Georgia Court of Appeals Affirms Dismissals of Declaratory Judgment Actions Based on Forum Selection Clauses

Posted by Neal F. Weinrich on

Crump Insurance Services v. All Risks, Ltd., 2012 WL 1058563 (Ga. App. March 28, 2012), demonstrates the showing that an employee in a declaratory judgment action must make to invalidate a forum selection clause in his or her employment agreement.

Alejandro Duran, Carl Feldhaus, and Jordan Yoss were employed in Georgia by All Risks, Ltd. (“All Risks”), a Maryland insurance brokerage firm.  Mr. Duran, Mr. Feldhaus and Mr. Yoss had executed employment agreements which contained restrictive covenants.  The agreements also contained a forum selection clause requiring venue in a Maryland court and a Maryland choice-of-law provision.

The three employees resigned from All Risks in April 2010 and became employed by Crump Insurance Services, Inc. (“Crump”).  Crump and two of the employees filed a declaratory judgment action in a Georgia court.  Crump and the other employee also filed a separate declaratory judgment action in a Georgia court.  Both trial courts dismissed the lawsuits based on the forum selection clauses requiring venue in Maryland.

On appeal, Crump and the employees argued that the employees’ restrictive covenants were unenforceable under Georgia law and that the trial court should not have enforced the forum selection clauses as Maryland courts were likely to enforce the covenants.  In response, the Georgia Court of Appeals reiterated that, under Bunker Hill Int’l Ltd. v. Nation Builder Ins. Servs., Inc., 309 Ga. App. 503, 710 S.E.2d 662 (2011), Crump and the employees were required to show not only that the restrictive covenants violated Georgia public policy but also that a Maryland court would likely enforce the restrictive covenants against them.  Considering the latter prong of this test, the Court of Appeals referred to and relied upon the trial court’s finding that Maryland’s law on restrictive covenants was similar to Georgia’s.  The Court of Appeals also cited several other Maryland cases demonstrating similarity in the states’ laws on restrictive covenants.  Based on these cases, the Court of Appeals held that Crump and the employees had not shown that a Maryland court would enforce the restrictive covenants.  Therefore, they failed to show that proceedings in a Maryland court would “likely produce a result that offends the public policy of Georgia.  Absent such a showing, no compelling reason appears to avoid the forum-selection clause.”

Accordingly, the Court of Appeals affirmed the trial courts’ judgments dismissing the cases based on the Maryland forum selection clauses.  Crump is highly instructive and a good reminder that invalidating a forum selection clause requires not only a showing that the restrictive covenants at issue are unenforceable under Georgia law but also that the restrictive covenants would likely be enforced by a court in the forum selected by the parties.