Opinion
CIVIL ACTION NO. 1:21-cv-3874-AT
2022-01-31
Charles BALDWIN, Plaintiff, v. EXPRESS OIL CHANGE, LLC, Defendant.
E. Ray Stanford, Jr., Stanford I.O. Law Group, LLC, Atlanta, GA, for Plaintiff. Claire Elizabeth Fyvolent, Jeffrey A. Schwartz, Jackson Lewis P.C., Atlanta, GA, for Defendant.
E. Ray Stanford, Jr., Stanford I.O. Law Group, LLC, Atlanta, GA, for Plaintiff.
Claire Elizabeth Fyvolent, Jeffrey A. Schwartz, Jackson Lewis P.C., Atlanta, GA, for Defendant.
OPINION AND ORDER
AMY TOTENBERG, UNITED STATES DISTRICT JUDGE
This case arises from a contractual dispute between a national automotive repair business and a long-time employee of its franchises. For most of the past 20 years, Plaintiff Charles Baldwin has worked for two of Defendant Express Oil Change, LLC's ("EOC") franchisees in various capacities, including as a store manager and as a regional manager overseeing multiple stores. Early last year, the franchisees — Adam Fuller and Darrell Lamb — decided to sell their franchises to EOC, and as a component of that sale Baldwin was required to sign a restrictive covenant agreement ("the restrictive covenant" or "the agreement") with EOC. As a result of signing the restrictive covenant, Baldwin received approximately $2 million from the sale of the franchises, but he was also prohibited from competing against EOC and its affiliates in virtually any capacity.
The franchise, Express Oil Change & Tire Engineers, is a full-service automotive repair business with an emphasis on quick oil changes.
Currently pending before the Court is Plaintiff's Motion for Interlocutory Injunction [Doc. 8]. Through that motion, Baldwin, who has since resigned from his position overseeing EOC's franchises, seeks to enjoin EOC from enforcing the restrictive covenant on the ground that the agreement lacks consideration and violates the Georgia Restrictive Covenants Act ("GRCA"), O.C.G.A. § 13-8-50, et seq. EOC counters that it paid a premium to ensure that Baldwin would not compete against EOC and its affiliates, and that the restrictions should be enforced to ensure that EOC retains the benefit of the bargain.
Resolving this dispute is no quick repair job. The matter involves complex business arrangements and somewhat difficult issues of statutory interpretation, as well as legitimate questions about the scope of the Court's equitable authority. Moreover, the parties vigorously dispute how the relevant law should apply to the particular facts in this case, and they have contributed several hours of oral argument and multiple rounds of briefing in support of their respective positions.
Having considered these arguments, the Court GRANTS Baldwin's motion IN PART and enjoins EOC from enforcing the restrictive covenant except to the extent authorized by this Order.
I. Background
A. Baldwin's Work with EOC Franchises
Prior to resigning from his position with EOC, Baldwin had been working in the automotive repair business in various capacities for the past 30 years. (Tr. of Hr'g on Mot. for Prelim. Inj. ("Tr."), Doc. 25 at 43:10–12.) For most of that time, Baldwin had been working for EOC franchises. (Id. at 36:24–37:1.) In the late 1990s, Baldwin began working as a store manager for an EOC franchisee named Adam Fuller. (Id. at 11:18–12:4.) In his capacity as a store manager for Fuller, Baldwin was responsible for the overall operations of that individual store, including hiring, inventorying, and management. (Id. at 12:16–22.) Baldwin continued working as a store manager for Fuller until late 2000 or early 2001 when Fuller closed one of his three stores and acquired six additional ones. At that point, Fuller asked Baldwin to become a regional manager overseeing all eight of Fuller's stores. (Id. at 13:5–14.)
Baldwin is currently in his mid-50s. (Tr. at 99:16.)
As a regional manager, Baldwin acted as a "manager of managers." He trained, coached, and supported other store managers, and assisted them with all aspects of store management. (Id. at 13:20–14:2.) While he was working as a regional manager, Baldwin primarily interacted with store managers; he had little interaction with customers aside from occasionally addressing customer complaints or directing customers to a manager or a technician for assistance. (Id. at 14:21–15:12.) Baldwin also did not have any marketing responsibilities in his role as a regional manager; those responsibilities were instead handled by Fuller. (Id. at 14:5–7, 19–20.) Although Baldwin had the ability to look up individual customers at Fuller's stores, including their vehicle and service histories, he was unable to access a full list of customers. (Id. at 16:12–15.)
Several years after Baldwin began working for Fuller as a regional manager, Fuller entered a business partnership with Darrell Lamb. Fuller and Lamb jointly purchased their first store in 2006. (Id. at 18:12–16.) In April 2007 they purchased four additional stores, which they placed under the umbrella of an entity called Middle Georgia Investments. (Id. at 19:7–10.) Two of those stores were located in Macon and the other two were located in Warner Robins. (Id. at 19:10–11). On or around October 2007, Fuller and Lamb put Baldwin in charge of overseeing the four Middle Georgia stores, which at the time were performing poorly. (Id. at 19:12–19.) Baldwin did not take on any additional responsibilities at that point other than overseeing four more stores in his capacity as a regional manager. (Id. at 19:20–23.) However, when Baldwin began overseeing the four Middle Georgia stores, he was given (1) a $1,000 per month salary increase; (2) 5% "phantom equity"; and (3) 15% of the profits from those four stores. (Id. at 20:2–9.) Baldwin's phantom equity in the stores was an agreement that he would receive 5% of the proceeds in the event the business was sold; the agreement did not give Baldwin any additional ownership rights. (Id. at 20:10–22.)
In early 2009 Fuller and Lamb bought two more stores in Georgia — one in Athens, and one in Conyers — which they placed under the umbrella of an entity called 138 Investments, LLC. (Id. at 20:25–21:5.) Fuller and Lamb put Baldwin in charge of those two stores as well, and they gave him a 15% phantom equity interest in the business. (Tr. at 21:5–10, 21:25–22:13.) The trigger for Baldwin's phantom equity interest in 138 Investments was tied to sales goals, which Baldwin surpassed. (Id. at 22:20–25.) Fuller and Lamb held the remaining 85% interest in 138 Investments and served as its managers. (Pl.’s Aff., Doc. 16, ¶ 5.) As was the case with his phantom equity interest in Middle Georgia investments, Baldwin's 15% phantom equity interest in 138 Investments did not give him any additional ownership rights in the business. (Tr. at 23:1–6.); see (Pl.’s Aff., Doc. 16, ¶ 4) ("When I first received the 15% ownership in 138 Investments, Fuller and Lamb told me that I could not attend owners’ meetings because I had never signed a franchise agreement with EOC. In addition, Fuller and Lamb told me that I could not review the 138 Investment reports or assets.").
In 2010, Fuller and Lamb established an employee leasing company called Velocity Ventures Inc., which employed everyone who worked at their stores. (Pl.’s Aff., Doc. 16, ¶ 8.) Therefore, since at least 2010, Baldwin was technically an employee of Velocity Ventures. (Id. ); (Tr. at 61:23–62:9, 77:4–14). Around 2013 or 2014, while he was an employee of Velocity Ventures, Baldwin's title changed from "general manager" to "senior vice president of operations," which Fuller believed was a more accurate reflection of Baldwin's role. (Tr. at 50:11–25.)
The stores Baldwin oversaw while working as a general manager and senior vice president of operations were all franchisees of EOC; however, unlike Fuller and Lamb, Baldwin never signed a franchise agreement. (Id. at 23:19–24:2.) When Baldwin approached Lamb about the possibility of his attending owners’ meetings, Lamb explained that he could not attend owners’ meetings because only people who had signed the franchise agreement could attend the meetings. (Id. at 25:18–23.)
Baldwin continued to perform his regional manager functions until March 2021 when EOC purchased all of Fuller and Lamb's assets. (Id. at 18:6–11.)
B. EOC's Asset Purchase Agreement with the Franchisees and Non-Competition Agreement with Baldwin
On Friday, March 5, 2021, Fuller emailed Baldwin asking him to come to a meeting with Lamb and him the next morning, Saturday, March 6, 2021, at 10:00 A.M., to discuss a business opportunity. (Id. at 26:6–12, 26:24–27:2.) Baldwin agreed, and he met with Fuller and Lamb the next morning at their office in Brookhaven, Georgia. (Id. at 26:15–16.)
Fuller began the meeting by asking Baldwin to sign a non-disclosure agreement, which Baldwin proceeded to sign. (Id. at 27:3–7.) Next, Fuller gave Baldwin a "special meeting notice" for 138 Investments. (Id. at 27:18–19.) He explained that the reason for the special meeting was that he and Lamb had decided to sell their businesses to EOC. (Id. at 28:20–24.) The three entities Fuller and Lamb were selling were 138 Investments, Middle Georgia Investments, and Knoxville Express. (Id. at 28:12–13.) In total, the sale encompassed 29 stores, 18 of which were overseen by Baldwin. (Id. at 38:21–39:3.) Fuller said that the sale was "a done deal" and it was closing the following Monday, March 8, 2021, at 12:00 P.M. (Id. at 28:20–24.)
Fuller was the sole owner of Knoxville Express. Fuller and Lamb co-owned the other two entities. (Tr. at 29:15–17); see (Pl.’s Aff., Doc. 16, ¶ 2).
Fuller then gave Baldwin a copy of a restrictive covenant agreement prohibiting Baldwin from competing against EOC and related entities, which Baldwin refused to sign. (Id. at 30:16–18.) Fuller told Baldwin that if he did not sign the restrictive covenant he would not get paid for the sale. (Id. at 32:3–4.) Fuller added that Baldwin would also have to sign a consent to the Asset Purchase Agreement ("APA") for 138 Investments for the sale to close. (Id. at 30:19–21.) Baldwin requested to see a copy of the APA before consenting to it, but Fuller said that Baldwin could not see it because it was confidential. (Id. at 31:15–20.). This led to a protracted back and forth. Over the course of this exchange, Fuller explained that, under EOC's terms, owners of the assets all had to sign non-compete agreements and consent to the APA, even though the APA itself could not be disclosed. Baldwin contended that he should not have to sign the agreements because he was not an "owner" of the assets. And Fuller and Lamb responded that even if Baldwin was not an "owner" of the assets per se , he was still a "member" of 138 Investments, and regardless of how he was classified, EOC was still going to require him to sign the documents for the deal to close. (Id. at 31:22–32:15.)
After talking this over for some time, Baldwin said that he simply would not sign anything that day and that he wanted to sleep on it first. (Id. at 33:1–4.) Fuller told Baldwin that they would reconvene at the same place on Monday, March 8 at 9:00 A.M. and at that point they would need a decision from him. (Id. at 33:6–9.) At the conclusion of the meeting, Fuller and Lamb told Baldwin that a representative from EOC, Ricky Brooks, was already there waiting for Baldwin and he wanted to discuss employment opportunities for Baldwin with EOC. (Id. at 35:24–36:1.) At the time, Brooks was the Executive Chairman of Mavis Tire Express Services, a parent company of EOC. (Id. at 70:7–9, 80:11–12.)
Brooks has since retired from his position with Mavis. (Tr. at 76:10–13.)
Baldwin then proceeded to meet with Brooks. (Id. at 36:12–13.) During their meeting, Baldwin asked Brooks why EOC wanted him to sign a non-competition agreement, to which he responded, "Charlie, we absolutely do not want you competing against us." (Id. at 36:24–37:3.) Brooks did not have a specific offer of employment for Baldwin, but he explained that he would like for Baldwin to join the corporate team with EOC and that it would be in a similar role to the one he had performed as a regional manager for Fuller and Lamb. (Id. at 38:5–13.)
Over that weekend, after some additional conversations with Lamb, Fuller, and Brooks, and talking it over with his wife, Baldwin ultimately decided to sign the restrictive covenant. Baldwin's primary rationale for signing the agreement was that a large share of his retirement fund was "hanging in the balance" and he needed to sign the agreement to receive a payment. (Id. at 40:8–11.) Baldwin later testified that he is 55 years old and plans to continue working until he is 70. (Id. at 99:16–17.) Although it is not clear what would have happened if Baldwin had refused to sign the restrictive covenant, Fuller had represented to Baldwin that if he did not sign the agreement then Fuller and Lamb, along with EOC, would have carved 138 Investments out of the sale and Baldwin's share of the proceeds would have been significantly reduced. (Id. at 56:23–57:15, 58:8–11.)
Prior to signing the agreement, Baldwin managed to obtain several concessions from EOC over the course of his negotiations with Brooks. Whereas the original language of the agreement would have prohibited competition of any sort for five years, Baldwin was able to negotiate the term of the agreement down to four years. Additionally, EOC agreed to include a provision stating that after a period of 18 months Baldwin would be permitted to work as an employee of a competitor provided that the competitor was not located within 5 miles of any of EOC's stores, or those of any of its related entities covered by the agreement. That modification was subject to the caveat that Baldwin would not engage in any other sort of competition with EOC or its related entities for the remainder of the four-year term, such as owning or investing in a competing business. (Id. at 55:4–15.)
The final text of the agreement contained the following non-competition provision:
Non-Competition Agreement. Baldwin covenants and agrees that, from the Effective Date hereof until the forty-eighth (48) month anniversary of the date hereof (the "Term" ), he will not directly or indirectly (through an entity), engage in, invest in, become an owner of, advise, or become a landlord and/or lender of, or employed by, or construct a facility for an automotive repair or service business (other than Purchaser, if Baldwin and Purchaser agree for Baldwin to become an employee of Purchaser) ... (i) in the State of Georgia or the State of Alabama, or (ii) within a five (5) mile radius of any automotive repair or service facility business operated by Purchaser in the continental United States (the "Non-Competition Area" ).
(Non-Solicitation/Non-Competition Agreement, Doc. 1-1 at 50.) The limitation that Baldwin negotiated with Brooks appeared immediately thereafter:
Notwithstanding the generality of the immediately preceding sentence, after the 18th month of the Term, the Non-Competition Area will be reduced to only the area within a five (5) mile radius of any automotive repair or service facility business operated by Purchaser in the continental United States and Baldwin may become employed .by an automotive repair or service business (provided he does not have a direct or indirect ownership interest in the employer) within the Non-Competition Area as so reduced; provided, however, all other covenants and restrictions of this Section 1 and Section 2 of this Agreement shall continue to be enforceable by the Purchaser throughout the remaining Term.
(Id. at 50–51.)
Notably, the agreement prevents competition against not only EOC and its parent company — Mavis — but also against countless other entities that fall within Mavis's corporate family. Mavis owns four brands: EOC; Town Fair Tire; Mavis Tire and Repair; and Brake Plus. (Tr. at 85:2–12.) And each of these entities operates in various distinct regions throughout the United States: EOC primarily operates in the Southeast and Texas; Town Fair Tire primarily operates in New England; Mavis Tire and Repair primarily operates in the Northeast, Southeast, and Texas; and Brake Plus operates in Arizona, Colorado, and Texas. (Id. ) In total, there are between 1100 and 1200 franchises operating under Mavis's corporate umbrella across 29 states. (Id. at 80:13–18.)
In an attempt to clarify precisely which entities Baldwin would be prohibited from competing against, the agreement broadly defined the term "Purchaser" as "(a) Purchaser's Affiliates or franchisees, (b) T.E., LLC, and its Affiliates, Brakes Plus, LLC, and its Affiliates, Mavis Tire Express Services Corp. and Mavis Tire Express Intermediate Services, Corp., and their Affiliates (collectively, ‘Mavis’ ), and (c) Mavis's locations that operate as Kaufman Tire." (Non-Solicitation/Non-Competition Agreement, Doc. 1-1 at 51.) To further clarify the scope of the restrictions, the agreement added, "upon request, Purchaser will provide Baldwin its then current list of facilities operated by Purchaser and its Affiliates." (Id. )
The agreement also listed several express representations and acknowledgments that Baldwin purportedly made by signing the covenant:
Representations. Baldwin represents and acknowledges that:
(a) compliance with each provision of this Agreement by the undersigned is reasonably necessary to protect the business and goodwill of Purchaser,
(b) he will be able to earn a livelihood without violating the covenants contained in this Agreement, and
(c) his entrance into this Agreement is a condition to Purchaser closing the transactions contemplated by the APA.
(Id. at 52.)
Baldwin signed the agreement the following Monday morning and sent a scanned copy to Brooks right before he met with Fuller and Lamb. (Tr. at 41:14–18.) When he met with Fuller and Lamb, he reiterated that he did not feel comfortable with the events that had transpired, and that he felt like he was "boxed in" and that they were "holding [his] payment hostage." (Id. at 42:3–5.) This led to another back and forth, much like the one the three of them had engaged in the previous Saturday, but at that point Baldwin thought the conversation "seemed pointless." (Id. at 42:7–10.) After concluding this exchange, Baldwin presented Fuller and Lamb with the signed agreement and then signed the APA consent too. (Id. at 42:11–15.) The deal subsequently closed and Baldwin received approximately $2 million from the sale, which Baldwin understood to be based on his 15% interest in 138 Investments. (Id. at 53:22–54:6.)
Aside from the payment, the only document Baldwin initially received from the transaction was a document Lamb and Fuller prepared for him, which they claimed reflected his share of the proceeds. (Pl.’s Aff., Doc. 16, ¶ 15.) After engaging a lawyer, Baldwin eventually obtained a redacted copy of the APA; however, he still has not been provided with an unredacted copy of the APA. (Tr. at 42:16–43:2.)
C. Baldwin's Departure from EOC
Once Fuller and Lamb sold their assets to EOC, Baldwin agreed to continue working for the franchises to help EOC and its staff through the initial transition period. (Id. at 53:4–11.) In consultation with Brooks, Baldwin agreed to work for EOC on a $5,000 per month salary for a period of 12 weeks during the transition, with the understanding that a complete compensation package — including salary and bonuses — would be negotiated later. (Id. at 98:3–6.) After that 12-week period concluded, EOC and Baldwin still had not agreed on a long-term compensation package. Baldwin resigned at the end of the 13th week after no further progress had been made on a compensation package. (Id. at 98:20–21.)
Baldwin later explained that the reasons he left were a combination of concern about his compensation and what he described as a change in culture at the business after Fuller and Lamb left. (Id. at 99:11–14.) Prior to the sale of the assets, Baldwin was making approximately $600,000 per year through a combination of salary and bonuses, whereas the initial compensation that he had worked out with EOC amounted to an annual salary of roughly $250,000 — a significant reduction from his prior compensation. (Id. at 48:23–25, 53:17–19.) Baldwin also explained that the role EOC envisioned him in would have been different from the one he fulfilled for Fuller and Lamb, and that it would have entailed a lot of travel. (Id. at 99:11–25.)
Shortly after he resigned from his position with EOC, Baldwin contacted Brooks to ask whether EOC would waive the restrictions in the restrictive covenant to allow him to purchase an existing auto repair shop located in Loganville, Georgia, which was just under 5 miles away from an EOC store. (Id. at 43:14–25.) Brooks raised Baldwin's request with EOC's president, Jim Durkin, and its Executive Vice President of Development, Kent Feazell. Durkin then called Baldwin to inform him that EOC would not waive the restrictions and it would not allow him to pursue the opportunity. (Id. at 43:25–44:4.)
D. Procedural history
Baldwin initiated this action in the Superior Court of Gwinnett County, Georgia on August 18, 2021. (Doc. 1-1 at 26–48.) In the Complaint, Baldwin sought a declaratory judgment that the restrictive covenant violated Georgia law and an order enjoining EOC from enforcing the agreement. (Id. at 47.) Along with the Complaint, Baldwin submitted a motion for interlocutory injunction seeking preliminary injunctive relief. (Id. at 4–24.) While Baldwin's motion for interlocutory injunction was pending, EOC filed a notice of removal to federal court. (Doc. 1.) Shortly thereafter, Baldwin moved for an expedited hearing on his motion for interlocutory injunction. (Doc. 7.)
The Court granted Baldwin's motion for an expedited hearing and held an evidentiary hearing on October 21, 2021, during which the Court heard live testimony from three witnesses — Baldwin, Brooks, and Durkin. (Minute Entry, Doc. 19.) At the conclusion of the hearing, the Court expressed concerns about the breadth of the restrictions in the restrictive covenant and emphasized that those restrictions "would potentially trigger an injunction." (Tr. at 135:5–9.) But the Court also recognized that the matter was one that the parties "might litigate for some time," (id. at 129:20–23), and advised the parties, "I think the parties would be in a better position to resolve this and figure out what at core ... [EOC] needs for itself and what at core ... does Mr. Baldwin need to be able to make peace and for everyone to go on without their interest being severely damaged," (id. at 130:20–131:1.) Toward that end, the Court directed the parties to meet-and-confer and inform the Court about their positions on proceeding to mediation. (Id. at 134:12–18.) Ultimately, the parties elected not to proceed with mediation. The parties then submitted supplemental briefs in connection with Baldwin's motion for interlocutory injunction, (Docs. 22 and 23), which the Court agreed to consider for purposes of resolving the motion. A few weeks later, the Court directed the parties to submit an additional round of supplemental briefing, (Doc. 27), which the parties submitted on December 6, 2021, (Docs. 28 and 29).
II. Legal Standard
To support a preliminary injunction, the Court must determine whether the evidence establishes: (1) a substantial likelihood of success on the merits; (2) a substantial threat of irreparable injury if the injunction were not granted; (3) that the threatened injury to the plaintiff outweighs the harm an injunction may cause the defendant; and (4) that granting the injunction would not be adverse to the public interest. McDonald's Corp. v. Robertson , 147 F.3d 1301, 1306 (11th Cir. 1998). "At the preliminary injunction stage, a district court may rely on affidavits and hearsay materials which would not be admissible evidence for a permanent injunction, if the evidence is ‘appropriate given the character and objectives of the injunctive proceeding.’ " Levi Strauss & Co. v. Sunrise Int'l Trading Inc. , 51 F.3d 982, 985 (11th Cir. 1995) (quoting Asseo v. Pan Am. Grain Co. , 805 F.2d 23, 26 (1st Cir. 1986) ); see McDonald's Corp. , 147 F.3d at 1306. "[A] preliminary injunction is an extraordinary and drastic remedy not to be granted unless the movant clearly established the ‘burden of persuasion’ as to the four prerequisites." McDonald's Corp. , 147 F.3d at 1306 (internal citations omitted). As the party requesting the preliminary injunction, Baldwin carries the burden to demonstrate each requirement for a preliminary injunction. GeorgiaCarry.org, Inc. v. U.S. Army Corps of Eng'rs , 788 F.3d 1318, 1322 (11th Cir. 2015).
Though Baldwin phrases his motion as a motion for "interlocutory injunction," the Court construes Baldwin's motion as a motion for preliminary injunction.
III. Discussion
A. Restrictive Covenants in Georgia
The Court begins with a review of the relevant law governing restrictive covenants in Georgia. Under Georgia law, non-competition clauses are generally enforceable as long as they are "reasonable in time, geographic area, and scope of prohibited activities." O.C.G.A. § 13-8-53(a) ; See Kennedy v. Shave Barber Co. , 348 Ga.App. 298, 822 S.E.2d 606, 611 (Ga. Ct. App. 2018). "Whether the restraints imposed by an employment contract are reasonable is a question of law for determination by the court." Uni-Worth Enters. v. Wilson , 244 Ga. 636, 261 S.E.2d 572, 575 (Ga. 1979) (quoting Britt v. Davis , 239 Ga. 747, 238 S.E.2d 881, 882 (Ga. 1977) ); Pan Am Dental, Inc. v. Trammell , No. 418-288, 2020 WL 2531622, at *3 (S.D. Ga. May 18, 2020). In evaluating such restrictions, Georgia Courts look to whether the restriction is "limited in time and territorial effect and [is] otherwise reasonable considering the business interests of the employer sought to be protected and the effect on the employee." Dougherty, McKinnon & Luby, P.C. v. Greenwald, Denzik & Davis, P.C. , 213 Ga.App. 891, 447 S.E.2d 94, 96 (Ga. Ct. App. 1994) (alteration in original) (quoting Singer v. Habif, Arogeti & Wynne, P.C. , 250 Ga. 376, 297 S.E.2d 473, 475 (Ga. 1982) ).
The GRCA contains a series of presumptions that provide courts with guidance as to whether the geographic reach and temporal duration of a restrictive covenant's restrictions are reasonable. Regarding the geographic reach of the restrictions, the GRCA provides,
A geographic territory which includes the areas in which the employer does business at any time during the parties’ relationship, even if not known at the time of entry into the restrictive covenant, is reasonable, provided that:
(A) The total distance encompassed by the provisions of the covenant also is reasonable;
(B) The agreement contains a list of particular competitors as prohibited employers for a limited period of time after the term of employment or a business or commercial relationship; or
(C) Both subparagraphs (A) and (B) of this paragraph[.]
O.C.G.A. § 13-8-56(2). As for the temporal duration, the GRCA provides that restrictions imposed on employees are presumptively reasonable if they last for two years, whereas restrictions imposed on the owner or seller of all or a material part of the assets in the sale of a business are presumptively reasonable if they last for five years. Id. § 13-8-57(b), (d).
The GRCA also provides that "[a]ny restrictive covenant not in compliance with the provisions of this article is unlawful and is void and unenforceable[.]" Id. § 13-8-53(d). However, the Act adds,
Notwithstanding any other provision of this chapter, an employee may agree in writing for the benefit of an employer to refrain, for a stated period of time following termination, from soliciting, or attempting to solicit, directly or by assisting others, any business from any of such employer's customers, including actively seeking prospective customers, with whom the employee had material contact during his or her employment for purposes of providing products or
services that are competitive with those provided by the employer's business.
Id. § 13-8-53(b). The Act further clarifies,
Any reference to a prohibition against "soliciting or attempting to solicit business from customers" or similar language shall be adequate for such purpose and narrowly construed to apply only to: (1) such of the employer's customers, including actively sought prospective customers, with whom the employee had material contact; and (2) products or services that are competitive with those provided by the employer's business.
Id.
Prior to the enactment of the GRCA, courts were permitted to modify ("blue pencil") contracts with unreasonable restrictive covenants under Georgia common law when those contracts were made ancillary to the sale of a business, but prohibited from doing so when the contracts were made ancillary to employment. LifeBrite Labs., LLC v. Cooksey , No. 1:15-cv-4309, 2016 WL 7840217, at *7 (N.D.); Cunningham Lindsey U.S. LLC v. Box , No. 1:18-cv-4346, 2018 WL 6266554, at *4 (N.D. Ga. Oct. 23, 2018). However, since the enactment of the GRCA in 2011, courts can modify both types of agreements through "blue-penciling." LifeBrite Labs. , 2016 WL 7840217, at *7; see Ronald J. Aspelund & Joan E. Beckner, Employee Noncompetition Law § 8:1 (noting that under prior common law "Georgia courts generally disallowed ‘blue pencil editing’ except for noncompete covenants ancillary to the sale of a business" but that through the enactment of the GRCA "the Georgia General Assembly amended Georgia law to broaden the applicability of ‘blue pencil editing’ and permit modification of restrictive covenants ancillary to employment contracts" (footnotes omitted)).
Under the GRCA's blue-penciling provision, "if a court finds that a contractually specified restraint does not comply with the provisions of Code Section 13-8-53, then the court may modify the restraint provision and grant only the relief reasonably necessary to protect such interest or interests and to achieve the original intent of the contracting parties to the extent possible." O.C.G.A. § 13-8-54(b). It is within the Court's discretion to determine whether to blue-pencil a contract. See Belt Power, LLC v. Reed , 354 Ga.App. 289, 840 S.E.2d 765, 770 (Ga. Ct. App. 2020) ; LifeBrite Labs. , 2016 WL 7840217, at *6. "Though courts may strike unreasonable restrictions, and may narrow over-broad territorial designations, courts may not completely reform and rewrite contracts by supplying new and material terms whole cloth." LifeBrite Labs. , 2016 WL 7840217, at *7 (citing Hamrick v. Kelley , 260 Ga. 307, 392 S.E.2d 518 (Ga. 1990) ).
B. Preliminary Injunction Factors
1. Likelihood of Success on the Merits
With that background in mind, the Court now turns to the first element Baldwin must establish in support of his motion for preliminary injunction: likelihood of success on the merits. In his motion, Baldwin argues that the restrictive covenant is invalid for two reasons — because it lacks consideration and because it violates the GRCA. The Court considers each of these arguments in turn.
a. Consideration
Baldwin first argues that the restrictive covenant is invalid because the agreement lacked consideration. He claims that the proceeds EOC paid him in connection with the sale of the assets do not constitute consideration because he was already entitled to a 15% share of the proceeds from the sale of 138 Investments and would have been entitled to that share of the proceeds regardless of whether he signed the restrictive covenant. "Consideration is, of course, one of the ‘essential’ elements of any contract[.]" John K. Larkins, Jr. & Hon. John K. Larkins III, Georgia Contracts: Law and Litigation § 4.1 (2d ed.) (citing O.C.G.A. §§ 13-3-1, 13-3-40(a) ). "To constitute consideration, a performance or a return promise must be bargained for by the parties to a contract." O.C.G.A. § 13-3-42(a). And the Georgia Code clarifies that a performance or a return promise is "bargained for" if it is "sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise." Id. § 13-3-42(b).
Although Baldwin is correct that he would have been entitled to a 15% share of the sale proceeds regardless of whether he had signed the restrictive covenant or not, that does not necessarily mean that the agreement lacked consideration. The record suggests that EOC paid more money to Baldwin than it otherwise would have based on the additional restrictions contained in the covenant. See, e.g. , (Tr. at 72:23–24) (testimony of Ricky Brooks, stating that EOC "paid a significant premium for the noncompete"). That extra money likely satisfies the consideration element. Indeed, Georgia courts have held that "[a]ny benefit accruing to the one who makes the promise ... is sufficient consideration." Hayes v. Alexander , 264 Ga.App. 815, 592 S.E.2d 465, 469 (Ga. Ct. App. 2003) (citing Pepsi Cola Bottling Co. of Dothan, Ala., Inc. v. First Nat'l Bank of Columbus, Ga. , 248 Ga. 114, 281 S.E.2d 579, 581 (Ga. 1981)).
What is more, Baldwin negotiated a modification to the agreement with EOC prior to entering the agreement, which suggests that the agreement was the product of a bargained for exchange even though Baldwin clearly faced significant time pressure and demands in a wholly unanticipated purchase buyout context. See (Tr. at 55:4–13) ("The original agreement said I was barred from any automotive work, own, invest, employed, the whole thing, for five years, same as Adam and Darrell. I requested that Ricky reduce it to three years and release me if I was terminated -- if I was terminated by them. That is what I requested on Sunday. And what Ricky came back with is he said that, okay, we'll do four years, 48 months, but we'll also give you an out at 18 months to be employed but I couldn't pursue opportunities to own or invest or do anything else for four years."). That satisfied the requirement for an agreement supported by consideration. See O.C.G.A. § 13-3-42(b).
As such, Baldwin has not established a likelihood of success on the merits of his claim that the restrictive covenant is invalid because it lacked consideration.
b. The GRCA
i. The Scope and Geographic Extent of the Restrictions
In addition to challenging the restrictive covenant for lack of consideration, Baldwin also challenges the substance of the restrictions on the ground that they violate the GRCA.
For starters, Baldwin argues that the restrictions are overly broad, and thus invalid, because they extend across the entire continental United States and are not limited to the regions in which he previously worked for EOC's franchises. Baldwin also notes that the agreement prohibits competition against not only EOC's franchises, but also against countless other entities within the Mavis's corporate family. Baldwin additionally points out that the agreement does not identify all of the businesses covered, which makes it impossible for him to determine the precise scope of the geographic restrictions. As a consequence, Baldwin understands the restrictive covenant as effectively prohibiting him from getting a job "anywhere in the automotive repair business." (Tr. at 100:18–22.) Baldwin further argues that the agreement is unenforceable because the non-solicitation provisions are not limited to customers with whom he had "material contact." (Pl.’s Mot., Doc. 8-1 at 9) (citing O.C.G.A. § 13-8-53(b) ). He argues that he "did not even know, much less have material contact with" the customers of the "countless other companies" within EOC's corporate umbrella. (Id. )
EOC generally agrees with Baldwin's interpretation of the scope of the restrictions: the restrictions apply anywhere within five miles of any entity in the United States that falls within Mavis's corporate umbrella. In spite of this, EOC argues, "While these entities may be unconnected to Baldwin personally, they are nonetheless operators of automotive repair and maintenance businesses, the exact business which Defendant intends to protect for a limited time through the Covenant Agreement." (Def.’s Opp'n, Doc. 14 at 5.) EOC also emphasizes that Baldwin could eliminate any uncertainty about the geographic scope of the restrictions by requesting a list of the entities included within the agreement's definition of "Purchaser," and that after 18 months the geographic scope of the restrictions will be somewhat reduced.
To determine the reasonableness of the restrictions described above, the Court must consider both what is reasonably necessary to protect the legitimate interests of EOC as the employer and the effect on Baldwin as the employee. Dougherty , 447 S.E.2d at 96. Based on the record, it appears that EOC's primary interest is in preventing Baldwin from luring away its technicians and, vicariously, its customers. EOC's president, Jim Durkin, discussed the importance of retaining technicians during his testimony at the hearing. As he explained, when technicians leave to work for a competitor, the customers often follow the technicians to the competitor:
[T]he customers have a relationship with that technician. And I have seen customers follow that technician to the other place of business because that is the person they have the trusted relationship with. We actually see it happen within our own business. If we have a business -- move a technician from one location to another that is not that far away, we'll see customers actually follow them to our other location. So yes. When you see a technician leave, customers will follow.
(Tr. at 89:21–90:5.) Thus, it appears that the restrictions EOC imposed on Baldwin are reasonably necessary only to the extent they support EOC's legitimate business interest in retaining technicians and, by extension, its customers. In other words, EOC has a legitimate business interest in preventing Baldwin from taking both its technicians and its customers away to a competing business.
But the restrictions on Baldwin go much further than that. As the Court observed at the hearing, the restrictions contained in the restrictive covenant bar Baldwin from seeking employment or business opportunities even in areas where he did not work and did not know EOC's technicians. (Id. at 130:5–11.) The Court opined, "Those are issues that I would have to grapple with." (Id. at 130:12.)
And grapple with them the Court shall.
The Court begins with the presumptions contained in O.C.G.A. § 13-8-56(2), which states,
A geographic territory which includes the areas in which the employer does business at any time during the parties’ relationship, even if not known at the time of entry into the restrictive covenant, is reasonable, provided that:
(A) The total distance encompassed by the provisions of the covenant also is reasonable;
(B) The agreement contains a list of particular competitors as prohibited employers for a limited period of time after the term of employment or a business or commercial relationship; or
(C) Both subparagraphs (A) and (B) of this paragraph[.]
EOC has offered to provide a list of competitors whom Baldwin would be prohibited from competing against, which would arguably satisfy this provision. But the Court also has to consider § 13-8-53(b), which provides,
Section 13-8-56(2) follows an (A), (B), or both (A) and (B) format, which, admittedly, is susceptible to multiple possible readings. One possible reading, which is EOC's preferred reading, is that (B) alone would be sufficient, and that the geographic reach of the restrictions would be presumptively reasonable if EOC were to simply provide "a list of particular competitors as prohibited employers." Another possible reading is that (A) is a requirement regardless of whether the restricted employee requires a list of prohibited employers. On this latter reading, even if EOC were to provide such a list, the "total distance" of the restrictions must also be reasonable.
(b) Notwithstanding any other provision of this chapter , an employee may agree in writing for the benefit of an employer to refrain, for a stated period of time following termination, from soliciting, or attempting to solicit, directly or by assisting others, any business from any of such employer's customers, including actively seeking prospective customers, with whom the employee had material contact during his or her employment for purposes of providing products or services that are competitive with those provided by the employer's business.... Any reference to a prohibition against "soliciting or attempting to solicit business from customers" or similar language shall be adequate for such purpose and narrowly construed to apply only to : (1) such of the employer's customers, including actively sought prospective customers, with whom the employee had material contact ; and (2) products or services that are competitive with those provided by the employer's business.
O.C.G.A. § 13-8-53(b) (emphasis added). In other words, notwithstanding any other provision of the GRCA — including the presumptions about the reasonableness of geographic restrictions — the Act limits the scope of non-compete restrictions to competition for customers with whom the employee previously had material contact. Simply put, restrictive covenants should only be enforced to the extent they are necessary to protect the employer's "legitimate business interests," O.C.G.A. § 13-8-54, and based on the plain language of the GRCA, "courts should narrowly construe such a covenant to apply only to customers with whom the employee had material con[tact]." Cunningham Lindsey , 2018 WL 6266554, at *7 (citing O.C.G.A. § 13-8-53(b) ).
Indeed, the GRCA expressly states, "The person seeking enforcement of a restrictive covenant shall plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant." O.C.G.A. § 13-8-55 (emphasis added); see Pan Am Dental , 2020 WL 2531622, at *9.
To be sure, EOC has a legitimate business interest in restricting Baldwin in his prior service area because he has preexisting relationships with technicians in those areas, and he could easily bring those technicians and their customers with him if he established a competing business in that area. But it is hard to see that happening in service areas where Baldwin did not previously operate and has no apparent relationships with EOC's technicians or customers. Hence, it does not appear that EOC has a legitimate business interest in restricting Baldwin outside of his prior service area.
Notably, the restrictions at issue here are much broader than the restrictions that have been upheld by other courts applying the GRCA. See, e.g., Kennedy , 822 S.E. 2d at 612 (upholding provision prohibiting former employee from soliciting customers within three-mile radius of former employer's business because "The Shave had a legitimate business interest in protecting itself from the risk that Kennedy might appropriate customers by taking advantage of the contacts developed while she worked at The Shave"); Pan Am Dental , 2020 WL 2531622, at *6 (finding that restriction on soliciting customers in North Carolina was reasonable "if narrowly construed to apply only to customers that Defendant Trammell had material contact with during his work for Plaintiff."). And as the Court will explain in more detail below, numerous courts have exercised their blue-penciling authority to narrow similar restrictions.
Restrictions like the ones at issue here were consistently rejected under prior Georgia common law as well, which applied a "material contact" requirement much like the one incorporated by statute into the GRCA. See, e.g., Dougherty, McKinnon & Luby, P.C. v. Greenwald, Denzik & Davis, P.C. , 213 Ga.App. 891, 447 S.E.2d 94, 96 (Ga. Ct. App. 1994) (finding that restrictive covenant was "overly broad" when it applied to solicitation of "any and all former clients" of the employer "regardless of whether they performed services for or had a business relationship with these clients"); Uni-Worth Enters. v. Wilson , 244 Ga. 636, 261 S.E.2d 572, 575 (Ga. 1979) (invalidating restrictive covenant that prohibited employee from "calling upon customers or accounts of the employer" but did not limit the restrictions to customers or accounts the employee had previously contacted over the course of his employment). The only difference is that now courts can blue-pencil the offending provisions instead of invalidating the agreements altogether.
The court's decision in Acuity Brands, Inc. v. Bickley , No. 13-366, 2017 WL 1426800 (E.D. Ky. Mar. 31, 2017), is also on point. Although that court was not based in Georgia, it was applying the GRCA in that particular decision, and the case involved restrictions that had been imposed on an employee who, like Baldwin, was a regional manager. The court reasoned that even though the plaintiffs "may believe that their interests are best protected by a nationwide non-competition provision," at the same time, "those interests must be weighed against former employees’ interests and right to earn a living." Id. at *11. And the court ultimately found that a nationwide restriction was overly broad as applied to the particular employee given "[t]he regional nature of his job." Id. at *11–*12.
Like the employee in Acuity Brands , Baldwin worked as a regional manager. And just like in Acuity Brands , a nationwide restriction is not warranted — any interest EOC has in a nationwide restriction is outweighed by Baldwin's "interests and right to earn a living." Id. at *12.
As a fallback, EOC argues that notwithstanding the scope of the restrictions, the restrictive covenant should be enforced because Baldwin is a sophisticated businessperson, and he accepted all the terms in the agreement. The Court is not convinced that Baldwin's reluctant acceptance of EOC's terms can salvage an otherwise unlawful agreement. Accordingly, the Court finds that Baldwin has established a likelihood of success on the merits of his claims that the scope and geographic reach of EOC's restrictions are invalid.
ii. The Temporal Duration of the Restrictions
Separately, Baldwin argues that the 48-month duration of the restrictions contained in the agreement are presumptively invalid. In response, EOC argues that the duration of the restrictions is reasonable because a five-year duration is presumptively valid when the party being restricted is an owner or seller of a material part of the assets being sold — a looser presumption than the two-year presumption that applies to restrictions on employees.
The Court first addresses whether Baldwin was an "owner" of a material part of the assets under the relevant section of the statute — § 13-8-57(d). Notably, Baldwin only had a 15% interest in 138 Investments, which was only one of the three assets that were sold. (Tr. at 112:18–22.) In Baldwin's view, owning just 15% of only one of the three assets being sold does not make him an "owner" of a material part of the assets under 13-8-57(d). In fact, Baldwin takes this one step further: he argues that he was not even an owner of a material part of 138 Investments because he did not have any ownership rights in that company, aside from the right to a share of the proceeds from the sale. For instance, he notes that he was not allowed to "look at the books" for the business or attend any of the ownership meetings. See (id. at 113:6–12.)
During the hearing, Baldwin's counsel argued that Baldwin would need to have some form of ownership rights in the businesses to qualify as an owner of "a material part" of the assets, which Baldwin clearly did not have. (Id. at 114:4–9) ("[A] material part is something that elicits some decision, causes a consequence of something. Mr. Baldwin had no role, no authority as an owner under 138. So even if you had -- even if the 138 was the only property sold in the asset purchase agreement, we submit that he did not own a material part."). In response, EOC's counsel claimed he did not dispute Baldwin's contention that Baldwin's 15% share of 138 Investments did not make Baldwin an "owner." See (id. at 107:7–12) ("My reading of the plaintiff's reply brief where this is raised in a larger sense than it was in the original memorandum is that because he was just a 15 percent owner and wasn't a controlling shareholder that he -- that he didn't own a material part of the business. We're not even disputing that."). Instead, EOC's counsel argued that Baldwin was a "seller" of a material part of the assets under § 13-8-57(d). As there appears to be no dispute that Baldwin fails to qualify as an "owner" under § 13-8-57(d), the Court will instead focus its attention on whether Baldwin qualifies as a "seller."
In its opposition brief, EOC argued that the five-year presentation contained in § 13-8-57(d) applied, rather than the two-year period for employees under § 13-8-57(b), because Baldwin was an owner of a material part of the assets. (Def.’s Opp'n, Doc. 14 at 3–4.) EOC apparently abandoned this argument at the hearing, instead choosing to focus on the argument that Baldwin was a "seller" of a material part of the assets.
In support of its theory that Baldwin was a seller of a material part of the assets, EOC points to the GRCA's definition of "seller" in the definitions section of the statute, which states,
(17) "Seller" means any person or entity, including any successor-in-interest to such an entity, that is:
(A) An owner of a controlling interest;
(B) An executive employee of the business who receives, at a minimum, consideration in connection with a sale; or
(C) An affiliate of a person or entity described in subparagraph (A) of this
paragraph; provided, however, that each sale involving a restrictive covenant shall be binding only on the person or entity entering into such covenant, its successors-in-interest, and, if so specified in the covenant, any entity that directly or indirectly through one or more affiliates is controlled by or is under common control of such person or entity.
O.C.G.A. § 13-8-51(17). Based on that definition, EOC argues that Baldwin qualifies as a "seller" for purposes of § 13-8-57(d) because he was an executive employee who received consideration for the sale of the assets under § 13-8-51(17)(B). See (Tr. at 105:24–106:2, 108:21–23).
On the "seller" question, Baldwin argues that he could not be a seller because he never signed a franchise agreement, and the APA stated that only the franchisees — Fuller and Lamb — were the sellers. He also notes that he was not even allowed to see , much less sign , the APA — the agreement between EOC and the purported sellers. In response, EOC contends that Baldwin's interpretation of § 13-8-57(d) fails to account for the word "seller" in the phrase "owner or seller of ... a material part of the assets," and would render the term "seller" superfluous.
At the hearing, Baldwin's counsel argued that he does not qualify as an "employee" either because he was officially an employee of Velocity Ventures — an employee leasing company established by Fuller and Lamb — rather than any of the three entities that were sold. See (Tr. at 115:13–20) ("The other problem that surfaced in today's hearing for the defendant is that he didn't work for these guys. He was paid by Velocity Ventures. He had no authority to do anything under any entity. And when they said that he was a senior vice president and when asked a senior vice president of what? The operations. So he had no authority over any of the entities that were sold to EOC."). Though Baldwin is technically correct that he was an employee of Velocity Ventures, the Court nevertheless finds that Baldwin qualifies as an "employee" of the businesses sold as the term is broadly defined in O.C.G.A. § 13-8-51(5). Based on his decades of working for Fuller and Lamb, Baldwin qualifies as a person "in possession of selective or specialized skills, learning, or abilities or customer contacts, customer information, or confidential information who or that has obtained such skills, learning, abilities, contacts, or information by reason of having worked for an employer." Id. § 13-8-51(5)(C).
The problem with EOC's proposed reading is that it would render the phrase "material part" superfluous. The better reading is that the less stringent five-year presumption should only apply to the "owner of all or a material part of the assets" or the "seller" of the same, and not to someone who just happens to be an executive employee of the company sold. Otherwise, the terms "material part" would be rendered meaningless as applied to a seller. See TRW Inc. v. Andrews , 534 U.S. 19, 31, 122 S.Ct. 441, 151 L.Ed.2d 339 (2001) ("It is a cardinal principle of statutory construction that a statute ought, upon the whole, to be so construed that, if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant.") (cleaned up). Even if Baldwin fits within the GRCA's broader definition of a seller, EOC fails to explain how Baldwin could be a seller of "a material part of the assets."
The notion that Baldwin could be a seller of a material part of the assets in these circumstances is also undermined by Georgia common law. The Supreme Court of Georgia's decision in White v. Fletcher/Mayo/Assocs., Inc. , 251 Ga. 203, 303 S.E.2d 746 (Ga. 1983) is on point. There, the court held that the party subject to a restrictive covenant was an "employee" rather than a "seller" when, like Baldwin, he challenged "the enforceability of a noncompetition covenant which ... was given ancillary to [his] relinquishment of his interest in [a] business." See id. at 750–51. The court came to this conclusion even though the employee had a potential veto power over the transaction because "it appear[ed] that his bargaining capacity was not significantly greater than that of a mere employee." See id. at 750–51; see also Cunningham Lindsey , 2018 WL 6266554, at *5 (noting that "Georgia [common] law requires that the Court analyze the bargaining capacity of the covenantor to determine whether he or she is more like an owner of the business or an employee.").
During the hearing, EOC's counsel argued that the GRCA statutorily incorporated the prior common law distinction between covenants ancillary to employment and covenants ancillary to the sale of a business. See (Tr. at 108:24–109:14.) As previously noted, under that common law distinction, Georgia courts applied less scrutiny to covenants ancillary to the sale of a business than to covenants ancillary to employment.
The Court sees no reason to conclude otherwise here. The record suggests that, just like the plaintiff in White , Baldwin's bargaining capacity was more like that of an employee. Although he was not technically forced to sign the restrictive covenant, Baldwin only did so, reluctantly, after Fuller and Lamb relayed the threat that his share of the sale would be diluted if he did not sign off on the agreement the parties had already reached. The choice Baldwin faced between signing the covenant or giving up a large chunk of his retirement fund was not much of a choice at all.
Baldwin might have been considered a seller of a material part of the assets if he had possessed more managerial authority over the businesses, including the right to attend ownership meetings, review the APA, and take part in the decision to sell the assets in the first place — or if he had held a higher percentage interest — but he did not. His situation was more analogous to that of the plaintiff in White. Just like the plaintiff in White , the restrictive covenant that Baldwin signed was ancillary to his employment.
EOC alternatively argues that the 2- and 4-year presumptions of reasonableness contained in the GRCA are only presumptions , and that even if the shorter presumption applies, the restrictions are nevertheless reasonable because the parties agreed to those restrictions in a bargained for exchange. Granted, there may be some circumstances in which restrictions exceeding the 2- and 4-year durational limitations in the GRCA may nevertheless be reasonable, but the Court doubts that those circumstances would apply here. Cf. White , 303 S.E.2d at 750 (invalidating restrictive covenant when "despite [the employee's] ownership of a relatively small, interest in [the business] and his potential veto power over the merger, [the employee] had no control over overall management of [the business], and in fact had so little bargaining clout within [the business] that he was unable to prevent his own termination."). The two-year presumption in O.C.G.A. § 13-8-57(b) should therefore apply.
As a consequence, the restrictions that apply to Baldwin for a period of four years are presumptively unreasonable, and Baldwin has established a likelihood of success of the merits on his claim that those restrictions violate the GRCA.
2. Irreparable Harm
The Court next turns to the irreparable harm element. In his motion, Baldwin argues that he will suffer irreparable harm absent preliminary injunctive relief because he is prohibited from pursuing business opportunities that otherwise will not be recoverable. He says this includes the opportunity to pursue both gainful employment and investment opportunities like the one EOC prohibited him from pursuing in Loganville. Although Baldwin has been paid $2 million as a result of signing the restrictive covenant, that does not necessarily mean that he has suffered no irreparable harm. As the Court explained during the hearing,
Mr. Baldwin is somebody in his mid 50s and if he is not able to productively work then yes, this two million is a lot of money. But, of course, he will need it during his retirement. He obviously wants to work. He is still productive. And to be thwarted from any productive employment in his field is an enormous loss. And that will impact his life.
(Tr. at 131:9–15.)
In a supplemental brief filed shortly after the hearing, EOC argued that Baldwin does not face any imminent harm because the one business opportunity that Baldwin identified in his testimony — Knight's Auto in Loganville — is no longer available. (Def.’s Suppl. Brief, Doc. 24 at 2.) But that does not mean that other opportunities will not come up in the future. Nor does it address Baldwin's inability to pursue gainful employment in his long-chosen field. Under the circumstances, the Court finds that Baldwin will suffer irreparable harm absent injunctive relief.
3. Balance of the Equities
Next, Baldwin argues that the balance of the equities weighs in favor of granting injunctive relief because allowing one person to "obtain gainful employment and opportunity" would not materially harm EOC's "countless companies located across the intercontinental United States." (Pl.’s mot., Doc. 8-1 at 15–16.) On the other side of the equation, EOC argues that the balance of the equities weighs against granting injunctive relief because Baldwin would receive a windfall — he would be able to compete against EOC while simultaneously keeping the money that EOC paid him in exchange for his promise not to compete against it. EOC also expresses a related concern that Baldwin could use the money it paid him for the express purpose of financing a direct competitor.
As previously noted, Baldwin's interest in earning a living certainly outweighs any interest EOC has in enforcing the broad nationwide protections contemplated in the restrictive covenant as written. On the other hand, as the Court previously acknowledged, both sides do have some "very legitimate interests" at stake. (Tr. at 131:7.) Given that fact, whether the balance of the equities tips in favor of granting preliminary injunctive relief depends, in some respect, on the scope of the relief authorized. In this case, the Court finds that the balance of the equities weighs in favor of granting Baldwin injunctive relief by means of narrowing the restrictions through blue-penciling rather than by striking down the restrictions altogether. The Court's "blue-penciled" version of the agreement is produced below:
Non-Competition Agreement. Baldwin covenants and agrees that, from the Effective Date hereof until theforty eighth (48)twenty-fourth (24) month anniversary of the date hereof (the "Term" ), he will not directly or indirectly (through an entity), engage in, invest in, become an owner of, advise, or become a landlord and/or lender of, or employed by, or construct a facility for an automotive repair or service business (other than Purchaser, if Baldwin and Purchaser agree for Baldwin to become an employee of Purchaser) ...(i) in the State of Georgia or the State of Alabama, or (ii)within a five (5) mile radius of any automotive repair or service facility business operated by Purchaser that Baldwin previously oversaw while he was overseeing Purchaser's franchises.in the continental United States (the "Non Competition Area" ).
As a component of its blue-penciling, the Court will also strike the provision immediately thereafter:
Notwithstanding the generality of the immediately preceding sentence, after the 18th month of the Term, the Non Competition Area will be reduced to only the area within a five (5) mile radius of any automotive repair or service facility business operated by Purchaser in the continental United States and Baldwin may become employed .by an automotive repair or service business (provided he does not have a direct or indirect ownership interest in the employer) within the Non Competition Area as so reduced; provided, however, all other covenants and restrictions of this Section 1 and Section 2 of this Agreement shall continue to be enforceable by the Purchaser throughout the retaining Term.
These modifications effectively narrow the restrictions on Baldwin to a restriction against competing against EOC within five miles of the stores that he previously oversaw. The five-mile restriction serves as an approximation of Baldwin's prior service area, which is designed to reflect the intent of the parties to the extent possible. The Court finds that this narrowed version of the agreement will sufficiently protect EOC's legitimate business interest in keeping Baldwin from competing against EOC and its affiliates within his prior service area. Numerous courts applying the GRCA have narrowed overly broad restrictions on a similar rationale The same is true of courts applying similar statutes from other states.
See, e.g., Cunningham Lindsey , 2018 WL 6266554, at *6 ("As the non-solicitation provision has no territorial limitation, the Court agrees that it should be limited to include only customers that Box serviced or contacted during his employment.... With these modifications in place to the non-solicitation agreement, the Court finds that Box is bound by the Box Employment Agreement."); PointeNorth Ins. Grp. v. Zander , No. 1:11-cv-3262, 2011 WL 4601028, at *3 (N.D. Ga. Sept. 30, 2011) ("[W]hile the Court finds the restrictive covenants overbroad in that they extend to ‘any of the Employer's clients’-not just the ones with whom Defendant Zander interacted-the Court may remedy that finding by blue penciling the provision to only apply to customers that the Defendant contacted and assisted with insurance."); Acuity Brands , 2017 WL 1426800, at *12 ("[T]he Court will narrow the territorial coverage from the entire United States to only the South Central Region that Bickley was assigned. Therefore, Bickley is restricted from competing with Acuity in six states: Texas, Oklahoma, Arkansas, Louisiana, Mississippi, and New Mexico.").
See, e.g., Urologix, Inc. v. Wood , No. 8:08-cv-669, 2008 WL 2790230, at *6 (S.D. Fla. July 18, 2008) ("[T]he Court should limit the geographic scope to include only the regions covered by Wood and Bosque during their employment with Urologix. Since the Court has the authority to ‘blue pencil’ restrictive covenants under Minnesota law, limiting the preliminary injunction to areas Wood and Bosque serviced while employees of Urologix would enforce the restraint entered to the extent it is reasonable.").
The Court recognizes that this modification eliminates the provision Baldwin negotiated with Brooks, which permitted Baldwin to work in certain areas — but not own or invest in competitive businesses in those areas — after a period of 18 months. The problem is, even after 18 months, that provision still would have prevented Baldwin from working "within a five (5) mile radius of any automobile repair or service facility business operated by Purchaser in the continental United States." EOC does not have a legitimate business interest in enforcing such an overly broad restriction. Under the Court's blue-penciled version of the agreement, Baldwin can work in many of those areas right now, instead of having to wait 18 months as well as invest in a business within the same five mile radius. There is an additional complication though. The record suggests that EOC might not have paid as much for the assets at issue if it had known that Baldwin would be able to compete with it outside of his prior service area. So, in that sense, the Court's blue-penciling of the agreement may not entirely reflect the "intent" of the contracting parties. Perhaps for this reason, EOC's counsel raised the following query during the hearing:
[I]f Your Honor were to permit him to get out of this somehow or otherwise rework it in a blue penciling, are we entitled to disgorgement of that delta between what we paid for him to sit on the sidelines? Because otherwise it is unjust enrichment.
(Tr. at 120:18–22.) The Court later ordered supplemental briefing related to this issue. See (Doc. 27.)
In its response to the Court's supplemental briefing order, EOC argues that the $2 million Baldwin received after signing the covenant should be reduced to the amount EOC would have paid Baldwin in exchange for the narrower restrictions reflected in the blue-penciled version of the agreement. EOC refers to that excess payment Baldwin received beyond that amount as "the delta." Although EOC claims that there is no caselaw on point addressing this particular issue, it contends that requiring Baldwin to pay back the delta would be consistent with general principles of contract and unjust enrichment law.
More specifically, EOC contends that any blue-penciling of the agreement would essentially place this case in the realm of unjust enrichment because it would impose terms that the parties never contracted for, and, as a result, EOC will have paid a premium for the benefit of restrictions that it never actually received. Thus, EOC argues, "in exchange for Plaintiff's compliance with reduced restrictions, EOC's payment to Plaintiff should also be reduced." (Def.’s Resp. to Suppl. Briefing Ord., Doc. 28 at 8.) It adds, "[t]his partial reimbursement would give EOC the benefit of its bargain and prevent Plaintiff from being unjustly enriched." (Id. ) Finally, EOC argues that based on the GRCA's blue-penciling provision, "the Court has the authority to grant the relief of reimbursement to EOC because it is reasonably necessary to protect EOC's legitimate business interests and to achieve the original intent that EOC and Plaintiff had when executing the Covenant Agreement." (Id. at 7.)
In his own response, Baldwin argues that the Court is not authorized to require him to pay back the $2 million. Like EOC, he claims that there is no caselaw directly on point; however, he contends that his suggested outcome is dictated by the text of the GRCA. Baldwin first notes that the definitions of "modification" and "modify" contained within the definitions section of the GRCA only contemplate courts modifying restrictive covenants by enforcing and severing the terms within those agreements. See O.C.G.A. § 13-8-51(11), (12). He contends that this language only authorizes courts to modify the substantive terms of restrictive covenants, such as the scope, geographic reach, and duration of the restrictions, not the amount of money the parties exchanged in consideration for those terms. In contrast to the substantive terms, Baldwin argues that the amount of money he received from signing the agreement was — at most — consideration received in exchange for his agreement to those substantive restrictions. As such, it was not a term of the agreement that the court is authorized to modify.
As noted above, Baldwin also argues that the agreement was not supported by consideration. However, the Court has already found that Baldwin is not likely to succeed on the merits of that claim.
Baldwin argues that if courts could go beyond modifying the scope, time, and geography restrictions contained in restrictive covenants and modify the benefits parties pay or receive in consideration for those restrictions as well, it would only lead to more uncertainty among contracting parties. As a policy matter, he argues, "[a] precedent permitting court modification of the benefits paid to the restricted party would expand the uncertainty and complexity surrounding restrictive covenants." (Pl.’s Resp. to Suppl. Briefing Ord., Doc. 29 at 13.) He adds that this would undermine one of the GRCA's primary statutory purposes, which is to provide contracting parties with more certainty about the validity and enforceability of restrictive covenants. (Id. at 9–10) (citing O.C.G.A. § 13-8-50 ).
Though it is possible that EOC's proposal would better approximate the intent of the parties, it is far from clear what the correct monetary adjustment might be to ensure that each side gets the benefit of its bargain. To date, there is no record evidence to suggest what EOC would have paid Baldwin in exchange for the narrower restrictions authorized by this Court, or even what it would have paid him if there were no restrictions at all. Additionally, the only evidence before the Court that EOC paid a "premium" for the restrictions is EOC's own unquantified — and perhaps self-serving — representations in the hearing.
In any event, as Baldwin points out, nothing in the text of the GRCA gives courts the authority to modify the benefits paid to restricted parties. As Baldwin notes, the GRCA only seems to contemplate enforcing or cutting specific terms. Moreover, the Court shares Baldwin's concern about the policy implications of permitting courts to modify the value of the consideration that underlies restrictive covenants in addition to the substantive terms of the agreements themselves. Expanding the Court's equitable authority in such a way would likely create more uncertainty about the enforceability of restrictive covenants in specific circumstances, which would undercut one of the primary statutory purposes behind the GRCA.
If anything, the lack of caselaw in support of requiring Baldwin to pay back the delta appears to cut in favor of Baldwin's argument See (Pl.’s Resp. to Suppl. Briefing Ord., Doc. 29 at 11) ("Georgia caselaw does not appear to contain a decision in which a court altered the benefit of the bargain received by the restricted party as a commensurate measure to modification of the scope, time, or geography of a restrictive covenant."). To the extent Georgia courts have addressed this issue, the caselaw appears to support Baldwin's position rather than EOC's.
For example, in Hilb, Rogal & Hamilton Co. of Atlanta v. Holley , 295 Ga.App. 54, 670 S.E.2d 874 (Ga. Ct. App. 2008), disapproved of on other grounds by Rockdale Hospital, LLC v. Evans , 306 Ga. 847, 834 S.E.2d 77, 83 n.4 (Ga 2019), much like in this case, the employer sought to recover the money it paid in consideration for a restrictive covenant that the court had found to be invalid. However, the court determined that instead of exercising its equitable authority to reduce the payments the employee received in consideration for that invalid contract, it should instead leave the parties to the illegal contract where they stood. Id. at 876–77. Though EOC argues that Holley is inapplicable because it was decided before the enactment of the GRCA, nothing in the GRCA suggests that the Court should depart from this prior common law rule. The Court declines to do so here, and instead elects to leave the parties where they stand.
Granted, as EOC notes, narrowing the restrictions on Baldwin without requiring him to pay back any of the $2 million he received may not fully reflect the intent of the parties. But the GRCA's blue-penciling provision only requires the Court to "achieve the original intent of the contracting parties to the extent possible. " O.C.G.A. § 13-8-54(b) (emphasis added). The alternative in this case would be for the Court to decline to exercise its blue-penciling authority and strike the restrictions down in their entirety, while also allowing Baldwin to keep the full $2 million. Surely, at least from EOC's perspective, such a result would be a significantly worse reflection of the intent of the parties. So, in that respect, the Court's chosen course of allowing Baldwin to keep the money while requiring him to operate under a narrower set of restrictions — rather than eliminating the restrictions altogether — achieves the intent of the parties to the extent possible. The Court finds that the balance of the equities weigh in favor of granting that specific relief.
4. The Public Interest
The Court addresses the public interest element only briefly. In their briefing on this element, Baldwin argues that the public interest would be served by enforcing the GRCA to prevent unlawful restraints on competition, whereas EOC argues that granting injunctive relief "would contravene the public interest in upholding reasonable, expressly bargained-for contracts between sophisticated parties," (Def.’s Opp'n, Doc. 14 at 11.) Ultimately, the Court finds that the public interest would be best served by narrowing the restrictions contained in the restrictive covenant so that they comply with the GRCA. Simply put, there is no public interest in enforcing facially invalid contractual terms that amount to unlawful restraints on trade. Not to mention, by all accounts Baldwin is a highly talented employee, and the public would be better served with him working in the automotive repair industry instead of remaining on the sidelines.
IV. Conclusion
Despite the parties’ significant efforts to obtain their desired results through the engine of litigation, there is only so much the Court can do with the tools at its disposal. When all is said and done, this case may not have a perfect judicial solution.
No doubt, EOC would like some of its money back because it might not have paid as much for the franchises if it had known that Baldwin would be able to compete against it outside of his former service area. But the Court lacks the equitable authority to reduce Baldwin's share of the $2 million he received to what EOC would have paid him in consideration for the narrower restrictions authorized by this Order. At the same time, Baldwin would not like to be restricted at all. And the areas where the Court will preliminarily allow him to work or otherwise pursue business opportunities in the automotive service industry may not be the areas in which he wishes to pursue those opportunities. Additionally, the fact that the restrictions against Baldwin are narrowed only temporarily means that, as long as this case continues, both parties will have to live with some uncertainty.
Ideally, the outcome of this case would be one in which, as this Court previously remarked, the parties would be able to make peace and go on without their interests being severely damaged. The Court remains hopeful that the parties will be able to achieve that outcome through the avenue of a private settlement. The parties would have more flexibility to craft such a resolution on their own than the Court would by means of a judicially crafted remedy. But at this juncture, the Court finds that the following preliminary injunctive relief is warranted and modifies the restrictive covenant that may be enforced as follows:
Non-Competition Agreement. Baldwin covenants and agrees that, from the Effective Date hereof until theforty eighth (48)twenty-fourth (24) month anniversary of the date hereof (the "Term" ), he will not directly or indirectly (through an entity), engage in, invest in, become an owner of, advise, or become a landlord and/or lender of, or employed by, or construct a facility for an automotive repair or service business (other than Purchaser, if Baldwin and Purchaser agree for Baldwin to become an employee of Purchaser) ...(i) in the State of Georgia or the State of Alabama, or (ii)within a five (5) mile radius of any automotive repair or service facility business operated by Purchaser that Baldwin previously oversaw while he was overseeing Purchaser's franchises.in the continental United States (the "Non Competition Area" ). Notwithstanding the generality of the immediately preceding sentence, after the 18th month of the Term, the Non Competition Area will be reduced to only the area within a five (5) mile radius of any automotive repair or service facility business operated by Purchaser in the continental United States and Baldwin may become employed .by an automotive repair or service business (provided he does not have a direct or indirect ownership interest in the employer) within the Non Competition Area as so reduced; provided, however, all other covenants and restrictions of this Section 1 and Section 2 of this Agreement shall continue to be enforceable by the Purchaser throughout the retaining Term.
The Court concludes by addressing one final issue: EOC's request that Baldwin post a bond in the event his motion for interlocutory injunction is granted. Under Fed. R. Civ. P. 65(c), "The court may issue a preliminary injunction or a temporary restraining order only if the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained." In interpreting this rule, the Eleventh Circuit has advised, "it is well-established that ‘the amount of security required by the rule is a matter within the discretion of the trial court,’ " BellSouth Telecomms., Inc. v. MCIMetro Access Transmission Servs., LLC , 425 F.3d 964, 971 (11th Cir. 2005) (alterations in original) (quoting City of Atlanta v. Metro Atlanta Rapid Transit Auth. , 636 F.2d 1084, 1094 (5th Cir. Unit B 1981)).
The Court recognizes that a bond may be appropriate here given that the case presents arguably novel issues of law and the Court has authorized Baldwin to engage in direct competition with EOC's franchises, albeit in a limited fashion. The Court therefore finds that a $40,000 bond would be proper in these circumstances. However, the Court also recognizes that the parties may be in a better position to proceed with mediation to wrap up any outstanding concerns now that Baldwin's motion for interlocutory injunction has been ruled upon. And if the parties are able to reach a final resolution of this case through mediation, that would obviate the need for Baldwin to post a bond.
For all of the above reasons, the Court ORDERS the parties to proceed to mediation promptly and conclude the mediation within 40 days of the date of this Order. The Clerk of the Court is DIRECTED to assign this case for mediation to the next available magistrate on the mediation wheel. Counsel are DIRECTED to advise the Court no later than five days from the date of the conclusion of the mediation whether the case has been settled. If the mediation is not successful, Baldwin must post a bond in the amount of $40,000 within 15 days of the mediation. The Court directs the parties to advise the Court of the results of mediation within 5 days of the mediation's completion.
If the parties wish instead to proceed with private mediation, they should notify the Court of this as soon as possible, but in any event, no later than February 7, 2022.
The Clerk of the Court is DIRECTED to administratively close this case pending the completion of the mediation process. The parties are further DIRECTED to move to re-open the case if mediation proves unsuccessful.
IT IS SO ORDERED this 31st day of January, 2022.