Burson v. Milton Hall Surgical Assocs., LLC., A17A1317

• Decision Date: 13 October 2017
• Docket Number: A17A1317
• Citation: 806 S.E.2d 239,343 Ga.App. 159
• Parties: BURSON et al. v. MILTON HALL SURGICAL ASSOCIATES, LLC.
• Court: Georgia Court of Appeals

343 Ga.App. 159

806 S.E.2d 239

BURSON et al.

v.MILTON HALL SURGICAL ASSOCIATES, LLC.

A17A1317

Court of Appeals of Georgia.

October 13, 2017

Patrick W. McKee, for appellants.

Martenson, Hasbrouck & Simon, Peter V. Hasbrouck, Christopher J. Perniciaro, for appellee.

Mercier, Judge.

Milton Hall Surgical Associates, LLC ("MHSA"), sued James Burson (a physician), N. Hadley Heindel (a physician), and Esther Askew (a physician's assistant) (collectively, the "Former Employees") for alleged misappropriation of trade secrets (Count I); breach of the duty of loyalty and good faith as to Burson and Heindel, and "under a theory of unfaithful agent" as to Askew, for "steal[ing] and misappropriat[ing] ... trade secrets [and] confidential and proprietary business information," and violating restrictive covenants in their employment contracts (Count II); for alleged breach of their employment contracts (Count III); and for attorney fees and litigation expenses (Count IV). The Former Employees moved the trial court to dismiss the suit pursuant to OCGA § 9-11-12 (b) (6), asserting, among other things,¹ that the restrictive covenants in the Former Employees' contracts were unenforceable and they could not be held liable for failing to comply with void covenants, and thus neither Count II nor Count III was viable. The trial court summarily denied the Former Employees' motion to dismiss and certified its ruling for immediate review. This Court granted the Former Employees' application for interlocutory appeal.

The Former Employees appeal the trial court's denial of their motion to dismiss, contending that the court erred (1) by failing to grant the motion to dismiss Count III as to Burson and Heindel (the "Physicians") because the restrictive covenants in their contracts, which seek to expand the geographical restrictions to include offices to which the Physicians are transferred, are unreasonable and unenforceable; (2) by failing to grant the motion to dismiss Count III as to the Physicians because the restrictive covenants in their contracts prevent them from accepting overtures from former patients and are an unreasonable restraint of trade; (3) by failing to grant the motion to dismiss Count III as to Askew, because the restrictive covenant in her contract, which is applicable to any territory to which she might be assigned, is too indefinite to be enforced; and (4) by failing to grant the motion to dismiss Count II, breach of fiduciary duty, as to all three Former Employees because they cannot be held responsible for failing to honor an unenforceable contract. For the reasons that follow, we affirm in part and reverse in part.

We review a grant or denial of a motion to dismiss to determine whether the allegations of the complaint, when construed in the light most favorable to the plaintiff, and with all doubts resolved in the plaintiff's favor, disclose with certainty that the plaintiff would not be entitled to relief under any state of provable facts. A trial court's ruling on a motion to dismiss is subject to de novo review on appeal.

Penny v. McBride, 282 Ga. App. 590, 639 S.E.2d 561 (2006) (citation and punctuation omitted).

With regard to employment contracts, Georgia law now generally permits the "enforcement of contracts that restrict competition during the term of a restrictive covenant, so long as such restrictions are reasonable in time, geographic area, and scope of prohibited activities," subject to certain limitations with regard to the types of employees against whom such restrictions may be enforced. OCGA § 13-8-53 (a) ; see OCGA § 13-8-52 (a) (1).

Any restrictive covenant not in compliance with the provisions of [OCGA Title 13, Chapter 8, Article 4] is void and unenforceable; provided, however, that a court may modify a covenant that is otherwise void and unenforceable so long as the modification does not render the covenant more restrictive with regard to the employee than as originally drafted by the parties.

OCGA § 13-8-53 (d). The current statutory provisions governing enforcement of restrictive covenants in employment contracts, OCGA § 13-8-50 et seq. became effective May 11, 2011, and apply to "contracts entered into on and after [May 11, 2011,] and shall not apply in actions determining the enforceability of restrictive covenants entered into before such date." Ga. L. 2011, p. 399, §§ 4-6; see Becham v. Synthes USA, 482 Fed.Appx. 387, 388-389 (I) (A) (11th Cir. 2012).

Prior to May 11, 2011, however, "Georgia law disfavored restrictive covenants[,] ... [and] Georgia's constitution also forbade the ... General Assembly[ ] from authorizing restrictive covenants." Becham, supra at 388 (I) (A)

However, a restrictive covenant contained in an employment contract [entered into prior to May 11, 2011] is considered to be in partial restraint of trade and will be upheld if the restraint imposed is not unreasonable, is founded on a valuable consideration, and is reasonably necessary to protect the interest of the party in whose favor it is imposed, and does not unduly prejudice the interests of the public....Whether the restraint imposed by the employment contract is reasonable is a question of law for determination by the court, which considers the nature and extent of the trade or business, the situation of the parties, and all other circumstances.

Coleman v. Retina Consultants, P.C., 286 Ga. 317, 319-320 (1), 687 S.E.2d 457 (2009) (citations and punctuation omitted). Under the prior law, courts could not modify void and unenforceable covenants. "Even if only a portion of a non-compete clause in an employment contract would be unenforceable, the entire covenant must fail because this Court will not apply the blue-pencil theory of severability to such restrictive covenants." Id. at 320 (1), 687 S.E.2d 457.

1. Count III and the Physicians' Contract

(a) It is undisputed that Burson's contract with MHSA was entered into on May 1, 2010 and that Heindel's contract with MHSA was entered into on November 19, 2010, and thus the restrictive covenants contained in both contracts are subject to the pre-2011 law, and unenforceable provisions therein cannot be reformed. See Coleman, supra. The Physicians contend that the trial court erred in denying the motion to dismiss Count III (breach of contract) as to the Physicians when the geographical restrictions in their agreements are unreasonable and unenforceable. We disagree.

Section 10 of Burson's contract contains restrictive covenants related to his employment, and provides that "for a period of two (2) years after termination of his employment ... [he] will not directly or indirectly engage in the practice of the specialty of Otolaryngology or head and neck surgery within a geographic area that is within a radius of ten (10) miles of the Shakerag Building (the ‘Territory’)." Section 10 of Heindel's contract provides that he "will not directly or indirectly engage in the practice of the specialty of Otolaryngology or head and neck surgery within a geographic area that is within a radius of ten (10) miles of the office at which [he] is assigned when he commences his duties (the ‘Territory’)." Both Physicians' agreements contain the following language at the end of the restrictive covenants section:

The parties agree to review the geographical area included within the Territory from time to time, at either party's request, in order that the Territory may be reformed so that its coverage upon Physician's termination will extend only to the geographical area in which the Physician is working at such time. Any reformation to be evidenced only by written amendment to this Agreement.

It is this latter paragraph, relating to the amendment of the "Territory," that the Physicians contend renders these restrictive covenants unreasonable. The Physicians cite Orkin Exterminating Co. v. Walker, 251 Ga. 536, 307 S.E.2d 914 (1983), arguing that "[i]n Orkin the restrictive covenant contained a provision—like that found in the Burson and Heindel contracts—which follows the employee to a new territory ..., but only if the employee signs a new agreement which identifies the new territory[,] ... and [t]he Orkin Court found such a provision unreasonable." See id. at 538 (2) (a), 307 S.E.2d 914.

In Orkin Exterminating Co., the employment agreement provided that the employee was prohibited from engaging in certain activities for two years, and the applicable territory was defined as follows:

the cities of Augusta, McBean [and many other cities surrounding Augusta and the areas within a 15 mile radius of these cities] ... or within any jurisdiction or territory in which the employee worked for the company at any time during the six (6) calendar months preceding termination of employment, and identified in an employment agreement with the Company.

Id. at 536, 307 S.E.2d 914 (punctuation omitted). The Supreme Court of Georgia found that the restrictive covenant at issue in that case was not too indefinite to be enforceable because

its restrictions do not follow the employee unless he or she signs a new employment agreement which identifies the new territory. Thus, the covenant is not vague or indefinite in the sense described in [ Orkin Exterminating Co. v. Pelfrey, 237 Ga. 284, 285 (1), 227 S.E.2d 251 (1976) ] because it sufficiently delineates the territories to which the restrictions do apply, and because it contains no present obligation or promise as to unknown, future territories.

Id. at 537 (1), 307 S.E.2d 914. However, the Supreme Court found that the covenant was unreasonable and overbroad because, among other things, after employees were transferred to a new territory,

Orkin might have neglected to require them to sign new contracts, or might have had them execute new contracts which did not rescind the prior contracts. The [employees] then could have spent several years in their new territory before quitting Orkin. At that point, despite their long absence from the August area, the employment agreements

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