BFV Perspectives, Noncompete & Trade Secrets, | Nov 18, 2011

Northern District of Georgia Judge Uses the Blue Pencil

As this blog has covered extensively, restrictive covenant law in Georgia recently underwent significant changes.  One of the most notable changes is that Georgia judges can now modify or “blue pencil” overly broad restrictive covenants.

PointeNorth Ins. Group v. Zander, Civil Action No. 1:11-CV -3262-RWS, 2011 WL 4601028 (N.D. Ga. Sept. 30, 2011), is the first published decision that the authors of this blog are aware of in which a judge has used the “blue pencil” to modify a covenant in an agreement governed by the new Restrictive Covenants Act.  Gwendolyn Zander was a licensed insurance broker for Risk Management Continuum, Inc. (“Risk”).  On April 1, 2011, PointeNorth Insurance Group (“PointeNorth”) acquired Risk.  After the acquisition, on May 11, 2011 (which was the same day that House Bill 30 was signed by the Governor and went into effect), Ms. Zander executed her employment agreement.  The agreement contained a post-termination restrictive covenant which, for twenty-four months following the termination of the agreement, prohibited Ms. Zander from soliciting, accepting or attempting to solicit or accept, directly or by assisting others, business from any of PointeNorth’s clients which would be in competition with the products or services offered by PointeNorth, including actively sought prospective clients, with whom Ms. Zander had any contact or who were clients of PointeNorth within the three months immediately preceding termination of the agreement.

Ms. Zander terminated her employment on September 1, 2011.  She then created a new entity and affiliated herself and that entity with a competitor of PointeNorth.  PointeNorth filed an action against her in state court, and Ms. Zander removed the lawsuit to federal court.  PointeNorth then sought to enjoin Ms. Zander from breaching the above non-solicitation covenant, as well as a non-disclosure covenant in her agreement.

In ruling on PointeNorth’s motion for a preliminary injunction, Judge Story found that PointeNorth had demonstrated a substantial likelihood of success on the merits of its claims for breach of the restrictive covenants in her agreement.  Judge Story explained the recent changes to Georgia’s restrictive covenants law and noted that “because the employment agreement which contains the non-solicitation and nondisclosure agreements was signed on May 11, 2011, that agreement is subject to the new legislation which allows this Court to blue pencil any overbroad or otherwise offensive passages.”  Judge Story stated further that “while the Court finds the restrictive covenants overbroad in that they extend to ‘any of the employer’s clients’ – not just the ones with whom Defendant Zander interacted – the Court may remedy that finding by blue penciling the provision to only apply to customers that the Defendant contacted and assisted with insurance.”  Judge Story also found that the other prerequisites for injunctive relief were met, noting in particular that, “based on the recent legislation, Georgia’s public policy now supports the enforcement of restrictive covenants.”

Judge Story therefore granted PointeNorth’s motion for preliminary injunction and ordered that Ms. Zander was enjoined from soliciting any of PointeNorth’s customers with whom she had contact during her employment and from disclosing any confidential information she obtained during her employment.

Interestingly, without expressly stating that he was doing so, in addition to blue penciling the portion of the covenant which was over broad in that it restricted Ms. Zander from soliciting business from clients with whom she had not had material contact, Judge Story also blue penciled the portion of the covenant which restricted her from accepting unsolicitated business.  Such a restriction was unenforceable under the old Georgia law and the new law does not appear to change this rule.  See, e.g., Waldeck v. Curtis 1000, Inc., 261 Ga. App. 590, 583 S.E.2d 266 (2003) (“…. a non-solicitation provision may not contain a bar on the acceptance of business from unsolicited clients”).

As noted above, this decision is the first that the authors are aware of where a judge has used the “blue pencil.”  Notably, given the specific wording of the injunction entered, Judge Story appears to have “re-written” the non-solicitation covenant, rather than “striking” the offensive portions.  The issue of whether the new law authorizes judges only to strike over broad provisions does not appear to have been argued in PointeNorthSee, generally, O.C.G.A. §§ 13-8-53(d); 13-8-54(b); 13-8-51(11).

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BFV Perspectives, Noncompete & Trade Secrets, | Nov 18, 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.