Prudential Ins. Co. of America v. Baum

• Decision Date: 24 February 1986
• Docket Number: Civ. A. No. C85-2744A.
• Citation: Prudential Ins. Co. of America v. Baum, 629 F.Supp. 466 (N.D. Ga. 1986)
• Parties: PRUDENTIAL INSURANCE COMPANY OF AMERICA, Plaintiff, v. David M. BAUM, Defendant.
• Court: U.S. District Court — Northern District of Georgia

629 F. Supp. 466

PRUDENTIAL INSURANCE COMPANY OF AMERICA, Plaintiff, v. David M. BAUM, Defendant.

Civ. A. No. C85-2744A.

United States District Court, N.D. Georgia, Atlanta Division.

February 24, 1986.

S. Richard Gard, Jr., Carier, Ansley, Smith & McLendon, Atlanta, Ga., for plaintiff.

Wendell K. Willard, Willard & Olsen, Tucker, Ga., for defendant.

ORDER

MOYE, Chief Judge.

Prudential Insurance Company of America ("Prudential") has sued one of its former sales agents in this action for conversion of its property, breach of fiduciary duty, tortious interference with contract, and breach of a contract of employment. The defendant now moves to dismiss the complaint. Jurisdiction in this case is predicated upon diversity of citizenship between the parties. Both a temporary restraining order and a preliminary injunction have been granted in favor of Prudential.

Prudential asserts that because its requested injunctive relief was granted, this precludes the grant of a motion to dismiss. This argument, based on the stringent requirements for injunctive relief, is meritless. By definition, such relief is granted in an expedited manner in order to preserve the status quo, pending a meaningful investigation into the merits. A motion to dismiss, on the other hand, tests the legal sufficiency of the complaint. Material extraneous to the complaint is not considered unless the court elects to convert the motion to dismiss into one for summary judgment. Fed.R.Civ.P. 12(b).

In a motion to dismiss for failure to state a claim under Rule 12(b)(6), the allegations of the complaint and all reasonable inferences from the facts alleged must be taken as true. Cruz v. Beto, 405 U.S. 319, 322, 92 S.Ct. 1079, 1081, 31 L.Ed.2d 263 (1972); Brown v. Ivie, 661 F.2d 62, 66 (5th Cir.1981). A complaint must not be dismissed unless it is shown that the "plaintiff can prove no set of facts in support of his claim, which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957). Thus, the movant sustains a high burden in cases under Rule 12(b)(6). Dismissal is appropriate, however, if the complaint fails to allege facts regarding an element of the claim necessary to obtain relief. Blum v. Morgan Guaranty Trust Co. of New York, 709 F.2d 1463, 1466 (11th Cir.1983); 2A J. Moore & J. Lucas, Moore's Federal Practice ¶ 12.072.-5 at 12-68 & n. 19 (2d ed. 1985). Furthermore, a motion to dismiss should be granted if an affirmative defense or other bar to relief appears on the face of the complaint. Quiller v. Barclays American/Credit, Inc., 727 F.2d 1067, 1069 (11th Cir.1984); 2A J. Moore & J. Lucas, supra, at 12-69.

I. Breach of contract

A. Noncompetition and nonsolicitation provisions

The defendant argues generally that the contract provisions on which the Prudential bases its claim for breach of contract are unenforceable and void. "By both constitutional and legislative provision, Georgia prohibits contracts or agreements in general restraint of trade." Howard Schultz & Associates of the Southeast, Inc. v. Broniec, 239 Ga. 181, 183, 236 S.E.2d 265 (1977). These provisions do not rigidly bar restrictive covenants in employment contracts, but the Georgia courts scrutinize them closely with certain requirements of reasonableness in mind. "A covenant not to compete ancillary to an employment contract is enforceable only where it is strictly limited in time and territorial effect and is otherwise reasonable considering the business interest of the employer sought to be protected and the effect on the employee." Id. Prudential argues that consideration of these reasonableness requirements is inappropriate upon a motion to dismiss because it involves questions of fact, but "whether or not a covenant against competition in an employment contract is reasonable is a question of law appropriately answered based upon the wording of the covenant." Koger Properties, Inc. v. Adams-Cates Co., 247 Ga. 68, 69, 274 S.E.2d 329 (1981).

The Sales Manager's Agreement ("Agreement"), which is the source of the restrictive covenants in question, is appended as exhibits "A" and "B" to the complaint. In particular, the noncompetition and nonsolicitation provisions are found at section 5(2) and provide as follows:

The Sales Manager Agrees: ...

(2) That for a period of two years from the termination date of this Sales Manager's Agreement, I shall not directly or indirectly:

a. sell to or solicit from any company or subsidiary contractholder who became known to me during my employment, on behalf of any other person or organization, any insurance policy, contract, or any other financial service or product that competes with those sold by the Company or its subsidiaries; or

b. do anything to cause or encourage anyone to reduce, discontinue, or terminate any Company or subsidiary policy, contract, service, or product of any kind; or

c. do anything to cause or encourage any Company or subsidiary employee to either:

(1) terminate his or her employment with the company for any reason; or

(2) to sell or solicit services or products on behalf of any other company which are in any way similar to those sold by the Company or its subsidiaries.

These contract provisions contain no territorial limitation on the employment restraints whatsoever. The absence of such geographical limitations renders a noncompetition covenant void. Fuller v. Kolb, 238 Ga. 602, 603, 234 S.E.2d 517 (1977); Edwin K. Williams & Co.—East v. Padgett, 226 Ga. 613, 614, 176 S.E.2d 800 (1970). See generally Comment, A Fresh Look: Lowering the Mortality Rate of Covenants Not to Compete Ancillary to Employment Contracts and to Sale of Business Contracts in Georgia, 31 Emory L.J. 636, 652 (1982). Whether the clauses found in section 5(2) are characterized as noncompetition or as nonsolicitation provisions does not alter this analysis. Guffey v. Shelnut & Associates, Inc., 247 Ga. 667, 669, 278 S.E.2d 371 (1981); Lane Co. v. Taylor, 174 Ga.App. 356, 358, 330 S.E.2d 112 (1985).

B. Nondisclosure provisions

The defendant also challenges the enforceability of the nondisclosure clauses found at section 1(h), which reads:

Under these amended provisions I agree to:

(1) treat all information which either identifies or concerns contractholders of the Company or any of its subsidiaries, including but not limited to, contract values, or beneficiary information, as Company property, confidential, and of special value to the Company; and therefore, the Sales Manager agrees not to provide at any time to any person outside the Company's employ, any such information which would be used to solicit for sales on behalf of another company or organization.

(2) Deem as exclusively Company property, all supplies, documents, records, and all contractholder information or product information from any source relating to any Company or any subsidiary product; and therefore the Sales Manager agrees that all such property, including all copies thereof, shall be delivered only to a proper Company representative.

(3) Deliver to the Company promptly upon termination of my Agreement, either by myself or the Company, all Company property including that mentioned above as well as all Company monies, equipment and the like then in my custody.

Complaint, Exhibit "B."

Nondisclosure covenants are subject to reasonableness requirements because they affect the dissemination of information necessary to free competition among businesses. See Nasco, Inc. v. Gimbert, 239 Ga. 675, 676, 238 S.E.2d 368 (1977). "Unlike general noncompetition provisions, however, specific nondisclosure clauses bear no relation to territorial limitations and their reasonableness turns on factors of time and the nature of the business interest sought to be protected." Durham v. Stand-By Labor of Georgia, Inc., 230 Ga. 558, 563, 198 S.E.2d 145 (1973). The Durham court said that the "business interest" component of this reasonableness requirement depends on two subsidiary considerations:

(1) whether the employer is attempting to protect confidential information relating to the business, such as trade secrets sic, methods of operation, names of customers, personnel data, and so on—even though the information does not rise to the stature of a trade secret; and (2) whether the restraint is reasonably related to the protection of the information.

Id. at 564, 198 S.E.2d at 149-150. Accord Lane, 174 Ga.App. at 359, 330 S.E.2d at 116. The protection of such confidential information is ordinarily not "within the purview of traditional Georgia law as to property" and thus requires a valid contract to prevent postemployment disclosure. Durham, 230 Ga. at 563, 198 S.E.2d at 149. The clauses prohibiting disclosure lack any time limitation and therefore purport to be effective in perpetuity. The Georgia courts have held that a nondisclosure covenant is unreasonable and therefore unenforceable if it lacks any time limitation. Broniec, 239 Ga. at 188, 198 S.E.2d at 270; Thomas v. Best Manufacturing Corp., 234 Ga. 787, 788, 218 S.E.2d 68, 70 (1975). See Aladdin, Inc. v. Krasnoff, 214 Ga. 519, 520, 105 S.E.2d 730 (1958) (invalidating nondisclosure covenant unlimited as to time or territory because "conceivably, this would include all of the plaintiff's customers from the time of its incorporation to that time in the unforeseeable future when it shall cease to do business.")

The plaintiff's principal argument that section 1(h) does not constitute a nondisclosure provision is that this part of the contract merely fixes title to property. Prudential cites Merrill Lynch, Pierce, Fenner & Smith v. Stidham, 658 F.2d 1098 (5th Cir., Unit B, 1981), in which the Fifth Circuit affirmed the upholding of a "nondisclosure clause" requiring employee assent that:

1. All records of Merrill Lynch, including the names and addresses of its clients, are and shall remain the property of Merrill Lynch at all times during my employment with Merrill Lynch and

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