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Georgia Federal Court Disregards Forum Selection Clause In Non-Compete And Non-Solicitation Covenant Dispute

Posted in Non-Compete Enforceability, Restrictive Covenants

Notwithstanding a forum-selection provision in the parties’ consulting agreement designating the Northern District of Georgia as the place for litigating non-competition and non-solicitation covenants disputes, a Georgia federal judge transferred covenant violation litigation to the Middle District of Florida. Also, the judge explained why he thought that an arbitration clause was unenforceable, but he said that the Florida court should make the decision. Direct Response Products, Inc. v. Roderick, Case No. 1:11-cv-0945-WSD (N.D. GA, Nov. 1, 2013).

Summary of the case

Direct Response, a DeKalb County, Georgia company, stages sales events for automobile dealerships. Roderick was an independent contractor who marketed the events to dealers. After Roderick terminated the relationship, and allegedly began competing with Direct Response and soliciting members of Direct Response’s sales team to join him, Direct Response filed a diversity jurisdiction case against him in the federal court in DeKalb County. The parties’ agreement included a forum selection clause specifying that county as the place for litigating any dispute. At all relevant times, Roderick lived and worked in Florida. He moved to dismiss on various grounds including supposedly improper venue. In the alternative, he moved to stay the action because, he claimed, the agreement contained a mandatory arbitration provision. All of his motions to dismiss were denied but, on the court’s own motion, the case was transferred to Florida “in the interest of justice.” The Georgia judge declined to rule on Roderick’s alternative motion but suggested that it should be denied by the transferee court.

The parties’ contentions and court’s decision regarding venue

Roderick asserted that his territory did not include Georgia and that, if the breach he is alleged to have committed took place at all, it was in Florida and not in Georgia. Direct Response countered that the effects of the alleged breach would be manifested in DeKalb County. Further, the agreement was executed there, Roderick was trained in Georgia, and he was given access to confidential and proprietary information there. Finally, the agreement provided that all civil actions regarding Direct Response “must be processed in” DeKalb County; under the circumstances, that provision seems reasonable.

The Georgia federal judge denied Roderick’s venue motion but, nonetheless, held that the “required focus” in determining the proper venue for this case is the site of the alleged breach, where Roderick is allegedly competing. Exercising the court’s discretion under 28 U.S.C. § 1406(a), the case was transferred to Florida

Arbitration

The arbitration provision consisted of only two sentences. The first merely specifies what discovery rules are applicable in the arbitration proceeding and states, without any attachment or explanation: “Use the standard ‘one shot’ provision.” The second sentence simply reserves the parties’ “right to apply to a court of competent jurisdiction for equitable relief as necessary to preserve and enforce their rights under this Agreement.”

The court cited “the strong federal policy supporting arbitration” and said Georgia law provides that “an arbitration clause does not need to be detailed to be enforceable.” However, it “must have sufficient specificity to show what is to be arbitrated.” Here, the arbitration provision was silent in that regard as well as where the proceedings were to take place, what process was to be used for selecting a neutral, etc. Thus, it is not surprising that the Georgia judge was skeptical about Roderick’s claim that arbitration was mandated. Moreover, the parties’ testimony was diametrically opposite. The president and owner of Direct Response insisted that his intent was to delete the arbitration provision altogether but it was accidentally left in the agreement. Roderick asserted that he initialed the page with the arbitration clause and intended to include it. The Florida judge will have to decide whether the case is to be litigated or arbitrated.

Takeaways

This case makes clear that even a reasonable forum selection clause might be disregarded if the court decides that transfer to a different venue serves “the interest of justice.” Further, the opinion here reminds us that a judge may disclose how he or she would resolve certain contested issues and yet leave the actual ruling to a different decision-maker.