Court Opinion

ID: 49908
Source: CourtListenerOpinion
Date Created: 2010-04-26 00:40:01+00
Date Added: 2024-06-11T17:18:44.145069
License: Public Domain

[DO NOT PUBLISH]

            IN THE UNITED STATES COURT OF APPEALS

                       FOR THE ELEVENTH CIRCUIT
                                                                             FILED
                       ------------------------------------------- U.S. COURT OF APPEALS
                                                                     ELEVENTH CIRCUIT
                                    No. 05-16722                         August 29, 2006
                              Non-Argument Calendar                   THOMAS K. KAHN
                      --------------------------------------------          CLERK

                     D.C. Docket No. 04-03199-CV-CC-1

JOSEPH SIECH,

                                                       Plaintiff-Appellee,

                                        versus

HOBBS GROUP, LLC,
HIB, ROGAL AND HOBBS COMPANY,

                                                       Defendants-Appellants.

            ----------------------------------------------------------------
                 Appeal from the United States District Court
                      for the Northern District of Georgia
            ----------------------------------------------------------------

                                (August 29, 2006)

Before EDMONDSON, Chief Judge, CARNES and PRYOR, Circuit Judges.

PER CURIAM:
      Plaintiff-Appellee Joseph Siech sued his former employer Hobbs Group

LLC (“Hobbs”) and Hobbs’s parent corporation Hilb, Rogal and Hobbs Company

(“HRH”) seeking (i) a declaratory judgment that the nonsolicitation and

nondisclosure clauses (the “restrictive covenants”) in an Employment, Non-

Solicitation and Confidentiality Agreement that he signed in 1997 with Hobbs (the

“Employment Agreement”) are unenforceable as a matter of law; and (ii) an

injunction prohibiting Hobbs and HRH from attempting to enforce the restrictive

covenants. Defendants-Appellants Hobbs and HRH appeal the district court’s

determination that the restrictive covenants are unenforceable as a matter of law,

and the grant of summary judgment in favor of Siech. No reversible error has

been shown; we affirm.

      Siech was employed as a commercial insurance agent by Hobbs when, on 22

October 1997, Siech executed the Employment Agreement with Hobbs. Around

the time that Siech executed the Employment Agreement, management of Hobbs

bought Hobbs from its then parent company, Arkwright Mutual Insurance

Company (the “Management Buyout”). When the Management Buyout closed,

Siech owned shares of Hobbs. On 1 July 2002, almost five years after Siech

executed the Employment Agreement, HRH purchased all interests in Hobbs. On

1 November 2004, HRH terminated Siech’s employment.

                                         2
           Applying Georgia law,1 the district court determined the restrictive

covenants in the Employment Agreement were subject to strict scrutiny and were

unenforceable. Indeed, as the district court noted aptly, we have already

considered this same form agreement between the same defendants and other

employees, applied strict scrutiny and concluded that the covenants were

overbroad and unenforceable under Georgia law. See MacGinnitie v. Hobbs

Group, LLC, 420 F.3d 1234, 1241 (11th Cir. 2005).

           Defendants contend that, had they had the opportunity to conduct further

discovery, they may have been able to gather facts that would support their

argument that “sale of business” scrutiny should apply. According to Defendants,

Siech signed the Employment Agreement in connection with the Management

Buyout.2 Because Georgia law subjects restrictive covenants that are ancillary to

the sale of a business to a lesser scrutiny, Defendants argue the Employment

Agreement may be blue-penciled or reformed so as to be enforceable.

   1
    The Employment Agreement provided that Connecticut law would apply. We see no error in
the district court’s conclusion that Georgia courts would apply Georgia law to the issue of the
enforceability of the restrictive covenants. See Nasco Inc. v. Gambit, 238 S.E.2d 368, 369 (Ga.
1977); Jenkins Brick Co. v. Bremer, 321 F.3d 1366, 1369-70 (11th Cir. 2003).
       2
      MacGinnitie rejected sale of business scrutiny based on the 2002 purchase by HRH; it is
controlling on that issue. Defendants argue that Siech -- unlike the employee in MacGinnitie --
participated in the Management Buyout. Based on Siech’s 1997 purchase, Defendants seek to trigger
sale of business scrutiny.

                                               3
       Defendants argue correctly that “[u]nder Georgia law, the level of scrutiny

applied to a covenant not to compete depends on whether it is ancillary to the sale

of a business or ancillary to employment.” Palmer & Cay, Inc. v. Marsh &

McLennan Companies, Inc., 404 F.3d 1297, 1303 (11th Cir. 2005). A covenant

ancillary to the sale of a business is subjected to a low level of scrutiny and may be

blue-penciled or reformed to bring it into conformance with Georgia law. See id.

This low level of scrutiny recognizes that the purchase price paid by the buyer

includes a component for the seller’s covenant not to compete. See White v.

Fletcher/Mayo/Assocs., Inc., 303 S.E.2d 746, 749 (Ga. 1983). A covenant

ancillary to employment, however, is subject to strict scrutiny under Georgia law;

Georgia courts allow no reformation or blue-penciling of a covenant ancillary to

employment agreements to allow enforceability of at least some of the otherwise

overbroad covenant. See Palmer & Cay, 404 F.3d at 1303-04.3

       The district court rejected correctly Defendants argument that the covenants

contained in Siech’s Employment Agreement were ancillary to the sale of a

business. To the extent Defendants argue that they were ancillary to the

   3
    Georgia courts have applied an intermediate level of scrutiny to restrictive covenants executed
in the context of professional partnerships. See Palmer& Cay, 404 F.3d at 1303 n.12. Defendants
cite us to no Georgia authority in which this intermediate level of scrutiny was applied to an
employment agreement executed by an insurance agent employee. We decline to extend Georgia
law by applying a lessened level of scrutiny in this non-professional, non-partnership context.

                                                4
Management Buyout, they were executed in connection with Siech’s acquisition

of an interest in the business. To trigger the low level scrutiny applicable to

covenants ancillary to the sale of a business, the covenant under review must be

“made by the seller in conjunction with the sale of a business,” not “by the buyer

in conjunction with the acquisition of an interest in a business.” Redmond v.

Royal Ford, Inc., 261 S.E. 2d 585, 588 (Ga. 1979).4

       The district court concluded correctly that the restrictive covenants were

ancillary to employment and were unenforceable under the strict scrutiny standard

applied by Georgia courts.

       AFFIRMED.

   4
    Because Siech was a buyer in the Management Buyout transaction, the discovery sought by
Defendants is inapposite; no facts about Siech’s bargaining power at the time of the management
buyout could trigger lessened scrutiny in this case. See Palmer & Cay, 404 F.3d at 1306 n.14.

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