Alan Carson is a member of Obor Holding Company, LLC, and a former employee of its wholly-owned subsidiary, Obor Digital, LLC. After Obor Digital significantly reduced his compensation, Carson claimed he had been constructively discharged from Obor Digital, resigned from the Management Committee of Obor Holding, and filed suit against Obor Holding, seeking to enjoin it from enforcing against him the restrictive covenants contained in the current Obor Holding Operating Agreement. Obor Holding moved to dismiss Carson’s complaint based upon the forum selection clause contained in the Operating Agreement, which provides that any disputes arising out of the Operating Agreement will be litigated in Florida. Carson opposed the motion to dismiss, arguing that the trial court should find the forum selection clause unenforceable because allowing a Florida court to decide the enforceability of the noncompete agreements would violate Georgia’s public policy, as that policy existed at the time he executed the Operating Agreement.
When an appeal is taken from a dismissal based upon a contractual forum-selection clause, we owe no deference to the decision of the court below, and our review is de novo. The Houseboat Store v. Chris-Craft Corp.,
The facts relevant to this appeal are undisputed, and show that Obor Holding is a Florida corporation formed in 2006 for the purpose of owning Obor Digital, a company that provides software and staffing services to clients in the defense industry. Obor Holding conducts business in Florida and Georgia. At all times relevant to this case, Carson has been a Georgia resident, having lived here since 1984. He executed Obor Holding’s Amended and Restated Operating Agreement in February 2007, and that agreement became effective in July 2007.
In 2007, Carson went to work for Obor Digital as its Vice President of Sales.
The issue before us is whether the forum selection clause contained in the Operating Agreement is enforceable against Carson. Because forum selection clauses involve
Contractual forum-selection clauses are “prima facie valid” and, therefore, presumptively enforceable. OFC Capital v. Colonial Distrib.,
1. Whether a restrictive covenant violates Georgia law depends upon whether the covenant can be considered a “reasonable” restraint on competition, given the circumstances of a particular case. Specifically, the restraint imposed must be reasonably limited and it must be “reasonably necessary to protect the interest of the party in whose favor it is imposed.” (Citation omitted.) W. R. Grace & Co.,
Each of the Directors has access to confidential material and information belonging to the Company. . . . Each of the Directors acknowledges the importance of keeping all information confidential and shall not, while this Agreement remains in effect and in perpetuity thereafter, . . . use any confidential information for the benefit of any party other than the Company or disclose any confidential information to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, other than the benefit of the Company.
(Emphasis supplied.)
The fact that this clause purports to bind Carson “in perpetuity,” together with its failure to define “confidential information,” renders it overly broad and therefore unenforceable under Georgia law. See Cox v. Altus Healthcare &c.,
(b) The Operating Agreement’s nonsolicitation covenant states:
While he shall serve as a Director of the Company and for a period of twenty-four months after he shall cease for any reason to serve as a Director of the Company, each of the Directors shall not. . . solicit, seek or accept business from, interfere with or endeavor to entice away from the Company any Client or employee of the Company. For purposes hereof, the term “Client” shall mean any person or entity that (i) received service of any type from [the] Company during the twenty-four month period immediately preceding the last day that the Director serves as a Director of the Company or (ii) has been contacted by the Company for the purpose of offering to provide Company services or products prior to the last day that the Director serves as a Director of the Company.
(Emphasis supplied.)
This clause violates Georgia law for at least two reasons. First, it forbids Carson from contacting any client or prospect of the company, regardless of whether Carson actually served those clients or prospects while he served as a Director of Obor Holding, but it contains no territorial restriction, a fatal flaw. “Georgia law is clear that unless the nonsolicit covenant pertains only to those clients with whom the employee had a business relationship during the term of the agreement, the nonsolicit covenant must contain a territorial restriction.” (Citation and footnote omitted.) Advance Technology Consultants v. Roadtrac,
Second, this restrictive covenant is impermissibly overbroad because it bars Carson not only from soliciting any client or prospect of Obor Holding, but also from accepting any work from any such clients or
(c) The Operating Agreement also contains a covenant not to compete that provides:
While he shall serve as a Director of the Company and for a period of twenty-four (24) months after he shall cease for any reason to serve as a Director of the Company, each of the Directors shall not, directly or indirectly (or through any affiliated entity), on his own behalf, or on behalf of any other person or entity which provides or sells services or products in competition with those of the Company, do any of the following within the United States of America: (a) provide any service, support, product, technology (as an employee, licensor, consultant or otherwise), to any person or entity, if such service, support, product or technology involves or relates to, in any material respect, to services or products which compete with the Company’s business (each, a “Restricted Business”), or (b) own, manage, operate, be employed by or a consultant to, join, control, finance, participate in the ownership, management, operation, control or financing of, or have any stock, equity or other interest in, either directly or indirectly, or have any right of compensation from, a company or other entity engaged in a Restricted Business.
(Emphasis supplied.)
In determining the reasonableness of a noncompete clause, we must consider both the interests of the party seeking to enforce the covenant and those of the party restricted by the covenant. Specifically, we must consider how the covenant impacts the restricted party’s ability to earn a living and to determine with reasonable certainty both the nature of the activities that are restricted and the geographic area of the restriction. W. R. Grace,
Here, the noncompete clause is prima facie unreasonable because by restricting activity in the entire country, it contains no legitimate territorial restriction. Specifically, it fails to limit Carson’s restricted activities either to the geographic area in which he served Obor Holding clients or to the geographic area in which Obor Holding does business. See Paramount Tax & Accounting v. H & R Block Eastern Enterprises,
Moreover, the clause is overbroad because it effectively bars Carson from working in any capacity for, owning any interest in, or serving on the board of any competitor of
Given its failure to limit either the scope of activities from which Carson is prohibited in engaging or the territory in which Carson is so restricted, the noncompete clause is unreasonable and therefore unenforceable. See Rash v. Toccoa Clinic Med. Assoc.,
2. Having found that the covenants would be unenforceable under Georgia law, we now address whether Carson can show that a Florida court would nevertheless be likely to enforce the covenants, thereby necessitating intervention by Georgia courts. To make this showing, Carson must demonstrate that a Florida court likely would apply Florida law and that, under Florida law, the covenants likely would be enforceable. See Iero,
Florida courts will enforce a choice of law provision “so long as there is a reasonable relationship between the contract and the state whose law is selected and the selected law does not conflict with Florida law or confer an advantage on a non-resident party which a Florida resident does not have.” (Citation omitted.) Forzley v. AVCO Corp. Electronics Div., 826 F2d 974,979 (II) (11th Cir. 1987). See also Southeast Floating Docks v. Auto-Owners Ins. Co., 82 S3d 73, 80 (Fla. 2012) (under Florida law, a choice of law provision will be enforced “unless applying the chosen forum’s law would contravene a strong public policy of [Florida]”) (citation omitted). Here, the evidence shows that Obor Holding is a Florida Corporation that does business in Florida, among other places. Moreover, given that the choice of law provision calls for the application of Florida law, it will present no conflicts of law or public policy issues for a Florida court. In light of these facts, therefore, we must conclude that a Florida court would honor the choice of law provision in the Operating Agreement.
Furthermore, as Obor Holding has conceded in its brief, Florida law would require a court to blue-pencil the restrictive covenants at issue so as to make them enforceable. See F. S. A. § 542.335 (1) (c) (requiring courts to modify, rather than invalidate, any restrictive covenants that violate Florida law). Additionally, even if the covenants were blue-penciled to make them comply with Florida law, there is a strong likelihood that they would still violate Georgia law. When modifying overly-broad restrictive covenants, Florida law allows a court to consider only the legitimate business interests of the party seeking to enforce the covenant. Id. It cannot consider the impact of the restraint on the party against whom enforcement is sought, a necessary requirement in Georgia. See F. S. A. § 542.335 (1) (g) (1) (in
As the foregoing analysis demonstrates, it is likely that a Florida court would enforce the forum selection clause at issue. And were Carson required to challenge the restrictive covenants at issue in a Florida court, applying Florida law, the covenants would almost certainly be upheld, despite the fact that they violate applicable Georgia law. Thus, enforcement of the forum selection clause would likely result in a violation of Georgia’s then-existing public policy against certain agreements in partial restraint of trade. Accordingly, we reverse the trial court’s order dismissing Carson’s complaint.
Judgment reversed.
Notes
The parties entered into the Operating Agreement prior to the November 2010 ratification of an amendment to the Constitution of Georgia that effected changes in Georgia law regarding restrictive covenants. As a result of that constitutional amendment, Georgia enacted new statutory provisions governing restrictive covenants in employment contracts. See OCGA § 13-8-50 et seq. However, Ga. L. 2011, p. 399, § 5 provides that the new law “shall not apply in actions determining the enforceability of restrictive covenants entered into before” the ratification of the constitutional amendment. Accordingly, we will “apply the law of restrictive covenants as it existed before [ratification].” Cox v. Altus Healthcare &c.,
The Operating Agreement reflects that Carson contributed $400,000 of the $1,472,060 in total capital contributed by Obor Holding’s ten members. In return, he received 20,000 of the company’s 110,000 units. This Operating Agreement contains the restrictive covenants at issue.
Only four of Obor Holding’s members serve as Directors at any one time.
The language of these covenants is set forth in full in Division 1, infra.
The only written document evidencing any of the terms of Carson’s employment with Obor Digital is a “Sales Compensation Policy,” dated January 1, 2010, which states at the top that it was “issued for” Alan Carson. That document contains no restrictive covenants, and there is no evidence that Carson ever entered into a noncompete or nonsolicitation agreement with Ohor Digital. We assume for purposes of this appeal that the restrictive covenants contained in the Obor Holding Operating Agreement would apply to clients and prospects of Obor Digital.
Under the rule of lex locus fori, procedural questions are governed by the law of the forum state. See Bunker Hill Intl. v. NationsBuilder Ins. Svcs.,
Covenants ancillary to a sale of business receive the least amount of scrutiny, and are subject to “blue-penciling,” or reformation by the court so that they reflect the actual intent of the parties. See, e.g., Watson v. Waffle House,
In its brief, Obor Holding argues that mid-level scrutiny allows us to “blue pencil,” or reform, the restrictive covenants so that they comply with Georgia law. Obor Holding cites us to no authority for this proposition, however, and we are aware of none. Indeed, as indicated supra in note 7, the only time our Supreme Court has sanctioned the blue-penciling of restrictive covenants is where those covenants are found in a contract ancillary to the sale of a business. See, e.g., Lyle v. Memar,