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BFV Perspectives, Noncompete & Trade Secrets, | Apr 04, 2013

Can an Employee Use a Spouse to Circumvent Restrictive Covenants? Georgia Court of Appeals Says “No.”

In Zions First National Bank v. Macke, the Georgia Court of Appeals held that circumstantial evidence and evidence of indirect solicitation was sufficient to defeat a motion for summary judgment on claims relating to an employee’s breach of restrictive covenants and breach of fiduciary duty.  See 730 S.E.2d 462 (Ga. Ct. App. 2012).  Mike Macke founded Cadillac Jack, Inc. (“Cadillac Jack”), a company that manufactured gaming equipment, in 1995.  By 2006, a majority of the company had been sold and the board of directors had been expanded.  Mr. Macke retained his position as CEO, as well as his 40 percent interest in the company.  In 2008, however, Mr. Macke’s stake in the company was bought out and he was terminated in June of that year.  When Mr. Macke brought suit against Cadillac Jack, Cadillac Jack counter-claimed, alleging that Mr. Macke had breached the restrictive covenants included in his employment agreement, as well as his fiduciary duty and duty of loyalty.

The basis for Cadillac Jack’s claim for breach of the restrictive covenants was Mr. Macke’s involvement with a gaming company that directly competed with Cadillac Jack, which was formed by Mr. Macke’s wife only months after Mr. Macke’s termination.  This company, Primero, had hired a long-time Cadillac Jack employee and began a relationship with another company with which Cadillac Jack had had an exclusive distribution agreement.  Cadillac Jack had received emails, presumably by mistake, which had been addressed to “Mike Macke at Primero Games.”  Those emails appeared to discuss Primero business. Considering these facts, the Court found that there was “at least some circumstantial evidence” to support Cadillac Jack’s counterclaim that Mr. Macke was sufficiently involved in Primero to constitute a breach of his restrictive covenants.  Accordingly, the Georgia Court of Appeals affirmed the denial of Mr. Macke’s motion for summary judgment with respect to the claim for breach of the restrictive covenants.

With respect to Cadillac Jack’s breach of fiduciary duty and duty of loyalty counterclaim, the Court considered certain statements Mr. Macke had made to one of Cadillac Jack’s clients around the time of his termination in 2008.  Specifically, Mr. Macke testified that he had told one of Cadillac Jack’s clients that Cadillac Jack was not in compliance with certain funding requirements relating to that client’s gaming system. Mr. Macke had also sent that client an email with a balance sheet showing the allegedly inadequate funding, disclosing that Cadillac Jack was seeking another host, and urging the client to contact the other host to slow the process. Ultimately, the client eventually ended at least one of its accounts with Cadillac Jack. The Court held that there was “at least some evidence” that Cadillac Jack suffered harm from Mr. Macke’s conduct.  Accordingly, the Georgia Court of Appeals affirmed the denial of Mr. Macke’s motion for summary judgment with respect to the claim for breach of fiduciary duty and duty of loyalty.

Restrictive covenant cases often involve surreptitious conduct.  This case illustrates that blatant, indirect solicitation and competition via an employee’s family member may constitute a violation of restrictive covenants.

BFV Perspectives, Noncompete & Trade Secrets, | Apr 04, 2013