Hilb, Rogal & Hamilton Co. v. Holley, A06A1657.

• Citation: 284 Ga. App. 591,644 S.E.2d 862
• Decision Date: 28 March 2007
• Docket Number: No. A06A1657.,No. A06A1658.,A06A1657.,A06A1658.
• Court: United States Court of Appeals (Georgia)
• Parties: HILB, ROGAL & HAMILTON COMPANY OF ATLANTA, INC. v. HOLLEY. Holley v. Hilb, Rogal & Hamilton Company of Atlanta, Inc.

284 Ga. App. 591

644 S.E.2d 862

HILB, ROGAL & HAMILTON COMPANY OF ATLANTA, INC. v. HOLLEY.

Holley v. Hilb, Rogal & Hamilton Company of Atlanta, Inc.

No. A06A1657.

No. A06A1658.

Court of Appeals of Georgia.

March 28, 2007.

Robert P. Foster, Rebecca J. Jakubcin, Fisher & Phillips, Atlanta, for appellant.

Matthew T. Gomes, Nelson, Mullins, Riley & Scarborough L.L.P., Stephen W. Mooney, Weinberg, Wheeler, Hudgins, Gunn & Dial, Atlanta, for appellee.

JOHNSON, Presiding Judge.

Hilb, Rogal & Hamilton Company of Atlanta, Inc. ("HRH") sued its former employee, Hugh Holley, for breach of his employment contract, misappropriation of trade secrets, interference with HRH's business relations with its customers, breach of duty of loyalty and fiduciary duty, and unjust enrichment. Holley moved for summary judgment on all theories of recovery in the complaint. HRH moved for summary judgment on the breach of contract, breach of fiduciary duty and duty of loyalty, and unjust enrichment claims. The trial court granted Holley's motion for summary judgment on claims that he breached the noncompete and nonsolicit covenants of the employment agreement, and denied summary judgment to both parties on all other counts.

In Case No. A06A1657, HRH appeals from the trial court's grant of Holley's motion for summary judgment regarding the enforceability of the restrictive covenants, and from the court's denial of HRH's motion for summary judgment on the unjust enrichment and breach of fiduciary duty and duty of loyalty claims. In Case No. A06A1658, Holley appeals from the trial court's denial of his motion for summary judgment on the remaining counts of HRH's complaint. For the reasons set forth below, we affirm the judgment in Case No. A06A1657. We affirm in part and reverse in part the judgment in Case No. A06A1658.

On appeal from the grant or denial of summary judgment, we review the record de novo, and we view the evidence and the inferences drawn from it in the light most favorable to the nonmoving party.¹ The defendant does not need to affirmatively disprove the plaintiff's case, but may prevail simply by pointing to the lack of sufficient evidence as to any element of the plaintiff's cause of action. If the defendant does so, the plaintiff may not rest on its pleadings, but must point to specific evidence that gives rise to a triable issue of fact.²

So viewed, the record shows that Holley owned and operated an insurance agency selling professional liability insurance to architects and engineers from 1979 to 1997. On August 28, 1997, Holley sold his business to HRH and both parties signed an Agreement of Merger contract that contained the following restrictive covenant:

Shareholder, by signature hereto, covenants that he shall not for a period of five (5) years after the Effective Date, directly or indirectly, except on behalf of Surviving Corporation, its successors and assigns, solicit or accept risk management, insurance or bond business from any of the customers of Merging Entity as of the moment immediately preceding the Effective Date. Shareholder, by signature hereto, acknowledges . . . that this covenant is in addition to any covenants which Shareholder may make in any employment or other agreements executed or to be executed with Surviving Corporation.

On the same day, Holley executed a separate "Employment Agreement and Covenant Not To Compete" that contained different restrictive covenants. It provided:

In order to protect the value of Employer's business, Employee covenants and agrees that, in the event of the termination of his employment, whether voluntary or involuntary, he shall not directly or indirectly as an owner, stockholder, director, employee, partner, agent, broker, consultant or other participant during the Restricted Period:

(a) contact or solicit or accept an entreaty from, a Known Customer for the purpose of providing Prohibited Services to such Known Customer;

(b) contact or solicit, or accept an entreaty from, a Prospective Customer for the purpose of providing Prohibited Services to Prospective Customer; and

(c) engage in the Business in the Restricted Area without the prior written consent of Employer and HRH.

The employment agreement defined the "Business" as the sale of commercial property and casualty coverages or the provision of risk management services to architects and engineers.

The Agreement of Merger contained a condition precedent that the parties execute the Employment Agreement, and the Employment Agreement provided that the parties' obligation to perform was "expressly contingent upon the closing of the Merger Agreement." As part of the Agreement of Merger, Holley received stock in HRH with a value of approximately $500,000.

In the Employment Agreement, HRH agreed to employ Holley for a period of three years, pay him an annual salary of $125,000, and a "bonus equal to 30% of commissions from property and casualty commission growth in excess of . . . $500,000." The Employment Agreement also provided that

[a]s compensation to Employee for these covenants which have been separately bargained for and are an integral part of the Merger Agreement (and are distinct from the compensation for services set forth [above]), Employer shall pay Employee . . . a sum equal to 25% of the net property and casualty commissions realized by Employer from the continuing operations

of Holley's former agency and commissions generated by his efforts for the first two years.

Finally, Holley promised that for the 12-month period following his termination of employment with HRH, he would not hire any employees of HRH or "directly or indirectly aid or encourage any of [HRH]'s employees to seek employment with another business in competition with [HRH]."

The record shows that the first employment agreement HRH sent to Holley contained less onerous restrictive covenants and that Holley thought they had reached a final deal at that time. Almost three months later, HRH sent a different employment agreement with much broader restrictive covenants. Holley's attempts to modify the new restrictive covenants drafted by HRH were unsuccessful. He testified that he felt he had "no other option" than to go forward with the HRH deal at that time because he had already announced the sale to the public, informed insurance companies with whom he worked that he was selling to HRH, agreed to lease his old office to a new tenant, and told his employees that only one of them was guaranteed a job with HRH. Holley was especially concerned that if he backed out of the deal the insurance companies "might think that HRH had uncovered some impropriety on [his] part during their due diligence inspection of [his company's] financials that caused it to cancel the deal."

Almost five years later, on February 28, 2003, Holley resigned from HRH and accepted a position with IOA, a competitor of HRH. Holley resolved to leave HRH after HRH told him on February 13, 2003, that it had decided not to focus on his specialty anymore and that "if you don't like it, you can leave."

The record shows that the following occurred before Holley resigned: two employees gave him an electronic organizer for Christmas in 2002 that contained his clients' contact information; he advised, as a professional courtesy, an IOA employee in Florida about which insurance companies he should call to obtain a quote for a client;³ he informed IOA about an independent brokerage firm in Florida it might want to purchase; he consulted with an IOA attorney about the validity of his restrictive covenants; he helped set up a brokerage account for him-self with two of HRH's nonexclusive insurance suppliers; and he planned a March 26, 2003 seminar from home using his personal funds.⁴

After his resignation, Holley mailed an announcement of his new employment affiliation to former customers using publicly available lists. Approximately 20 to 25 percent of the clients that Holley serviced while working for HRH ultimately followed him to IOA. The record shows that he also used the electronic organizer to retrieve phone numbers before he erased the data on it at the request of HRH.

HRH sued Holley for breach of the nonsolicit covenant in his employment agreement, breach of the confidentiality provisions in his employment agreement, breach of his agreement not to raid employees, misappropriation of trade secrets, interference with HRH's relations with its customers, breach of Holley's fiduciary duty and duty of loyalty to HRH, and unjust enrichment. Following discovery, Holley moved for summary judgment on all counts in HRH's complaint. HRH filed a cross-motion for summary judgment on its breach of the employment agreement claim, breach of fiduciary duty and breach of loyalty claim, and unjust enrichment claim. The trial court granted Holley's motion with regard to his alleged breach of the noncompete and nonsolicit covenants in his employment agreement and found that summary judgment was inappropriate on all of the remaining counts in HRH's complaint based upon the existence of genuine issues of material fact.

1. HRH contends the trial court erred by granting Holley's motion for summary judgment on its claim that he breached the noncompete and nonsolicit restrictive covenants because the covenants should have not been subjected to strict scrutiny. We disagree.

In determining the enforceability of restrictive covenants, we first determine what level of scrutiny to apply. There are three levels: strict scrutiny, which applies to employment contracts; middle or lesser scrutiny, which applies to professional partnership agreements; and much less scrutiny, which applies to sale of business agreements.⁵

This Court has consistently held that when parties execute separate contracts for the seller's sale of the business and the seller's subsequent employment and each contract contains different restrictive covenants, the restrictive covenants in the employment...