Kuehn v. SELTON & ASSOCIATES, INC.

• Decision Date: 09 March 2000
• Docket Number: No. A99A1905., No. A99A1904
• Citation: 530 S.E.2d 787,242 Ga. App. 662
• Parties: KUEHN v. SELTON & ASSOCIATES, INC. et al. Selton & Associates, Inc. et al. v. Kuehn.
• Court: Georgia Court of Appeals

530 S.E.2d 787

242 Ga. App. 662

KUEHN v. SELTON & ASSOCIATES, INC. et al.

Selton & Associates, Inc. et al. v. Kuehn.

Nos. A99A1904, A99A1905.

Court of Appeals of Georgia.

March 9, 2000.

Certiorari Denied June 30, 2000.

Kitchens, Kelley & Gaynes, Mark A. Kelley, Atlanta, for appellant.

Troutman Sanders, William M. Droze, Daniel S. Reinhardt, Atlanta, for appellees.

JOHNSON, Chief Judge.

In these appeals we decide whether the parties to an employment contract were entitled to summary judgment regarding the enforceability, performance and meaning of noncompetition and other provisions contained in the agreement. Brad Kuehn worked for Selton & Associates, Inc. ("SAI") as a commercial real estate agent and broker. He negotiated office lease transactions with landlords on behalf of SAI's clients, which were tenants. When the transactions were completed, the landlords paid SAI commissions, which SAI shared with its agents who handled the transactions. Believing that SAI was not paying him the commissions it owed him, Kuehn resigned from his position. A short time later, he established Atlanta Office Realty, Inc. ("AOR"), of which he was the only officer and employee. During his affiliation with AOR, Kuehn used information received during his tenure at SAI and competed with SAI in some lease transactions.

Kuehn sued SAI and its sole shareholder, Daniel Selton, for breach of contract and conversion, seeking to recover commissions he believes were due him but not paid. SAI countersued, claiming Kuehn breached the contract's noncompetition and other provisions and improperly used and disclosed confidential information and trade secrets belonging to SAI after leaving the company.

The trial court denied summary judgment to Kuehn as to the enforceability of the restrictive covenant, finding that the covenant not to compete was reasonable, and granted partial summary judgment to SAI on Kuehn's claims for breach of an oral contract and conversation. The trial court denied summary judgment to SAI on the issues of whether Kuehn gave proper notice of termination, whether he violated the restrictive covenant, whether he breached the agreement by not finishing deals through SAI, whether he divulged trade secrets and confidential information, and whether Kuehn breached his fiduciary duties. The trial court found that issues regarding attorney fees and punitive damages would also be left for the jury and provided in its order that any matters not specifically addressed in the order but contained in the parties' motions for summary judgment were denied. Kuehn appeals in Case No. A99A1904. SAI and Selton appeal in Case No. A99A1905.

Case No. A99A1904

1. Paragraph 26 of the employment agreement provides in pertinent part that: "Upon expiration or cancellation of this contract... [Kuehn] will not compete with SAI on extensions, expansions, or renewals of SAI clients as long as Tenant remains in the building or project."

Kuehn contends the trial court erred in denying his motion for partial summary judgment regarding the enforceability of this restrictive covenant because it is too broad to be enforceable. We agree.

A contract in general restraint of trade or which tends to lessen competition is against public policy and is void. W.R. Grace & Co. v. Mouyal, 262 Ga. 464, 465(1), 422 S.E.2d 529 (1992). A restrictive covenant contained in an employment contract, however, is considered to be in partial restraint of trade and will be upheld if the restraint imposed is reasonable, is founded on a valuable consideration, is reasonably necessary to protect the interest of the party in whose favor it is imposed and does not unduly prejudice the interest of the public. Id. A restrictive covenant will be enforced only if it is reasonable in terms of duration, territory, and the scope of activity precluded. Chaichimansour v. Pets Are People Too, No. 2, 226 Ga.App. 69, 70(1), 485 S.E.2d 248 (1997); Sunstates Refrigerated Svcs. v. Griffin, 215 Ga.App. 61, 62(2), 449 S.E.2d 858 (1994). To be reasonable, it must be strictly limited as to time and territorial effect. Davis v. Albany Area Primary Health Care, 233 Ga.App. 311, 312, 503 S.E.2d 909 (1998). If any clause within a restrictive covenant is unenforceable, the entire covenant must fail; we will not apply the blue pencil theory of severability to restrictive covenants in employment contracts. Wolff v. Protege Systems, 234 Ga.App. 251, 254-255(1)(d), 506 S.E.2d 429 (1998).

The restriction at issue in this appeal is unreasonable in terms of duration. It cannot be determined from the contract how long Kuehn's activities would be restricted. The language "as long as Tenant remains in the building or project" renders the restriction operable for an indefinite number of years. It does not limit itself to the initial lease term (which, incidentally, might be any number of years) but includes all extensions, expansions and renewals of SAI clients. In fact, a close reading of the language shows that Kuehn would be precluded from competing with former clients of SAI which entered into renewals, extensions or expansions of leases so long as they remain in the building, even if the renewals, extensions or expansions were negotiated by the tenants and landlords independently of SAI. The restriction has the potential to be effective for decades. The covenant is therefore unreasonable and unenforceable. See generally Orkin Exterminating Co. v. Walker, 251 Ga. 536, 538(2)(a), 307 S.E.2d 914 (1983); Gynecologic Oncology v. Weiser, 212 Ga.App. 858, 859(2), 443 S.E.2d 526 (1994).

Furthermore, the territory is not reasonably limited. Where the restriction is broad—for example, not limited to clients the employee served—the territorial limitation must be specified and closely tied to the area in which the employee actually worked. See Chaichimansour, supra at 70-71(1), 485 S.E.2d 248; see generally W.R. Grace, supra at 466(2), 422 S.E.2d 529; Nunn v. Orkin Exterminating Co., 256 Ga. 558, 559(1)(a), 350 S.E.2d 425 (1986); Puritan/Churchill Chem. Co. v. McDaniel, 248 Ga. 850, 851(1), 286 S.E.2d 297 (1982); Howard Schultz & Assoc. v. Broniec, 239 Ga. 181, 184(1), 236 S.E.2d 265 (1977). The noncompetition clause at issue neither limits itself to clients served by Kuehn nor specifies a territory closely tied to the area in which he worked. In fact, not only is the territory not closely tied to an area in which Kuehn worked, but the affected territory is not even specified. The covenant does not disclose the locations of the affected buildings or projects. See, e.g., Guffey v. Shelnut & Assoc., 247 Ga. 667, 668, 278 S.E.2d 371 (1981). Indeed, SAI's clients could be performing under current lease agreements in several counties or even several states. The burden imposed on Kuehn to determine where SAI's clients are and whether he is in violation of the covenant in accepting a particular client is unreasonable. See Fuller v. Kolb, 238 Ga. 602, 604, 234 S.E.2d 517 (1977). The covenant is therefore unreasonable in terms of territory. In light of either defect, that as to territory or duration, the entire restrictive covenant is unenforceable. See Wolff, supra.

We disagree with SAI's argument that the provision is reasonable because it is based on an administrative regulation promulgated by the Georgia Real Estate Commission. Assuming, without deciding, that a contractual provision is valid per se when it is based on an administrative regulation, the rule cited does not support SAI's argument.

The rule relied upon provides, in relevant part, that:

Whenever a licensee decides to terminate an affiliation with a firm, such licensee may not have any contact with any of the firm's clients that the licensee is serving under a listing, management agreement, or other brokerage engagement until the expiration of such a brokerage engagement....

Official Compilation of Rules & Regulations of the State of Ga., Rule 520-1-.11(6).

The rule prohibits contact with the firm's clients that the licensee is serving. Thus, the administrative rule relates only to the agent's actual clients, making it narrower than the contractual provision relied upon by SAI, which relates to the employer's clients. See generally Singer v. Habif, Arogeti & Wynne, P.C., 250 Ga. 376, 377-378(1), 297 S.E.2d 473 (1982). The trial court erred in denying Kuehn's motion for partial summary judgment on the enforceability of the restrictive covenant.¹

2. Kuehn claims the trial court erred in granting partial summary judgment to SAI on Kuehn's conversion claim because a jury issue was presented as to whether SAI and Selton would be liable for conversion. We disagree.

The contract provides that Kuehn is to be paid a percentage of the commissions generated by his efforts when the commission is received by SAI. Kuehn's conversion claim was properly struck because it was based on a mere failure to pay money due under a contract. See Faircloth v. A.L. Williams & Assoc., 206 Ga.App. 764, 766(1), 426 S.E.2d 601 (1992). This is not the type of case for which a cause of action for conversion was intended. Hodgskin v. Markatron, Inc., 185 Ga.App. 750, 751(1), 365 S.E.2d 494 (1988).

3. Kuehn contends the trial court erred in denying his motion for partial summary judgment on SAI's claim that he misappropriated trade secrets and used confidential information to compete with SAI. This enumeration is without merit.

The contract provides that all client and business data are confidential and will not be given out without written authorization. In its counterclaim, SAI claimed that Kuehn misappropriated trade secrets by using SAI's client lease documents to execute transactions through AOR. Kuehn concedes that he used SAI's documents and information in connection with his work at AOR but says that SAI voluntarily gave him copies of those documents when he left and that he did not give the information to any third parties.

Kuehn...