William J. Becham, Jr. v. Synthes, USA

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________ FILED
U.S. COURT OF APPEALS
No. 11-14495 ELEVENTH CIRCUIT
JUNE 4, 2012
Non-Argument Calendar
JOHN LEY
________________________
CLERK
D.C. Docket No. 5:11-cv-00073-MTT
WILLIAM J. BECHAM, JR.,
Plaintiff-Counter Defendant-Appellee,
CROSSLINK ORTHOPAEDICS, LLC,
Counter Defendant-Appellee,
versus
SYNTHES USA,
SYNTHES SPINE COMPANY LP,
NORIAN CORPORATION,
SYNTHES MAXILLOFACIAL INC.,
SYNTHES SPINE INC.,
SYNTHES NORTH AMERICA INC.,
Defendants-Appellants,
SYNTHES USA, LLC,
SYNTHES USA PRODUCTS, LLC,
SYNTHES USA SALES, LLC,
Counter Claimants-Appellants.
________________________
Appeal from the United States District Court
for the Middle District of Georgia
________________________
(June 4, 2012)
Before CARNES, WILSON, and COX, Circuit Judges.
PER CURIAM:
The Defendants (collectively “Synthes”) appeal the district court’s grant of
summary judgment to Plaintiff William J. Becham, Jr. The court concluded that each
of the restrictive covenants in Becham’s employment contract was unenforceable
under Georgia law. We reach the same conclusion albeit for different reasons. Thus,
we affirm.
I. FACTS
A. Georgia’s Law on Restrictive Covenants
Georgia’s law on restrictive covenants is central to the issues raised by
Synthes. We discuss this law first.
Before 2011, Georgia law disfavored restrictive covenants. See Convergys
Corp. v. Kenner, 582 S.E.2d 84, 85–86 (Ga. 2003). Georgia’s constitution also
forbade the state’s legislature, the General Assembly, from authorizing restrictive
covenants. See Jackson & Coker, Inc. v. Hart, 405 S.E.2d 253, 254 (Ga. 1991).
2
But, the law can change. In 2009, the General Assembly approved HR 178,
which placed a constitutional amendment on the November 2010 ballot. This
amendment granted the General Assembly the power “to authorize and provide by
general law for judicial enforcement of contracts or agreements restricting or
regulating [certain] competitive activities . . . .” H.R. Res. 178, 150th Gen. Assemb.,
Reg. Sess. (Ga. 2009). Perhaps due to oversight, the General Assembly omitted an
effective date for this amendment.
Anticipating that Georgia’s citizens would approve the constitutional
amendment, the General Assembly enacted HB 173. See 2009-1 Ga. Code Ann. Adv.
Legis. Serv. 145 (LexisNexis). This act purported to authorize previously unlawful
restrictive covenants. For example, HB 173 permitted courts to reform overly broad
restrictive covenants so that they could be enforced. See Ga. Code Ann. § 13-8-54(b)
(repealed 2011). HB 173 also deemed the duration of certain covenants to be
presumptively reasonable. See Ga. Code Ann. § 13-8-56 (repealed 2011).
Because the General Assembly did not yet have the power to enact HB 173, it
made the act’s effective date contingent upon ratification of the constitutional
amendment. Specifically, HB 173 said it would become effective the day after
Georgia’s citizens ratified the amendment. 2009-1 Ga. Code Ann. Adv. Legis. Serv.
3162 (LexisNexis). HB 173 also specified that it “shall apply to contracts entered into
on and after [its effective date].” Id.On November 2, 2010, Georgia’s citizens approved the constitutional
amendment. But, because the amendment lacked an effective date, it did not
immediately go into effect. Instead, pursuant to the Georgia constitution, the
amendment became effective on January 1, 2011. HB 173, on the other hand, went
into effect the next day—November 3, 2010.
The General Assembly was concerned about the gap in the effective date of HB
173 and the constitutional amendment. See 2011-2 Ga. Code Ann. Adv. Legis. Serv.
136 (LexisNexis). During the 2011 legislative session, it passed HB 30, which
repealed HB 173 and then substantially reenacted its provisions with only a few
changes. The governor signed HB 30 into law on May 11, 2011, and it became
effective that same day. However, HB 30 said it applied “to contracts entered into on
and after [its effective date] and [that it] shall not apply in actions determining the
enforceability of restrictive covenants entered into before such date.” Id. at 147.
4
B. Becham’s Employment with Synthes1
Becham began working for Synthes in 2000. He sold medical and bone
implant devices to hospitals and healthcare providers in and around Macon, Georgia.
When Becham started work for Synthes, he signed an employment contract. That
contract included four restrictive covenants: (1) a noncompete covenant; (2) a
nonsolicitation-of-customers covenant; (3) a nonsolicitation-of-employees covenant;
and (4) a nondisclosure covenant. We refer to these agreements as “the Restrictive
Covenants.”
The noncompete covenant provided:
I agree I will not, for a period of one year after my employment
terminates for any reason, work for (as an employee, consultant,
contractor, agent or representative) any competitor of Synthes in the
territory or territories that I am now, or have been responsible for at any
time during the last year of my employment with Synthes.
(Dkt. 1-1 at 3.) A competitor means “any persons or entities who . . .
sell . . . orthopedic, bone fixation, maxillofacial medical, endoscopic and/or spinal
implant device or instrumentation technologies, products, or services.” (Id.)
The nonsolicitation-of-customers covenant provided:
I will not, for a period of one year after my employment with Synthes
terminates for any reason, solicit or contact, directly or through others,
1
Because we are reviewing a motion for summary judgment, we state the facts in the light
most favorable to Synthes.
5
for the purpose of competing or interfering with any part of Synthes’
business, (1) any customer of Synthes that I solicited at any time during
the last three years of my employment; (2) any prospective customer of
Synthes that received or requested a proposal or offer from me on behalf
of Synthes at any time during the last three years of my employment; or
(3) any customer or prospective customer of Synthes for which I had any
responsibility, directly or indirectly, at any time during the last three
years of my employment.
(Id.)
The nonsolicitation-of-employees covenant provided:
I will not, for a period of one year after my employment with Synthes
terminates, directly or indirectly solicit any employee of Synthes to
leave their employment with Synthes, offer any employee of Synthes
employment elsewhere, or hire any employee of Synthes to work
elsewhere.
(Id.)
The nondisclosure covenant provided:
At all times during and after my employment with Synthes, I will not
disclose or communicate any [proprietary] information to any competitor
or other third party, or use or refer to any of this information for any
purpose . . . .
(Dkt. 1-1 at 2.) Propriety information includes: (1) the identity of customers; (2) the
prices and terms of customer contracts; (3) marketing and sales strategies; and (4)
certain other nonpublic financial and business information. The nondisclosure
covenant applies to Becham in perpetuity.
6
In November 2010, Becham decided to leave Synthes at the end of the year.
He told his manager about his decision, and his manager emailed Becham the terms
of his separation. Relevant here, Synthes promised to compensate Becham until the
end of the year and to pay him $20,521.28 in commissions on January 15, 2011. In
exchange, Synthes asked Becham to honor the Restrictive Covenants. Becham
emailed his acceptance of Synthes’s terms on December 1, 2010.
But, Synthes did not pay Becham his commissions on January 15. Instead, the
parties continued in negotiations, and Becham, allegedly, made a new promise to
honor the Restrictive Covenants in January 2011. Synthes eventually paid Becham
the $20,521.28 in commissions on January 31.
Less than a month later, Becham filed this suit. He sought a declaration that
the Restrictive Covenants are unenforceable. The next week, Becham started work
for Synthes’s competitor CrossLink Orthopaedics, LLC. Becham then moved for
summary judgment on his claims. In September 2011, the district court decided that
Georgia’s law governs the Restrictive Covenants, and that these covenants are
unenforceable. It granted summary judgment to Becham. Following final judgment,
Synthes appeals.
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II. DISCUSSION
“We review a grant of summary judgment de novo, applying the same legal
standards that bind the district court.” Midrash Sephardi, Inc. v. Town of Surfside,
366 F.3d 1214, 1222–23 (11th Cir. 2004) (citation omitted). “[A] federal court sitting
in diversity will apply the choice of law rules for the state in which it sits.” Manuel
v. Convergys Corp., 430 F.3d 1132, 1139 (11th Cir. 2005) (citing Klaxon Co. v.
Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S. Ct. 1020, 1021 (1941)).
In this case, the district court was bound to apply Georgia’s choice-of-law
rules. We can affirm on any basis supported by the record. United States v.
$121,100.00 in U.S. Currency, 999 F.2d 1503, 1507 (11th Cir. 1993) (citation
omitted).
Synthes first contends that the district court applied the wrong law. The district
court applied Georgia law. Becham’s employment contract chooses Pennsylvania
law. A choice-of-law clause is generally enforceable in Georgia. See Carr v. Kupfer,
296 S.E.2d 560, 562 (Ga. 1982). But, a Georgia court will not enforce a choice-of-
law provision when the application of foreign law would violate Georgia’s public
policy. See Nasco, Inc. v. Gimbert, 238 S.E.2d 368, 369 (Ga. 1977)
Before November 2010, Georgia’s public policy on restrictive covenants was
clear. Georgia’s courts refused to enforce a choice-of-law clause when it would
8
validate a restrictive covenant that was invalid under Georgia law. See, e.g.,
Convergys Corp., 582 S.E.2d at 85–86. Synthes contends that Georgia’s public
policy shifted in November 2010 to support the broad enforcement of restrictive
covenants. It argues that the district court erred by not considering Georgia’s new
public policy.
In November 2010, Georgia did two things that could have changed its public
policy on restrictive covenants. First, Georgia’s citizens ratified a constitutional
amendment granting the General Assembly the power to enact legislation concerning
restrictive covenants. Second, HB 173, which purported to authorize the enforcement
of previously unenforceable restrictive covenants, went into effect. We conclude
neither of these events altered Georgia’s public policy on restrictive covenants.2
First, the November 2010 constitutional amendment did not change Georgia’s
public policy on restrictive covenants. The text of that amendment says nothing
about Georgia’s public policy. Rather the amendment addresses the power of
2
Synthes urges us to look to the “prevailing social and moral attitudes” of Georgia’s citizens
to find the state’s public policy on restrictive covenants. See Goodwin v. George Fischer Foundry
Sys., Inc., 769 F.2d 708, 713 (11th Cir. 1985). We cannot do that. In Georgia, “[c]onstitutions and
statutes are declarations of public policy . . . [and are] the sources that are first to be considered and
that often may be conclusive” in determining that public policy. See Strickland v. Gulf Life Ins. Co.,
242 S.E.2d 148, 151 (Ga. 1978) (emphasis added) (quotation omitted). Regarding the enforcement
of restrictive covenants, Georgia’s General Assembly has clearly said that “[a]ny restrictive covenant
not in compliance with [Georgia law] is unlawful and is void and unenforceable.” Ga. Code Ann.
§ 13-8-53(d) (repealed and reenacted 2011). Under Strickland, this statutory directive is a conclusive
statement of Georgia’s public policy.
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Georgia’s General Assembly to legislate. It grants the General Assembly the power
“to authorize and provide by general law for judicial enforcement of contracts or
agreements restricting or regulating [certain] competitive activities . . . .” H.R.
Res. 178, 150th Gen. Assemb., Reg. Sess. (Ga. 2009). Because the amendment
addressed only the power of the General Assembly, it did not affect Georgia’s public
policy on restrictive covenants. See Foster v. Brown, 34 S.E.2d 530, 534-35 (Ga.
1945). Until the General Assembly acted, Georgia’s public policy remained
unchanged. See id.Of course, the General Assembly did act to change Georgia’s public policy.
It anticipated that Georgia’s voters would approve the constitutional amendment and
enacted HB 173. This act directs Georgia’s courts to enforce many previously
unlawful restrictive covenants. To the extent that the restrictive covenants are
enforceable under HB 173, the application of Pennsylvania law would not offend
Georgia’s public policy.
The district court treated HB 173 as if it became effective on January 1,
2011—the same day the constitutional amendment became effective. The district
court also concluded that HB 173 did not apply retroactively. But, that is not exactly
right. By its terms, HB 173 became effective on, and applies to all contracts entered
on or after, “the day following the ratification at the time of the 2010 general election
10
of an amendment to the Constitution of Georgia.” 2009-1 Ga. Code Ann. Adv. Legis.
Serv. 162 (LexisNexis). That day was November 3, 2010. Because Becham
promised to abide by the Restrictive Covenants on December 1, 2010, HB 173 applies
to these agreements.
It is clear that the Restrictive Covenants would be at least partially enforceable
under HB 173.3 Becham does not argue to the contrary. Instead, he contends that HB
173 is unconstitutional and void. We agree.
HB 173 was approved by the legislature in 2009 and became effective on
November 3, 2010. In Georgia, a statute’s constitutionality is tested at the time it was
passed. See Comm’rs of Roads & Revenues of Fulton Cnty. v. Davis, 102 S.E.2d 180,
182–83 (Ga. 1958).4 On November 3, 2010, Georgia’s constitution prohibited the
General Assembly from enacting any legislation authorizing the enforcement of
3
HB 173 permits the modification of a “a covenant that is otherwise void and unenforceable
so long as the modification does not render the covenant more restrictive with regard to the employee
than as originally drafted by the parties.” Ga. Code Ann. § 11-8-53(d) (repealed 2011). The act
directs Georgia’s courts to “construe a restrictive covenant to comport with the reasonable intent and
expectations of the parties . . . and in favor of providing reasonable protection to all legitimate
business interests established by the person seeking enforcement.” Ga. Code Ann. § 13-8-54(a)
(repealed 2011). The act further permits the courts to modify an otherwise unenforceable restrictive
covenant to “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.” Ga. Code Ann. § 13-8-
54(b) (repealed 2011).
4
We note that Commissioners of Roads & Revenues of Fulton County v. Davis, 102 S.E.2d
180 (Ga. 1958), and Jones v. McCaskill, 37 S.E. 724 (Ga. 1900), may require us to test HB 173's
constitutionality at the time the legislature approved that act rather than the date it became effective.
We need not resolve this state law question because HB 173 is unconstitutional at either time.
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restrictive covenants. See Jackson & Coker, Inc., 405 S.E.2d at 254–55. As such,
HB 173 was unconstitutional and void the moment it went into effect. Davis, 102
S.E.2d at 183.
The constitutional amendment authorizing HB 173 went into effect on January
1, 2011. This event did not revive HB 173. In Georgia, the only way to “revive” an
unconstitutional statute is to reenact that statute. See id. (citing Grayson-Robinson
Stores, Inc. v. Oneida, Ltd., 75 S.E.2d 161, 164 (Ga. 1953)). The General Assembly
did substantially reenact HB 173 after the constitutional amendment went into effect.
It passed HB 30, which became law on May 11, 2011. But HB 30 does not apply “in
actions determining the enforceability of restrictive covenants entered into before”
May 11, 2011. 2011-2 Ga. Code Ann. Adv. Legis. Serv. 147 (LexisNexis). Thus, HB
30 does not apply to the Restrictive Covenants.
Because HB 173 is unconstitutional, the General Assembly did not act to
change Georgia’s public policy on restrictive covenants. Therefore, the district court
did not err in applying Georgia law.
Synthes next contends the district court resolved material issues of fact in favor
of Becham. It contends that a material issue of fact exists about whether or not
Becham promised to abide by the Restrictive Covenants in January 2011. This
argument assumes that Georgia’s public policy on restrictive covenants changed on
12
January 1, 2011. Because we conclude that Georgia’s public policy did not change
until May 2011, this argument fails.5
Finally, Synthes contends that, even if Georgia’s public policy did not change,
the district court erred in its application of “old” Georgia law. We disagree. The
reasonableness of a restrictive covenant is generally a question of law for the court.
See Orkin Exterminating Co. v. Walker, 307 S.E.2d 914, 916 (Ga. 1983). Each of the
restrictive covenants in this case is unreasonable as a matter of law and, therefore,
void and unenforceable.
First, the noncompete covenant fails because it contains “a territorial limitation
not determinable until the time of the employee’s termination.” Jarrett v. Hamilton,
346 S.E.2d 875, 877 (Ga. Ct. App. 1986); see Orkin Exterminating v. Pelfrey, 227
S.E.2d 251, 252 (Ga. 1976) (“[T]he provisions of an employment contract which
allow the employer to assign the employee to any territory it desires with the
restrictive covenants following the employee is too indefinite to be enforced.”).
Becham’s noncompete covenant covers “the territory or territories that [he
was] . . . responsible for during the last year of [his] employment with Synthes.”
5
Sythnes contends that the district court resolved two other disputed facts in favor of
Becham. First, the district court concluded that Becham’s assigned territory was Macon, Georgia.
(Dkt. 36 at 11 n.5, 13 n.9.) Second, it concluded that Becham was not the “heart and soul” of
Synthes’s business. (Dkt. 36 at 13.) Even if we assume the district court improperly resolved these
issues, the Restrictive Covenants would still be unenforceable under Georgia law for the reasons
discussed below.
13
(Dkt. 1-1 at 3.) Becham could not know, until his termination, where he was
prohibited from working. Therefore, the covenant is too indefinite to be enforced.
See Jarrett, 346 S.E.2d at 877; Durham v. Stand-By Labor of Georgia, Inc., 198
S.E.2d 145, 149 (Ga. 1973). Because the noncompete covenant fails, the
nonsolicitation-of-customers covenant also fails. See Ward v. Process Control Corp.,
277 S.E.2d 671, 673 (Ga. 1981) (citation omitted).
Similarly, the nonsolicitation-of-employees covenant fails because it lacks any
territorial limitation. This covenant forbids Becham from soliciting any Synthes
employee anywhere in the world. Thus, it is unreasonable and unenforceable. See
MacGinnitie v. Hobbs Group, LLC, 420 F.3d 1234, 1242 (11th Cir. 2005) (citing
Hulcher Servs., Inc. v. R.J. Corman R.R. Co., L.L.C., 543 S.E.2d 461, 467 (Ga. Ct.
App. 2000).
Finally, the nondisclosure covenant fails because it did not contain a time
limitation. See Howard Schultz & Assoc. v. Broniec, 236 S.E.2d 265, 270 (Ga. 1977)
(citation omitted); U3S Corp. of Am. v. Parker, 414 S.E.2d 513, 517 (Ga. Ct. App.
1991).
Therefore, the district court did not err when it concluded the Restrictive
Covenants are void and unenforceable under “old” Georgia law.
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III. CONCLUSION
Because Synthes has not shown reversible error, we affirm the judgment of the
district court.
AFFIRMED.
15