BFV Perspectives, Noncompete & Trade Secrets, | Feb 06, 2013

Georgia Court of Appeals Issues Another Important Ruling on the Enforceability of Forum Selection Provisions

In the last few years, the Georgia Court of Appeals has issued several decisions clarifying Georgia law with respect to the enforceability of forum selection provisions in the restrictive covenant context.  The Georgia Court of Appeals’ recent decision in Carson v. Obor Holding Co., — Ga. App. –, 734 S.E.2d 477 (Nov. 20, 2012) further establishes that if proceedings in a selected forum will likely produce a result offending an established Georgia public policy, a forum-selection clause selecting such a forum should be disregarded by Georgia courts.  The Court in Carson followed the line of cases, including Bunker Hill Intl. v. Nationsbuilder Ins. Svcs., 309 Ga. App. 503, 710 S.E.2d 662 (2011), that hold that such a Georgia public policy presents a “compelling reason” to invalidate such clauses, as required by the Georgia Court of Appeals’ holding in Iero v. Mohawk Finishing Products, 243 Ga. App. 670, 671, 534 S.E.2d 136 (2000).

These holdings, driven home by the opinion in Carson, appear to confirm a shift in Georgia courts’ approach to contractual forum-selection clauses.  Historically, Georgia courts appeared reluctant to strike choice of forum or exclusive jurisdiction provisions, notwithstanding their potential implications on Georgia’s public policy. See, e.g., SR Bus. Servs., Inc. v. Bryant, 267 Ga. App. 591, 592-93, 600 S.E.2d 610, 612-13  (2004) (enforcing forum selection clause in agreement containing restrictive covenants); Iero v. Mohawk Finishing Prods., Inc., 243 Ga. App. 670, 534 S.E.2d 136 (2000) (enforcing contractual provision selecting New York as exclusive forum); see also Hasty v. St. Jude Med. S.C., Inc., No. 7:06-cv-102(HL), 2007 U.S. Dist. LEXIS 34625 (M.D. Ga. May 11, 2007) (upholding Minnesota choice of forum provision where there is no proof that the application of Minnesota law will result in a less favorable outcome than the application of Georgia law); Rode v. St. Jude Med., S.C., Inc., No. 1:06-cv-02448-WSD, 2006 U.S. Dist. LEXIS 91911 (N.D. Ga. Dec. 20, 2006) (mere speculation that a foreign court might apply law contrary to Georgia public policy insufficient to void forum selection provision).  However, the approach adopted in Carson gives Georgia courts more flexibility to evaluate each forum-selection clause in the context of the specific facts of a presented case.

The analysis undertaken by the Georgia Court of Appeals in Carson is in line with the analysis it applied in several recent decisions.  For instance, in 2011, the Georgia Court of Appeals found that an Illinois forum selection provision was void where the plaintiff demonstrated that the non-competition covenant violated Georgia policy because an Illinois court would likely enforce the covenant at issue.  Bunker Hill Int’l, Ltd. v. Nationsbuilder Ins. Servs., Inc., 309 Ga. App. 503, 710 S.E.2d 662 (2011).  However, in March of 2012, the Georgia Court of Appeals enforced a forum selection clause designating Maryland as the forum because while the restrictive covenants would violate Georgia public policy, the parties had not demonstrated that a Maryland court would enforce the covenants.  Crump Ins. Servs. v. All Risks, Ltd., 315 Ga. App. 490, 727 S.E.2d 131 (2012).  Then in Carson, in November of 2012, the Georgia Court of Appeals reversed a trial court which had enforced a forum selection clause against two former employees challenging restrictive covenants in their employment contracts designating Florida as the parties’ chosen forum.  Carson v. Obor Holding Co., — Ga. App. –, 734 S.E.2d 477 (2012).  In Carson the Court of Appeals found again that proceedings in Florida were likely to produce a result that offends settled public policy of Georgia.  Id. at 484-85.

Taken together, these recent cases, while indicating that forum selection provisions are still prima facie valid under Georgia law and presumptively enforceable, confirm that if a party demonstrates that a restrictive covenant violates Georgia public policy and that a court in the parties’ selected forum likely would enforce the covenant, then Georgia courts have a compelling reason to invalidate the forum selection clause.

BFV Perspectives, Noncompete & Trade Secrets, | Feb 06, 2013