The Georgia Court of Appeals refused to enforce a forum selection clause in a restrictive covenant agreement entered into by a Georgia resident because it would have led to a different result than applicable Georgia law. Carson v. Obor Holding Company, LLC (Nov. 20, 2012). Obor Holding provides software and staffing services to clients in the defense industry. The company conducts business in Florida and Georgia.  Alan Carson, the former Vice President of Sales, was a Georgia resident, having lived in Georgia since 1984. He executed Obor Holding’s Operating Agreement in February 2007. Pursuant to the Operating Agreement, the business of Obor Holding is conducted by a four-person Management Committee, with each member of that committee being a Director of the company.  Carson served as a member of the Management Committee and a Director of Obor Holding until his resignation on September 2, 2011.

The Operating Agreement contained several restrictive covenants that apply to Directors of the company, including a covenant of non-disclosure, a non-solicitation covenant, and a non-compete covenant.  The Operating Agreement also had a forum selection clause, which states that any legal actions brought for the purpose of “enforc[ing] any rights or obligations” thereunder “shall be [brought] in Orange County, Florida.”  The choice of law provision states that the Operating Agreement shall be governed by Florida law.

Carson filed a lawsuit in Georgia state court seeking to enjoin Obor Holding from enforcing any of the restrictive covenants against him because they were unenforceable under Georgia’s old non-compete common law and public policy (which apply to agreements signed before the new Restrictive Covenants Act went into effect on May 11, 2011.) Obor Holding filed a motion to dismiss based on the forum selection clause.  Carson opposed the motion, arguing that the trial court should find the forum selection clause unenforceable because allowing a Florida court to decide the enforceability of the non-compete covenants would violate Georgia’s public policy under the old non-compete law.  The trial court granted the motion to dismiss and Carson appealed.

The Georgia Court of Appeals reversed.  The Court held that choice of forum clauses are prima facie valid and presumptively reasonable. Such clauses, however, are not enforceable if (i) the covenants violate Georgia public policy and (ii) a Florida court would be likely to find the covenants enforceable.  The Court held that the covenants violated Georgia’s old non-compete common law. For example, the customer non-solicitation covenant was unenforceable because it was not limited to customers with whom Carson had contact and, alternatively, it did not contain a territorial limitation.  The Court also held that a Florida court was likely to enforce the covenants. Accordingly, Carson was entitled to litigate the case in Georgia.

As noted above, Georgia’s non-compete law applies to covenants signed on or after May 11, 2011.  The new law generally makes restrictive covenants more enforceable, similar to Florida law. Consequently, the result in this case may have been different if Georgia’s new non-compete law and the public policy it represents had applied to Carson’s agreement.