Curtis 1000, Inc. v. Martin

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 06a0563n.06
Filed: August 4, 2006
No(s) 05-5590/5592
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
CURTIS 1000, INC., )
) ON APPEAL FROM THE
Plaintiff-Appellee, ) UNITED STATES DISTRICT
) COURT FOR THE MIDDLE
v. ) DISTRICT OF TENNESSEE
)
GEORGE B. MARTIN, DAVID L. BEAN, and ) OPINION
AMERICAN BUSINESS FORMS, d/b/a/ )
AMERICAN SOLUTIONS FOR BUSINESS, INC., )
)
Defendants-Appellants. )
BEFORE: DAUGHTREY and COLE, Circuit Judges; GRAHAM, District Judge.*
R. GUY COLE, JR., Circuit Judge. Defendants-Appellants George B. Martin, David L.
Bean, and American Business Forms d/b/a American Solutions for Business, Inc. (“ASB”) appeal
a preliminary injunction entered against them and in favor of Plaintiff-Appellee Curtis 1000, Inc.
(“Curtis 1000”). In the district court, Curtis 1000 sought injunctive relief against Martin and Bean
for breaching restrictive covenants contained in their employment agreements, and against ASB for
procurement of breach of contract and intentional interference with Martin’s and Bean’s contracts.
The district court granted the requested preliminary injunctions. It is from the granting of injunctive
*
The Honorable James L. Graham, Senior United States District Judge for the Southern
District of Ohio, sitting by designation.
relief that the defendants appeal. Additionally, the defendants seek certification of a question to the
Supreme Court of Georgia.
For the following reasons we REVERSE the district court’s grant of a preliminary injunction
against Martin, AFFIRM the district court’s grant of a preliminary injunction against Bean,
REVERSE the district court’s grant of a preliminary injunction against ASB insofar as that
injunction relates to ASB’s relationship with Martin, AFFIRM the district court’s grant of a
preliminary injunction against ASB insofar as that injunction relates to ASB’s relationship with
Bean, and REMAND to the district court for proceedings consistent with our opinion. Further, we
DENY the defendants’ motion to certify a question to the Supreme Court of Georgia.
I.
Curtis 1000 sells custom-printed products through sales representatives who are assigned to
specific geographic territories. Curtis 1000 markets items it manufactures as well as items
manufactured by other companies. As a direct competitor to Curtis 1000, ASB sells similar products
through sales representatives. These sales representatives, however, are not limited to a geographic
area. ASB is not in the manufacturing business; therefore, it fills customer orders solely through
other vendors.
Martin and Bean were both hired by Curtis 1000 in 1984 as sales representatives and were
assigned different sales territories in Central Tennessee. Throughout their employment, Martin and
Bean received training at Curtis 1000’s corporate office in Atlanta, Georgia. The training included
issues of confidentiality of Curtis 1000 customer information and document retention and
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destruction. Martin and Bean were both responsible for building their own client bases, and Curtis
1000 did not reimburse either of them for ordinary business expenses they incurred.
Martin and Bean both signed agreements with Curtis 1000, which contained restrictive
covenants that would apply if either resigned. Bean’s agreement was executed on June 22, 1984,
and specified that it was governed by the laws of Delaware. In pertinent part it reads:
(a) . . . [T]he Sales Representative will acquire by reason of his employment valuable
information concerning the Company’s accounts, customers . . ., business methods,
procedures, and techniques. Any and all such information other than known
generally by persons not affiliated or formerly affiliated with the Company is to be
treated by the Sales Representative as “Confidential Information.” The Sales
Representative agrees that he will not, for a period of two years immediately
following the termination of his employment, disclose any Confidential Information,
in whole or in part, directly or indirectly, to any person or persons not employed by
the Company at the time of disclosure.
...
(d) . . . [T]he Sales Representative hereby expressly covenants and agrees . . . that he
will not, in the territory assigned to him . . . for a period of two years immediately
following the termination of his employment, directly or indirectly, either solely for
his own benefit or for the benefit of another, as that person’s agent, employee,
partner, or joint venturer;
(i) solicit, or provide assistance to another in the taking or soliciting of orders for
printing, envelopes, business forms or other products marketed by the Company and
which Sales Representative was authorized to sell, from any customer account to
which the Sales Representative or the Company made one or more sales during the
two years immediately preceding the termination of Sales Representative’s
employment and on whom Sales Representative called for the purpose of soliciting
business for the Company;
(ii) call upon or assist another in calling upon any customer account to whom the
Sales Representative or Company made one or more sales during the two years
immediately preceding the termination of Sales Representative’s employment and
on whom the Sales Representative called for the purpose of soliciting business for
the Company, for the purpose of selling or soliciting the sale of any product which
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is the same or similar to those products marketed or sold by the Company which the
Sales Representative was authorized to sell while employed by the Company;
(iii) solicit, or provide assistance to another in the taking or soliciting of, orders for
printing, envelopes, business forms or other products marketed by the Company and
which Sales Representative was authorized to sell, from any customer account
“followed” by the Sales Representative . . . on whom Sales Representative called,
within the two years immediately preceding the termination of Sales
Representative’s employment, for the purpose of soliciting business for the
Company.
Martin’s agreement was executed on February 21, 1991, and specified that it was governed by the
laws of Georgia. In pertinent part it reads:
B. The Sales Representative agrees that he will not, during his employment with the
Company and during the Relevant Time Period (a) use, in any way detrimental to the
interests of the Company, for his own benefit or the benefit of any other person or
entity, or (b) disclose, in whole or in part, directly or indirectly, to any person not
employed by the Company, any Trade Secrets or Confidential Information.
C. The Sales Representative agrees that he will not, in the territory and with respect
to the Accounts assigned to him, during the Relevant Time Period, directly or
indirectly, either solely for his own benefit or for the benefit of another as that
person’s agent, employee, partner, or joint venturer;
(i) solicit or call upon or communicate with by any means, or provide
assistance to any other person or entity in soliciting or calling upon or
communicating with by any means, any Customer Account for the purpose of selling
or attempting to sell or soliciting orders for any product that is one of the Company’s
Products or that is substantially similar to or competitive with any of the Company’s
Products; or
(ii) actually effect the sale to any Customer Account of, or accept any order
from any Customer Account for, any product that is one of the Company’s Products
or that is substantially similar to or competitive with any of the Company’s Products.
Martin and Bean became dissatisfied with Curtis 1000 by 2004. In May 2004, Martin
contacted ASB about entering its employ. In June 2004, Bean likewise contacted ASB. At the
respective times they contacted ASB, both Martin and Bean remained employed by Curtis 1000.
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In June 2004, Martin traveled to ASB’s Minnesota office at ASB’s expense to attend a
“Discover American” day, in which ASB provided information to him, among other potential ASB
salespeople, about how ASB operated. In August 2004, Bean likewise attended a “Discover
American” day. In August 2004, Martin and Bean participated in an ASB sales meeting. Both
Martin and Bean’s primary contact at ASB was Craig McLain. While recruiting and then hiring
Martin and Bean, McLain was aware that Martin and Bean worked for, and that they had non-
competition agreements with, Curtis 1000.
In September 2004, Martin and Bean resigned from Curtis 1000. Curtis 1000 presented
evidence that the sales representative who replaced Bean observed Bean calling upon former Curtis
1000 customers shortly after he resigned. The sales representative who replace Martin testified that
he learned that Martin was also calling on his former customers.
Additionally, shortly after Martin and Bean resigned, former Curtis 1000 customers began
“shifting their inventory” from Curtis 1000’s warehouse to another location. According to Curtis
1000, transfer of inventory is almost always an indication that the customer is moving its business
to a competing company.
A. Additional Facts Surrounding Bean’s Resignation From Curtis 1000
The district court found the following facts regarding Bean’s contact with Curtis 1000
customers:
Some of Bean’s former customers who did not know he had left Curtis 1000 called
him on his cell phone. He informed them [that] he had resigned from Curtis 1000.
When they asked what they should do about placing orders, Bean told them to
contact Curtis 1000. One customer sent him an order by fax. He contacted the
customer and instructed her to call the 1-800 number on his business card to contact
Curtis 1000. Bean did not volunteer any information about his association with
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ASB. If the customers asked where he was working, he told them he worked from
ASB and said nothing more. If the customers asked what kind of products ASB
sells, Bean told them [that] ASB is a print brokerage firm. If they asked if Bean
could call on them, he told them he could not because of his non-solicitation
agreement with Curtis 1000. Some customers replied that Bean was not soliciting
their business, they wanted him to continue to serve as their sales representative, and
they would buy products from ASB. Bean told such customers that they must make
their requests to him in writing. Some of the customers provided him with letters
asking to continue to do business with him, and once he received those letters, he
continued to call on the customers as usual. . . . Bean did not hear from many of his
former Curtis 1000 customers. He denied providing any Curtis 1000 customer lists
to ASB.
Bean admits that he had this contact; further, he concedes that his agreement with Curtis 1000 stated
he could not call upon or assist another in calling upon his former customers and that he could not
provide assistance to another in the taking or soliciting of orders from customers.
B. Procedural Background
On November 9, 2004, Curtis 1000 filed this diversity action against Martin, Bean and ASB.
In addition to monetary damages, Curtis 1000 sought temporary and permanent injunctive relief
against Martin, Bean and ASB. Curtis 1000’s claim for equitable relief against Martin and Bean was
based on an alleged breach of their respective confidentiality and non-compete clauses of their
contract with Curtis 1000. Curtis 1000’s claim for equitable relief against ASB was based on its
allegation that ASB tortiously interfered with Curtis 1000’s contracts with Martin and Bean.
On November 29, 2004, a temporary restraining order was entered against Martin, Bean and
ASB. On March 3, 2005, a preliminary injunction was entered against the defendants. Martin, Bean
and ASB filed this timely appeal. Pending are the defendants’ appeal of the preliminary injunction
and a motion by the defendants asking us to certify a question to the Supreme Court of Georgia, to
clarify whether Georgia enforces the type of non-compete clauses at issue here.
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II.
A. Standard of Review
“This Court reviews a district court’s grant of a preliminary injunction for an abuse of
discretion.” Yolton v. El Paso Tenn. Pipeline Co., 435 F.3d 571, 577 (6th Cir. 2006) (citing Tucker
v. City of Fairfield, 398 F.3d 457, 461 (6th Cir. 2005)). “A district court abuses its discretion when
it relies on clearly erroneous findings of fact, improperly applies the law, or uses an erroneous legal
standard.” Id. (quotation omitted). “This Court reviews the district court’s conclusions of law de
novo and its findings of fact for clear error.” Id. (citing Golden v. Kelsey-Hayes Co., 73 F.3d 648,
653 (6th Cir. 1996)). “Questions of contract interpretation are generally considered questions of law
subject to de novo review.” Id. (quotation omitted). Because this case arises as an interlocutory
appeal from a grant of a preliminary injunction, we “review[] the district court’s . . . findings of fact
for clear error.” Id.
B. The Grant of a Preliminary Injunction
In determining whether to grant preliminary injunctive relief, a district court is required to
consider: “‘(1) the plaintiff’s likelihood of success on the merits; (2) whether the plaintiff may
suffer irreparable harm absent the injunction; (3) whether granting the injunction will cause
substantial harm to others; and (4) the impact of an injunction upon the public interest.’” Yolton, 435
F.3d at 578 (quoting Deja Vu of Nashville, Inc. v. Metro. Gov’t of Nashville & Davidson County,
274 F.3d 377, 400 (6th Cir. 2001)). These factors are to be balanced, as none, “standing alone, is
a prerequisite to relief.” Id. at 578. However, “[a]lthough no one factor is controlling, a finding that
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there is simply no likelihood of success on the merits is usually fatal.” Gonzales v. Nat’l Bd. of Med.
Examiners, 225 F.3d 620, 625 (6th Cir. 2000) (citation omitted).
1. Likelihood of Success on the Merits Regarding Martin and Bean
a. Choice of Law
Martin’s agreement with Curtis 1000 specified that it was to be governed by Georgia law and
Bean’s agreement with Curtis 1000 specified that it was to be governed by Delaware law. The
district court correctly followed Tennessee’s conflict-of-law rules to determine whether to give
credit to the bargained-for choice-of-law provisions. See Johnson v. Ventra Group, Inc., 191 F.3d
732, 738 (6th Cir. 1999) (“[A] federal court whose jurisdiction is based on diversity of citizenship
must apply the conflict of law rules of the forum state.”).
“Tennessee follows the rule of lex loci contractus.” Vantage Tech. LLC v. Cross, 17 S.W.3d
637, 650 (Tenn. Ct. App. 1999) (citing Ohio Cas. Ins. Co. v. Travelers Indem. Co., 493 S.W.2d 465,
467 (Tenn. 1973)). Under this rule, a court presumes that a contract is governed by the law of the
jurisdiction in which the contract “was executed absent a contrary intent.” Vantage Tech, 17 S.W.3d
at 650 (citation omitted). Generally, if the parties intend to apply the laws of another jurisdiction,
the courts will defer to the agreement. Id. There are certain requirements, however, that must be
met prior to applying the other jurisdiction’s laws to a contract executed in Tennessee. Id. First,
the “choice of law provision must be executed in good faith.” Id. (citing Goodwin Bros. Leasing,
Inc. v. H & B Inc., 597 S.W.2d 303, 306 (Tenn. 1980)). Second, the “jurisdiction whose law is
chosen must bear a material connection to the transaction.” Id. (citing Goodwin Bros., 597 S.W.2d
at 306)). Third, the “basis for the choice of another jurisdiction’s law must be reasonable and not
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merely a sham or subterfuge.” Id. “Finally, the parties’ choice of another jurisdiction’s law must
not be contrary to a fundamental policy of a state having a materially greater interest and whose law
would otherwise govern.” Id. (citing Goodwin Bros., 597 S.W.2d at 306 n.2 (quotation omitted)).
i. Martin’s Agreement
The district court found that the provision in Martin’s agreement specifying that Georgia law
should apply was valid. On appeal, the parties agree that the district court was correct in its
determination that “Georgia clearly has a substantial relationship to this matter,” and that the rule
of lex loci contractus allows for enforcement of Martin’s choice-of-law provision. The district
court, in determining that Georgia law should apply, correctly found that “Curtis 1000 is
headquartered in Georgia, Martin attended meetings at Curtis 1000’s offices in Georgia, and Martin
routinely communicated with Curtis 1000 personnel located in Georgia,” even though Martin
worked in Tennessee. Therefore, an analysis of Martin’s agreement under Georgia law is
appropriate.
ii. Bean’s Agreement
Applying the rule of lex loci contractus to Bean’s agreement, the district court found, and
the parties agreed, that “Delaware does not have a substantial and material connection to the parties
or to the events at issue,” because “Bean did not perform any work in Delaware and Curtis 1000
does not have any office in Delaware.” The district court found that, because Tennessee and
Georgia have “more substantial connection to the events giving rise to this suit,” it would analyze
Bean’s contract under both Tennessee and Georgia law. While in his brief to Bean argues that
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Georgia law is applicable, at oral argument he conceded that his contract is properly interpreted
under Tennessee law.
Insofar as the district court concluded that Bean’s contract was governed by Georgia law,
it erred. Under lex loci contractus, we are to presume that a contract is governed by the law of the
jurisdiction in which the contract “was executed absent a contrary intent.” Vantage Tech, 17 S.W.3d
at 650. (citation omitted). At the time he executed the contract Bean’s intent was to have the law
of Delaware applied if a dispute arose. As it is clear that the rule of lex loci contractus prevents
Delaware law from being applied in this instance, we must defer to the default that the contract is
governed by the law of the jurisdiction in which it was executed — in this case, Tennessee.
Therefore, analysis of Bean’s agreement under Tennessee law is appropriate.
b. Applying Georgia Law to Martin’s Contract
The district court looked to various sources of Georgia law and determined that Martin’s
non-compete clause was enforceable. The district court erred in this determination.
In Waldeck v. Curtis 1000, Inc., 583 S.E.2d 266 (Ga. Ct. App. 2003), to which Curtis 1000
was a party, the Georgia Court of Appeals determined that a non-compete clause identical to
Martin’s was unenforceable. Id. at 267, 269. The Waldeck Court first looked to the Supreme Court
of Georgia for guidance and determined that a:
restrictive covenant in an employment agreement is in partial restraint of trade and
will be enforced only if the restraint imposed is reasonable, is founded on a valuable
consideration, is reasonably necessary to protect the interest of the party in whose
favor it is imposed, and does not unduly prejudice the interests of the public.
Id. at 268 (citing W. R. Grace & Co. v. Mouyal, 422 S.E.2d 529, 531 (Ga. 1992)). The Waldeck
Court then held while a prohibition preventing an “affirmative act on the part of the former
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employee, such as solicitation, diversion, or contact with clients, may be reasonable, a covenant
prohibiting a former employee from merely accepting business, without any solicitation, is not
reasonable.” Id. (citations omitted) (emphasis in original). The Waldeck Court so determined that
the non-compete clause identical to that at issue here, “unreasonably impacts on [a former employee]
and on the public’s ability to choose the business it prefers.” Id. (citing W. R. Grace, 422 S.E.2d at
529 and Singer v. Habif, Arogeti & Wynne, 297 S.E.2d 473, 475 (Ga. 1982)).1 See, e.g., Singer, 297
S.E.2d at 475 (“In this case, we find the covenant unreasonable because it overprotects the legitimate
interests of HAW and unreasonably affects Singer by prohibiting him from accepting or soliciting
work from any clients of HAW.” (emphasis in original)).
The Waldeck Court then distinguished three Supreme Court of Georgia cases that Curtis
1000 argued required a contrary result. In examining Bennett v. Ga. Indus. Catering Co., 149 S.E.2d
81 (Ga. 1966), the Waldeck Court correctly determined that the issue before the Supreme Court of
Georgia was whether a clause prohibiting “soliciting or receiving continued patronage was void due
to indefiniteness and vagueness.” Waldeck, 583 S.E.2d at 268. In examining Coffee System of
Atlanta v. Fox, 176 S.E.2d 71 (Ga. 1970), the Waldeck Court correctly determined that the issue
before the Supreme Court of Georgia “was not whether accepting business from former customers
amounted to solicitation, as prohibited by the nonsolicitation clause; it was whether the clause
1
At oral argument, Curtis 1000 cited toMcCurry v. McCurry, 155 S.E.2d 378 (Ga. 1967),
for the proposition that, because Singer is a plurality opinion, under Georgia Supreme Court Rule
58, it does not have precedential value and, therefore, we should ignore it. However, insofar as other
cases, including from the Supreme Court of Georgia, see, e.g., Orkin Exterminating Co. v. Walker,
307 S.E.2d 914, 917 (Ga. 1983) (in applying Singer, the court held that a “company cannot prevent
[employees] from merely accepting overtures from [former] customers”), have relied on Singer, their
precedent is properly considered.
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prohibiting, inter alia, soliciting or receiving continued patronage from former clients was void due
to indefiniteness and vagueness.” Waldeck, 583 S.E.2d at 268. Finally, in examining Marcoin, Inc.
v. Waldron, 259 S.E.2d 433 (Ga. 1979), the Waldeck Court correctly determined that the Supreme
Court of Georgia held that an “employee did not violate [a] nonsolicitation agreement by accepting
business of former clients when there was no such prohibition in the agreement.” Waldeck, 583
S.E.2d at 268. The Waldeck Court determined that, the statements in Marcoin which indicated that
an employer could “prevent acceptance of business from former clients” if it added language to that
effect in the agreement, was dicta. Id.
The Waldeck Court further distinguished these cases by citing to several Supreme Court of
Georgia and Georgia Court of Appeals cases that were more recent in time, which indicated that
under Georgia law, nonsolicitation provisions “may not contain a bar on the acceptance of business
from unsolicited clients.” Id. (citations omitted). “Contrary to Curtis 1000’s contention,” the
Waldeck Court continued, “this rule applies even where the no-acceptance covenant is purportedly
limited to the former employee’s customers.” Id. (citations omitted). Finally, the Waldeck Court
concluded, because Georgia does not follow the “blue pencil”2 doctrine of severability, the entire
nonsolicitation clause is unenforceable. Id. (citation omitted).3
2
The “blue-pencil test” is “[a] judicial standard for deciding whether to invalidate the whole
contract or only the offending words.” Black’s Law Dictionary 183 (8th ed. 2004). If this standard
applies, then “only the offending words are invalidated if it would be possible to delete them simply
by running a blue pencil through them, as opposed to changing, adding, or rearranging words.” Id.
3
The parties agree that Georgia does not follow the blue-pencil doctrine and, therefore, if
the Waldeck Court’s statement of the law is correct, then the entirety of Martin’s non-compete clause
must be invalidated.
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In Pregler v. C & Z, Inc., 575 S.E.2d 915 (Ga. Ct. App. 2003), the Georgia Court of Appeals
again determined that “the nonsolicitation clause contained in the agreement is unenforceable
because it prevents [the former employee] from accepting business from unsolicited clients.” Id.
at 916. Further, the court held that “[t]he restraint is overbroad” in that “[i]t prohibits not only
solicitation of former clients but also acceptance of any work from such clients regardless of who
initiated the contact.” Id. This restraint on trade is unreasonable, “[b]ecause in addition to
overprotecting [the company’s] interest, it unreasonably impacts on [the former employee] and on
the public’s ability to choose the professional services it prefers.” Id. (citation omitted). The
Pregler Court came to this conclusion mindful of the Supreme Court of Georgia’s balancing test
requiring that nonsolicitation covenants “may be upheld only when” the restrictions consider “the
business interests of the employer needing protection and the effect of the restrictions on the
employee.” Id. (citing Nat’l Settlement Assocs. v. Creel, 349 S.E.2d 177, 179 (Ga. 1986)).
Analyzing what it believed to be the correct Supreme Court of Georgia precedent, the district
court determined that “the restrictive covenants in Martin’s agreements are reasonable and are
enforceable in partial restraint of trade.” However, none of the Supreme Court of Georgia cases that
the district court relied upon examined the specific type of nonsolicitation/noncompete clause in this
case or held that this type of clause was enforceable. See American Software USA v. Moore, 448
S.E.2d 206, 209 (Ga. 1994) (“[A] non-disclosure restrictive covenant, which is strictly limited to
appellant’s ‘trade secrets’ and ‘confidential business information,’ is not unreasonable.” (citations
omitted)); W. R. Grace, 422 S.E.2d at 531 (“The focus of this case is the absence of an express
geographic description of the territorial restriction contained in the no[n]-solicitation clause of the
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employment contract.”); Nunn v. Orkin Exterminating Co., 350 S.E.2d 425, 427 (Ga. 1986) (“[A
clause which] protect[s] confidential information relating to its business is a restraint [that is not]
so broad as to be unreasonable.”); Rollins Protective Servs. Co. v. Palermo, 287 S.E.2d 546, 550
(Ga. 1982) (A clause preventing the disclosure of “trade secret[s] or confidential information” is
enforceable); Barry v. Stanco Commc’ns Prods., Inc., 252 S.E.2d 491, 494 (Ga. 1979) (“[T]he
territorial limitation in this case was reasonable, and a legitimate protection of [the employer’s]
investment in customer relations.”). Additionally, the district court relied on the aforementioned
three Supreme Court of Georgia cases distinguished by the Waldeck Court.
i. The District Court’s Error of Law
Contrary to the conclusions reached by the district court, we believe that the Supreme Court
of Georgia would adopt the Waldeck and Pregler holdings. Although the issue was not before it,
in W.R. Grace the Supreme Court of Georgia stated in dicta that “the prohibition against
post-employment solicitation of any customer of the employer located in a specific geographic area
is an unreasonable and overbroad attempt to protect the employer’s interest in preventing the
employee from exploiting the personal relationship the employee has enjoyed with the employer’s
customers.” W. R. Grace, 422 S.E.2d at 532 (citations omitted). Additionally, although a plurality
decision, the Supreme Court of Georgia’s Singer holding stands opposite the district court’s
conclusion. See Singer, 297 S.E.2d at 475 (“In this case, we find the covenant unreasonable because
it overprotects the legitimate interests of [the employer] and unreasonably affects [the employee]
by prohibiting him from accepting or soliciting work from any clients of [his former employer].”
(emphasis in original)). See also Orkin Exterminating Co., 307 S.E.2d, 917 (Ga. 1983) (in applying
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Singer, the court held that a “company cannot prevent [employees] from merely accepting overtures
from [former] customers”).
“Where jurisdiction rests on diversity of citizenship,” as is the case here, “federal courts,
under the doctrine of Erie R.R. v. Tompkins, 304 U.S. 64 (1938), must follow the decisions of
intermediate state courts in the absence of convincing evidence that the highest court of the state
would decide differently.” Stoner v. New York Life Ins. Co., 311 U.S. 464, 467 (1940). See also
Birgel v. Board of Comm’rs, 125 F.3d 948, 951 (6th Cir. 1997) (holding that “the federal court was
bound to apply the decisions of the state appellate court” absent evidence that the state Supreme
Court would rule otherwise (citing Stoner, 311 U.S. at 467–68)). This is especially true “where the
intermediate state court has determined the precise question in issue in an earlier suit between the
same parties, and the highest court of the state has refused review.” Stoner, 311 U.S. at 467. See
also Birgel, 124 F.3d at 951.
In this case, there is no evidence that the Supreme Court of Georgia would analyze Martin’s
restrictive covenant any differently than either the Waldeck Court in analyzing the same restrictive
covenant or the Pregler Court in analyzing a functionally similar restrictive covenant. In fact, the
only Supreme Court of Georgia cases on point support both the Waldeck and Pregler holdings.
Therefore, under the Erie doctrine, because there is not “convincing evidence that the highest court
of the state would decide [this case] differently,” Birgel, 125 F.3d at 951 (quoting Stoner, 311 U.S.
at 467), we will follow Waldeck — which decided this exact issue — and Pregler.4
4
Additionally, in Palmer & Cay, Inc. v. Marsh & McLennan Cos., 404 F.3d 1297 (11th Cir.
2005), a case rendered after the district court’s opinion in this case, the Eleventh Circuit analyzed
a restrictive covenant factually indistinct from Martin’s. The Eleventh Circuit held that “Georgia
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Therefore, because the district court erred in determining that Georgia law allows the
restrictive covenant present in Martin’s contract, we reverse the district court’s grant of a
preliminary injunction against Martin. Simply, Curtis 1000 cannot show that it is likely that it will
succeed on the merits, because Georgia law disallows the restrictive covenant in Martin’s contract
and that covenant cannot be blue-penciled. Because Curtis 1000 is not likely to succeed on the
merits, we need not address the remaining three factors.
c. Applying Tennessee Law to Bean’s Contract
courts refuse to enforce employment non-competition agreements that prohibit the employee from
accepting unsolicited business from former clients after leaving employment.” Id. at 1306 (citing
Waldeck, 583 S.E.2d at 268; Singer, 297 S.E.2d at 475). Further, in MacGinnitie v. Hobbs Group,
LLC, 420 F.3d 1234 (11th Cir. 2005), the Eleventh Circuit analyzed another restrictive covenant
under Georgia law. In applying Pregler, the Eleventh Circuit held that “contractual provisions
which prevent employees from accepting business from unsolicited former clients” are overbroad.
Id. at 1242 (citing Pregler, 575 S.E.2d at 915).
Insofar as the Eleventh Circuit has determined that the Waldeck and Pregler holdings are
correct — and in fact the Eleventh Circuit applied the Supreme Court of Georgia’s Singer precedent
in reaching that conclusion — we give the Eleventh Circuit’s analysis of state law within its circuit
deference. United States v. Maness, 23 F.3d 1006, 1008 (6th Cir. 1994) (citing Factors Etc., Inc.
v. Pro Arts, Inc., 652 F.2d 278, 283 (2d Cir. 1981), cert. denied, 456 U.S. 927 (1982)). See also
Leavitt v. Jane L., 518 U.S. 137, 145 (1996) (The “general presumption” is “that circuit courts
correctly decide questions of state law” of states within their circuits. (citations omitted)); Helvering
v. Stuart, 317 U.S. 154, 172 (1942) (“When state law has not been authoritatively declared we pay
great deference to the reasoned opinion of circuit courts of appeals, whose duty it is to ascertain
from all available data what the highest court of the state will probably hold the state law to be.”
(citations omitted)); Blue Cross & Blue Shield Mut. v. Blue Cross & Blue Shield Ass’n, 110 F.3d
318, 328 (6th Cir. 1997) (holding that “the conclusions of a sister circuit about the law of a state
within that circuit” is persuasive (citations omitted)); Abex Corp. v. Maryland Cas. Co., 790 F.2d
119, 125–26 (D.C. Cir. 1986) (“[W]e will defer to the local circuit’s view of the law of a state in its
jurisdiction when that circuit has made a reasoned inquiry into state law, unless we are convinced
that the court has ignored clear signals emanating from the state courts.” However, “such a clear
misreading of state law will rarely occur.”).
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In Tennessee, “restrictive covenants against competition in employment contracts will be
enforced where reasonable under the particular circumstances [which] include time, territory, and
adequate contractual consideration under the circumstances.” Myers v. AP Propane, No. 91-5119,
1991 U.S. App. LEXIS 23170, *4 (6th Cir. Sept. 30, 1991) (citing Central Adjustment Bureau, Inc.
v. Ingram, 678 S.W.2d 28, 32-33 (Tenn. 1984)). Covenants not to compete “are construed strictly
in favor of the employee.” Vantage Tech., 17 S.W.3d at 644. In determining whether a covenant
not to compete is reasonable, a court looks to “‘the consideration supporting the agreements; the
threatened danger to the employer in the absence of such an agreement; the economic hardship
imposed on the employee by such a covenant; and whether or not such a covenant should be inimical
to public interest.’” Id. (quoting Allright Auto Parks, Inc. v. Berry, 409 S.W.2d 361, 363 (Tenn.
1966)). The “threshold question is whether the employer has a legitimate business interest, i.e., one
that is properly protectable by a non-competition covenant.” Vantage Tech., 17 S.W.3d at 644
(citation omitted).
Several principles guide the determination of whether an employer has a business
interest properly protectable by a non-competition covenant. Because an employer
may not restrain ordinary competition, it must show the existence of special facts
over and above ordinary competition. These facts must be such that without the
covenant, the employee would gain an unfair advantage in future competition with
the employer. Considerations in determining whether an employee would have such
an unfair advantage include (1) whether the employer provided the employee with
specialized training; (2) whether the employee is given access to trade or business
secrets or other confidential information; and (3) whether the employer’s customers
tend to associate the employer’s business with the employee due to the employee’s
repeated contacts with the customers on behalf of the employer. These
considerations may operate individually or in tandem to give rise to a properly
protectable business interest.
Id. (citations omitted).
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Appellants acknowledge that there is no Tennessee law directly on point concerning whether
a non-solicitation clause in a contract is invalid when it prohibits a former employee from accepting
unsolicited business. Bean argues that the district court misapplied the factors or erroneously
determined facts in applying the factors enumerated in Vantage Tech.. While we review a district
court’s legal conclusions de novo, we have found no reason to disturb the district court’s conclusion
that Tennessee law allows the restrictive covenant in Bean’s contract to be enforced.
In analyzing the factors, the district court held:
The contract [is] supported by adequate consideration in light of Bean[’s] . . .
longstanding employment with Curtis 1000. There is no evidence to support a
finding that the restrictive covenants are deliberately unreasonable or oppressive.
Rather, Curtis 1000 has a strong and legitimate business interest in preserving its
customer base that is properly enforced through restrictive covenants. The evidence
overwhelmingly shows that Bean . . . became the “face” of Curtis 1000 to the
customers [he] served for many years. Accordingly, Curtis 1000 has a protectible
interest in the goodwill Bean . . . generated with those customers on behalf of Curtis
1000. Although Curtis 1000 provided little to Bean . . . in the way of specialized
training, Curtis 1000 is nonetheless entitled to the protection of its confidential
business information, including customer lists and pricing. The covenants are
narrowly tailored in time and territory. Curtis 1000 faces danger, and has already
sustained damages, by virtue of Bean’s . . . violation[] of [his] agreement[]. While
a preliminary injunction would no doubt impose some economic hardship on Bean
. . ., [he] is still free to pursue other customers [he] did not serve while employed by
Curtis 1000. Enforcement of the restrictive covenants is not inimical to the public
interest because public policy supports the enforcement of contracts which preclude
unfair competition.
Bean disputes this analysis by claiming that he did not have any access to confidential information.
He further disputes the district court’s characterization that he was the “face” of Curtis 1000. While
the record contains evidence contrary to that found by the district court, the record also reflects the
facts as found by the district court. We cannot say that the district court’s factual findings were
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clearly erroneous. Bean cannot show, therefore, that the district court erred in determining that
Curtis 1000 had a likelihood of success on the merits
2. Likelihood of Success on the Merits Regarding ASB
In proscribing the procurement of breach of contract, Tennessee law provides that “[i]t is
unlawful for any person, by inducement, persuasion, misrepresentation, or other means, to induce
or procure the breach or violation, refusal or failure to perform any lawful contract by any party
thereto.” Tenn. Code § 47-50-109. Under Tennessee law,
[i]n order to recover for procurement of a breach of contract the plaintiff must prove
that there was a legal contract, of which the wrongdoer was aware, that he
maliciously intended to induce a breach, and there must have been a breach,
proximately caused by his acts, resulting in damages.
Polk & Sullivan, Inc. v. United Cities Gas Co., 783 S.W.2d 538, 543 (Tenn. 1989) (citation omitted).
To prevail on a claim for intentional interference with a business relationship, a plaintiff must prove:
(1) [A]n existing business relationship with specific third parties or a prospective
relationship with an identifiable class of third persons; (2) the defendant’s knowledge
of that relationship and not a mere awareness of the plaintiff’s business dealings with
others in general; (3) the defendant’s intent to cause the breach or termination of the
business relationship; (4) the defendant’s improper motive or improper means, and
finally, (5) damages resulting from the tortious interference.
Trau-Med of Am., Inc. v. Allstate Ins. Co., 71 S.W.3d 691, 701 (Tenn. 2002) (footnote and citations
omitted).
The district court’s conclusion that Curtis 1000 was likely to succeed on the merits of these
claims against ASB is a factual determination reviewed under the clearly erroneous standard. See
Yolton, 435 F.3d at 577 ( “This Court reviews the district court’s . . . findings of fact for clear
error.”).
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As to the first claim, the district court held that:
[T]he evidence tends to show that (1) Martin and Bean had legal contracts with
Curtis 1000; (2) ASB had knowledge of those contracts; (3) ASB harbored an
intention to induce breach of the contracts; (4) ASB acted with malice; (5) Martin
and Bean breached their contracts; (6) the inducement was the proximate cause of
the breach; and (7) damages resulted from the breach.
As to the second claim, the district court held that:
[T]he evidence tends to establish a claim for intentional interference with business
relationships because Curtis 1000 can show (1) an existing business relationship with
specific third parties or a prospective relationship with an identifiable class of third
persons; (2) ASB’s knowledge of that relationship and not a mere awareness of
Curtis 1000’s business dealings with others in general; (3) ASB’s intent to cause the
breach or termination of the business relationship; (4) ASB’s improper motive or
improper means; and (5) damages resulting from the tortious interference.
In making these determinations, the district court reviewed the evidence before it and cases
from other jurisdictions involving Curtis 1000 and this specific issue. On appeal, ASB points to
other evidence that it believes shows that the district court’s findings of fact were clearly erroneous.
ASB challenges the accuracy of the depositions upon which the district court relied and highlights
that the district court misinterpreted ASB’s hiring policy. However, the district court relied on the
record and, insofar as there are genuine issues of material fact, such issues are appropriate for trial.
At the preliminary injunction stage, we only reverse factual findings if they are clearly erroneous,
and there is nothing in the record to indicate that the district court’s crediting of some evidence over
the evidence “preferred” by ASB was clearly erroneous.
The district court determined, however, that because Martin was in breach of his contract,
ASB could be held liable under both the procurement and intentional interference claims as they
related to Martin. Insofar as the restrictive covenant in Martin’s contract is void for public policy,
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as discussed supra, ASB could not have either procured a breach of contract or intentionally
interfered with Martin’s contract because Martin did not breach his contract. In that the district
court enjoined ASB from employing Martin, and in that Curtis 1000 cannot show that it is likely to
succeed on the merits of its claims against ASB as they relate to Martin’s employment with ASB
because a breach of contract is a prerequisite to recovery, we reverse the district court’s injunction
against ASB. In that the district court’s determinations are not clearly erroneous as they relate to
Bean’s employment with ASB, we do not disturb the district court’s conclusion that Curtis 1000 will
likely succeed on the merits of its case against ASB.
3. Irreparable Harm to the Plaintiff Absent the Injunction
Whether a plaintiff will suffer irreparable harm absent an injunction is a fact-based inquiry.
Jackson v. City of Columbus, 194 F.3d 737, 751 (6th Cir. 1999). While it is true that a plaintiff
cannot show irreparable harm if its damages are fully compensable monetarily, Basicomputer Corp.
v. Scott, 973 F.2d 507, 511 (6th Cir. 1992) (citation omitted), it is likewise true that “[t]he loss of
customer goodwill often amounts to irreparable injury because the damages flowing from such
losses are difficult to compute,” id. at 512 (citation omitted). The district court concluded that
“Curtis 1000 has . . . suffered a loss of the goodwill of its customers.” Bean and ASB challenge that
factual assertion with evidence in the record. The district court’s factual findings, however, are
likewise supported by record evidence.
Therefore, the district court’s determination that Curtis 1000 would suffer irreparable harm
absent the injunction should not be disturbed.
4. Substantial Harm to Others
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Whether others will suffer substantial harm absent an injunction is a fact-based inquiry.
Parker v. USDA, 879 F.2d 1362, 1367 (6th Cir. 1989). “Others” include “defendants.” See, e.g.,
Anglers of the Au Sable v. United States Forest Serv., 402 F. Supp. 2d 826, 838 (E.D. Mich. 2005).
It is true that Bean will suffer monetary losses due to being enjoined. It is unclear, however, what
damages ASB will suffer other than speculating that ASB will lose some business. These losses,
however are insubstantial in light of the fact that they are unlikely to prevail on the merits Finally,
the district court could not identify any other parties who would be substantially injured by an
injunction. Therefore, the district court correctly balanced this factor as to Bean and ASB.
5. Impact of Injunction on the Public Interest
The district court correctly found that an injunction would have “a limited effect on the
public interest.”
C. Motion to Certify a Question to the Supreme Court of Georgia
Defendants filed a motion in this Court to certify a question to the Georgia Supreme Court;
namely whether Waldeck correctly states Georgia law.5
We will certify a question to a state’s highest court “when the question is new and state law
is unsettled.” Transamerica Ins. Co. v. Duro Bag Mfg. Co., 50 F.3d 370, 372 (6th Cir. 1995)
(citations omitted). Further, certification is appropriate “where an important question of state law
has arisen solely in federal court.” Geib v. Amoco Oil Co., 29 F.3d 1050, 1060 (6th Cir. 1994).
5
The exact wording of the question is: “namely [do] Georgia courts refuse to enforce non-
competition agreements that prohibit the employee from accepting unsolicited business from former
clients after leaving employment.”
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As we have noted, this issue has been thoroughly analyzed by the Supreme Court of Georgia,
the Georgia Court of Appeals, and the Eleventh Circuit. Accordingly, we see no need to certify this
question to the Supreme Court of Georgia and, therefore, deny the defendants’ motion.
III.
For the foregoing reasons we REVERSE the district court’s grant of a preliminary injunction
against Martin, AFFIRM the district court’s grant of a preliminary injunction against Bean,
REVERSE the district court’s grant of a preliminary injunction against ASB insofar as that
injunction relates to ASB’s relationship with Martin, AFFIRM the district court’s grant of a
preliminary injunction against ASB insofar as that injunction relates to ASB’s relationship with
Bean, and REMAND to the district court for proceedings consistent with this Court’s opinion.
Further, we DENY the defendants’ motion to certify a question to the Supreme Court of Georgia.
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