BELLSOUTH CORP. v. FORSEENos. A03A2096, A03A2097.
595 S.E.2d 99 (2004)
265 Ga. App. 589
Cingular Wireless Corporation et al.
Cingular Wireless Corporation et al.
Court of Appeals of Georgia.
January 29, 2004.
Reconsideration Denied February 13, 2004.
Certiorari Denied May 24, 2004.
Kilpatrick Stockton, Matthew H. Patton, James F. Bogan III, Alston & Bird, J. Thomas Kilpatrick, Lisa H. Cassilly, Emily S. Sanford, J. Henry Walker IV, Atlanta, for appellants.
King & Spalding, Michael C. Russ, William A. Clineburg, Jr., Atlanta, for appellee.
This litigation pits two of our nation's major telecommunications companies against one of their key executives. The companies complain that if the executive accepts an offer of employment by a competitor of theirs, he will breach noncompetition and nondisclosure covenants in his employment agreement. The companies seek arbitration of the dispute. The Superior Court of Fulton County entered a temporary restraining order (TRO) forbidding the executive from accepting employment with the competitor pending arbitration. The court, however, found the noncompetition covenant to be invalid and unenforceable, and the TRO as currently entered removes this clause from the arbitrator's consideration. The telecommunications companies appeal, contending that the superior court was without authority to issue a final ruling with respect to the validity of the noncompetition covenant and should have submitted the issue to the arbitrator. We disagree and affirm.
Gary Forsee was employed as vice chairman of domestic operations for BellSouth Corporation, a Fortune 100 company providing a broad range of telecommunications services in the United States and foreign countries. Forsee also served as chairman of the board of directors of Cingular Wireless Corporation and Cingular Wireless (collectively "Cingular"). Cingular is a joint venture between BellSouth and SBC Communications, and it is the second largest wireless telecommunications company in the United States.
The superior court granted BellSouth's request for an ex parte TRO prohibiting Forsee from accepting employment with Sprint. But after conducting an emergency hearing, the court issued an order finding the noncompetition covenant in Forsee's employment agreement unenforceable under Georgia law and dissolving the part of the TRO that related to it. Invoking an arbitration clause in Forsee's employment agreement, both BellSouth and Cingular moved to compel arbitration. The superior court conducted another hearing and, consistent with its earlier ruling, granted the motion to compel arbitration as to any controversy arising out of the nondisclosure provision of the employment agreement but denied the motion with regard to any controversy arising out of the noncompetition covenant. In Case No. A03A2096, BellSouth appeals the order of the superior court dissolving part of the TRO (the modification order). In Case No. A03A2097, Cingular appeals the order denying in part the motion to compel arbitration (the arbitration order).
"[T]he standard of review from the grant of a motion to compel arbitration is whether the trial court was correct as a matter of law. [Cit.] In addition, the construction of a contract is a question of law for the court that is subject to de novo review. [Cit.]"
The scope of arbitrable issues
The parties agree that the employment agreement at issue involves interstate commerce, and that the Federal Arbitration Act (FAA),
Moreover, "the Supreme Court cautions that a court considering arbitrability `is not to rule on the potential merits of the underlying claims.' [Cit.] Even if it appears to the reviewing court that the claims asserted are meritless or even frivolous, it must not allow those considerations to interfere with its determination of arbitrability. [Cit.]"
The GAC is in accord. It grants a superior court authority to "entertain an application... for a preliminary injunction in connection with an arbitrable controversy, but only upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without such provisional relief."
The arbitration order—facts and law
In the order entered on Cingular's motion to compel arbitration, the court reviewed both the arbitration provision and a severability clause in the parties' agreement. As found by the trial court, the arbitration provision requires "[a]ny dispute, controversy or claim arising out of or relating to" the agreement or to "the breach, termination or invalidity thereof to be settled by arbitration pursuant to the rules of the American Arbitration Association." The severability clause states that if any provision of the agreement "shall be held to be illegal, invalid or unenforceable by a court of competent jurisdiction, the remaining provisions shall remain in full force and effect." The agreement further provides that it is to be construed under and governed by the laws of the state of Georgia. The superior court concluded that the severability clause authorized it to remove from arbitration those provisions of the agreement it determined to be illegal, invalid, or unenforceable.
In support of its conclusion that the severability clause in the parties' agreement authorized it to determine the validity of the noncompetition clause rather than submit the question to arbitration under the arbitration clause, the superior court cited the decision of the United States Supreme Court in Howsam v. Dean Witter Reynolds, Inc.
In Howsam, a securities dealer sued one of its clients, seeking a judicial determination that the client's demand to arbitrate a grievance was barred by a time limit imposed by the governing arbitration code. The issue before the Supreme Court was whether such a "gateway dispute" raised a "question of
Arguments on appeal
Forsee argues that BellSouth nonetheless invoked a ruling from the superior court as to the enforceability of the provisions in the employment agreement and, therefore, cannot complain of an adverse decision.
As a matter of Georgia procedure, it has been held that "[t]he entry of permanent relief after an interlocutory hearing is improper unless there is an order consolidating the trial on the merits with the hearing on the application for interlocutory injunction as provided in OCGA § 9-11-65(a)(2), or the parties have acquiesced. [Cit.]"
The covenant not to compete
The covenant not to compete in this case states that while employed by BellSouth "or an affiliated company," and for a period of 18 months after termination from employment, Forsee will not
"Affiliated companies" is defined as each entity in respect of which BellSouth owns directly or indirectly at least ten percent in the capital or profits of such entity. "Territory" is defined under the agreement as the territory in which Forsee provided services to BellSouth, affiliated companies, and additional markets listed on an exhibit attached to the agreement. In the noncompete covenant, Forsee agreed "that because of the widespread nature of [BellSouth's] business, breach of this agreement by engaging in competitive activity anywhere in this broad territory would irreparably injure [BellSouth] or affiliated companies and that, therefore, a more limited geographic restriction is neither feasible nor appropriate." The "services" which Forsee is prohibited from providing "include" "management, strategic planning, business planning, administration, or other participation in or providing advice with respect to the communications services business...."
The modification order
Finding evidence that the geographical area for which Forsee was responsible differed substantially from the "territory" defined in the agreement—and finding no evidence that Forsee had any direct responsibility over, or worked or supervised activities in, those regions—the superior court found the territorial restrictions overly broad and unenforceable. As authority, the court relied on the rule, as set forth in cases such as W.R. Grace & Co. v. Mouyal,
In the modification order, the superior court applied Georgia's traditional test for determining the validity of a covenant not to compete ancillary to an employment contract.
In Roberts v. Tifton Med. Clinic,
Notwithstanding Watson and its progeny, however, we have continued to hold, in Jarrett v. Hamilton,
Although it is debatable whether the severability clause of the parties' agreement should be interpreted so broadly as to have allowed Forsee to litigate challenges to the facial validity of provisions of the employment agreement in a judicial forum in lieu of arbitration, here BellSouth and Cingular invoked the jurisdiction of the superior court to temporarily enjoin Forsee from accepting employment with Sprint. In determining whether to issue the TRO, the court initially was authorized to make a preliminary determination as to the enforceability of the noncompetition covenant in considering
ELLINGTON, J., concurs.
BLACKBURN, P.J., concurs in the judgment only.
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