfeited this argument by failing to raise it below; the court exercised its discretion not to consider it for the first time on appeal.
On the merits, the court distinguished its decision from Ixchel Pharma, LLC v. Biogen, Inc. a California Supreme Court decision applying a rule-of-reason analysis to contractual restraints governing ongoing commercial relationships. 470 P.3d 571 (Cal. 2020). The court held that Ixchel’s more permissive standard did not extend to post-term noncompete covenants that restrain an individual from engaging in trade after a business relationship has ended—even in the franchise context. Because the franchise agreement’s noncompete operated to prevent the Conways from competing only after the relationship concluded, it was void under § 16600. The court also rejected CBDF’s argument that § 16601’s goodwill exception applied, reasoning that the Conways never sold goodwill to CBDF; the goodwill sale ran from the Conways to a third-party buyer, DenMatt, and the noncompete at issue was between CBDF and the Conways, not between the seller and the buyer of goodwill.