HULCHER SERVICES v. RJ CORMAN R. CO.

• Decision Date: 08 December 2000
• Docket Number: No. A00A2475.,A00A2475.
• Parties: HULCHER SERVICES, INC. v. R.J. CORMAN RAILROAD COMPANY, L.L.C. et al.
• Court: Georgia Court of Appeals

543 S.E.2d 461

247 Ga. App. 486

HULCHER SERVICES, INC. v. R.J. CORMAN RAILROAD COMPANY, L.L.C. et al.

No. A00A2475.

Court of Appeals of Georgia.

December 8, 2000.

Reconsideration Denied January 8, 2001.

Certiorari Withdrawn February 16, 2001.

Troutman Sanders, Alan E. Lubel, Atlanta, Mary F. Mackin, Andrew M. Greene, for appellant.

Seyfarth, Shaw, Fairweather & Geraldson, Frederick T. Smith, Donna L. Keeton, Atlanta, for appellee. ELDRIDGE, Judge.

Hulcher Services, Inc. appeals from an adverse declaratory judgment voiding a noncompetition restrictive covenant with Daniel J. Keating, a former employee, and his new employer, R.J. Corman Railroad Company, L.L.C. We affirm the determination of the trial court that the covenants as to territory, work capacity, and solicitation of customers were flagrantly overbroad and unreasonable under Georgia law for the following reasons.

Keating began work with Hulcher in 1984 in Illinois. However, until December 2, 1998, Hulcher had not required for Keating an employment agreement with a noncompete provision.

Hulcher is in the business of performing emergency disaster remediation services for railroads and industries with rail siding and rail yards in the lower 48 states, Canada, and Mexico. Although Keating began work for Hulcher in Illinois, from 1994 until 1997 he worked in Memphis, Tennessee, doing work only in parts of Tennessee and of Kentucky; then, until he left in 1999, he worked for Hulcher as Senior Division Manager in Atlanta, Georgia. He had responsibility for the entire states of Georgia and Florida but did not work in areas of these states without main rail lines. He never worked in Ohio.

The noncompete provision prohibited Keating from working for three years in all of Florida, Georgia, Illinois, Ohio, or Tennessee in any capacity.

On June 1, 1999, Keating left Hulcher and went to work for Corman, a direct competitor. Initially, Keating worked in Kentucky and then Minnesota until March 2000 when he was transferred to Atlanta.

On March 7, 2000, Corman instituted this declaratory judgment action against Hulcher to have the covenant voided. On April 10, 2000, Hulcher moved to dismiss the action on the grounds that Corman lacked standing. On April 25, 2000, Keating was joined in the action. However, on April 7, 2000, Hulcher filed suit against Keating in the 367 Texas District Court, obtaining an ex parte restraining order without service on any party to enforce the covenant. This Texas suit was subsequently removed to the United States District Court for the Eastern District of Texas. On May 16, 2000, the United States District Court is reported to have issued an interlocutory injunction against Keating. However, on May 17, 2000, the trial court below conducted a final hearing and entered a final judgment, finding the covenant unenforceable as a matter of Georgia public policy, because: the covenant was overly broad and unreasonable in the scope of activity restrictions; the territorial restriction was overbroad and unreasonable; and the nonsolicitation provision was overbroad and unreasonable. The interlocutory injunction from federal court was never put in evidence before the trial court prior to the final judgment, although the trial judge was given a copy. Held:

1. Hulcher contends that the judgment should be vacated because of the interlocutory federal injunction. We do not agree.

The federal district court in this diversity jurisdiction case and the Superior Court of Fulton County have concurrent subject matter jurisdiction as separate and independent jurisdictions so that the same cause of action can be maintained between the same parties over the same issues at the same time. See Inter-Southern Life Ins. Co. v. McQuarie, 148 Ga. 233, 235(1), 96 S.E. 424 (1918); Huff v. Valentine, 217 Ga.App. 310, 311(1), 457 S.E.2d 249 (1995). Only a final adjudication on the merits precludes the other, separate jurisdiction from making a determination on the merits. When a final determination on the merits has resulted, then under the doctrines of res judicata and collateral estoppel, the other court becomes bound by the finality of judgment. Barkley-Cupit Enterprises v. Equitable Life Assurance &c., 157 Ga.App. 138, 140(1), 276 S.E.2d 650 (1981).

Further, the trial court in this case has entered final judgment on the issues between the parties, while the Texas federal district court has only issued an interlocutory injunction, which is "merely pendente lite relief" and which is a long procedural journey from a final judgment and affirmance by the United States Court of Appeals for the Fifth Circuit in that jurisdiction. See GTE Sylvania, Inc. v. Consumers Union &c., 445 U.S. 375, 379-380, 100 S.Ct. 1194, 63 L.Ed.2d 467 (1980). "Hearings on these nonpermanent injunctions do not serve the same purpose as a hearing on the merits; they only preserve the status quo awaiting resolution of the merits." Texas v. Wellington Resources Corp., 706 F.2d 533, 537 (5th Cir. 1983); see also Meineke Discount Muffler v. Jaynes, 999 F.2d 120, 122, n. 3 (5th Cir.1993).

A case of actual controversy still exists, because the federal district court has rendered no final judgment as an adjudication on the merits that delineates the rights of the parties, but only its interlocutory order that places the plaintiffs under a real and present threat of contempt. Such Texas action clearly demonstrates that Hulcher treats these issues as a real controversy and would not hesitate to seek the sanction of contempt. See OCGA § 9-4-2(a); Calvary Independent Baptist Church v. City of Rome, 208 Ga. 312, 314(3), 66 S.E.2d 726 (1951). In the race to the courthouse, victory does not go to the swiftest litigant with the first injunction, but to the litigant with the first final judgment, making a final disposition on the merits. See Barkley-Cupit Enterprises Inc. v. Equitable Life Assurance &c., supra at 140, 276 S.E.2d 650. This affirmance of the trial court's declaratory judgment will "relieve the petitioner from uncertainty and insecurity." Calvary Independent Baptist Church v. City of Rome, supra at 314, 66 S.E.2d 726. The trial court's judgment and this Court's opinion are not advisory or hypothetical in nature, but void a covenant that flagrantly violates the public policy of this State and that seeks to prohibit Keating from working for Corman in this State in competition with Hulcher. See Cheeks v. Miller, 262 Ga. 687, 689, 425 S.E.2d 278 (1993); Cook v. Sikes, 210 Ga. 722, 727-728, 82 S.E.2d 641 (1954).

2. Plaintiff contends that the trial court erred in applying Georgia law rather than Texas law as specified in the contract. We do not agree.

The contract was executed in Texas. However, it was not to be performed in Texas, but in Georgia: it did not involve a covenant not to compete in Texas, but in other states, including Georgia; Keating never worked in Texas, but worked in Georgia; he was not personally subject to the jurisdiction of a Texas court, but was a resident in Georgia at the time the litigation commenced and the last time he worked for Hulcher; and the contract was to be enforced in Georgia. Texas has no nexus with Keating and has no significant interest or contacts with Keating. The only relationship with Texas is that Hulcher is a Delaware corporation that works all over North America, including Georgia, and has its main office in Texas. See Gen. Elec. Credit Corp. v. Home Indem. Co., 168 Ga.App. 344, 350-351(2), 309 S.E.2d 152 (1983).

Generally, Georgia will follow a forum selection clause in an employment contract. See Iero v. Mohawk Finishing Products, 243 Ga.App. 670, 534 S.E.2d 136 (2000). However, this contract involves not a forum selection clause, but a choice of law selection clause and requires a different legal analysis.

Georgia conflicts of law will not follow a contractual selection of law of a foreign state where such chosen law would contravene the public policy of Georgia against certain unlawful covenants not to compete. See Nasco, Inc. v. Gimbert, 239 Ga. 675, 676(2), 238 S.E.2d 368 (1977); see also Wolff v. Protege Systems, 234 Ga.App. 251, 256(3), 506 S.E.2d 429 (1998); Scherer v. Scherer, 249 Ga. 635, 638(1), 292 S.E.2d 662 (1982). On the very issue of Texas covenants against competition and contract selection of choice of Texas law, this Court has held that Texas law will not be followed because it flagrantly contravenes the public policy of Georgia in this regard. See Enron Capital &c. Corp. v. Pokalsky, 227 Ga.App. 727, 730(3), 490 S.E.2d 136 (1997).

This case is distinguishable from Iero v. Mohawk Finishing Products, supra at 671, 534 S.E.2d 136, because first, that case was a forum selection clause; and, second, in that case the plaintiff failed to carry the burden of showing how the application of New York law would be contrary to the public policy of Georgia and that "enforcement of his employment contract would be unreasonable under the circumstances." Id. at 671, 534 S.E.2d 136; see also Carnival Cruise Lines v. Shute, 499 U.S. 585, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991). In this case, however, Keating showed that Hulcher's restrictive covenant as to competition was a flagrant violation of Georgia public policy. Further, this Court had previously declined to follow Texas law on such issue, because Texas law flagrantly violated Georgia public policy. See Enron Capital &c. Corp. v. Pokalsky, supra at 730, 490 S.E.2d 136; see also Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972); Iero v. Mohawk Finishing Products, supra at 671, 534 S.E.2d 136.

3. Plaintiff contends that the trial court erred in evaluating the restrictive covenant solely on its face and without considering the nature of the industry and Keating's high level managerial position when it determined whether the covenant was reasonably limited to protect Hulcher's legitimate business interests. We do not...