Source: https://www.floridabar.org/the-florida-bar-journal/outrunning-contractual-noncompete-undertakings-does-the-11th-circuits-palmer-cay-decision-offer-earlybird-specials-for-florida-forum-shoppers/
Timestamp: 2019-04-23 22:44:39+00:00

Document:
Outrunning Contractual Noncompete Undertakings: Does the 11th Circuit’s Palmer & Cay Decision Offer “Earlybird Specials” for Florida Forum Shoppers?
In Palmer & Cay, Inc. v. Marsh & McLennan Companies, 404 F. 3d 1297 (11th Cir. 2005), a panel of the 11th Circuit Court of Appeals held that Georgia’s public policy narrowly restricting enforcement of otherwise valid noncompete agreements could ostensibly trump the public policy of other states with more significant contacts, solely because the former employee moved to Georgia and filed suit in Georgia. Although Palmer & Cay involved a conflict between Georgia law and New York/Illinois law, the court’s express reliance on a case involving parallel noncompete litigation in Florida and Georgia courts left no doubt as to the decision’s important implications for Florida attorneys and their clients litigating noncompete cases. Under the apparently sweeping holding of Palmer & Cay, a Florida employer who entered into a non-compete, valid under F. S. §542.335, with an employee living and working in Florida, could potentially be precluded from enforcing that contract in Florida, by the decision of a Georgia state or federal court having no prior connection to employer, the employee, or the contract.
In addition to the apparent inequity of the Palmer & Cay holding, it appears irreconcilable with prior decisions of another 11th Circuit panel, Keener v. Convergys, 312 F.3d 1235 (11th Cir. 2002), and a Georgia appellate court decision, Hostetter v. Answerthink, 599 S.E. 2d 271 (Ga. App. 2004), though Palmer & Cay purports to follow both decisions . This article suggests that all three decisions can be reconciled, and Palmer & Cay’s apparent overbreadth limited, by positing that a hypothetical Florida court determining the preclusive effect of a prior judgment of the Georgia state or federal courts would follow Cerniglia v. C&D Farms, Inc., 203 So. 2d 1 (Fla. 1967). Cerniglia observes a distinction between noncompete agreements that are governed for all purposes by Georgia law, and therefore unenforceable anywhere, and those that are minimally connected to Georgia and therefore unenforceable only by Georgia courts in Georgia. Moreover, this is consistent with the Palmer & Cay recognition that the preclusive effect of a Georgia declaratory judgment in Florida, although governed by Georgia law, will be determined by the Florida court’s interpretation and application of that law.
Keener signed a noncompete, while he was working for Convergys in Ohio and the agreement provided for application of Ohio law. After five years, Keener resigned from Convergys, moved to Georgia, and became employed by a Convergys’ competitor in Georgia. When Convergys learned of Keener’s competitive activities, it notified his new employer of the noncompete and the new employer terminated Keener.
Answering this question in the negative, the Georgia Supreme Court held Georgia would apply its statutory public policy, limiting enforcement of noncompete agreements, upon a mere finding that “there were significant contacts with the State of Georgia, such that the choice of our law was neither arbitrary nor constitutionally impermissible.”7 Nevertheless, in a concurrence, three justices expressed their constraint to follow the Georgia statute and urged the legislature to adopt the Restatement rule instead as more consistent with the “prime objectives of contract law” and the “justified expectations of the parties.”8 Answering only the certified question on choice of law, the Georgia Supreme Court offered no insight on the proper scope of remedies in such cases.
Indeed, Keener II further limited the injunction, or at least suggested grounds to modify it, by concluding that enjoining enforcement of the noncompete in Georgia was proper “while Keener remains a resident of Georgia.”12 Thus, while both the Georgia Supreme Court and the 11th Circuit panel expressed reluctance to even apply Georgia law to Keener’s noncompete, the 11th Circuit clearly proscribed any extension of Georgia’s public policy beyond its borders, at least until Palmer & Cay.
For this reason, Palmer & Cay recognizes that the rendering court is not ordinarily called upon to prescribe the intended preclusive effect of its judgments. Neither Semtek, nor any other federal case cited by Palmer & Cay, addresses the question of what scope the rendering court should attempt to give its judgment. Nevertheless, instead of returning to Keener, or properly leaving the issue to an enforcing court (such as the acknowledged, parallel litigation in Michigan), the Palmer & Cay panel plows ahead and uproots the previously discounted decision of an intermediate Georgia court: Hostetler.32 Based largely on Hostetler, Palmer & Cay holds that the district court erred in attempting to constrain the effect of its declaratory judgment to Georgia. Palmer & Cay does not say that the district court should adopt the “anywhere in the world” language rejected in Keener, only that it should not limit its judgment to Georgia.
Consistent with Cerniglia’s constitutional dichotomy, as the facts in Keener established only the minimal contacts with Georgia necessary to meet the “neither arbitrary nor constitutionally impermissible” standard, Keener II limited its vindication of Georgia public policy to prohibiting enforcement of the noncompete only in Georgia. That is, enforcement in Georgia was against public policy but the existence of the contract (in Ohio) was not. Likewise, in Hostetler, where the facts established Georgia had a “materially greater interest,” Cerniglia, as well as Georgia’s lex loci contractus rule, justify a broader finding that the noncompete was not merely unenforceable in Georgia, but was void when made in Georgia, and thus unenforceable anywhere.
Does Palmer & Cay necessarily upset this dichotomy? There is reason to argue that the decision recognizes, or at least does not conflict with, the Cerniglia analysis. First, Palmer & Cay recognized that a rendering court [presumably including one in Georgia] should not endeavor to determine the extraterritorial effect of its own judgments. Second, the Palmer & Cay panel did not disapprove of the district court’s refusal to interfere in MMC’s ongoing enforcement efforts in Michigan, implicitly leaving that decision to the enforcing court in Michigan. Finally, Palmer & Cay did not direct the lower court to enter a new declaratory judgment expressly extending its effect to courts outside Georgia, but only directed that the offending limitation to Georgia, be eliminated. Thus, Palmer & Cay could be read as merely holding that declaratory judgments ought not to include any jurisdictional prescriptions or proscriptions, properly leaving this task to enforcing courts under full faith and credit jurisprudence or federal common law. This interpretation adheres to precedents, constitutional mandates and a sense of relative balance among the interests of the relevant jurisdictions.
Unless and until a more definitive rule is laid down following Cerniglia or otherwise, Florida employers will want to take some practical steps before and after litigation commences to minimize the potential unpredictability engendered in the Palmer & Cay apparent holding favoring fleeing forum shoppers. Employees can more easily relocate if their former territories include states like Georgia, or if their job could be performed primarily by telephone or Internet from any state. A Florida employer with operations including or near Georgia should consider the likelihood of such relocations and draft its non-compete provisions with an eye toward enforceability in Georgia or other relevant jurisdictions.
Employers should carefully examine their contracts to make sure that they include useful forum selection, consent to jurisdiction, and choice of law provisions. Obviously MMC erred, in hindsight, in waiving venue and its New York forum selection clause.
Employers often send “cease and desist” letters prior to an enforcement action. Now, prolonged letter writing may just incite a former employee to rush to the courthouse to obtain a declaratory judgment in a more favorable jurisdiction. Litigants must also balance the merits of a forum where jurisdiction is easily obtained and where docket pressures allow a quick hearing on a temporary restraining order (TRO), against the importance of a forum applying favorable law. Employers may face multiple lawsuits, progressing in different forums. Litigation strategy must recognize that it is not the first court that enters a TRO or preliminary injunction, but the first to enter a final judgment that will have its judgment followed in other jurisdictions.36 Consequently, Florida employers may be compelled to aggressively resist declaratory judgment actions in unfriendly forums until a final judgment can be obtained from a Florida court more willing to enforce noncompete agreements or at least apply the parties’ contractual choice of law provisions. Conversely, Florida employees and their new employers seeking to help a new employee avoid the enforcement of an NCA will quickly investigate whether a declaratory judgment may be pursued in multiple jurisdictions and whether a non-Florida jurisdiction is more hostile to the noncompete agreement at issue.
1 The facts are set forth in the 11th Circuit’s initial opinion (Keener I) 312 F.3d 1236 (11th Cir. 2002).
2 205 F. Supp. 2d 1374, 1378.
4 The term “public policy” has been described as a “very unruly horse, and when once you get astride it, you never know where it will carry you.” M&R Investments, Co., Inc., v. Hacker, 511 So. 2d 1099, at n.1 (Fla. 5th D.C.A. 1987), quoting Story, et al., v. First National Bank and Trust Co., 115 Fla. 436, 156 So. 101 (1934).
6 312 F. 3d 1236, 1241.
7 528 S.E. 2d 84, 85, citing Allstate Ins. Co. v. Hague, 499 U.S. 302 (1981).
8 528 S.E. 2d at 87-88.
9 342 F. 3d 1262 at 1268 & n.2.
10 Id. at 1268, citing Keener, 205 F.Supp 2d at 1382.
11 342 F. 3d at 1269.
13 Hostetler v. Answerthink, Inc., 599 S.E. 2d 271 (Ga. App. 2004).
14 599 S.E. 2d 273-74.
15 In like circumstances, a federal district court sitting in Georgia would be barred from enjoining an ongoing action in Florida. See Bennett v. Medtronic, Inc., 285 F. 3d 801; 2002 U.S. App. LEXIS 4996 (9th Cir. 2002)(anti-injunction act bars federal court from enjoining ongoing state court proceedings to enforce noncompete).
16 599 S. E. 2d at 275.
17 404 F. 3d 1297, 1299.
20 2003 WL 24096162 (S.D. Ga. Nov. 11, 2003).
21 404 F. 3d at 1302.
22 Although other issues, not identified in the opinions, apparently remained to be resolved, the district court granted MMC’s request to authorize an immediate, interlocutory appeal pursuant to Fed. R. Civ. P. 54(b).
23 404 F. 3d at 1299.
24 Id. at 1303-1307. The court remanded that portion of the district court’s decision for development of a factual record and determination of whether Meathe’s 1997 noncompete was enforceable, to some extent, as ancillary to the sale of the business, despite its facial overbreadth. Thus, the issue of whether MMC could prevent Meathe from competing, in Georgia or elsewhere, even under Georgia law, remained an open question.
25 Id. at 1307 & n. 16.
28 404 F. 3d at 1309.
31 404 F. 3d at 1310, quoting Thomas v. Washington Gas Light Co., 448 U.S. 261, 270 & 272 (1980).
32 404 F. 3d at 1310.
34 Holderness v. Hamilton Fire Ins. Co. of New York, 54 F. Supp. 145 (S.D.Fla. 1944)(When a contract right is obnoxious to public policy of a state, courts thereof may withhold their aid in affirmative enforcement of performance of contract in such state. They do not thereby deprive a party of such right, but simply remit him to forum wherein right is consistent with public policy).
35 Griffin v. Mc Coach, 313 U.S. 498 (1941).
36 See Hulcher Servs., Inc. v. R.J. Corman R.R. Co., 247 Ga. App. 486, 489, 543 S.E.2d 461, 464 (Ga. Ct. App. 2000) (holding that not first injunction, but final adjudication of the merits is entitled to res judicata and collateral estoppel).
Courtney B. Wilson is the senior shareholder in Littler Mendelson’s Miami office. He received his J.D. from the University of Florida in 1986.
Donald W. Benson is a senior litigator in the Atlanta office of Littler Mendelson P.C. He received his J.D. in 1984 from the University of Utah.

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