The opinion of the court was delivered by: JAMES B. MORAN
Plaintiff Great Frame Up Systems, Inc. (GFU) seeks a preliminary injunction to prevent defendants from operating a picture-framing store in San Jose, California. Pursuant to a ruling in open court on December 20, 1991, this court denied plaintiff's motion for a preliminary injunction as to all defendants except Mohammad Z. Jazayeri, a/k/a D.J. Jazayeri. We requested supplemental briefing on the issue of choice of law, in light of a potential conflict between the application of Illinois law and a public policy of California reflected by section 16600 of the California Business and Professions Code (§ 16600). The determination of the choice of law is the only remaining issue. For the reasons below, we grant the motion for preliminary injunction against D.J. Jazayeri; we deny the motion for preliminary injunction against Islanders, Inc.
The following is a brief summary of the facts necessary to our disposition of this motion. Jazayeri Enterprises, Inc. is a licensee and operator of a Great Frame Up franchise located in Irvine, California (Irvine franchise). Islanders, Inc. owns and operates Express Framing, a picture-framing store located in San Jose, California. Express Framing came into existence after the Irvine franchise was established. Defendant D.J. Jazayeri (D.J.) owns one-half of the shares of Jazayeri Enterprises and one-third of the shares of Islanders. Apart from this common ownership, Jazayeri Enterprises and Islanders are separate corporations. In connection with the opening of the Irvine franchise, D.J. signed certain agreements and a guaranty on behalf of Jazayeri Enterprises. The guaranty provided, among other things, that while the existing franchise was being operated the licensee would not acquire an interest in any independent picture-framing stores without the written consent of the licensor. Plaintiff seeks an injunction based on a breach of the restriction in the license agreement resulting from D.J.'s and Islanders' interest in Express Framing. This agreement has an express choice-of-law provision indicating that Illinois law is applicable. We have previously found that D.J. is in breach of the license agreement and, if Illinois law applies, he will be enjoined from retaining an interest in Express Framing.
In this diversity action, this court must apply Illinois conflict-of-law rules. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941). Illinois courts have adopted the Restatement (Second) of Conflict of Laws to resolve such issues. See Nelson v. Hix, 122 Ill. 2d 343, 522 N.E.2d 1214, 119 Ill. Dec. 355 (Ill.), cert. denied, 488 U.S. 925, 102 L. Ed. 2d 328, 109 S. Ct. 309 (1988); International Surplus Lines Ins. Co. v. Pioneer Life Ins. Co., 209 Ill. App. 3d 144, 568 N.E.2d 9, 13-14, 154 Ill. Dec. 9 (1st Dist. 1990). Where, as here, the contract contains an express choice-of-law provision, section 187 of the Restatement applies. International Surplus Lines, 568 N.E.2d at 14; Lyons v. Turner Constr. Co., 195 Ill. App. 3d 36, 551 N.E.2d 1062, 1066, 141 Ill. Dec. 719 (1st Dist. 1990). Under section 187 the parties' choice of law will govern 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, 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.
Restatement (Second) §§ 187(2)(a), (b). We will respect the parties' choice of law and not apply California law unless, among other things, the application of Illinois law is contrary to a fundamental California public policy represented by § 16600. Defendants argue that § 16600 does represent a fundamental California public policy and that the restriction in the license agreement clearly violates § 16600.
The relevant portion of § 16600 is as follows:
Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.
Cal. Bus. & Prof. Code, § 16600. The first question we must ask is whether § 16600 represents a fundamental California public policy.
The forum will apply its own legal principles in determining whether a policy should be considered fundamental. Restatement (Second) § 187, comment g.
In conflicts of law cases, Illinois courts have held that the public policy considerations must be of a strong and fundamental nature to justify the rejection of the chosen law of the parties. A court should not refuse to apply the chosen law of another jurisdiction, however unlike its own, unless it is contrary to the public morals or natural ...