Richard P. Rita Personnel Services Intern., Inc. v. Kot, 27138

Decision Date28 June 1972
Docket NumberNo. 27138,27138
Citation229 Ga. 314,191 S.E.2d 79
Parties, 1972 Trade Cases P 74,071 RICHARD P. RITA PERSONNEL SERVICES INTERNATIONAL, INC. v. Mitchell R. KOT.
CourtGeorgia Supreme Court

Alston, Miller & Gaines, Oscar N. Persons, W. Terence Walsh, Atlanta, for appellant.

J. V. Skinner, Jr., Atlanta, for appellee.

Syllabus Opinion by the Court

GUNTER, Justice.

Covenants not to compete have been in the English and American courts for the last 500 years. This appeal involves such a covenant, contained in a franchise agreement between the appellant-franchisor, Rita, and the appellee-franchisee, Kot.

The franchise agreement has been terminated, and Kot began operating a personnel employment service under his own name. Rita brought an action below to enjoin Kot from operating his personnel employment service in Fulton, Cobb and DeKalb Counties, contending that he was prohibited from doing so by the covenant not to compete with Rita contained in the franchise agreement previously executed by both parties.

Kot responded by contending that the covenant not to compete contained in the franchise agreement was overly broad with respect to the geographical area in which he was restricted from operating a personnel employment service, and the covenant was therefore illegal, void and unenforceable.

The trial court agreed with Kot that the covenant was unenforceable, and a temporary injunction applied for by Rita to stop Kot from operating was denied. Rita has appealed, contending that the covenant is enforceable, and contends here that the trial court committed error in not granting its requested temporary injunction.

The covenant contained in the franchise agreement was, succinctly and plainly stated and with much legalistic language deleted, as follows: Kot agreed with Rita that for a period of two years after the termination of the franchise agreement that he would not compete with Rita in Fulton, Cobb and DeKalb Counties (Georgia) or any territorial areas in which a franchise has been granted by Rita.

Kot contends that the covenant is overly broad with respect to the restricted territorial area because of the words 'or in any territorial area in which a franchise has been granted by Rita' contained in the covenant. He concedes that had those words been left out of the covenant, the covenant would have been valid, and he could not now compete in Fulton, Cobb and DeKalb Counties. However, he says that since the entire covenant is overly broad, the entire covenant is illegal, and he therefore can compete with Rita wherever he wants to.

Rita seeks to enforce only that part of the covenant applicable to the three counties and says that the Georgia courts should adopt the 'blue-pencil theory of severability,' cast out the words 'or in any territorial area in which a franchise has been granted by Rita,' and uphold and enforce what remains in the covenant after this partial obliteration by the court.

We are thus called upon for the first time to apply the 'blue-pencil theory of severability' to a geographical area of restriction as distinguished from the 'activities' or 'products' type of restriction contained in a covenant. Rita contends that the latter type of judicial surgery was applied in Hood v. Legg, 160 Ga. 620, 128 S.E. 891 (1925), and with that case for a precedent this court should judicially cut off the larger geographical area in this covenant, leave the three county area in this covenant, and enforce it as severed.

The Constitution of this State (Code § 2-2701) says: 'All contracts and agreements which may have the effect, or be intended to have the effect, to defeat or lessen competition, or to encourage monopoly, shall be illegal and void. The General Assembly of this State shall have no power to authorize any such contract or agreement.'

In WAKE Broadcasters v. Crawford, 215 Ga. 862, 114 S.E.2d 26 (1960) this court had under consideration the enforceability of a covenant which restricted competition 'within a radius of fifty (50) miles of the City of Atlanta, Fulton County, Georgia, or within a fifty (50) mile radius of any city in which the Bartell Group now or shall during the term of this agreement, own or operate a radio broadcasting station or television broadcasting station . . .' That covenant was held unenforceable because the area described therein was unreasonable.

In Taylor Freezer Sales Company v. Sweden etc. Corp., 224 Ga. 160, 160 S.E.2d 356 (1968) the restricted area contained in the covenant was 'in any area in which Sweden Freezer products may be distributed or sold at the time of such termination (of the contract).' This Court held that covenant in general restraint of trade and unenforceable.

In Ellison v. Labor Pool of America, 228 Ga. 147, 184 S.E.2d 575 (1971) two restrictions as to area were involved. The first was as follows: 'Within the city of Ft. Lauderdale, Florida, and within an area of fifty (50) miles in all directions from the city limits thereof. In any city, including an area of fifty (50) miles in all directions from the city limits thereof, in any city in which a franchise or branch office of employer is being operated at the time this employment is terminated.'

The second restricted area was: 'Within an area of fifty (50) miles in all directions of the outer boundaries of the City of Chicago, Illinois. Within a radius of twenty-five (25) miles in all directions from the outer boundaries of any city in which a franchise or affiliated company of employer is being operated at the time this employment is terminated.'

In Ellison this court held...

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