Hostetler v. Answerthink, Inc.

• Decision Date: 07 May 2004
• Docket Number: No. A04A1012.,A04A1012.
• Citation: 599 S.E.2d 271,267 Ga. App. 325
• Parties: HOSTETLER v. ANSWERTHINK, INC.
• Court: Georgia Court of Appeals

267 Ga. App. 325

599 S.E.2d 271

267 Ga.App. 325

HOSTETLER v. ANSWERTHINK, INC.

No. A04A1012.

Court of Appeals of Georgia.

May 7, 2004.

Buckley & Klein, Charles R. Bliss, Atlanta, for appellant.

Ford & Harrison, Jefferson B. Blandford, Atlanta, for appellee.

ELDRIDGE, Judge.

Michael D. Hostetler appeals from the trial court's order modifying its final judgment in his declaratory and injunctive relief action against Answerthink, Inc., regarding the nonsolicitation agreement, which contained a Florida choice of law provision; the trial court entered a final judgment that found the agreement in violation of Georgia public policy and enjoined any attempt to enforce the void nonsolicitation agreement; in a subsequent modification order, the trial court limited its injunction to application in Georgia only, while Hostetler contends that the court should have enjoined its use everywhere. We agree, and reverse.

In 1994, Hostetler began work in the areas of finance, accounting transaction processing, and the design of administrative processes with Gunn Partners. In 1996, he and another associate started Exult, Inc., and they developed a business involving the open sharing of information between client companies to develop the best practices in finance and accounting; this is collaborative learning through program features, i.e., meetings, webcasts, site visits, and white papers to share information. In 2000, Gunn Partners acquired Exult, Inc., and Hostetler continued to work on collaborative learning for his former company as an employee of Exult Process Intelligence Center ("EPIC"). In February 2002, Exult, Inc. sold EPIC to Acquisition Corporation, a wholly owned subsidiary of Answerthink, Inc.

In February 2003, Hostetler became an employee of Answerthink and signed the Form Compliance Agreement, which contained a nonsolicitation provision and a provision calling for the application of Florida law in its interpretation. The agreement was signed in Georgia. Both at the time of execution of the agreement and now, Hostetler was a Georgia resident and was working for The Hackett Group, a unit of Answerthink that had its operations based in Atlanta, Georgia, where Hostetler was also based and did work. Answerthink is a corporation authorized to do business in Georgia. At The Hackett Group, Hostetler was a mid-level employee who directly supervised two other employees and worked mostly in the area of collaborative learning. On April 22, 2003, Hostetler resigned from Answerthink.

The Agreement provisions read:

Non-competition. In further consideration of the compensation being paid to the employee and vesting of shares or options being issued to the employee pursuant to the stock option agreement, while employed by the company or during any period during which he or she is receiving severance or termination payments from the Company, the employee agrees to not, without the Company's express written consent, engage in any consulting, employment or business that is competitive with the Company.

Non-solicitation ... the Employee will not directly or indirectly, during the two-year period immediately following his or her termination of Employment, or through another entity ... (B) induce or attempt to induce any customer, supplier, licensee or other business relation of the Company to cease doing business with the company or in any way interfere with the relationship between any such customer, supplier, licensee, or business relationship and the Company.

Hostetler began a start-up business, Executive Performance Group ("EPG"), a Georgia corporation, that engages in the collaborative learning business. Hostetler provides services to clients of EPG that are similar to those performed for Gunn Partners, Exult, EPIC, and Answerthink.

Hostetler brought an action in the Superior Court of Gwinnett County, seeking declaratory and injunctive relief as to the validity and enforceability of the nonsolicitation provision, because he contended that it was unenforceable under Georgia law. On June 4 through June 6, 2003, the trial court heard the case; at the end of the hearing, the trial court stated that the nonsolicitation provision of the Agreement was unenforceable and requested written proposed findings of fact and conclusions of law from the parties.

On July 30, 2003, Answerthink filed an action in Florida to enforce the nonsolicitation provisions of the Agreement. On August 5, 2003, the trial court entered a final judgment and order finding that the Agreement was void and unenforceable and granted injunctive relief prohibiting enforcement of the nonsolicitation provision by Answerthink. The Court judgment read:

The non-solicitation of customers clause in the Agreement between Mr. Hostetler and Answerthink is declared to be void and unenforceable. Answerthink is enjoined from attempting to enforce that provision against Mr. Hostetler and EPG.

On August 22, 2003, Answerthink moved for clarification of the order so as to limit the geographic scope to Georgia. On September 11, 2003, the trial court granted Answerthink's motion, limited the geographic scope of the injunction to Georgia, and entered the amended final judgment and injunction:

... the injunction against enforceability of the non-solicitation covenant applies only to Georgia courts and those courts which apply Georgia law to determine the outcome of this dispute.... In light of the choice of law provision in the parties' Agreement, the Court will not enjoin the Florida action when the parties did not intend for Georgia law to apply in the first place.

Hostetler's sole enumeration of error is that the trial court erred in limiting declaratory and injunctive relief to Georgia. We agree.

( a) The public policy of Georgia is that contracts in restraint of trade are prohibited. Ga. Const. of 1983, Art. III, Sec. VI, Par. V(c) (OCGA § 13-8-2(a)(2)). A restrictive covenant as part of a contract of employment is a partial restraint of trade and will be enforced only if: (1) the restraint is reasonable; (2) founded upon valuable consideration; (3) is reasonably necessary to protect the party in whose favor it is imposed; and (4) does not unduly prejudice the interests of the public. Swartz Investments v. Vion Pharmaceuticals, 252 Ga.App. 365, 367(1), 556 S.E.2d 460 (2001). Such restrictions must be strictly limited as to time, territorial effect, capacity in which the employee is prohibited from competing, and as to overall reasonableness. Hulcher Svcs. v. R.J. Corman R. Co., 247 Ga.App. 486, 491(4), 543 S.E.2d 461 (2000). The validity and enforceability of restrictive covenants limiting competition is a question of law. Pittman v. Harbin Clinic Professional Assn., 210 Ga.App. 767, 768, 437 S.E.2d 619 (1993). In this Agreement the noncompete provision has no geographic limitation and prohibits any type of employment in competition by Answerthink or its related entities; the nonsolicitation provision is equally unreasonable, because it has no geographical limitation and applies to customers, suppliers, or licensees that Hostetler had no contact with for an unreasonable period of time in light of the overbreadth of the restrictions. Such provisions are such flagrant violations of Georgia public policy and general fairness that it is hard to believe that any court in equity and good conscience would uphold and enforce such provisions. See Hulcher Svcs. v. R.J. Corman R. Co., supra at 488, 543 S.E.2d 461.

(b) A choice of law provision set forth in an agreement containing a restrictive covenant will not allow the parties to choose a jurisdiction that will uphold what is against Georgia public policy; Georgia courts will decide the validity of such restrictive covenant in partial restraint of trade under Georgia law, including Georgia rules as to choice of law.

The law of the jurisdiction chosen by parties to a contract to govern their contractual rights will not be applied by Georgia courts where application of the chosen law would contravene the policy of, or would be prejudicial to the interests of, this state. Covenants against disclosure, like covenants against competition, affect the interests of this state, namely the flow of information needed for competition among businesses, and hence their validity is determined by the public policy of this state.

( Citations omitted.) Nasco, Inc. v. Gimbert, 239 Ga. 675, 676 (2), 238 S.E.2d 368 (1977); see also Convergys Corp. v. Keener, 276 Ga. 808, 810, 582 S.E.2d 84 (2003).

Georgia continues to follow the traditional choice of law rule, lex loci contractus, i.e., the law of the place where the contract was executed applies. Gen. Tel. Co. etc., v. Trimm, 252 Ga. 95, 96, 311 S.E.2d 460 (1984); Convergys Corp. v. Keener, supra at 810-811, 582 S.E.2d 84. In this case, the agreement was executed in Georgia to be applied in Georgia; Hostetler was a Georgia resident; his employer was authorized to do business in Georgia through its Atlanta office; and his work was primarily performed in Georgia; thus, the contract...