Court Opinion

ID: 8986493
Source: CourtListenerOpinion
Date Created: 2022-11-27 11:52:21.690959+00
Date Added: 2024-06-11T17:10:49.165564
License: Public Domain

BIRCH, Circuit Judge,
dissenting:
For the reasons that follow, I respectfully dissent. I am convinced that Associated Materials failed to demonstrate a substantial likelihood of success on the merits. A review of the development of the law applicable to employee restrictive covenants in Georgia as well as a straightforward reading of the 1990 statutory amendments (“Amendments”) compels the conclusion that the courts of Georgia would refuse to enforce the Amendments under the circumstances in this case.
Those Georgia courts presented with the issue of the constitutionality of the Amendments are unanimous in their rejection of efforts to enforce employee restrictive covenants. In Hart v. Jackson & Cocker, *1450Inc., No. 90-5661-3 (Dekalb County, Ga., Super.Ct. Sept. 7, 1990), Dekalb County Superior Court Judge Clarence F. Seeliger held the amendments unconstitutional. That case involved a pre-July 1, 1990 motion for injunctive relief to enforce a covenant not to compete. The employer advanced the Amendments to support its motion; the employee countered by arguing that the Amendments are unconstitutional. Judge Seeliger ruled:
The legislature has created an environment designed to insulate employers from competition and to encourage monopoly. The legislature has no power to provide a new definition of what constitutes an illegal restraint of trade under the Georgia Constitution.
It appearing that the Restrictive Covenant Act violates Article III, Section VI, Paragraph V(c) of the Georgia Constitution, dealing with competition and monopoly, O.C.G.A. § 13-8-2.1 is hereby declared unconstitutional.
Id. at 7. The employer in Hart also raised the issue of retroactive legislation. Having found the Amendments to be unconstitutional, Judge Seeliger declined to reach that issue. An appeal in Hart is pending currently before the Georgia Supreme Court (Case No. S91X0057).
In American Outpatient Servs. Corp. v. Shah, No. 90-A-05501-2 (Gwinnett County, Ga., Super.Ct. Oct. 29, 1990), Judge Homer M. Stark of the Gwinnett County Superior Court refused to apply the Amendments retroactively:
The Court finds that O.C.G.A. § 13-8-2.1 is in fact substantive in nature in that it does impair the obligations of contracts and creates rights, duties and obligations under said contracts. In the present case, if the statute were applied it would take a contract containing a non-competition covenant which was unenforceable and void from the date of signing as against public policy and breath [sic] new life into said covenant by blue-penciling the territorial limitation.... The Court in effect eliminates one party’s vested defense to a void contract and imposes new obligations on that party. For these reasons, the Court finds that O.C.G.A. § 13-8-2.1 is a substantive statute and only may be applied prospectively.
Id. at 5 (citations omitted). On December 13, 1990, Fulton County Superior Court Judge Frank M. Eldridge held many of the specific Amendments unconstitutional in Jackson & Coker, Inc. v. Kepley, No. D-80652 (Fulton County, Ga., Super.Ct.). In Kepley, as in Hart, the employer sought to enforce restrictive covenants against an employee which were in existence prior to July 1, 1990.
In the instant case, the employer, Associated Materials, unilaterally “reformulated” Ferrero’s previously terminated employment contract under the authority of O.C. G.A. § 13-8-2.1(f)(3). This was done through a letter dated July 5, 1990, dispatched to Ferrero after his resignation effective April 15, 1990, and after the initiation by Ferrero of a declaratory judgment action. That action was filed in Fulton County Superior Court on April 18, 1990 and sought invalidation of the employment contract and an injunction against its enforcement.
From a review of the employment contract challenged by Ferrero, it is clear beyond peradventure, as conceded by the majority, that “the 1976 covenant not to compete was completely unenforceable under Georgia common law, prior to the passage of the statute.” Majority opinion at 1445. In those situations where the Georgia courts found restrictive covenants in employment contracts violative of the common law relative to “capacity” and “territory,” the courts have declared the entire contract void. Richard P. Rita Personnel Services Int’l, Inc. v. Kot, 229 Ga. 314, 191 S.E.2d 79 (1972); Barrett-Walls, Inc. v. T. V. Venture, Inc., 242 Ga. 816, 819, 251 S.E.2d 558, 561 (1979) (“This provision of the covenant [not to compete] is overly broad and uncertain, rendering the entire covenant void on public policy grounds.”); Owens v. RMA Sales, Inc., 183 Ga.App. 340, 341, 358 S.E.2d 897, 899 (1987) (Fact that restrictive covenant in employment contract “is clearly not limited in territorial effect ... thereby renders the entire contract illegal.”); Jarrett v. Hamilton, 179 Ga.App. 422, 423, 346 S.E.2d 875, 876 (1986) (“[I]f any one of *1451the non-competition clauses is unenforceable because of indefiniteness, overbreadth, or unreasonableness, then the whole agreement must fail.”); Broome v. Ginsberg, 159 Ga.App. 202, 203, 283 S.E.2d 1, 2 (1981) (“When the [employment] contract involves the practice of a profession, it will be held void if it needlessly oppresses one of the parties_”). As defined in Black’s Law Dictionary:
The word “void,” in its strictest sense, means that which has no force and effect, is without legal efficacy, is incapable of being enforced by law, or has no legal or binding force....
Black’s Law Dictionary 1573 (6th ed. 1990) (emphasis added) (citing Hardison v. Gledhill, 72 Ga.App. 432, 436, 33 S.E.2d 921, 924 (1945)).
In order for Associated Materials to enjoy a likelihood of success on the merits in this case, it must demonstrate that the portion of the Amendments which speaks to retroactive “reformulation,” O.C.G.A. § 13-8-2.1(f)(3), is applicable to Ferrero’s situation. I suggest that they cannot. The unequivocal language of the statute when read in harmony with the law of Georgia mandates this conclusion.
The Bill of Rights of the Constitution of the State of Georgia, art. I, § 1, para. 10 provides:
No bill of attainder, ex post facto law, retroactive law, or laws impairing the obligation of contract or making irrevocable grant of special privileges or immunities shall be passed.
This provision of the former colony is consistent with article I, section 10 [“Restrictions upon Powers of States”] of the Constitution of the United States which provides:
No State shall ... pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts ....
U.S. Const, art. I, § 10, para 1.
Consonant with these constitutional mandates, the Georgia statutory law addressing the enactment of laws and statutes specifically addresses the type of legislation which these Amendments represent. That statute states:
Laws prescribe only for the future; they cannot impair the obligation of contracts nor, ordinarily, have a retrospective operation. Laws looking only to the remedy or mode of trial may apply to contracts, rights, and offenses entered into, accrued, or committed prior to their passage; but in every case a reasonable time subsequent to the passage of the law should be allowed for the citizen to enforce his contract or to protect his right.
O.C.G.A. § 1-3-5 (emphasis added). As emphasized above, Ferrero terminated his employment and commenced a declaratory judgment action ostensibly to “protect his right” to be free from the in terrorem effect of the employment agreement existing at that time. Since the Amendments were passed by the Georgia legislature during the 1990 session and were to become effective on July 1, 1990, it appears that Ferrero timely acted to enforce his right to be free of what the Georgia courts consistently had found to be an unreasonable and unenforceable restraint, contracts which the Georgia courts characterized as void ab initio.
Accordingly, the unique issue presented in the case at bar and not examined in Hart and Kepley, is whether an employee has a protected right to rely upon pre-July 1, 1990 law to invalidate a pre-July 1, 1990 contract which imposed an invalid covenant not to compete and arose out of an employment relationship which had terminated. Both the Amendments and previously existing law answer that question in the affirmative.
The Georgia statute relied upon by Associated Materials, provides as follows:
In the interest of reducing or eliminating any unclear or overbroad aspect of the restraint, the persons or entities that benefit from any existing restraint may provide the persons or entities bound by such restraint with a clarification or reformulation of the restraint, whether or not the clarification or reformulation was requested, so long as it is no broader than the terms of the original restraint. Any clarification or reformulation on lesser terms so provided by the persons *1452or entities that benefit from the restraint shall supersede any conflicting terms of the restraint and be binding regardless of whether additional consideration is provided. The person or entity bound by the restraint may rely absolutely on such clarification or reformulation in complying with the terms of such restraint.
O.C.G.A. § 13-8-2.1(f)(3) (emphasis added). The key, operative and explicit language pertinent to our present inquiry is emphasized above. The legislature’s clear mandate that retroactive reformulation should be applicable only in the case of “existing restraints” by which persons are “bound” is entirely consonant with the Georgia Constitution and in harmony with Georgia precedent. The contract which Associated Materials sought to reformulate unilaterally, after Ferrero had terminated his employment and sought a declaratory judgment of invalidity, was void. Hence, that contract was without “binding” force or effect. “Bound,” as defined in Black’s Law Dictionary, means:
As an adjective, denotes the condition of being constrained by the obligations of a bond, contract, covenant, or other moral or legal obligation.
Black’s Law Dictionary 186 (6th ed.1990) (emphasis in original). Simply stated, where one is party to a void contract, he is not “bound” by it; it represents no “existing restraint” upon his conduct.
This interpretation also is consistent with existing Georgia precedent. In a leading case in Georgia involving the effect of a newly enacted statute’s application to preexisting vested rights, the Supreme Court of Georgia held:
While the recent act of the General Assembly ... amending Code, § 3-108, was apparently enacted to permit a beneficiary under a contract between other parties to recover, yet it could be given no effect in this case. To do so, would violate the provisions of the United States Constitution ... and the State Constitution ... as to impairing the obligations of contracts. It would be creating a right for one to recover under an existing contract where he previously had no such right; and at the same time subject a party to an existing contract to liability to a third person who previously had no right under the contract. A vested ground of defense is protected from being destroyed by an act of the legislature.
Guest v. Stone, 206 Ga. 239, 243, 56 S.E.2d 247, 250 (1949), (involving the application of a new statute dealing with survivor rights in bank accounts to a pre-existing account). In Hall v. Synalloy Corp., 540 F.Supp. 263, 271 (S.D.Ga.1982), Judge Anthony A. Alaimo, after affirming that the relationship between an employer and employee under the Workers’ Compensation Act is contractual in nature, found:
Thus, a Georgia Workers’ Compensation law that takes effect after an employment relationship is terminated should not be applied to determine the liability of a party to that relationship since such would constitute an impermissible retrospective application of the law. Accordingly, in the case at bar, [the new statute] does not apply to those plaintiffs who ceased working for [the employer] prior to [the effective date of the new statute]. It also follows that [the new statute] does have an effect on the litigation between [the employer] and those plaintiffs who continued working for it after [the effective date of the new statute]. These latter plaintiffs are held to have embraced that law as part of their contractual relationship with [the employer] and, thus, have waived any “vested rights” they may have acquired before that time.
These decisions are representative of other decisions examining this issue. See Cox v. Schweiker, 684 F.2d 310, 318 (5th Cir. Unit B 1982); Enger v. Erwin, 245 Ga. 753, 267 S.E.2d 25 (1980); Bullard v. Holman, 184 Ga. 788, 792, 193 S.E. 586, 588 (1937); Spengler v. Employers Commercial Union Ins. Co., 131 Ga.App. 443, 206 S.E.2d 693 (1974).
After a strained analysis of the Georgia law relating to retroactivity, the majority concludes that the Amendments are “procedural” and are thus “to be deemed retroactive absent a showing of a contrary legislative intent.” Majority opinion at p. 1446. The reasoning of Judge Stark set out above in Shah, supra, finding the Amendments *1453“substantive” is more persuasive and is bolstered by the discussions in Guest and Hall. As demonstrated above, the language used in the Amendments section governing retroactive reformulation of contracts clearly indicates the legislative intent with regard to the type of contracts which may be reformulated; that is, those in which employees are “bound ” by “existing restraints.” The majority relies upon the language of the second “section 2” appearing at the close of the Amendments which announces that the Act shall apply to all remedies sought or granted after the effective date of the law (July 1, 1990). However, this analysis begs the question. Without an existing antecedent right (that is, a contract by which the employee is bound), the employer has no correlative remedy to enforce.
Finally, the majority suggests that a reading of the Amendments in their entirety, against the historical backdrop of “traditional[ ] hostility]” towards covenants restricting competition, leads to the conclusion that “the legislature intended to save the covenants that would previously have been unenforceable.” Majority opinion at 1447. However, that traditional hostility to the use of anticompetitive covenants for their in terrorem effect argues eloquently against the majority’s conclusion. See Howard Schultz & Assocs. of the Southeast, Inc. v. Broniec, 239 Ga. 181, 186, 236 S.E.2d 265, 269 (1977). The covenant existing in Ferrero’s contract, as conceded by the majority, was just such a provision.1 It is doubtful that the legislature sought to reward such inequitable conduct by allowing such covenants to be enforced without the employee first being permitted to extricate himself from the “suffocating effect” 2 of such an agreement, as clearly contemplated by O.C.G.A. § 1-3-5.
Furthermore, in light of existing precedent it is unlikely that the Georgia Supreme Court will accept the Amendments “blue pencil” provision which was utilized by the district court in its construction of the reformulated restrictive covenant in Ferrero’s contract. In Rita, the Georgia high court adopted the policy of not editing a covenant not to compete so as to make it lawful. Rather, that court declared such a covenant unenforceable in its entirety. The Georgia Supreme Court was asked in Howard Schultz & Assocs. to re-examine three pre-Rita cases that arguably had applied the blue pencil theory and to overrule Rita. Georgia’s highest court refused and reaffirmed the Rita decision, admonishing:
It is these very requests which are the reason for rejecting severability of employee covenants not to compete. Employers covenant for more than is necessary, hope their employees will thereby be deterred from competing, and rely on the courts to rewrite the agreements so as to make them enforceable if their employees do compete. When courts adopt severability of covenants not to compete, employee competition will be deterred even more than it is at present by these overly broad covenants against competition. We choose to reaffirm Rita Personnel Services v. Kot, supra.
Howard Schultz & Assocs., 239 Ga. at 186, 236 S.E.2d at 269.
A retreat from its current position on this issue by the Georgia Supreme Court is doubtful. The Georgia legislature’s at1 tempt at redefining public policy in light of existing precedent and the express provisions of the Georgia Constitution is unlikely to be embraced by the Georgia Supreme Court with the ardor anticipated by the majority. Article III, section VI, paragraph V(c) of the Constitution of Georgia declares, “The General Assembly shall not have the power to authorize any contract or agreement which may have the effect of or which is intended to have the effect of defeating or lessening competition.... ” Accordingly, it may be anticipated that the *1454Georgia Supreme Court would rule that the body of existing decisions have extended the law of competitive restraint to its constitutional limits and invalidate the legislature’s recent foray outside its boundary of permissible constitutional action.
Under any of the foregoing analyses of the law, Associated Materials is unable to demonstrate a likelihood of success on the merits in this case. Accordingly, I would reverse the decision of the district court.

. The agreement between Ferrero and Associated Materials is two pages in length and consists of one unnumbered paragraph and three numbered paragraphs. The terms of the agreement focus exclusively on what Ferrero was prohibited from doing. Ferrero secured no specific term of employment under the contract, pursuant to which he was essentially an employee at will. The agreement does not even address Ferrero’s compensation. Basically the contract consists entirely of a restrictive covenant.

. Hart v. Jackson & Coker, Inc., supra at 1450.