Wachovia Ins. Services, Inc. v. Fallon

• Decision Date: 14 July 2009
• Docket Number: No. A09A0140.,A09A0140.
• Citation: 682 S.E.2d 657,299 Ga. App. 440
• Parties: WACHOVIA INSURANCE SERVICES, INC. v. FALLON et al.
• Court: Georgia Court of Appeals

682 S.E.2d 657

299 Ga. App. 440

WACHOVIA INSURANCE SERVICES, INC. v. FALLON et al.

No. A09A0140.

Court of Appeals of Georgia.

July 14, 2009.

Reconsideration Denied July 30, 2009.

Fisher & Phillips, Walter J. Kruger III, Atlanta, for appellant.

Munger & Stone, Benjamin A. Stone, Atlanta, for appellees.

SMITH, Presiding Judge.

Wachovia Insurance Services, Inc. appeals from the trial court's grant of summary judgment to Stephen Fallon and Fallon Benefits Group, Inc. in a case filed by Wachovia Insurance against the defendants after Fallon left his employment with Wachovia Insurance and began competing against it through Fallon Benefits. Wachovia Insurance asserts that the trial court erred by granting summary judgment in favor of the defendants and by denying its motion for summary judgment in its favor. Because we find no merit in any of Wachovia Insurance's claims, we affirm the trial court's grant of summary judgment to Fallon and Fallon Benefits.

The record shows that Wachovia Insurance purchased Hamilton, Dorsey & Alston Company on May 1, 2001. Fallon was an owner of Hamilton, Dorsey & Alston and he received shares of Wachovia Insurance stock and cash as part of the sale. After the sale, Hamilton, Dorsey & Alston became a division of Wachovia Corporation and its name was later changed to Wachovia Insurance Services, Inc. After the sale, Fallon continued working for Wachovia Insurance as a senior vice president in the employee benefits area pursuant to a four-year contract.

In September 2004, Wachovia Insurance's president (Stewart McDowell) requested that Fallon sign a written "confidentiality and non-solicitation agreement." This agreement stated that Fallon would accept the status of an at-will employee, and it also included confidentiality and nonsolicitation provisions.

A couple of years later, Wachovia Insurance reduced Fallon's bonus and commission structure, and Fallon decided to resign and form his own business, Fallon Benefits Group, Inc. On April 12, 2007, Fallon met with McDowell and told him that he was resigning. Fallon informed McDowell that he planned to open a competing business, but assured McDowell that he would honor his nonsolicitation agreement. When Fallon subsequently met with his direct supervisor, Gil Benjamin, they decided that Fallon should give 30 days notice and keep coming into the office for the next two weeks.

A few days later, Benjamin called an employee meeting and informed everyone in the department that Fallon was leaving to start his own firm. On April 23, 2007, Fallon sent the following letter to 90 of his business contacts "with the advice and consent" of Benjamin:

It is with mixed emotions that I announce my departure from Wachovia Insurance Services. I feel blessed to have had the opportunity to work with partners like you to serve our mutual customers. I am also excited about the challenges that lie ahead as I have decided to start my own firm.

We are in the process of transferring management of the Employer Solutions Group at WIS and re-assigning my accounts. We will be in touch very soon to discuss any transitional issues. Thank you for your past support and best of luck in the future.

On April 30, 2007, Fallon "was informed that [his] services were no longer needed." Wachovia Insurance paid Fallon through May 15, 2007. The next day, Fallon Benefits opened for business.

Wachovia Insurance filed suit against Fallon and Fallon Benefits less than two months later and asserted numerous causes of action against them.¹ Both parties moved for summary judgment in their favor. In a two-sentence order, the trial court denied Wachovia Insurance's motion and granted the motion of Fallon and Fallon Benefits.

1. Wachovia Insurance asserts the trial court should have concluded that Fallon breached his written agreement not to solicit clients. Fallon asserts in response that the non-solicit agreement is overly broad and legally unenforceable.

The first step in considering the enforceability of restrictive covenants is to determine the level of scrutiny to be applied. Georgia courts have traditionally divided restrictive covenants into two categories: "covenants ancillary to an employment contract, which receive strict scrutiny and are not blue-penciled, and covenants ancillary to a sale of [a] business, which receive much less scrutiny and may be blue-penciled.

(Citations, punctuation and footnotes omitted.) Advance Technology Consultants v. Roadtrac, LLC, 250 Ga.App. 317, 319(1), 551 S.E.2d 735 (2001). Strict scrutiny requires a court to strike down all covenants not to compete or solicit if one covenant is unenforceable. Id. at 320(2), 551 S.E.2d 735.

Wachovia Insurance asserts that we should blue-pencil Fallon's agreement because it related to the sale of his interest in Hamilton, Dorsey & Alston Company. The record, however, shows that Fallon signed the confidential and nonsolicitation agreement at issue in this case over three years after the sale of Hamilton, Dorsey & Alston Company. We must therefore apply strict scrutiny to the nonsolicitation agreement. See Global Link Logistics v. Briles, 296 Ga. App. 175, 177(1)(a), 674 S.E.2d 52 (2009).

Next, we must consider whether the covenant at issue imposes "an unreasonable restraint on trade." (Citations and footnote omitted.) Trujillo v. Great Southern Equip. Sales, 289 Ga.App. 474, 476(1), 657 S.E.2d 581 (2008). "Whether the restraint imposed by the employment contract is reasonable is a question of law for determination by the court." (Citation, punctuation and footnote omitted.) Id. "A three-element test of duration, territorial coverage, and scope of activity has evolved as a helpful tool in examining the reasonableness of the particular factual setting to which it is applied." (Citations, punctuation and footnote omitted.) Habif, Arogeti & Wynne v. Baggett, 231 Ga. App. 289, 292(2), 498 S.E.2d 346 (1998). The covenant at issue here provided:

While employed by the Company or any of its affiliates and for two years after the termination of the employment of the Employee with the Company or any of its affiliates, the Employee will not, except to the extent necessary to carry out the Employee's duties as an employee of the Company or any of its affiliates, directly or indirectly, on behalf of the Employee or any other person or entity, solicit or divert away, or attempt to solicit or divert away, any Customer (as defined below) of the Company or any of its affiliates for the purpose of selling or providing Competitive Services (as defined below), provided the Company or any of its affiliates is then still engaged in the sale or provision of the Competitive Services. For purposes of this Agreement, the term "Customer" means (i) any individual or entity that has purchased an insurance contract through the Company (ii) with whom or with which the Employee personally had, alone or in conjunction with others, material contact during the two years immediately prior to the termination of the Employee's employment with the Company or any of its affiliates. For purposes of this Agreement, the Employee shall have had material contact with a person or entity if (i) the Employee had business dealings with the person or entity on behalf of the Company or any of its insurance affiliates either directly or indirectly through an insurance agent or broker; (ii) the Employee was responsible for supervising or coordinating the business dealings between the person or entity and the Company or any of its affiliates; or (iii) the Employee obtained trade secrets or Confidential Information about the person or entity as a direct result of the Employee's business involvement with the person or entity on behalf of the Company or any of its affiliates. For purposes of this Agreement, the term "Competitive Services" means the sale or provision of insurance, underwriting services or consulting services or products relating to insurance of the type offered by the Company as of the date hereof or its affiliates.

Fallon asserted below and on appeal that this provision is overly broad because it can be read to preclude Fallon from soliciting clients who had already severed their relationship with Wachovia Insurance. We agree because the agreement defined "Customer" as meaning "any individual or entity that has purchased an insurance contract through the Company." (Emphasis supplied.) See Gill v. Poe & Brown of Ga., 241 Ga.App. 580, 583(2), 524 S.E.2d 328 (1999) (employer had no legitimate business interest in preventing solicitation of clients who may have severed relationship with employer up to four years before employee's termination). Compare Palmer & Cay of Ga. v. Lockton Companies, 280 Ga. 479, 482-483(3), 629 S.E.2d 800 (2006) (non-solicit covenant applied to only existing customers of employer based on use of word "customers" without further definition). The trial court did not err, therefore, by granting summary judgment in favor of Fallon on Wachovia Insurance's breach of contract claim based upon the nonsolicitation agreement.

2. Wachovia Insurance asserts the evidence shows that Fallon breached his agreement not to

directly or indirectly ... solicit or induce, or attempt to solicit or induce, any person employed by the Company or any of its affiliates during the two-year period immediately prior to Employee's termination, to terminate his or her relationship with the Company or any of its affiliates and/or to enter into an employment or agency relationship with the Employee or with any other person or entity with whom the Employee is affiliated.

In support of its claim, Wachovia Insurance points to evidence showing that Fallon Benefits Group hired two Wachovia Insurance employees, Stacy McGee and Julie Mitzel. Wachovia Insurance points to no evidence demonstrating that Fallon approached McGee and Mitzel about working for Fallon Benefits. Instead, the undisputed evidence in the record demonstrates that these employees...