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Lowe Electric Supply Co. v. Rexel, Inc.

United States District Court, M.D. Georgia, Macon Division

November 3, 2014

LOWE ELECTRIC SUPPLY COMPANY and EDWARD SPELL, Plaintiffs,
v.
REXEL, INC., f/k/a Summers Group, Inc. and REXEL HOLDINGS USA CORP., Defendant.

ORDER ON MOTION TO DISMISS AND PRELIMINARY INJUCTION

C. ASHLEY ROYAL, District Judge.

This matter is before the Court on Plaintiffs' Motion for Preliminary Injunction; Defendant's Motion to Dismiss; Plaintiffs' Motion to Stay; and Plaintiffs' Motion to Consolidate the Trial on Merits with Hearings on Motion for Preliminary Injunction and a Motion to Stay the Case. For the following reasons Plaintiffs' Motion for Preliminary Injunction [Doc. 5] is GRANTED; Defendant's Motion to Dismiss [Doc. 12] is DENIED; Plaintiffs' Motion to Stay [Doc. 18] is GRANTED; AND Plaintiffs' Motion to Consolidate the Trial on Merits with the Hearing on Motion for Preliminary Injunction and a Motion to Stay the Case [Doc. 11] is DENIED.

BACKGROUND

The present action was instituted by Plaintiffs Edward Spell and Lowe Electric Supply Company ("Lowe") (collectively "Plaintiffs") when they filed a Motion for Preliminary Injunction with this Court on September 22, 2014. Plaintiffs seek to enjoin Defendant Rexel, Inc. ("Rexel") from enforcing restrictive covenants against Mr. Spell that he signed when he was employed with Rexel.

Mr. Spell has been a resident of Hahira, Georgia since 1997. Rexel is an international distributor of lighting and electrical equipment and is a resident of Delaware with its principal place of business in Texas. Lowe is a resident of Georgia with its principal place of business in Macon, Georgia.

Since 2003, Mr. Spell has worked for Rexel as an outside salesman in Rexel's Thomasville, Georgia; Valdosta, Georgia; and Tallahassee, Florida offices. Prior to his resignation, Dothan, Alabama was also added to his sales territory. On January 12, 2011, at his home in Hahira, Mr. Spell signed an employment contract with Rexel that contained a series of restrictive covenants that were comprised of non-compete, non-solicitation, and non-recruit clauses ("2011 Agreement"). In late 2013, early 2014, Mr. Spell began experiencing a series of distribution and personnel issues and became increasingly dissatisfied with his employment at Rexel. In an attempt to show Mr. Spell his value to the company, Rexel sent Mr. Spell a letter agreeing to change his compensation terms from a commission plan to a set base-level salary. Mr. Spell received the letter via email and later signed it, on May 5, 2014 ("2014 Agreement"). The 2014 Agreement "incorporated by reference" the 2011 Agreement.

On September 11, 2014, after becoming frustrated by an interaction he had with a new sales manager, Steve Geuther, Mr. Spell resigned from his position at Rexel. Mr. Spell informed Amy Boutwell, Director of Human Resources for Rexel, that he was resigning. At that time, Mr. Spell asked Ms. Boutwell if Rexel would enforce the restrictive covenants, and she assured him that they would.

After his resignation, Lowe offered Mr. Spell employment. However, it became clear that if Lowe hired Mr. Spell, he would break the restrictive covenants in the 2011 Agreement. Thus, on September 22, 2014, Mr. Spell and Lowe filed a Complaint with the Court seeking a declaratory judgment and injunctive relief. The same day that Plaintiffs filed suit, Mr. Spell received a termination letter from Rexel's legal department, written by in-house-counsel, Jonathan Plotkin. In that letter, Rexel reiterated to Mr. Spell that he was bound by the restrictive covenants in the 2011 Agreement. Three days after Plaintiffs filed suit in this Court, on September 25, 2014, Rexel filed a complaint against Plaintiffs in the circuit court in Leon County, Florida. That case has been removed to the Northern District of Florida, Tallahassee Division ("Florida District Court action").

On October 2, 2014, Plaintiffs filed a Motion for Temporary Restraining Order and Preliminary Injunctive Relief ("Motion for Preliminary Injunction"), and Defendant countered with a Motion to Dismiss or, in the Alternative, Transfer or Stay ("Motion to Dismiss"). Notice was given to both parties and this Court held a hearing on October 20 and 21, where both sides presented evidence and witnesses. After the hearing, the Court gave the parties the opportunity to brief any issues they wanted to further address in support of their various respective Motions. Having received all briefs, the Motions are now ripe for adjudication.

"Old" Georgia Law and the Restrictive Covenant Act

Because it is dispositive to this case whether "old" Georgia or "new" Georgia law applies (i.e., the Georgia Restrictive Covenants Act), the Court finds it necessary to give the following background. Prior to 2011, Georgia law disfavored restrictive covenants, which were considered a partial restraint of trade and against public policy.[1] Under the old Georgia law, courts enforced a restrictive covenant in an employment contract only if "(1) the restraint is reasonable; (2) founded upon valuable consideration; (3) is reasonably necessary to protect the party in whose favor it is imposed; and (4) does not unduly prejudice the interests of the public."[2] Moreover, restrictive covenants were required to be "strictly limited as to time, territorial effect, capacity in which the employee is prohibited from competing, and as to overall reasonableness."[3] Additionally, whether the restraint imposed by the employment contract was reasonable was a question of law to be determined by the court.[4] Where a non-compete or non-solicitation provision was found overbroad, the court was not permitted to "blue-pencil" or sever the offending provisions; instead, if one provision was found overboard, all provisions were required to be invalidated.[5]

In 2011, the law of restrictive covenants changed.[6] The Georgia Restrictive Covenants Act ("the Act") became effective on May 11, 2011.[7] The Act sets up criteria for restrictive covenants that are considered presumptively valid and allows courts to modify or blue-pencil overly broad language.[8] The Act was not meant to be retroactive and does not apply to contracts entered into previous to its effective date.[9]

DISCUSSION

A. MOTION TO DISMISS[10] OR, IN THE ALTERNATIVE, TRANSFER OR STAY

In its Motion to Dismiss, Rexel asks this Court to dismiss the instant action and allow the parties' respective claims to be adjudicated in the subsequently-filed Florida District Court action. In response, Plaintiffs filed a Motion to Stay the Florida District Court action arguing that the "first-filed rule" should apply. Rexel, however, argues that this case gives rise to compelling circumstances that justify an exception to the first-filed rule. Because Plaintiffs first-filed in the Middle District, this Court retains priority over the Florida District Court action and thus Defendant's Motion to Dismiss [Doc. 12] is DENIED, and Plaintiffs' Motion to Stay [Doc. 18] is GRANTED.

1. First-Filed Rule

The Eleventh Circuit has held that "where two actions involving overlapping issues and parties are pending in two federal courts, there is a strong presumption across the federal circuits that favor[] the forum of the first-filed."[11] The United States Supreme Court noted that the discretion granted to a district court in its decision to hear a declaratory action first-filed in their court is "unique and substantial"[12] as well as "equitable in nature."[13] The first-filed rule is considered a "doctrine of federal comity"[14] meant to promote judicial efficiency and avoid wasting judicial resources.[15]

Under the first-filed rule, the entire action should be decided by the court in which the action was originally filed. The first-filed rule, however, is only a presumption, albeit a strong presumption.[16] Therefore, although the first-filed rule should not be "disregarded lightly, " it may be overcome by a showing that "compelling circumstances" warrant an exception.[17] The burden of proving an exception rests with the party objecting to the first-filed forum.[18]

In determining what constitutes "compelling circumstances" necessary to overcome the first-filed rule, the Eleventh Circuit has outlined various equitable factors for a court to consider, such as: where the employee works and lives, where the contract was executed, where the alleged violation of the contract occurred, where the locus of operative facts are, where the majority of the potential witnesses are, what the relative means of the parties are, where the effects of the restrictive covenants will be felt, whether the forum's law should be applied, and, finally, whether an action was in anticipation of litigation.[19]

Rexel bases its Motion to Dismiss on the last factor listed-namely, that this case is an anticipatory filing. Rexel argues that Plaintiffs filed their action with this Court as an improper preemptive strike and "in apparent anticipation" of Rexel's Florida Court action. Rexel relies on the following facts to support its argument: 1. when Mr. Spell informed Amy Boutwell of his resignation, Ms. Boutwell told Mr. Spell that Rexel would enforce the restrictive covenants; 2. the day Mr. Spell filed suit in this Court, September 22, 2014, he received a letter from Rexel reasserting the restrictive covenants in the 2011 Agreement, and Rexel's intent to enforce them; 3. because Lowe and Mr. Spell filed suit previous to Rexel finding out that Mr. Spell accepted employment with Lowe, [20] it was deprived of its "opportunity to file suit on its own behalf."[21]

In response, Mr. Spell states that although Ms. Boutwell told him that the restrictive covenants would be enforced, Rexel did not threaten litigation or specifically tell Mr. Spell that they would file suit.[22] Notably, although Mr. Spell received a letter from Rexel on the day he filed suit, Mr. Spell did not receive that letter until after Plaintiffs' Complaint was filed in this Court.[23] Moreover, Plaintiffs argue that even if they "believed" Rexel would "take legal action, " a possibility of ...


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