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CMGRP, Inc. v. Gallant

Court of Appeals of Georgia, Fourth Division

October 4, 2017

CMGRP, INC.
v.
GALLANT, et al.

          DILLARD, C. J., RAY, P. J., and SELF, J.

          Dillard, Chief Judge.

         CMGRP, Inc. appeals the trial court's declaratory judgment, which invalidated certain restrictive covenants in its employment agreement with Maggie Gallant, one of its former employees. On appeal, CMGRP argues that the trial court erred to the extent it found that the non-recruitment provision in the agreement is invalid because (1) it does not contain a geographic limitation; (2) it is not limited to the recruitment of CMGRP employees with whom Gallant had an established relationship; or (3) the admittedly void customer non-solicitation provision renders all other restrictive covenants in the agreement unenforceable. For the reasons set forth infra, we affirm, in part, and reverse, in part.

          The underlying facts necessary to decide this appeal are undisputed.[1] On October 1, 2008, Gallant became an employee of Rogers & Cowan (R&C), which is a "unit" of CMGRP. As a requirement of her employment, Gallant signed an employment agreement, which was executed by Gallant and R&C on October 7, 2008. The agreement contained certain restrictive covenants, detailed infra, that precluded Gallant from recruiting R&C employees and soliciting its clients or prospective clients for one year after her term of employment ended. After several years with the company, Gallant resigned from her position at R&C, effective December 4, 2015. Subsequently, Gallant accepted an offer of employment with the Agency for the Performing Arts, Inc. (the "APA").

         On January 11, 2016, an attorney for R&C sent Gallant a cease-and-desist letter, highlighting the restrictive covenants contained in the agreement that "survive[d] the termination of [her] employment with R&C." The attorney noted, inter alia, that, under the agreement, Gallant was prohibited from soliciting clients or prospective clients of R&C and from recruiting or hiring any employee of R&C for a period of one year following her resignation. According to the letter, R&C had learned that Gallant "appear[ed] to have been actively involved in recruiting other R&C employees to join [her] at [the] APA and may have engaged in improper solicitation of R&C clients or prospective clients." Specifically, the attorney explained that five R&C employees with whom Gallant worked closely tendered their resignations shortly after Gallant announced her own, and R&C believed that some or all of those employees had since become employed at the APA or planned to do so shortly. Additionally, R&C's attorney contended that a review of company emails strongly suggested that, around the time of her resignation, Gallant was in active contact with R&C clients in attempt to solicit them to do business with the APA or to cease doing business with R&C. Given this alleged conduct, R&C demanded that Gallant cease and desist engaging in any additional conduct that violated the restrictive covenants in the agreement.

         On January 25, 2016, Gallant and the APA filed a petition for a declaratory judgment against CMGRP (d/b/a R&C) in the Superior Court of Fulton County, seeking a declaration as to the legal effect of certain restrictive covenants in Gallant's employment agreement.[2] But instead of filing an answer, CMGRP filed a notice, removing the case to the United States District Court for the Northern District of Georgia based on diversity jurisdiction. Gallant and the APA then filed a motion in federal court to remand the case to the Fulton County Superior Court because, although diversity of citizenship existed among the parties, CMGRP failed to establish that the relief sought by Gallant and the APA exceeded the jurisdictional threshold amount of $75, 000. The district court granted the motion, and remanded the case to the superior court.

         Thereafter, Gallant and the APA filed a renewed motion for a declaratory judgment, seeking, in relevant part, a declaration that Section 7.05 (a) of the agreement, which precluded Gallant from recruiting or hiring R&C employees (the "non-recruitment provision"), and Section 7.05 (b), which precluded Gallant from soliciting R&C clients or potential clients (the "non-solicitation provision"), were overbroad and unenforceable. CMGRP filed an answer, opposing the motion for a declaratory judgment, and asserting numerous counterclaims against Gallant and the APA.[3] Following a hearing on the matter, the trial court, in a somewhat conclusory order, granted Gallant and the APA's petition for a declaratory judgment, declaring, inter alia, that Section 7.05 of the agreement, which contained the non-solicitation and non-recruitment provisions, was void and unenforceable. In its order, the trial court cited no legal authority to support the foregoing declaration and did not provide the bases for its conclusion.[4] This appeal by CMGRP follows.

         1. As an initial matter, Gallant[5] argues that the declaratory judgment should be affirmed because CMGRP "tendered no evidence" to show that the employee non-recruitment provision in Section 7.05 (a) of the agreement was "reasonably necessary to protect a legitimate business interest."[6] And although the trial court did not address this issue, Gallant notes that this Court can affirm the trial court's judgment if it is right for any reason.[7] But our right-for-any-reason rule applies only when "the movant raised the issue in the trial court and the nonmovant had a fair opportunity to respond."[8] Here, at the hearing on Gallant's motion for a declaratory judgment, she never contended that CMGRP was required to present evidence to show that the non-recruitment provision in her employment contract was reasonably necessary to protect a legitimate business interest. Instead, she argued that whether the provision was enforceable was a "judicial question" that the trial court must make after reviewing the contract. And because she failed to raise the issue of CMGRP's failure to present evidence below, we will not consider it for the first time on appeal.[9] Moreover, any presentation of evidence by CMGRP (other than the employment contract itself) would have been irrelevant because, as acknowledged by Gallant below, "[w]hether the restraint imposed by [an] employment contract is reasonable is a question of law for determination by the court . . . ."[10]

         2. CMGRP argues that the trial court erred to the extent that it found that the non-recruitment provision is void because it lacked a geographic limitation or because it was not limited to the recruitment of employees with whom Gallant had an established relationship (an "employee-relationship limitation").

         We begin by reiterating that whether "the restraints imposed by a restrictive covenant are reasonable is a question of law for determination by the court."[11] And generally, we have held that employee non-recruitment provisions must be both reasonably limited in time, as well as not so vague or ambiguous as to be unenforceable.[12] Here, the employee non-recruitment provision in the agreement provides:

7.05 During the period from the [date of the agreement] through and for a period of one (1) year following the termination of Employee's employment hereunder for any reason, the Employee shall not:
(a) directly or indirectly (i) solicit any employee of the Company to leave such employ to enter the employ of Employee or of any person, firm, or corporation with which the Employee is then associated, or (ii) induce or encourage any such employee of the Company to leave the employment of the Company or to join any other company, or (iii) hire any such employee of the Company, or (iv) otherwise interfere with the relationship between the Company and any employee of the Company . . . .

         With these legal principles and contract provisions in mind, we turn now to CMGRP's specific claims of error.

         (a) Geographic Limitation

         Although the brief in support of Gallant's motion for a declaratory judgment specifically discussed the absence of a geographical limitation in the non-recruitment provision, she now contends that she never argued that "an employee restriction was void absent a territorial restriction." Regardless, the hearing transcript establishes that the trial court considered only Gallant's argument that the provision was overbroad because it was not limited to the recruitment of employees with whom she had an established relationship. Specifically, when CMGRP began to address the issue of a geographic limitation, the court interjected, stating that it never heard Gallant mention a geographic limitation, and clarified that her concern was with the lack of an employee-relationship limitation. When CMGRP further explained that the geographic-limitation issue had been raised in Gallant's briefs, the trial court posited that she had abandoned that issue and instructed CMGRP to "stick to the issue that [she had] raised." Subsequently, Gallant confirmed that she did not believe that a non-recruitment provision must always contain a geographic limitation, but that absent such a limitation, the provision must be limited to the recruitment of employees with whom she had "material contact."

         As previously mentioned, issues not raised at trial "will not be considered for the first time on appeal."[13] Appellate courts are courts for the correction of errors of law made by the trial courts, and "an error of law has as its basis a specific ruling made by the trial court."[14] And while the trial court did not detail its conclusions of law in the declaratory judgment, the court made clear at the hearing that it did not believe that the lack of a geographic limitation in the non-recruitment provision was at issue. Nevertheless, it is worth noting that this Court has upheld employee non-recruitment provisions that lacked a geographic limitation.[15]

         (b) Employee-Relationship Limitation.

         We have repeatedly upheld employee non-recruitment provisions that were not limited to employees with whom the former employee had an established relationship. For example, in Palmer & Cay of Georgia, Inc. v. Lockton Companies, Inc.[16] this Court rejected the appellants' claim that an employee non-recruitment covenant was overbroad because it prohibited solicitation of employees that they had never met and prohibited encouraging employees to leave regardless of the reason.[17] The covenant in that case mandated that for two years after the employee's employment ended, "the [e]mployee will not, directly or indirectly, attempt in any manner to cause or otherwise encourage any employee of the Company to leave the employ of such corporation."[18] In upholding this restrictive covenant as valid, we explained that "there are numerous cases upholding covenants with similar language."[19]Furthermore, we noted that the appellants had cited no case law in support of their argument regarding the lack of an employee-relationship limitation, and we found none.[20]

          Additionally, in Lane v. Taylor, [21] we upheld a similar employee non-recruitment provision that stated that the employee would not "hire or attempt to hire for another employer any employee of Employer or directly or indirectly cause any such employee to leave his employment in order to work for another."[22] Indeed, we explained that the covenant was "not too broad in its scope to sustain a finding that it was needed to protect legitimate business interests."[23] Additionally, similar language was found to be permissible in both scope and duration in Sanford[24] and Parker[25] (which is one of the cases that cites Lane for support).[26] In another case, we upheld an employee non-recruitment provision, which prohibited the former employee from "contacting or encouraging another to contact any person who is, at that time, and was, during the term of this Agreement, an employee, agent or contractor of [the employer] in a managerial, sales, representative or skilled capacity for the purpose or with the intent of enticing him or her away from the employ of [the employer] for any reason" for a period of one year.[27] And while this non-recruitment provision limited the types of employees that could not be recruited, it made no reference whatsoever to whether those employees had an established relationship with the former employee at issue.

         Rather than reasserting the argument that she made below (i.e., that a non-recruitment provision without an employee-relationship limitation is void and unenforceable), Gallant asserts that CMGRP's "sophistic exegesis on this Court's application of restrictive covenant law to employee contacts . . . is, in the end, a distraction." She essentially maintains that CMGRP's argument on appeal is without consequence because it failed to present evidence to the trial court justifying the employee-recruitment restriction "in the context of [R&C's] business and Gallant's role in it." But we have already considered and rejected that argument in Division 1 supra.

         Lastly, we acknowledge that, as noted by Gallant, this Court, in Hulcher Services, Inc. v. R. J. Corman Railroad, Co., LLC, [28] stated that "restrictions on solicitation of [the employer's] clients or employment of its employees" was unreasonable, at least in part, because the employee "had no contact with customers or employees outside his work area sufficient to establish a relationship with them."[29]But significantly, the only restrictive covenant at issue in that case was a non-compete provision that prevented the former employee from working for a competitor of the employer for three years in five specific states in any capacity.[30] Thus, the additional language regarding a restriction on "the employment of its employees" was nothing more than "obiter dicta lacking the force of an adjudication" because it was a statement that was "not necessarily involved nor essential to determination of the case in hand."[31] And as the Supreme Court of the United States has aptly noted, "we are not bound to follow our dicta in a prior case [when] the point now at issue was not fully debated."[32] In sum, given the numerous cases in which we have upheld non- recruitment provisions similar to the one at issue in this case, the trial court erred in finding that it was overbroad and unenforceable.[33]

         3. Lastly, CMGRP argues that the trial court erred to the extent it found that the non-recruitment provision in the agreement is void because the customer non-solicitation ...


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