Motorsports of Conyers, LLC v. Burbach

317 Ga. 206

892 S.E.2d 719

MOTORSPORTS OF CONYERS, LLC et al. v. BURBACH.

S22G0854

Supreme Court of Georgia.

Decided: September 6, 2023

Kevin Allen Maxim, The Maxim Law Firm, P.C., 1718 Peachtree Street, N.W., Suite 599, Atlanta Georgia 30309, Peter W. Homer, General Counsel, Howard S. Goldfarb, Homer Bonner Jacobs Ortiz, P.A., 1200 Four Seasons Tower, 1441 Brickell Avenue, Miami Florida 33131, for Appellant.

K. Prabhaker Reddy, The Reddy Law Firm, P.C., 1325 Satellite Boulevard, Suite 1506, Suwanee Georgia 30024, for Appellee.

Pinson, Justice.

When contracting parties choose the law of a jurisdiction other than Georgia to govern their contractual relations, Georgia courts generally honor that choice unless applying the foreign law would violate the public policy of our State. See OCGA § 1-3-9. Under this public-policy exception, our courts have for many years declined to apply foreign law to determine whether to enforce restrictive covenants—in particular, agreements not to engage in the same type of business in the same market for a period of time, usually connected with the sale of a business or employment contracts. The petitioners here—two motorcycle dealerships who seek to enforce restrictive covenants against a former employee under Florida law—ask us to reconsider this application of the public-policy exception, citing recent changes in Georgia law that require a more flexible and permissive approach to enforcing restrictive covenants.

Having taken a fresh look, we conclude that Georgia law remains the touchstone for determining whether a given restrictive covenant is enforceable in our courts, even where the contract says another state's law applies. Our decisional law has long distinguished between restrictive covenants that are reasonable (in scope, duration, and geographic reach) and those that are unreasonable. The former are enforceable, while the latter have been classified as contracts "in general restraint of trade." For just as long, contracts in general restraint of trade have been "deemed contrary to public policy" in our State. OCGA § 13-8-2 (a) (2). As we explain below, a careful review of our decisional law and statutory history in this space shows that our legislature has codified this view, including with the recent enactment of the Georgia Restrictive Covenants Act ("GRCA"). OCGA § 13-8-50 et seq. Although the GRCA and a corresponding constitutional amendment set up a much more permissive and flexible approach to enforcing restrictive covenants, these changes did not disturb the well-settled understanding that restrictive covenants that are unreasonable under Georgia law are not just illegal, but against our public policy. This means that to determine whether applying foreign law to a restrictive covenant would violate Georgia's public policy—i.e., whether the public-policy exception to honoring a choice-of-law clause applies—a Georgia court must first determine whether the restrictive covenant complies with the GRCA. If the restrictive covenant as written is reasonable under the GRCA, the court can honor the choice-of-law provision and apply the foreign law to determine whether to enforce it. If the restrictive covenant is unreasonable under the GRCA, a Georgia court may not apply foreign law to enforce it. In that case, Georgia law would govern the contract, and so the court would apply our law, including the GRCA's blue-penciling provision, which could allow the restrictive covenant to be enforced in part.

In this case, the trial court accepted the parties’ choice of Florida law to govern the employment contracts at issue without first determining whether the restrictive covenants in the contracts complied with the GRCA. The Court of Appeals reversed, and in doing so, correctly identified application of the GRCA as the first step in the analysis of whether the public-policy exception overrides the parties’ choice of foreign law. But because we have now set out a clear framework for that analysis in this opinion, we leave it for the trial court to apply that framework in the first instance. We therefore vacate the decision below and remand with direction to vacate the trial court's decision and remand for further proceedings consistent with this opinion.

1. (a) In 2016, Edmund Burbach was hired to work for a group of six Harley-Davidson dealerships under common ownership, including Motorsports of Conyers, LLC d/b/a Falcons Fury Harley-Davidson, and Motorsports of Durham, LLC d/b/a Raging Bull Harley-Davidson (collectively as to all six, "the dealerships"). Later that year, he was promoted to Chief Operating Officer, and he executed two employment agreements, one with Falcons Fury and one with Raging Bull. These agreements included identical restrictive covenants. Among other things, those covenants prohibited Burbach, during his employment and for three years after, from accepting employment from any competitor within a 120-mile radius of any of the six dealerships. Both agreements also included a choice-of-law provision stating that the agreements were to be governed by Florida law.

Burbach's employment with the dealerships ended in December 2019. He then began working for Preston Cycles West, LLC d/b/a Thunder Tower West Harley-Davidson, a competitor of the dealerships located less than 20 miles from Falcons Fury. Falcons Fury and Raging Bull (together, "Motorsports") asked him to stop that work, which they claimed violated the restrictive covenants in his employment agreements. He persisted, so they sued him in the Superior Court of Henry County to enforce the restrictive covenants. Motorsports then moved for an interlocutory injunction.

(b) After a hearing, the trial court issued an interlocutory injunction. Relevant here, the court applied Florida law to determine whether the restrictive covenants were enforceable. In doing so, the court rejected Burbach's argument that, notwithstanding the agreements’ choice-of-law provisions, Georgia law should apply because Florida law governing restrictive covenants violates Georgia public policy. In support, the court relied on Auld v. Forbes , 309 Ga. 893, 848 S.E.2d 876 (2020). In that wrongful-death case, this Court examined the "public policy exception" to the doctrine of lex loci delicti—which requires courts to apply the law of the jurisdiction where the tort was committed—and held that a court may decline to apply another state's law "only if the out-of-state law is so ‘radically dissimilar to anything existing in our own system of jurisprudence’ that it would ‘seriously contravene’ the policy embodied in Georgia law." 309 Ga. at 896 (2) (b), 848 S.E.2d 876 (citation omitted). Applying Auld , the trial court compared Florida's restrictive-covenants statute with the Georgia Restrictive Covenants Act and determined that Florida's law was not "so radically dissimilar" to Georgia's that public policy required it to apply Georgia law instead. Id. at 898 (2) (b), 848 S.E.2d 876. So the court applied Florida law, and it determined that the restrictive covenants were enforceable because they were "reasonable and necessary to protect [Appellants’] legitimate business interests." The court held further that Motorsports had met their burden to justify interlocutory injunctive relief. The court therefore granted an interlocutory injunction that barred Burbach from working in any capacity for any competitor located within 120 miles of either Falcons Fury or Raging Bull.

(c) The Court of Appeals reversed. Burbach v. Motorsports of Conyers, LLC , 363 Ga. App. 188, 871 S.E.2d 63 (2022). The court reasoned that it would "apply Georgia law to determine the enforceability of the forum-selection clause here" because "forum selection clauses involve procedural and not substantive rights." Id. at 190 (1), 871 S.E.2d 63 (citation and punctuation omitted). ¹ And under Georgia law, the court explained, a showing that "a restrictive covenant violates Georgia public policy and that a court in the selected forum likely would find the restrictive covenant enforceable" is a "compelling reason" to "avoid the contractual forum selection clause." Id. at 190-191 (1), 871 S.E.2d 63 (citation and punctuation omitted). The court then cited the GRCA's directive that "a court shall not enforce a restrictive covenant unless it is in compliance with [the Act]," under which restrictive covenants must be "reasonable in time, geographic area, and scope of prohibited activities." Id. at 191 (1), 871 S.E.2d 63 (quoting OCGA §§ 13-8-53 (a), 13-8-54 (b) ). In a footnote, the court distinguished Auld because that case involved "a tort that occurred in another country," while this case was about a "contractual dispute [involving] a mutually negotiated, forum-selection clause." Id. at 191 (1) n.5, 871 S.E.2d 63.

The Court of Appeals then turned to the restrictive covenants here and concluded they would be "unreasonable" under Georgia law because they were too broad in their duration, scope of activity, and geographic reach. Burbach , 363 Ga. App. at 191-192 (1), 871 S.E.2d 63. On the other hand, the court believed the covenants would be enforceable under Florida law, see id. at 192-193 (1), 871 S.E.2d 63. Based on that review, the court concluded that "the trial court erred in upholding the [choice-of-law] clauses in Burbach's restrictive covenants." Id. at 193 (1), 871 S.E.2d 63.

We granted review to clarify the framework for deciding whether to apply contracting parties’ choice of foreign law to govern the enforceability of a restrictive covenant in an employment contract.

2. (a) As a general rule, when parties agree to have foreign law govern their contractual relations, Georgia courts must honor that choice and apply the foreign law as a matter of comity. See OCGA § 1-3-9 ; CS-Lakeview at Gwinnett, Inc. v. Simon Prop. Grp., Inc. , 283 Ga. 426, 428, 659 S.E.2d 359 (2008) ; Carr v. Kupfer , 250 Ga. 106, 107 (1), 296 S.E.2d 560 (1982). But the statute that...