Summary
affirming Georgia's continued adherence to the traditional lex loci contractus rule
Summary of this case from Munoz v. Selig Enters.Opinion
S03Q0400.
DECIDED: May 19, 2003 Reconsideration Denied July 11, 2003
Certified question from the United States Court of Appeals for the Eleventh Circuit.
Callaway, Braun, Riddle Hughes, Dana F. Braun, for appellant.
Hunter, Maclean, Exley Dunn, Wade W. Herring II, Colin A.B. McRae, for appellee.
James A. Keener sued his former employer, Convergys Corporation (Convergys) in a diversity action in the United States District Court for the Southern District of Georgia. Keener sought a declaratory judgment that a nondisclosure and noncompetition agreement he had executed with Convergys was overbroad and unenforceable under Georgia law; an injunction preventing Convergys from enforcing the agreement; and damages for tortious interference with his employment at one of Convergys' competitors. Convergys counterclaimed for an injunction enforcing the agreement; alternatively, for restitution of the consideration paid to Keener; and for attorney fees. Although the agreement contained a choice of law selection clause declaring that it be governed by the law of the state of Ohio, the district court refused to give effect to that provision on the basis that the application of Ohio law would contravene the public policy of Georgia. Concluding that the agreement is unenforceable under Georgia law, the district court granted Keener's summary judgment, permanently enjoined Convergys from enforcing the agreement, and dismissed Convergys' counterclaim.
Convergys appealed to the United States Court of Appeals for the Eleventh Circuit, which certified the following question of Georgia law to this Court:
"Whether a court applying Georgia conflicts of laws rules [must] follow the language of Restatement (Second) Conflict of Law § 187(2) and, therefore, first must ascertain whether Georgia has a `materially greater interest' in applying Georgia law, rather than the contractually selected forum's law, before it elects to apply Georgia law to invalidate a non-compete agreement as contrary to Georgia public policy."
Because the Restatement (Second) Conflicts of Law has never been adopted in Georgia, and because we continue to refuse to enforce contractual rights which contravene the policy of Georgia, we answer in the negative.
In 1984 Keener began working for Convergys' predecessor company Cincinnati Bell Information Systems (CBIS), an Ohio corporation, and remained employed with CBIS through its evolvement into what is now Convergys. In 1995 Keener executed the nondisclosure and noncompetition agreement with CBIS as a condition of his continued employment, and he was granted stock options as consideration for the agreement. The agreement contained time, subject matter and geographic restrictions, as follows:
Employee agrees for two years following termination of employment for any reason (or if this period is unenforceable by law, then for such period as shall be enforceable), not to engage in any business offering services related to the business of the Company at the time of termination in any capacity which requires or utilizes the skill, training or knowledge acquired by Employee while employed by the Company, whether such capacity be as a principal, partner, joint venturer, agent, employee, salesperson, consultant, director or officer, where such position would involve Employee in any business activity in competition with the Company or in any business that provides billing and/or customer care systems to third parties engaged in the communication business (including wireless, wireline and cable communication businesses). This restriction will be limited to the geographical area where the Company is doing business as the termination of employment or to such other geographical area as a court shall find reasonably necessary to protect the goodwill and business of the Company.
In 2001 Keener voluntarily left Convergys and relocated to Georgia to accept a position with H.O. Systems, a competitor of Convergys, located in Savannah. Later that year, while Keener was making a sales call for H.O. Systems, he happened to cross paths with a Convergys salesperson. That day, Keener received a call from Convergys' legal department reminding him of the noncompetition agreement. Subsequently, both Keener and H.O. Systems received letters demanding that Keener cease his employment with H.O. Systems. Eventually, Keener and H.O. Systems terminated their employment relationship by mutual agreement.
The issue presented by this appeal was squarely before this Court inNasco v. Gimbert, 239 Ga. 675(2) ( 238 S.E.2d 368) (1977). There, an employer brought suit in Georgia, seeking injunctions and damages against a former employee based upon noncompetition, nonsolicitation, and nondisclosure covenants in an employment agreement. The agreement specified that it would be construed according to Tennessee law. However, the trial court applied the law of Georgia and refused to enforce the covenants, granting summary judgment to the employee defendant. An appeal was taken to this Court. After first ascertaining that there were significant contacts with the State of Georgia, such that the choice of our law was neither arbitrary nor constitutionally impermissible, seeAll-State v Hague, 449 U.S. 302 ( 101 S.Ct. 633, 66 L.Ed.2d 521) (1981), this Court affirmed, holding that:
The law of the jurisdiction chosen by parties to a contract to govern their contractual rights will not be applied by Georgia courts where application of the chosen law would contravene the policy of, or would be prejudicial to the interests of, this state. [Cits.] Covenants against disclosure, like covenants against competition, affect the interests of this state, namely the flow of information needed for competition among businesses, and hence their validity is determined by the public policy of this state. [Cits.]
Id. at 676(2).
The rationale for this decision was shown to be former Georgia Code § 102-110 (now OCGA § 1-3-9) ("courts shall enforce [the comity of states], unless restrained by the General Assembly, so long as its enforcement is not contrary to the policy or prejudicial to the interests of this state"), and this Court's holding in Ulman c. Woolen Co. v. Magill, 155 Ga. 555 ( 117 S.E. 657) (1923). The Ulman decision simply applied the foregoing Code section in reaching the conclusion that Georgia would not enforce a Missouri contract that violated public policy in this state. On this principle, the cases are legion. E.g., Hulcher Services v. Corman R. Co., 247 Ga. App. 486(2) ( 543 S.E.2d 461) (2000) (selection of choice of Texas law will not be followed where it flagrantly contravenes the public policy of Georgia);Federal Ins. Co. v. National Distributing Co., 203 Ga. App. 763(1) ( 417 S.E.2d 671) (1992) (Restatement approach has been rejected in Georgia and the traditional method retained); Enron Capital c. v. Pokalsky, 227 Ga. App. 727(3) ( 490 S.E.2d 136) (1997) (although the parties may have chosen the law of a foreign jurisdiction to govern, a Georgia court will not enforce the contract if it is "particularly distasteful"); Merrill Lynch, Pierce, Fenner Smith v. Stidham, 658 F.2d 1098, 1100 fn. 5 (5th Cir. 1981); Barnes Group v. Harper, 653 F.2d 175, 178 fn. 4 (Fifth Cir. Unit B) (1981); Marketing and Research Counselors v. Booth, 601 F. Supp. 615 (1985).
We reaffirmed our commitment to the traditional choice of law rules inGeneral Tel. Co. v. Trimm, 252 Ga. 95 ( 311 S.E.2d 460) (1984). Again by way of certified question from the Eleventh Circuit, this Court was faced with the question of whether Georgia adhered to the traditional rule of lex loci contractus in cases involving conflicts of law, or if Georgia had adopted the Restatement (Second) of Conflicts § 188 (1971) "center of gravity test" to determine which state law governs contractual disputes. We expressly rejected the Restatement center of gravity test noting that it "is neither less confusing nor more certain than our traditional approach." Trimm, supra at 96.
"Under this approach, `[contracts] are to be governed as to their nature, validity, and interpretation by the law of the place where they were made, except where it appears from the contract itself that it is to be performed in a State other than that in which it was made, in which case . . . the laws of that sister State will be applied.' [Cit.]"Trimm, supra at 95.
"The center of gravity theory (also known as the `grouping of contacts' theory) requires the court to examine five factors in order to determine which state law to apply in contract cases involving choices of law. These factors include (1) the place of contracting, (2) the place of negotiation of the contract, (3) the place of performance, (4) the location of the subject matter of the contract, and (5) the domicile, residence, nationality, place of incorporation, and place of business of the parties. Restatement (Second) of Conflicts § 188 (1971)." Trimm supra at 96.
However, in Nordson Corp. v. Plasschaert, 674 F.2d 1371 (11th Cir. 1982), the Eleventh Circuit reached a contrary conclusion in reviewing a case involving Georgia choice of law rules. The Nordson court determined that Georgia would honor a choice of law provision in a covenant not to compete which provided that the agreement would be governed by Ohio law, even though the terms of the covenant would not be enforceable under Georgia law. Recognizing that "[e]ven when the contract provides for a choice of law under which the covenant would be enforceable, Georgia may elect not to enforce it," id. at 1374, the Nordson court nonetheless looked to the "materially greater interest" test embodied in the Restatement (Second) of Conflict of Laws § 187(2) (1971), and then conducted its analysis based on the Restatement factors. In so doing, the Eleventh Circuit claimed to be guided by this Court's decision inNasco. However, this Court did not adopt § 187(2) of the Restatement in Nasco; the single reference to that provision was prefaced with the introductory signal "see," and followed in a separate sentence the citation of authority which directly supported the proposition that Georgia courts will not apply chosen law which would contravene the policy of, or would be prejudicial to the interests of, this state, namely, OCGA § 1-3-9 and Ulman c. Woolen Co. v. Magill, supra. Nasco, supra at 676. Thus, Nordson erroneously interpreted Nasco and is in direct conflict with that case. The Eleventh Circuit perpetuated the error in Bryan v. Hall Chemical, 993 F.2d 831 (11th Cir. 1993), by relying on its erroneous holding in Nordson.
The Restatement (Second) of Conflict of Laws § 187(2) provides:
(2) The law of the State chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either
(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or
(b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188 (Law Governing in Absence of Effective Choice by the Parties), would be the state of the applicable law in the absence of an effective choice of law by the parties.
An introductory signal is not to be used if the cited authority directly supports the stated proposition. The Harvard Law Review Association, the Bluebook: A Uniform System of Citation (2000), § 1.2(a).
The district court recognized the error: "Nordson's reasoning itself is questionable . . . the Nordson decision is in direct conflict with . . . Nasco." Keener v. Convergys, 205 F. Supp. 1374 (S.D.Ga. 2002). See also Booth, supra at 616.
In Trimm, supra at 96, we stated that we would adhere to the traditional rules until "it becomes clear that a better rule exists." We recognize that some of our sister states have developed analyses which seem to be derived from the Restatement provisions. But despite the adoption of some very complex rules in these jurisdictions, in actuality it does not appear that these rules are outcome determinative. Instead, the cases seem to turn on a court's interpretation of its own public policy considerations. Therefore, until we are convinced that there is a better approach, Georgia will continue to adhere to the traditional conflicts of law rules.
E.g., Raflo v. U.S., 157 F. Supp.2d 1 (D.D.C. 2001); Application Group v. Hunter Group, 61 Cal.App.4th 881 (1st Dist. 1998); Fu v. Fu, 733 A.2d 1133 (N.J. 1999); State Farm v. Simmons' Estate 417 A.2d 488, 493 (N.J.) (1980).
Question Answered. All the Justices concur.
DECIDED MAY 19, 2003 — RECONSIDERATION DENIED JULY 11, 2003.
Although I am constrained by OCGA § 1-3-9 to concur in the judgment of the majority opinion, I write separately to urge our General Assembly to adopt the rule of the Restatement (Second) of Conflict of Laws § 187(2), concerning when the courts of this State will honor the law of another state that the parties to a contract have chosen to govern their contractual relationship. The Restatement rule has several advantages over the more restrictive rule represented by § 1-3-9. It recognizes that "persons are free within broad limits to determine the nature of their contractual obligations," and, with regard to multistate transactions, it fosters the "[p]rime objectives of contract law" "to protect the justified expectations of the parties and to make it possible for them to foretell with accuracy what will be their rights and liabilities under the contract." In addition, the Restatement rule provides adequate protection to the policies of this state by providing that if Georgia has a "materially greater interest" in the resolution of the issue in question than the state chosen by the parties and that if the policy of the chosen state is contrary to the fundamental policy of this state, this state may apply its own laws to the issue in question.
In this regard, under the principles set forth in Allstate Insurance Co. v. Hague, 449 U.S. 302 ( 101 S.Ct. 633, 66 L.Ed.2d 521) (1981), I see no constitutional impediment to the application of Georgia law in this case.
Under § 187(2), the law chosen by the parties will govern unless
(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or
(b) the application of the law of the chosen state would be contrary to a fundamental policy of a state that has a materially greater interest than the chosen state . . . .
Restatement (Second) Conflict of Laws § 187, Commente.
For the foregoing reasons, I concur in the majority opinion. I am authorized to state that Chief Justice Fletcher and Justice Carley join in this concurrence.