August 18, 2014
Tarek AbdelAleem & Yussuf AbdelAleem, Daily Report
On April 17, as counsel for plaintiffs, our law firm obtained a temporary restraining order (TRO) in the matter of Confirmatrix Laboratory Inc. and Nue Health Consulting v. Pain Management Specialists of Atlanta, Civil Action Number 14CV1060 AM. Pursuant to O.C.G.A. §§ 951 and 91165, and the application for Temporary Restraining Order by Plaintiffs, Chief Judge Arch W. McGarity of Henry County Superior Court entered an order temporarily restraining defendants—consisting of a pain management group practice, clinical laboratory, and certain of their principals and employees—from competing with plaintiffs, a prominent clinical laboratory and healthcare consulting firm. The court’s order also enjoined defendants from soliciting plaintiff’s former employees and customers, and misappropriating plaintiff’s trade secrets. The case is still ongoing.
On June 27, as counsel for defendants, we successfully blocked a TRO and motion for preliminary injunction in the matter of Castle Medical v. Joseph Case, Civil Action Number 141485928.
In this case, a clinical laboratory sued 25 of its former employees who left to work for a competitive laboratory located in South Carolina. Plaintiffs sought to enjoin defendants from, among other things, soliciting plaintiff’s customers and employees and working for plaintiff’s competitor. This case is also ongoing.
Both of the above cases are fairly similar in that they involve sophisticated corporate litigants, and former employees parting ways with former employers, notwithstanding various restrictive covenants that were entered into. What then accounted for the granting of the TRO in Confirmatrix and the denial of the TRO in Castle Medical?
The Restrictive Covenants Act
Both Confirmatrix and Castle Medical center on the enforceability of restrictive covenants in employment agreements (e.g., noncompetes, nonsolicitations) pursuant to Georgia’s Restrictive Covenants Act (O.C.G.A. §§ 13850 et seq).
In November 2010, Georgia voters overwhelmingly approved a constitutional amendment that substantially altered Georgia’s public policy on restrictive covenants. Among its other provisions, the RCA provides that (1) the enforcement of contracts that restrict competition is permitted, so long as the contract is reasonable in time, geographic area, and scope of prohibited activities, O.C.G.A. §§ 13853(a) and (2) a court may modify a covenant that is otherwise void and unenforceable to render it enforceable, so long as the modification does not render the covenant more restrictive with regard to the employee than originally drafted, O.C.G.A. §§ 13853(d). As a result of the complete turnaround in Georgia’s public policy, pre2011 case law on restrictive covenants is rendered moot. See Becham v. Synthes USA, 482 F. App’x 387, 39293 (11th Cir. 2012); PointNorth Ins. Grp. V. Zander, No. 11CV3262RWS, 2011 WL 4601028 AT *4 (N.D. Ga. Sept. 30, 2011).
Temporary Restraining Orders
Georgia courts have broad discretion to determine whether to grant injunctive relief, and will grant such relief where it is necessary to preserve the status quo if a balance of the equities of the parties indicates that greater harm might come from denying the injunction. Bishop v. Patton, 288 Ga. 600, 604 (2011).
Rule 65 of the Georgia Civil Practice Act deals with both TROs and interlocutory injunctions, and it sets forth a number of procedural rules governing the requirements for obtaining either. While the rule allows the court to grant a TRO order without notice to the adverse party, it places some tough restrictions on this power.
The rule places five restrictions on the court’s power to issue temporary restraining orders: (1) There must be specific facts alleged which show (2) that immediate and irreparable injury, loss, or damage will result to the applicant (3) before the adverse party or his attorney can be heard in opposition. (4) These facts must appear in an affidavit or in a verified complaint. (5) The applicant’s attorney must certify to the court in writing the efforts, if any, made to give notice and the reasons supporting the party’s position that notice should not be required. The court may also require the applicant to give security as a prerequisite to the issuance of either a temporary restraining order or an interlocutory injunction. See O.C.G.A. § 91165 et seq.
Strategies Going Forward
Given the dearth of case law on the RCA, lawyers attempting to obtain or defend a TRO must, more than ever, know the facts of their case. This must then translate into a fact-specific TRO or motion in opposition thereof.
In Confirmatrix, plaintiffs submitted numerous affidavits in support of their 23page TRO motion. For example, one of these affidavits included statements from a former Confirmatrix employee (nonlitigant) averring that defendants solicited him to compete with his former employer as well as provide defendants with certain of plaintiffs’ valuable trade secrets.
Similarly, plaintiffs’ TRO motion cited to a transcribed recording in which defendants admitted to, among other things, soliciting former employees and disregarding the employment agreements that were entered into. These facts helped in part satisfy plaintiffs’ statutory duty to establish irreparable harm.
In Castle Medical, plaintiff attempted to restrain 25 employees from working for defendant. Plaintiff moved for its TRO based on a six-page TRO motion without providing any affidavits or other supporting evidence to establish how defendants violated their restrictive covenants and/or misappropriated plaintiff’s trade secrets. Indeed, as defendants repeatedly noted in their opposition motion, plaintiff failed to provide any specific facts or evidence whatsoever showing that defendants violated their employment agreements or that immediate irreparable injury, loss or damage would result to the plaintiff if such restrictive covenants were not enforced.
While plaintiff’s counsel attempted to present live, in-court testimony from plaintiff’s principal and CEO, who attended the TRO hearing in Cobb County Superior Court, Senior Judge Michael Stoddard would not hear evidence outside of plaintiff’s TRO motion.
Unlike plaintiff’s TRO motion, defendants’ opposition motion cited to specific facts to establish, among other things, the unenforceability of the employment agreements at issue. For example, defendants submitted an affidavit of a former employee of plaintiff stating that defendant breached the employment agreement by violating various health care and employment laws and failing to compensate the former employee in accordance with the terms of the agreement.
In short, in Confirmatrix, the filing of affidavits showing irreparable harm, injury or loss proved to be instrumental for the moving party, while in Castle Medical, affidavits from defendants in opposition to the TRO proved to be equally important for the nonmoving party.
While the RCA in many ways provided an overhaul to Georgia’s former restrictive covenant law, the following still remains true: both the RCA and courts focus on the reasonableness of the covenants.
In our experience, reasonableness can only be assessed in context. Lawyers must be prepared to answer the following types of questions: How similar or dissimilar is the employee’s new job role to that of the former employee? Why did the former employee leave?
While the role of fact-finding and affidavits in support or defense of a TRO motion cannot be overstated, lawyers must be prepared to attack or defend the enforceability of restrictive covenants on their face, even at the early stages of the litigation. In other words, lawyers must familiarize themselves with the RCA and all of its nuances. For example, in Confirmatrix, when attempting to enforce a nonsolicitation of customers covenant, we emphasized to the court that under the RCA such a provision may still be enforceable, even without express reference to geographic area or the types of products or services to considered to be competitive, O.C.G.A. §§ 13853(b), O.C.G.A. §§ 13854(b). Along the same lines, in Castle Medical, we highlighted that the court’s “blue pencil” modification power is not mandatory but is left to the discretion of the trial court, and that, under the RCA, “modification” is defined as “severing or removing” a part of a restrictive covenant, meaning a court cannot simply rewrite or otherwise add to the language of a noncompete. O.C.G.A. §13853(d); See Clark v. Johnson Truck Bodies, 2012 WL 1014827 (S.D. Ga. May 23, 2012).
To conclude, judges, like lawyers, are only beginning to make themselves familiar with the RCA. Even at a case’s inception, it is important for an attorney to present an interpretation of the RCA most favorable to his or her client. This may steer the litigation into a promising direction early on.