Northern District of Georgia Judge Enjoins Enforcement of Overbroad Restrictive Covenants

Posted by Neal F. Weinrich on

Moorad v. Affordable Interior Systems, LLC, 2012 WL 162289 (N.D. Ga. Jan. 18, 2012) involved multi-district litigation over restrictive covenants which were unenforceable under Georgia law.

David Moorad was employed by Affordable Interior Systems, LLC (“AIS”) as its Vice President of Sales.  He signed an agreement containing restrictive covenants in 2007.  In 2011, he resigned after the company had taken away responsibility from him.  The company had also taken away his sales territories.  Five days later, he was hired by a competitor as its Regional Sales Manager.  In that position, he was making more than $75,000.00 per year.

Shortly after Mr. Moorad left AIS and joined its competitor, AIS sent a demand letter seeking to enforce the restrictive covenants.  Mr. Moorad therefore filed a declaratory judgment action in a Georgia federal district court seeking a declaration that his restrictive covenants were unenforceable.  Mr. Moorad also sought a preliminary injunction barring AIS from seeking to enforce the covenants.

In response to the Georgia lawsuit, AIS filed a lawsuit in Massachusetts in which it sought to enforce the restrictive covenants.  AIS also opposed the Georgia lawsuit, arguing that the amount-in-controversy requirement for diversity jurisdiction was not met and the district court therefore lacked subject matter jurisdiction.  AIS also argued that even if there was subject matter jurisdiction, Mr. Moorad was not entitled to the injunctive relief sought because he would not suffer irreferrable harm.

With respect to the amount in controversy, Mr. Moorad had alleged that the threatened enforcement of the invalid restrictive covenants, including a non-competition covenant, was at risk of keeping him from working in his current position where he earns in excess of $75,000.00 per year.  AIS, however, argued that the record demonstrated that it was no longer seeking to enforce the non-competition covenant, which it had sought to enforce in its pre-suit demand letter and its Massachusetts complaint.  Specifically, AIS argued that it was no longer seeking to prohibit Mr. Moorad from competing entirely but rather was, as demonstrated by its ongoing dialogue with Mr. Moorad, seeking to reach an agreement whereby Mr. Moorad would agree not to do business on behalf of his new employer with some but not all of the customers that he was involved with on behalf of AIS.

The District Court rejected AIS’ arguments and found that it had jurisdiction.  It noted that the jurisdictional analysis is dependent on the state of affairs at the time that the action was brought.  At that time, AIS was attempting to enforce the non-competition covenant.  The Court, therefore, found that it should consider the benefit to Mr. Moorad of the Court’s invalidation of his non-competition covenant.  Mr. Moorad had alleged that the value of the requested injunctive relief was his ability to keep his salary with his new employer.  The District Court found that because his new salary was in excess of $75,000.00, there was concrete evidence of the value of the injunction.  As such, the District Court found that there was subject matter jurisdiction.

With respect to Mr. Moorad’s request for a permanent injunction, AIS did not challenge Mr. Moorad’s arguments that he was substantially was likely to succeed on the merits as the covenants were patently unenforceable under Georgia law.  Rather, AIS argued that there was no irreparable harm.  Specifically, AIS argued that there was no evidence that Mr. Moorad would lose his job in light of the fact that AIS had removed its request to enforce the non-competition covenant from the Massachusetts complaint and had affirmed to the District Court in Georgia that it would not require him to leave his new employer.  AIS also argued that Mr. Moorad had damages available as a remedy.

The District Court rejected AIS’ arguments.  The District Court noted that AIS had not given any indication that it would not enforce the non-solicitation covenant in his agreement.  Therefore, Mr. Moorad would suffer irreferrable harm if not granted an injunction on that covenant.

The District Court also found that he was entitled to an injunction on the non-competition covenant.  The District Court found that AIS’ representations that it was not currently seeking to enforce the non-competition agreement left Mr. Moorad subject to AIS changing its mind and deciding to enforce that covenant.  In light of the fact that the non-competition covenant is facially unenforceable as an illegal restraint of trade, the District Court found that Mr. Moorad was entitled to seek a declaration to void it and an injunction making clear that AIS could not enforce it.  The District Court, therefore, entered an injunction barring AIS from enforcing the restrictive covenants against Mr. Moorad in Georgia.