BFV Perspectives, Noncompete & Trade Secrets, | Jul 25, 2011

District Court Denies Defendants’ Attempts to Have Plaintiffs’ Declaratory Judgment Action Transferred or Dismissed

The Court’s ruling in Rowland v. International Paper Company, Civil Action No. 1:10-CV-3443-RWS, 2011 WL 1457194 (N.D. Ga. April 15, 2011), reflects an interesting and unusual resolution to the typical fact pattern of an employee seeking to obtain declaratory relief regarding his restrictive covenants in a Georgia forum and his former employer seeking to have issues related to the enforceability of the restrictive covenants litigated in a non-Georgia forum.

Mr. Rowland worked for a division of International Paper (“IP”).  In 2005, he was promoted to Director of Marketing and Packaging for the West Region.  In 2008, he was promoted to Director of Sales, Corrugated, for the West Region, and he was given responsibility for packaging sales for the region consisting of all the states west of the Mississippi River and five divisions in Mexico.

In October 2010, Mr. Rowland resigned from IP to join Unisource as its Director of Segment Developing-Packaging for Canada.  While at IP, he had been working primarily in Colorado.  When he resigned, he advised IP’s HR manager that he intended to continue to reside in Colorado.  At that time the HR manager and his supervisor each reminded him of his obligations under the non-competition agreement he signed when he was promoted in 2005 (the “Agreement”).

Mr. Rowland understood these statements as threats by IP to enforce the Agreement.  As such, Mr. Rowland and Unisource initiated an action in Georgia seeking a declaratory judgment that the restrictive covenants were unenforceable.  They also sought injunctive relief to stop IP from seeking to enforce the restrictive covenants.

Mr. Rowland and Unisource filed in a Georgia court because Unisource’s principal place of business is in Norcross, Georgia.  They alleged Mr. Rowland would spend a considerable amount of time working at Unisource’s Georgia offices but because of family circumstances, he would continue to reside in Colorado.  IP moved to transfer the case to the District of Colorado under 28 U.S.C. § 1404(a), or to dismiss the case for failure to state a claim.

IP argued the case should be transferred to Colorado because Mr. Rowland lived there while he worked for IP and would continue to live there while employed with Unisource.  IP also argued that Mr. Rowland and Unisource’s claims did not arise out of any operations in Georgia because he worked for IP in its Colorado office and his sales territory did not include Georgia.  Mr. Rowland and Unisource relied on the fact that his employment responsibilities with Unisource have a greater connection to Georgia than to Colorado.

The District Court found that a plaintiff’s choice of forum should be afforded considerable deference and that IP had not carried its burden of demonstrating that any added convenience offered by the District of Colorado outweighed Mr. Rowland and Unisource’s choice of forum.  The District Court thus denied the motion to transfer.

IP also moved to dismiss the lawsuit for failure to state a claim.  The Complaint asserted four claims.  Three were for declaratory judgments that the non-competition covenant, the non-solicitation of customers covenant, and the non-solicitation of employees covenants were unenforceable.  There was also a claim for injunctive relief which asked the Court to enjoin IP from seeking to enforce the restrictive covenants or from taking any other action to preclude Mr. Rowland from working for Unisource or from competing with IP.

The non-competition covenant prohibited Mr. Rowland from working on any product or service that is competitive with a product or service which he worked on while employed by IP during the last two years of his employment.  During that period, he was responsible for sales in states west of the Mississippi River and in five districts within Mexico.  With Unisource, he would be responsible for Canada.

The District Court therefore found that his activities with Unisource would not be competitive with those he previously engaged in on behalf of IP.  While Mr. Rowland had introduced evidence that he would make calls and receive and respond to e-mail from his home in Colorado, the Court stated that it would not find such activity to be in violation of the non-competition covenant.  Given these findings, the Court ruled that there was no actual controversy supporting the need for declaratory relief with respect to the non-competition covenant.  As such, the Court dismissed the declaratory judgment claim as to the non-competition covenant.  Of course, even though Mr. Rowland and Unisource’s claim was dismissed, they arguably obtained the ruling they were seeking, given that the Court dismissed the claim based on its finding that Mr. Rowland’s activities for Unisource would not violate the non-competition covenant.

With respect to Mr. Rowland and Unisource’s claim based on the non-solicitation of customers covenant, IP argued that Mr. Rowland and Unisource failed to state a claim because they did not allege that Mr. Rowland would have responsibility for soliciting customers for Unisource in his old region or that he would actually solicit business from current or former IP customers, which he was restricted from doing.  The District Court rejected IP’s argument.  Pointing to Mr. Rowland and Unisource’s allegation that they foresaw that Mr. Rowland would solicit former customers in his new job, albeit for services in a different region, the District Court found that an actual controversy was alleged with respect to the non-solicitation of customers covenant.

Similarly, with respect to the non-solicitation of employees covenant, IP argued that there was no actual controversy because Mr. Rowland and Unisource did not allege that Mr. Rowland would have responsibility for recruiting or hiring in his new position.  The District Court rejected this argument; however, as it found that the Complaint alleged that the covenant created uncertainty as to the scope of Mr. Rowland’s permissible conduct in the employ of Unisource.  As such, an actual controversy existed and this claim survived dismissal.

With respect to the claim for injunctive relief, IP moved to dismiss on the grounds that it did not state a claim because it sought relief which could not be granted under Keener v. Convergys Corp. 342 F.3d 1264 (11th Cir. 2003).  Keener held that a Georgia District Court could not issue an injunction precluding the filing of a lawsuit to enforce restrictive covenants in another state as doing so would be applying the public policy of Georgia on a nationwide basis.  In response to this argument, Mr. Rowland and Unisource clarified that they were not seeking an injunction which went beyond the Court’s authority.  Based on this clarification, the District Court permitted this claim to proceed as it stated it would “take Plaintiffs at their word and not construe Count IV at seeking injunctive relief beyond Georgia’s boundaries.”

In sum, IP was unsuccessful in preventing Mr. Rowland and Unisource from litigating the parties’ dispute regarding Mr. Rowland’s restrictive covenants in Georgia.  While IP obtained a dismissal of Mr. Rowland’s declaratory judgment claim with respect to his non-competition covenant, the Court’s ruling in dismissing this claim included a highly favorable finding for Mr. Rowland and Unisource — that Mr. Rowland would not be violating the non-competition covenant in his employment with Unisource.

BFV Perspectives, Noncompete & Trade Secrets, | Jul 25, 2011
Neal F. Weinrich
Neal F. Weinrich

Neal Weinrich knows noncompetes and trade secrets inside and out. A shareholder at Berman Fink Van Horn, Neal counsels clients in all industries on matters involving restrictive covenants, trade secrets and other competition-related issues.