In the World War II epic Saving Private Ryan, Tom Hanks and his platoon of grunts cross dangerous enemy territory to rescue an American soldier before he becomes the fourth member of his family to be a casualty of the Big One. In similar fashion, a trial court and a Georgia Court of Appeals panel in Fab’rik Boutique, Inc. v. Shops Around Lenox, Inc., 2014 Ga. App. LEXIS 612 (Ga. Ct. App. Sept. 8, 2014), led by Judge McFadden, recently marched through 40-plus years of hostile Georgia non-compete law to save an equally vulnerable restrictive covenant.
If you’ve been paying attention to this Blog or Georgia non-compete law in general, you know that May 11, 2011, is Liberation Day for Georgia restrictive covenants. Following the enactment of Georgia’s new non-compete statute, O.C.G.A. §13-8-50, et seq., restrictive covenants in agreements executed on or after May 11, 2011, were freed from the often draconian constraints of the prior body of case law governing, and usually dooming, Georgia non-compete agreements. Of most significance, the new law allows a Court to blue-pencil (or modify, for you non-lawyers out there) an overbroad covenant so that it can be reasonable and thus enforceable. Agreements that pre-date Non-compete Liberation Day, however, must strictly comply with the applicable body of case law or else be deemed not worth the paper they’re written on. Decisions from state and Federal courts following the enactment of the new statute made it clear that they understood that Georgia non-compete law now existed in two parallel but supremely disparate dimensions — a litigant seeking to enforce a post-May 11, 2011 restrictive covenant could expect a benevolent jurist with a newly-sharpened blue-pencil eager to assist the over-zealous drafter of the non-compete by softening the effect of the over-reaching contractual language. For those non-compete plaintiffs with a an older covenant, however, the judge’s ruling would likely continue to be as deadly as the bible-quoting sniper in Tom Hanks’ platoon.
In Fab’rik, the Court of Appeals construed a restrictive covenant in a lease that prohibited the tenant, a women’s clothing boutique, from opening or operating “another store” within five miles of the leased premises. Read literally, the clause would prevent the tenant’s owners from opening up an ice cream shop or hardware store in the restricted area, even though such uses would not be competitive with the tenant’s clothing store in the landlord’s retail center. The tenant argued that under the pre-2011 strict scrutiny to be applied by Courts to restrictive covenants, the provision was grossly overbroad as drafted and thus unenforceable.
If I were a gambling man, I would have put my money on the tenant in succeeding in this argument, having seen many a similarly vague restrictive covenant felled by the prior body of employee-friendly non-compete law. I’m glad Vegas doesn’t take odds on appellate cases, however, because my wallet would be a little lighter today. The Court of Appeals, recognizing that it could not use the new statute to blue-pencil the covenant, instead applied the rules of contract construction to narrow what it deemed to be an ambiguous phrase and held that, following such judicial construction, the covenant was reasonable and enforceable against the tenant. In rationalizing its decision, the Court said that “the application of the rules of contract construction, and not the ‘blue pencil’ method, resolve any ambiguity in the lease.” Id. at *7. It would be interesting to see how many of the legions of unenforceable non-competes from past opinions could be saved in similar fashion, but alas, that is an endeavor well-beyond the scope of this casual blog post.
BURR POINT: The prevailing thought among non-compete lawyers In Georgia has been that pre-May 11, 2011 non-compete agreements would not receive any benefit of the change in public policy towards restrictive covenants heralded by the 2011 statute. The most recent Court of Appeals case on the issue perhaps signals that there may yet be hope for Private Ryan-like older non-compete agreements under attack by a barrage of unfriendly pre-statutory case law.