Kem Mfg. Corp. v. Sant

• Decision Date: 18 February 1987
• Docket Number: Nos. 73142,73143,73155,s. 73142
• Citation: Kem Mfg. Corp. v. Sant, 355 S.E.2d 437, 182 Ga.App. 135 (Ga. App. 1987)
• Parties: , 1987-1 Trade Cases P 67,556 KEM MANUFACTURING CORPORATION v. SANT (Two Cases). SANT v. KEM MANUFACTURING CORPORATION.
• Court: Georgia Court of Appeals

Page 437

355 S.E.2d 437

182 Ga.App. 135, 1987-1 Trade Cases P 67,556

KEM MANUFACTURING CORPORATION v. SANT (Two Cases).

SANT v. KEM MANUFACTURING CORPORATION.

Nos. 73142, 73143, 73155.

Court of Appeals of Georgia.

Feb. 18, 1987.

Rehearing denied March 13, 1987.

Certiorari Granted April 30, 1987.

Charles M. Kidd, Atlanta, for appellant.

Paul A. Howell, Jr., Jamie M. Brownlee-Jordan, Atlanta, for appellee.

POPE, Judge.

Plaintiff was employed by defendant, Kem Manufacturing Corporation, a manufacturer and seller of speciality chemicals, from April 1973 to November 1980. At the time the employment relationship ended, plaintiff held a high-level managerial position. In March 1977, under the terms of a "Share Unit Agreement," plaintiff was awarded 2,500 "share units" which matured in March of 1981. The share unit agreement provided, however, that plaintiff was not entitled to receive payment for his share units if he voluntarily terminated the employment relationship before December 28, 1980. The parties also entered into an employment contract, which made plaintiff's employment contingent on his observing certain restrictive covenants during the term of his employment and for a period of eighteen months thereafter.

In November of 1980 Mr. Don Hall, defendant's general manager, informed plaintiff that he was being relieved of his managerial duties with the company. Following further discussion, plaintiff submitted a letter of resignation. Although, defendant disputes plaintiff's contention that defendant's actions were, in effect, a termination, defendant's corporate officials testified in their depositions that they expected plaintiff to resign upon learning of his demotion.

During the November 1980 meeting, Mr. Hall presented plaintiff with a "Settlement Agreement" the terms of which form the basis for the present controversy. This settlement agreement provided, inter alia, that plaintiff would be paid $40,000 in 13 monthly installments "for the redefining and reconfirming of Sant's obligations and covenants to Kem which are to continue after the date of this agreement ... and for the settlement and compromise of any and all claims and causes of action of any and all kinds which Sant might have against Kem, whenever incurred and for whatever reason, including, but not limited to, salary, commissions, overrides, reimbursement of expenses, severance pay, monies which might be due under the share unit plan, and all other employee benefits." These payments were expressly conditioned on plaintiff's observing certain restrictive covenants, including a non-compete covenant, a non-disclosure covenant and a covenant against pirating defendant's employees. The agreement also contained general release language and a severability clause.

Plaintiff subsequently accepted a position as a zone sales manager with United Laboratories, Inc., a competitor of defendant. There was some overlap between the states included in plaintiff's zone and those in which he was prohibited from selling or soliciting orders for speciality chemicals under the terms of the settlement agreement. Believing plaintiff had violated the terms of that agreement, defendant ceased making payments to plaintiff in August 1981.

Plaintiff filed suit against defendant on February 5, 1982, alleging, inter alia, that the restrictive covenants contained in the agreement were overly broad, unconscionable and unenforceable. Defendant answered and counterclaimed, alleging that plaintiff had breached the terms of the settlement agreement, had breached his fiduciary duty to defendant, had tortiously interfered with competitive or economic advantages of defendant, had tortiously interfered with defendant's business interests, had engaged in unfair methods of competition and had conspired with United to destroy defendant's business.

Plaintiff filed a motion for summary judgment on his complaint and against defendant's counterclaim. In essence, plaintiff argued that the territorial restrictions contained in the non-compete restrictive covenant were overly broad because plaintiff had not performed services or had performed only limited services for defendant in some of the prohibited states and that the covenant was unreasonable because it prohibited plaintiff from selling speciality chemicals, although he was employed in a supervisory, not a sales, capacity for defendant. Plaintiff also argued that the covenant against diverting defendant's customers was unenforceable because it prohibited him from contacting customers with whom he had had no contact while employed by defendant. Plaintiff also contended that he was still entitled to the balance of payments under the settlement agreement because part of the consideration for the monies was his forebearance from instituting legal action against defendant for bonuses due to him and for the value of his share units.

After hearing oral argument, the trial court entered an order on September 6, 1985 granting plaintiff's motion for summary judgment and dismissing defendant's counterclaim with prejudice. Defendant was also ordered to pay plaintiff $26,500 plus prejudgment interest of $4,080.70 plus attorney fees of $3,975 and other costs and expenses of $3,152.41. Defendant filed a timely notice of appeal, Case No. 73142. In order to enable the clerk to prepare the record on appeal, the trial court entered an order to open the seals on certain documents which had been filed under seal with the court pursuant to a protective order. At that time it was discovered that the seal had never been broken on defendant's brief in opposition to plaintiff's motion for summary judgment. On February 21, 1986 the trial court entered an order vacating its September 6, 1985 order granting plaintiff summary judgment. On April 24, 1986 the trial court entered a new order granting plaintiff's motion for summary judgment and dismissing defendant's counterclaim. This order, however, did not specify the amount of prejudgment interest or award plaintiff attorney fees. Defendant filed a second notice of appeal, Case no. 73143. Plaintiff filed a cross-appeal, Case no. 73155.

1. Because defendant has filed two appeals on essentially the same issues, and because, as a general rule, no appeal will lie from an order or judgment that has been amended, modified or superseded by a subsequent order or judgment (see Division 8, infra), we hereby dismiss the appeal in Case No. 74142. OCGA § 5-6-48 (b).

2. Defendant first argues that the case sub judice is controlled by Sheppard v. Columbus Packaging Co., 146 Ga.App. 202(1), 245 S.E.2d 887 (1978). In Sheppard the plaintiff argued that the restrictive covenants at issue therein were unenforceable because not limited in time and geographic area. Distinguishing the circumstances in Sheppard, in which plaintiff sought to recover deferred compensation, from those suits involving injunctions to prevent the violation of restrictive covenants not to engage in competition, this court held that "a provision of a contract which imposes as a condition to the recovery of benefits under a deferred compensation plan that the employee refrain from engaging in competitive employment is not violative of public policy as being in restraint of trade." Id. at 203, 245 S.E.2d 887.

Defendant argues that Sheppard is controlling here because the payments under the settlement agreement were in the nature of deferred compensation. We believe, however, that the critical inquiry under Sheppard is whether the restrictive covenant actually precludes the employee from engaging in the prohibited activity, or whether the covenant simply provides for the loss of rights or privileges if the employee violates the covenant. See Shandor v. Wells Nat. Svc. Corp., 478 F.Supp. 12(3, 4) (N.D.Ga.1979). Even a cursory reading of the agreement at issue in the present case clearly demonstrates that loss of benefits is not the only penalty plaintiff faces if he violates the restrictive covenants contained in paragraph 3. Paragraphs 5 and 6 specify liquidated damages which plaintiff must pay the defendant in the event he violates paragraph 3, and paragraph 7 provides that defendant can also seek injunctive relief for such violations. Defendant in fact sought such relief in its counterclaim. ^{1 1} Under these facts we find that in the case sub judice plaintiff does not merely lose certain benefits if he violates the restrictive covenants contained in the settlement agreement, but that such covenants act as an absolute bar to plaintiff's right to engage in the prohibited activity. For this reason, we reject defendant's first enumeration of error.

3. Defendant next argues that the trial court erred in granting plaintiff's motion for summary judgment even if the non-compete restrictive covenants are partial restraints against trade and void, because the settlement agreement contains other valid, severable restrictive covenants such as a non-disclosure covenant. In the present case the agreement was drafted as follows: Paragraph 3(a)(i) contained the non-compete covenant, paragraph 3(a)(ii) contained the "diversion of customers or accounts" covenant, paragraph 3(a)(iii) contained the non-disclosure covenant, paragraph 3(b)(i) contained a prohibition against pirating defendant's employees, and subparagraphs (b)(ii), (b)(iii), (b)(iv) and (b)(v) provided that plaintiff could not wrongfully interfere with defendant's customers, defame defendant, use deceptive trade practices against defendant or use unfair competition against defendant.

The general rule in Georgia is that "[t]here can be no 'blue pencil theory' of severability of covenants not to compete even where there is a severability clause (cits.) ... [T]his does not mean that [the non-disclosure provision] ... must of necessity suffer the same fate as [the non-competition provision]. 'A claim for breach of covenant not to compete and one for wrongful disclosure and use of confidential...