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BFV Perspectives, Noncompete & Trade Secrets, | Jun 21, 2013

Atlantic Pacific Illustrates Impact of Georgia’s New Restrictive Covenants Law on Forum and Venue Selection Considerations

Under Georgia’s old employee-friendly restrictive covenants law, employees often viewed Georgia courts as a preferred forum.  Atlantic Pacific Equipment, Inc. v. William Dale Graham illustrates how that tide has shifted.  2013 WL 48906 (N.D. Ga., February 8, 2013).

Defendant William Dale Graham (“Graham”) was an employee of Atlantic Pacific Equipment, Inc. (“APE”).  The parties executed an employment agreement containing restrictive covenants when Graham was hired in 2010.  In 2012, APE learned that Graham was considering leaving for another company.  To induce Graham to stay, APE offered him a promotion with better pay and asked him to enter into a new restrictive covenant (the “2012 Agreement”).  Graham accepted this offer, executed the 2012 Agreement, and remained at APE.  The 2012 Agreement specified, among other things, that Georgia law governed and that the State of Georgia would have exclusive jurisdiction over any dispute.  Because of when it was signed, the restrictive covenants in the 2012 Agreement, in contrast to the 2010 agreement, were governed by Georgia’s new employer-friendly restrictive covenant statute.

Approximately one month after executing the 2012 Agreement, Graham resigned from APE.  Soon after, APE learned that Graham was soliciting sales from one of APE’s largest customers on behalf of a competitor.  Through counsel, APE sent a cease-and-desist letter to Graham’s counsel.  In response, two weeks later, Graham filed a complaint seeking a declaratory judgment and a temporary restraining order in state court in Texas.  APE removed the action to the United States District Court for the Southern District of Texas and moved to dismiss based on the forum selection clause in the 2012 Agreement.  The Southern District of Texas granted APE’s motion to dismiss, concluding that the forum selection clause in the 2012 Agreement required that the case be litigated in Georgia.

APE filed its own complaint alleging breach of the 2012 Agreement against Graham in the Superior Court of Cobb County, Georgia, and the case was removed to the Northern District of Georgia shortly thereafter.  In response to the complaint from APE, Graham moved to dismiss, arguing that APE had failed to allege that Graham was subject to personal jurisdiction in Georgia.  Graham argued that the forum selection clause in the 2012 Agreement was invalid and unenforceable and that APE had failed to allege any other grounds on which he could be subjected to personal jurisdiction in Georgia.

The Northern District of Georgia denied Graham’s motion, finding that the enforceability of the forum selection clause in the 2012 Agreement had already been litigated and decided in the Southern District of Texas.  Accordingly, the doctrine of collateral estoppel prohibited Graham from arguing the same point a second time.

The Northern District of Georgia applied the following standard:

To claim the benefit of collateral estoppel, the party relying on the doctrine must show that: (1) the issue at stake is identical to the one involved in the prior proceeding; (2) the issue was actually litigated in the prior proceeding; (3) the determination of the issue in the prior litigation must have been “a critical and necessary part” of the judgment in the first action; and (4) the party against whom collateral estoppel is asserted must have had a full and fair opportunity to litigate the issue in the prior proceeding.  Id. at *8.

The issue decided by of the Southern District of Texas met this standard.  The Southern District of Texas had addressed exactly the same issue – the enforceability of the forum selection clause in the 2012 Agreement was litigated in that prior proceeding and the determination of that issue was a critical and necessary part of the judgment.  Finally, Graham had had a full and fair opportunity to litigate on this point in the Southern District of Texas.

Accordingly, the forum selection clause in the 2012 Agreement was held to be valid and enforceable.  Because the complaint in APE’s suit against Graham referred to and attached a copy of the 2012 Agreement, the Northern District of Georgia found that the complaint adequately alleged that Graham was subject to personal jurisdiction in Georgia.

Atlantic Pacific thus illustrates how strategies relating to venue and forum selection in the restrictive covenant context are being materially affected by the change in Georgia law.

BFV Perspectives, Noncompete & Trade Secrets, | Jun 21, 2013