Since the passage of the Georgia Restrictive Covenants Act (OCGA Sections 13-8-50 et seq.) In May 2011, there has been a degree of uncertainty about how far a court can change a “blue pen” or otherwise unenforceable agreement, including the question whether a court can extend the limitation period of a non-compete clause after May 2011. With the recent decision in Daneshgari v. Patriot Towing Services, LLC has given employers a little more clarity, but with a remaining uncertainty, as the Georgia Appeals Court ruled that a court mistakenly extended an injunction beyond the contractual expiry of the non-compete term.
background
Patriot Towing Services (PTS) acquired the assets of a towing company owned and operated by Khosrow Daneshgari on June 23, 2016, with a non-compete agreement with a four-year vesting period that should expire on June 22, 2020 against the owner or Seller of all or a substantial part of the assets of a company, professional practice or other trading company.) Daneshgari began operating a competing company within one month of the conclusion of the agreements.
PTS filed a lawsuit against Daneshgari for breach of the non-compete clause, and on June 26, 2018, the court of first instance issued an injunction ordering Daneshgari to cease the non-compete infringement. Daneshgari broke the non-compete clause even after the injunction, and PTS filed a motion for contempt as a result. The court found that Daneshgari was deliberately disregarded and ordered that he be detained until he paid PTS 20,000 in legal fees. After Daneshgari made the payment and was released from prison, he again violated the non-compete clause. PTS filed a second motion for contempt, and on September 3, 2020, the court found Daneshgari disregarded, proposed his response, defaulted judgment on him, and extended the restraining order of the 26th non-competition order ‘pending further decision by that court’. “Daneshgari appealed the judgment of the first instance court to the Court of Appeals of Georgia.
The Court of Appeal’s analysis
The appeals court applied the Georgia Supreme Court’s implicit rejection of “the idea that ‘justice allows a court to extend a non-compete period'” and relied primarily on two holdings under the restrictive Covenants Act: Coffee System of Atlanta v Fox, published 1971, and Electronic Data Systems Corp. v. Heinemann, published 1997. In Coffee System, the Supreme Court of Georgia dismissed the employer’s argument that litigation prevented a non-compete agreement on the grounds that “[c]our do not conclude any contracts for the parties “and that”[s]Such an extension would de facto rewrite the … agreement. ”In Heinemann, the Georgia Supreme Court“ again dismissed the argument that if a party is seeking non-compete enforcement, the litigation itself should end the terms of the agreement ”and reiterated it , that “”[t]The courts should be reluctant to rewrite private contracts ‘”because”‘[j]the judicial provision of a toll regime would result in such a revision. ‘”Accordingly, the appellate court found that the court had essentially rewritten the parties’ non-compete clause and exceeded its powers by indefinitely prohibiting Daneshgari from granting the non-compete clause after it had expired violate the embargo.
The central theses
The involvement in the Daneshgari case serves as a reminder that, despite the business-friendly provisions of the Restrictive Covenants Act, such as “Some stocks of common law prior to the passage of the Restrictive Covenants Act are still very much alive. In light of Daneshgari, employers may want to carefully tailor restrictive covenants to include carefully crafted toll regulations and review existing restrictive covenants to meet expectations in the event of a breach. If Daneshgari’s non-compete clause had included an enforceable toll regime, PTS might have argued in favor of extending the restrictive agreement. Without such a toll regulation, however, parties who want to enforce restrictive agreements can be at risk if the infringing party challenges the enforceability of the agreement in court, which can often take years to enforce in court.
© 2021, Ogletree, Deakins, Nash, Smoak & Stewart, PC, all rights reserved.National Law Review, Volume XI, Number 305
