Outrunning contractual noncompete undertakings: does the 11th Circuit's Palmer & Cay decision offer "earlybird specials" for Florida forum shoppers?

• Author: Wilson, Courtney B.

In Palmer & Cay, Inc. v. Marsh & McLennan Companies, 404 F. 3d 1297 (11th Cir. 2005), a panel of the 11th Circuit Court of Appeals held that Georgia's public policy narrowly restricting enforcement of otherwise valid noncompete agreements could ostensibly trump the public policy of other states with more significant contacts, solely because the former employee moved to Georgia and filed suit in Georgia. Although Palmer & Cay involved a conflict between Georgia law and New York/ Illinois law, the court's express reliance on a case involving parallel noncompete litigation in Florida and Georgia courts left no doubt as to the decision's important implications for Florida attorneys and their clients litigating noncompete cases. Under the apparently sweeping holding of Palmer & Cay, a Florida employer who entered into a noncompete, valid under F. S. [section] 542.335, with an employee living and working in Florida, could potentially be precluded from enforcing that contract in Florida, by the decision of a Georgia state or federal court having no prior connection to employer, the employee, or the contract.

In addition to the apparent inequity of the Palmer & Cay holding, it appears irreconcilable with prior decisions of another 11th Circuit panel, Keener v. Convergys, 312 F.3d 1235 (11th Cir. 2002), and a Georgia appellate court decision, Hostetter v. Answerthink, 599 S.E. 2d 271 (Ga. App. 2004), though Palmer & Cay purports to follow both decisions. This article suggests that all three decisions can be reconciled, and Palmer & Cay's apparent overbreadth limited, by positing that a hypothetical Florida court determining the preclusive effect of a prior judgment of the Georgia state or federal courts would follow Cerniglia v. C&D Farms, Inc., 203 So. 2d 1 (Fla. 1967). Cerniglia observes a distinction between noncompete agreements that are governed for all purposes by Georgia law, and therefore unenforceable anywhere, and those that are minimally connected to Georgia and therefore unenforceable only by Georgia courts in Georgia. Moreover, this is consistent with the Palmer & Cay recognition that the preclusive effect of a Georgia declaratory judgment in Florida, although governed by Georgia law, will be determined by the Florida court's interpretation and application of that law.

Keener v. Convergys (1)

Keener signed a noncompete, while he was working for Convergys in Ohio and the agreement provided for application of Ohio law. After five years, Keener resigned from Convergys, moved to Georgia, and became employed by a Convergys' competitor in Georgia. When Convergys learned of Keener's competitive activities, it notified his new employer of the noncompete and the new employer terminated Keener.

Keener filed suit in the federal district court in Georgia seeking a declaratory judgment and an injunction precluding enforcement of the noncompete, as well as damages for tortious interference. Convergys counterclaimed to enforce the noncompete. Addressing the threshold choice of law issue, the district court recognized some merit to Convergys' argument for Ohio law, in that that Keener "lived, worked, and performed on the contract in Ohio at the time it was entered" and never worked for Convergys in Georgia. (2) Recognizing that its decision "may wind up encouraging non-Georgia employees to 'flee to Georgia' to shed their NCAs," the court concluded that because Keener was now a Georgia resident, Georgia public policy dictated the result. (3) Thus, the court held Georgia law precluded enforcement of the noncompete as overbroad and not subject to being rewritten or "blue penciled" by the court. (4) Accordingly, the district court granted Keener's motion for summary judgment, found the noncompete unenforceable, and enjoined Convergys from attempting to enforce the agreement "in any court worldwide." (5)

On appeal to the 11th Circuit (Keener I), the court discerned a conflict in Georgia and 11th Circuit precedents as to when Georgia would apply its law to a noncompete with such a minimal connection to Georgia. Accordingly, Keener I certified to the Georgia Supreme Court the question of whether Georgia would follow the Restatement of Judgments [section] 187(2) requiring that Georgia find a "materially greater interest" than the contractually chosen forum [Ohio] before substituting its own law to invalidate a noncompete. (6)

Answering this question in the negative, the Georgia Supreme Court held Georgia would apply its statutory public policy, limiting enforcement of noncompete agreements, upon a mere finding that "there were significant contacts with the State of Georgia, such that the choice of our law was neither arbitrary nor constitutionally impermissible." (7) Nevertheless, in a concurrence, three justices expressed their constraint to follow the Georgia statute and urged the legislature to adopt the Restatement rule instead as more consistent with the "prime objectives of contract law" and the "justified expectations of the parties." (8) Answering only the certified question on choice of law, the Georgia Supreme Court offered no insight on the proper scope of remedies in such cases.

Echoing the reluctance expressed by the concurring justices of the Georgia Supreme court, Keener II held that the application of Georgia law was not arbitrary or constitutionally impermissible because Keener was living and working in Georgia "where the effects [of enforcing the noncompete] would be felt." (9) Accordingly, Keener II affirmed the district court's decision that the agreement was unenforceable "in toto, thus entitling Keener to declaratory and injunctive relief." (10) However, without specifically mentioning any corresponding declaratory judgment, Keener II held that district court abused its discretion in failing to limit the injunction to Georgia:

Georgia of course is entitled to enforce its public policy interests within its boundaries and, in the circumstance that litigation over an NCA is initiated in Georgia, it may employ that public policy to override a contracted choice...