Opposition Brief — Hogan Management Services v. Martino

No. 00-706

In The Sage Stag ee eee

Supreme Court of the United States

+

HOGAN MANAGEMENT SERVICES, om

Petitioner,

JOSEPH A. MARTINO, M.D., d/b/a

NORTH GEORGIA ORTHOPAEDICS, P.C.,

Respondent.

On Petition For Writ Of Certiorari

To The Georgia Supreme Court

°

RESPONDENT'S BRIEF IN OPPOSITION

TO PETITION FOR WRIT OF CERTIORARI

¢

Davip L. Moss

Counsel of Record

Suite 1300, First Tennessee Bank

Building

701 Market Street

Chattanooga, Tennessee 37402

(423) 756-4050

Attorney for Respondents North

Georgia Orthopaedics, P.C. and

Joseph A. Martino, M.D.

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 42-2831

PARTIES TO THE PROCEEDING AND

STATEMENT PURSUANT TO RULE 29.6

The Petitioner is Hogan Management Services, P.C.

The Respondents are Joseph A. Martino, M.D., and North

Georgia Orthopaedics, P.C. North Georgia Orthopaedics,

P.C. has no parent corporation and no publicly held com-

pany owns 10% or more of North Georgia Orthopaedics,

P.C.’s stock.

TABLE OF CONTENTS

Page

Parties to the Proceeding and Statement Pursuant to

Rule 29.6. ......:.+sss0beeneeneeneeneeannnnn Ss i

Table of Contents. ....«::sssageueseeee eae Weenaneean ii

Table of Authorities ....:ssicceebcuksseeaueeueuees iii

Statement of the Case ...:icoscaccesnseuabeseeneets 1

1. Procedural BUGGED, .0ccccucecuuevbesedesies 1

2. The Trial Court’s Order Which The Georgia

Appellate Courts Affirmed................. 4

Reasons for Denying the Writ .................005: 7

1. This Court Lacks Jurisdiction .........0000: 7

2. Even on the Merits, Hogan’s Constitutional

Arguments are Frivolous................... 9

a. Hogan Has Not Been Denied Due Process -

b. Hogan Has Not Been Denied Equal Pro-

tection of the LAW cicacccccuucewesssecs 15

Conclusion ... . ..«<« «ass yey ein enn 16

—

TABLE OF AUTHORITIES

Page

Cases:

Brennan v. Stewart, 834 F.2d 1248, 1257 (5th Cir.

| See PUUCTT ETT ere err Terrie 11

Coffee System of Atlanta v. Fox, 227 Ga. 602, 182

DY ETE SA cod dhexcnberevducasacebecebvaas 7, 8

DeFunis v. Odegaard, 416 U.S. 312, 94S. Ct. 1704, 40

SY PE eG kb Rl ek SebN cb GddneeadacadeuewselKes 7

Durham v. Stand-By-Labor, 230 Ga. 552, 198 S.E.2d

CDN sc e60cc4bsksuncervastehearbaessdeesibaws 5

Electronic Data Systems Corp. v. Heinemann, 268 Ga.

Se See Ee RED bhi n0 ces ebbne teense ecvads 7

Hamrick v. Kelley, 260 Ga. 307, 392 S.E.2d 518

DPC Chane ianbeheeeeképhsddaseedssdcwisbaneeeeas 6

Henry v. Mississippi, 379 U.S. 443, 85 S. Ct. 564, 13

Sy UE Ss 9 o:b 66 0c00d Ntadbabscesesncaveaes 7

Hogan Management Services, P.C. v. Martino, 242

Ga. App. 791, 530 S.E.2d 508 (2000), cert. denied ..... 3

Howard Schultz & Assoc. v. Broniec, 239 Ga. 181, 236

PP TED cnodeceuwedsétaessdcadeseesdsaeus 12

Jackson & Coker, Inc. v. Hart, 261 Ga. 371, 405

EY ED 64 6 Gn 660.6 ¥esb0ss dea oechage casas 12

Jenkins v. Jenkins Irrigation, Inc., 244 Ga. 95, 259

GY chide cuucanl beksees ee wast aa eed 12

Koger Properties v. Adams-Cates Company, 247 Ga.

i i ee MF COON bss cnn cetencnadveneseg esses 5

Marcoin, Inc. v. Waldron, 244 Ga. 169, 259 S.E.2d

TNC WiGhs debeeedetaestatawssscduesésgancea 5

iV

TABLE OF AUTHORITIES

Page

Michael H. v. Gerald D., 491 U.S. 110, 109 S. Ct. 233,

105 L.Ed.2d 91 (1989), reh. den., 492 U.S. 937

(1989), 2nd reh. den., 499 U.S. 984 (1991), mot. to

SEE GOR, Foe WD FES CRPOED ene cdccsascaccacess 10

Murdock v. Memphis, 20 Wall. 590, 22 L.Ed. 429

bo OTe rr ore rey fe rey eer reer ry re 7

Richard P. Rita Personnel Services, Inc. v. KOT, 229

Cot. DOG, THE Die Fe CGO ee obs cncccsaned dees 12, 15

Smith v. HBT, Inc., 213 Ga. App. 560, 445 S.E.2d

is SB PP ee re: Perr error ey Pr reer ts Orr e 14

Southern Intermodal Logistics, Inc. v. Taylor Maid

Transportation, Inc., 255 Ga. 390, 338 S.E.2d 678

| PEEP E PET Y TPP eT Te Pe ETT Tre Tee ETP P TTT rE Tee yy 8

Viensis w. Kitme, 412 US. 661 (1973)... ccccccnccscs 11

W. R. Grace & Co. v. Mouyal, 262 Ga. 464, 422

a I aos ca ea vate kei ota bias 4, 6

Ward v. Process Control Corp., 247 Ga. 583, 277

ee ee CE bas habe eee be kinedawaeseakes weed 6

Watson v. Waffle House, Inc., 253 Ga. 671, 324 S.E.2d

S7e Cee oo whe ees obh esas debate ns tener 10

Weinberger v. Salfi, 422 U.S. 749, 95 S. Ct. 2457, 45

Le CEE GUO e & « 06 ar 5 dnacncesosaedektasedes 11

White v. Fletcher/Mayo/Associates, 251 Ga. 203, 303 |

Pe Fe COP ess cdbnkedds suaneaekadwestauns ‘ae

Williamson v. Lee Optical Company, 348 U.S. 483, 75

OR SR, De Res CU oc va csscnsensneaccas 15

OO OO

Vv

TABLE OF AUTHORITIES

Page

STATUTES:

OLGA, © SOG e: 0 06ctntedscateonncitnaseaes 7

OLGA, © Sas es ciccsei cavesavasen Deererreiee 2

OS Aah, BPE is vcvccatccssarvbaveccebcouewas 8, 9

CRE Aa, BS TI Bei ska ccs cdsivn soins scence 4

OLGA, | MGS 6 iicpewdesstei cartesian 12

CONSTITUTIONAL AUTHORITES

Ga. Const. Art. III, Sec. IV, Para. V(c) (1983)......... 4

STATEMENT OF THE CASE

1. Procedural History

This case involves the construction of restrictive cov-

enants contained in a private contract of employment

under Georgia law. Petitioner Hogan Management Ser-

vices, P.C. (“Hogan”) filed suit against Respondents

North Georgia Orthopaedics, P.C. (“NGO”) and its presi-

dent, Joseph A. Martino, M.D. (“Dr. Martino”) (collec-

tively referred to as “Respondents”), alleging violations

of restrictive covenants contained in the employment

contract between Hogan and NGO (the “Contract”) and

seeking injunctive relief.

On August _4, 1995, the Superior Court of Forsyth

County, Georgia issued a TRO restraining NGO and Dr.

Martino from competing with, or soliciting any patients

of, Hogan until an interlocutory hearing could be held.

The trial court refused Dr. Martino’s request that Hogan

be ordered to post a bond for damages caused by the

TRO. NGO and Dr. Martino answered the complaint stat-

ing that the restrictive covenants were illegal and unen-

forceable as a matter of law, raising a number of

affirmative defenses including Hogan’s breach of con-

tract, fraud, unclean hands and estoppel. Dr. Martino

asserted a counterclaim for his damages caused by the

wrongful restraint.

At the interlocutory hearing on September 5, 1995,

evidence was presented regarding the duration, scope of

activity, and territorial limits of the restrictive covenants,

and the effect upon the public if the restrictive covenants

were enforced. Additionally, the trial court heard the

evidence concerning Hogan's breaches, unclean hands

and other defenses to the injunctive relief sought.

On October 16, 1995, the trial court entered an Order

dissolving the TRO and dismissing Hogan’s complaint.

Based upon long-standing Georgia Supreme Court prece-

dent, the trial court found as a matter of law that both the

non-compete and non-solicitation clauses were unreason-

able, void and unenforceable. The trial court found as a

matter of fact that the Contract did not involve the sale of

a business and, following binding Georgia precedent,

refused to “blue pencil” the illegal covenants.

Hogan appealed to the Georgia Supreme Court. On

motion of NGO and Dr. Martino, the case was transferred

to the Georgia Court of Appeals. Hogan’s appeal was

then dismissed by the Georgia Court of Appeals because

Dr. Martino’s counterclaim was still pending, Hogan had

failed to obtain certification of less than all issues pur-

suant to O.C.G.A. § 9-11-54(b), and, therefore, the appeal

was premature.

On remand to the trial court, the parties filed cross-

motions for summary judgment on the counterclaim.

Hogan also moved the trial court for reconsideration of

its October 16, 1995 Order dismissing the complaint. Ulti-

mately, the trial court dismissed the counterclaim on the

ground that the trial court’s decision not to require

Hogan to post a bond - even though Dr. Martino had

requested one — barred Dr. Martino’s cause of action. The

court denied Hogan’s motion for reconsideration of the

October 16, 1995 Order, and, in an amended order, also

rejected Hogan’s constitutional claim.

a eT wen

Hogan again appealed the trial court’s October 16,

1995 Order, and Dr. Martino cross-appealed the trial

court’s dismissal of his counterclaim. On March 3, 2000,

the Court of Appeals decided both cases. With respect to

Hogan’s appeal, the court held that Hogan’s appeal was

moot. The eighteen (18) month time period applicable to

the restrictive covenants had expired. Under Georgia law,

it was not tolled during the pendency of litigation, and

could not be judicially tolled. Thus, Hogan could not

obtain the injunctive relief it sought in its complaint.

Accordingly, the court affirmed the trial court’s October

16, 1996 Order dismissing Hogan’s complaint.!

Regarding Dr. Martino’s cross-appeal, the court of

appeals reversed the trial court’s dismissal of the counter-

claim. The court held that Dr. Martino’s cause of action

for wrongful restraint under O.C.G.A. § 9-11-65(c) was

not barred by the trial court’s refusal to order Hogan to

post a bond. The court further held that the restraint was

wrongful as a matter of law, and granted Dr. Martino’s

motion for partial summary judgment as to Hogan’s lia-

bility for wrongful restraint. It remanded the case for trial

on the issue of Dr. Martino’s damages. Hogan Management

Services, P.C. v. Martino, 242 Ga. App. 791, 530 S.E.2d 508

(2000), cert. denied. Hogan’s petitions for certiorari to the

Georgia Supreme Court were denied, as were Hogan’s

motions for reconsideration. Hogan now petitions this

Court for certiorari.

1 The court of appeals also held that, even if the appeal was

not moot, the trial court was correct in finding that the

restrictive covenants were unenforceable as a matter of law.

2. The Trial Court’s Order Which The Georgia

Appellate Courts Affirmed

The Contract which is the subject of this litigation

contains two restrictions: (a) a covenant not to compete,

and (b) a covenant not to solicit. The covenants are found

in Paragraph 7 which provides in pertinent part:

Covenant Not to Compete. In the event of termina-

tion of this Agreement, Provider agrees that Pro-

vider will not, within a period of eighteen (18)

months, engage in the practice of medicine or

surgery within a radius of ten (10) miles of any

practice site(s) at which Provider has practiced

under this Agreement . . . Provider further

agrees not to solicit any patients of the Corpora-

tion to become the patients of Provider... .

(emphasis added)

The trial court properly noted that contracts in gen-

eral restraint of trade which tend to lessen competition

are against public policy and void under the Georgia

Constitution. Ga. Const. Art. III, Sec. IV, Para. V(c) (1983);

O.C.G.A. § 13-8-2. Restrictive covenants contained in

employment contracts are considered to be in partial

restraint of trade and will be upheld only if strictly lim-

ited in time, territorial effect and scope of activity such

that they reasonably protect the interests of the party in

whose favor it is imposed, and do not unduly prejudice

the interests of the public. W. R. Grace & Co. v. Mouyal,

262 Ga. 464, 422 S.E.2d 529 (1992). A restrictive covenant

is unenforceable as an unreasonable restraint on trade if,

at the time the contract is formed, it is indefinite or if it is

overbroad as to time, territorial limitation or scope of

activities prohibited. Koger Properties v. Adams-Cates Com-

pany, 247 Ga. 68, 274 S.E.2d 329 (1981); Durham v. Stand-

By-Labor, 230 Ga. 552, 198 S.E.2d 145 (1973).

Regarding the non-compete clause, the trial court

found that the territorial scope was indefinite and unen-

forceable. It depended upon the location of “practice

site(s)” which were undefined in the Contract,2 and

which were not capable of determination at the formation

of the Contract.

Regarding the non-solicitation clause, the trial court

found it unreasonable because it did not contain the

necessary time limitation, Marcoin, Inc. v. Waldron, 244

Ga. 169, 259 S.E.2d 433, 434 (1979), and because the

prohibition against solicitation of “any” of an employer’s

customers, whether or not a relationship existed between

2 Hogan’s implication that the restrictive covenants were

“negotiated” is disputed. Hogan and its attorney drafted the

restrictive covenant. Hogan could have defined the term

“practice site(s)” to mean specific locations, but failed to do so.

3 That the term is vague and ambiguous is evidenced by

Hogan’s own inability to locate the “practice site(s),” even after

the contract had been terminated. Under the guise of

“clarification,” Hogan alleged there were eight (8) “practice

sites.” One was an office operated by Healthsouth, five were

hospitals that Hogan did not operate or manage, and one was a

hospital in downtown Atlanta where Dr. Martino had never

furnished any services, and apparently Dr. Hogan had not

either. Hogan did not show any legitimate business interest to

be protected in Atlanta. Later, in its complaint, Hogan claimed

the term meant two offices and one hospital located in Forsyth

County. As the trial court stated, Hogan’s willingness to be

more reasonable later did not cure the overbreadth of the

restrictive covenant as written.

the customer and the former employee, is an unreason-

able and overbroad attempt to protect the employer’s

interest, even if confined to a specific geographic area. W.

R. Grace, 262 Ga. 464, 422 S.E.2d 529, 532 (1992).

The trial court refused to sever the covenants, or to

“blue pencil” them. Under Georgia law, courts may not

sever or blue pencil illegal restrictive covenants except

when they are ancillary to the sale of a business. Ward v.

Process Control Corp., 247 Ga. 583, 277 S.E.2d 671 (1981).4

The trial court found as a matter of fact that the Contract

did not involve the sale of a business.

¢

4 Even in cases involving the sale of a business, Georgia

courts do not have a license to reform or rewrite restrictive

covenants under the guise of blue-penciling. “Blue-penciling

marks, but it does not write .. . it may not rewrite a contract

void for vagueness, making it definite by designating a new,

clearly demarcated area.” Hamrick v. Kelley, 260 Ga. 307, 392

S.E.2d 518, 519 (1990) (court refused to rewrite restrictive

covenants ancillary to a sale of a business which were vague as

to territorial application). Thus, “blue penciling” would not

help Hogan. As the trial court found, both the non-compete and

the non-solicitation clauses are void on independent grounds.

Even if severed, they are both illegal. Moreover, the non-

compete clause is vague in its territorial application and, like in

Hamrick, it cannot not be salvaged even with the “blue pencil.”

> The trial found that Paragraphs 11 and 12 of the Contract

expressly state that the Contract is not intended to create a

partnership or joint venture between Hogan and Respondents.

Consideration did not flow equally between the parties — Dr.

Hogan made many times the fee paid to NGO. There were no

equal rights of control. Respondents acquired no equity interest

in Hogan. The Contract does not contain any buy-in provision.

Respondents held no official status with Hogan, they were not

REASONS FOR DENYING THE WRIT

1. This Court Lacks Jurisdiction

For this court to have jurisdiction, a live controversy

must exist at all stages of review. This court may not

review cases that are moot. See DeFunis v. Odegaard, 416

U.S. 312, 94S. Ct. 1704, 40 L.Ed.2d (1974). Also, this court

is barred from reviewing cases wherein the state court’s

decision is based upon adequate non-federal grounds,

either substantive or procedural. Murdock v. Memphis, 20

Wall. 590, 22 L.Ed. 429 (1875); Henry v. Mississippi, 379

U.S. 443, 85 S. Ct. 564, 13 L.Ed.2d 408 (1965).

Under Georgia law, dismissal of a moot appeal is

mandatory. O.C.G.A. § 5-6-48(b)(3). The Georgia Court of

Appeal held that Hogan’s appeal of the trial court’s Octo-

ber 16, 1995 Order was moot because, by the time Hogan

perfected its appeal, the eighteen (18) month time period

applicable to the illegal restrictive covenants had expired.

Under Georgia law, the pendency of litigation over

restrictive covenants does not toll the running of the

contractual time period during which the covenants, if

valid, would apply. Coffee System of Atlanta v. Fox, 227 Ga.

602, 182 S.E.2d 109 (1971); see also Electronic Data Systems

Corp v. Heinemann, 268 Ga. 755, 493 S.E.2d 132 (1997).

Where a complaint seeks injunctive relief, appeals taken

after the expiration of the contractual time period are

owners of or shareholders in Hogan, and had no voting rights in

Hogan. Respondents had no authority to hire or fire employees.

Respondents’ benefits and responsibilities were established by

the Contract. There were no reciprocal restrictive covenants

extracted from Hogan or its sole physician employee, Dr.

Hogan.

moot. Southern Intermodal Logistics, Inc. v. Taylor Maid

Transportation, Inc., 255 Ga. 390, 338 S.E.2d 678 (1986).

Moreover, in the absence of a contractual tolling provi-

sion, judicial tolling is prohibited. “Such an extension

would in effect rewrite the [time period] of the agree- ;

ment. Courts do not make contracts for the parties.”

Coffee System, 182 S.E.2d at 110.

The essence of Hogan’s Petition is that Georgia

courts improperly “classify” restrictive covenants as

ancillary to employment or the sale of a business in

deciding whether to “blue pencil” them. But the cases

applicable to the mootness issue do not involve such

“classification.” The cases holding that appeals taken

after the expiration of the contractual time period are

moot, and barring tolling (either judicially or by opera-

tion of law), apply to all restrictive covenants, whether

they are ancillary to employment or to the sale of a

business. Coffee Systems, supra (employment contract - no

judicial tolling); Southern Intermodal, supra (sale of a busi-

ness — no judicial tolling). In other words, the Georgia

courts in this case did not engage in “classification” in

ruling that Hogan’s appeal is moot. Thus, there are ade-

quate non-federal grounds supporting the Georgia courts’

ruling, and this Court lacks jurisdiction to review it.

Also, there are adequate non-federal grounds for the

Georgia courts’ ruling regarding the cross-appeal of Dr.

Martino. The Georgia Court of Appeals reversed the trial

court’s dismissal of Dr. Martino’s counterclaim because

the trial court incorrectly interpreted a Georgia statute,

O.C.G.A. § 9-11-65(c). Hogan has not raised any federal

constitutional issue with respect to court of appeals’

aN LE RE eT ate nee nee tee Near aneTe

interpretation of that statute. Since Hogan’s appeal con-

cerning the restrictive covenants is moot, and since the

Georgia law governing the mootness issue does not

involve any constitutionally challenged classification, the

trial court’s October 16, 1995 Order has been affirmed

and is final. That final Order states that the restrictive

covenants were void and unenforceable as a matter of

law. That is an adequate non-federal basis for the Georgia

Court of Appeals’ holding that the TRO was wrongful as

a matter of law, and that Dr. Martino is entitled to partial

summary judgment on the issue of liability for a wrong-

ful restraint under O.C.G.A. § 9-11-65(c).

Hogan’s Petition for Writ of Certiorari is meritless,

especially in light of the obvious absence of jurisdiction.

It should be denied.

2. Even on the Merits, Hogan’s Constitutional

Arguments are Frivolous

Hogan is not arguing that the illegal and void restric-

tive covenants are, in fact, legal. Rather, Hogan wants the

courts to resurrect those void covenants by judicially

rewriting them to make them legal. The Georgia courts

have refused at every level.

In a nutshell, Hogan claims that Georgia law, which

prohibits “blue-penciling” of illegal restrictive covenants

in employment contracts, but allows it when the cove-

nants are ancillary to the sale of a business, operates as an

unconstitutional “classification” based upon an “irrebuta-

ble presumption” that employment contracts are “adhe-

sive contracts.” Hogan claims that such “classification”

violates substantive due process and deprives it of equal

10

protection of the laws. For the reasons stated below,

Hogan’s constitutional arguments are bogus.

a. Hogan Has Not Been Denied Due Process

Hogan’s substantive due process claim is facially

absurd. As a threshold matter, Hogan must show that

Georgia law impacts some fundamental right of Hogan

rooted in the Constitution. Michael H. v. Gerald D., 491

U.S. 110, 122, 109 S. Ct. 233, 105 L.Ed.2d 91 (1989), reh.

den., 492 U.S. 937 (1989), 2nd reh. den., 499 U.S. 984 (1991),

mot. to amend den., 504 U.S. 905 (1992). Hogan has not

shown that the U.S. Constitution establishes any funda-

mental right to have courts judicially edit private con-

tracts and enforce illegal contract provisions that are void

and unenforceable as against Georgia public policy.

Respondents certainly are not aware of any such right,

either expressed in the Constitution or in any case law.

Second, Hogan’s contention that the alleged “classi-

fication” is based upon an “irrebutable presumption” that

employment contracts are “contracts of adhesion” is not

true. Any classification is based upon the employee’s

“unequal bargaining power,” not because they are adhe-

sive in every case. See Watson v. Waffle House, Inc., 253 Ga.

671, 324 S.E.2d 175, 177 (1985). As the Georgia Supreme

Court very practically observed, one who lacks the power

to prevent his own termination, even an important

employee, does not have equal bargaining clout with the

employer who can fire him. White v. Fletcher/Mayo/Associ-

ates, 251 Ga. 203, 303 S.E.2d 746, 750 (1983).

11

Finally, even if Georgia’s approach to the construc-

tion of restrictive covenants creates an irrebutable pre-

sumption, it does not violate due process. If the

“irrebutable presumption” doctrine is still alive as

applied to economic issues, the test of constitutionality is

whether the presumptions are arbitrary or lacking in

rational justification. Weinberger v. Salfi, 422 U.S. 749, 768,

95 S. Ct. 2457, 45 L.Ed.2d 522 (1975).

In the present case, the test is easily satisfied. The

compelling reasons supporting the Georgia law prohibit-

ing “blue penciling” of restrictive covenants in employ-

ment agreements has been stated by the Georgia Supreme

Court:

For every [restrictive] covenant which finds its

way into court, there are thousands which exer-

cise an in terrorem effect on employees who

respect their contractual obligations and on

competitors who fear legal complications if they

employ a covenantor, or who are anxious to

maintain gentlemanly relations with their com-

petitors. Thus, the mobility of untold numbers

of employees is restricted by the intimidation of

restrictions whose severity no court would sanc-

tion. If severance is generally applied,

employers can fashion truly ominous covenants

with confidence that they will be pared down

6 As one federal appeals court stated, “the irrebutable

presumption doctrine was a strange hybrid of procedural due

process and equal protection invented by the Supreme Court in

the early 1970s and laid to rest soon after,” and stating that

Viandis v. Kline, 412 U.S. 441 (1973), the leading case advancing

the doctrine, was “effectively overruled” by Salfi. Brennan v.

Stewart, 834 F.2d 1248, 1257 (Sth Cir. 1988).

12

and enforced ... .” Richard P. Rita Personnel |

Services, Inc. v. KOT, 229 Ga. 314, 191 S.E.2d 79, |

81 (1972). ‘

The Georgia Supreme Court concluded that the rea-

sons favoring “blue penciling” are not of sufficient

weight to offset those reasons for refusing to apply the

doctrine. “In short, we have weighed the ‘blue-pencil’

doctrine in the balance, and found it wanting.” Id. Geor-

gia courts have been asked to blue-pencil or sever restric-

tive covenants many times since and have declined. See,

e.g., Howard Schultz & Assoc. v. Broniec, 239 Ga. 181, 236

S.E.2d 265, 268 (1977) and cases cited therein. Just a few

years ago, in Jackson & Coker, Inc. v. Hart, 261 Ga. 371, 405

S.E.2d 253 (1991), the Supreme Court held that O.C.G.A. |

§ 13-8-2.1, a statute which would have allowed blue-

penciling of otherwise unenforceable restrictive cove-

nants contained in employment contracts, was uncon-

stitutional.

Georgia courts are permitted to “blue pencil” restric-

tive covenants ancillary to the sale of a business because

the transaction is intended to transfer the seller’s busi-

_ ness prospects and goodwill, there is little risk of injury

to the public, and the parties have equal bargaining posi-

tion. Jenkins v. Jenkins Irrigation, Inc., 244 Ga. 95, 259

S.E.2d 47 (1979). As the Jenkins court stated, such is not

the case with employment contracts: Id. at 50.

The facts of this case provide a graphic textbook

illustration of the in terrorem effect —i.e., illegal restrictive

covenants used by an employer to intimidate an

employee and restrain competition. The evidence at trial

showed that for years Dr. Hogan was the only ortho-

paedic surgeon living in Forsyth County and had little

13

competition. In May 1994, Dr. Hogan met Dr. Martino, a

young, Board-eligible and Fellowship-trained ortho-

paedic surgeon with spectacular credentials. He learned

that Dr. Martino was about to move to Forsyth County,

accept a highly paid position with Mountainside Medical

Center in adjacent Pickens County (“Mountainside”), and

open a satellite office in Forsyth County. Dr. Martino not

only would cut off Dr. Hogan’s flow of patients from

Pickens County, he would be taking a third of the “call”

at Baptist North (an important source of new patients and

cases) and otherwise competing with him.

Hogan then lured Dr. Martino into the Contract and

under restrictive covenants based upon fraudulent mis-

representations. The goal was to control and eventually

eliminate the imminent competition which threatened

Hogan’s virtual monopoly upon orthopaedic medicine in

Forsyth County. The record is filled with facts supporting

these contentions. After the position at Mountainside was

filled by another physician, Hogan terminated the con-

tract — while “the ink was still wet” as Dr. Martino

testified - and attempted to coerce Dr. Martino into tak-

ing a pay cut of 50% by claiming that Dr. Martino other-

wise would be barred by the restrictive covenants from

practicing in Forsyth County and virtually all of the

surrounding counties, including places where Dr. Mar-

tino had never practiced before and where Hogan had no

legitimate business interest.

This is not a case of Dr. Martino working for Hogan

for years, and then quitting to set up a competing prac-

tice. Rather, Hogan fired Dr. Martino after only a few

months knowing that if Dr. Martino refused to accept a

50% pay cut, he had only two choices: to move his family

14

out of their new home and out of North Georgia (which,

as a practical matter, would permanently eliminate him

as competition), or to compete and face expensive litiga-

tion with a wealthy entity such as Hogan. Dr. Martino

chose the latter and, though he successfully challenged

the enforceability of the illegal restrictive covenants, Dr.

Martino was deprived of work for three months and still |

is being forced to incur thousands of dollars in legal |

expenses. |

The Georgia law at issue is neither arbitrary nor

unreasonable. It strikes the correct balance of minimizing

restraints on trade, protecting employees from intimida-

tion, and protecting legitimate interests of employers. The

classification furthers the state’s legitimate interest in

preventing employers from stifling competition with

overly broad restrictive covenants, and then counting on

the courts to later make them reasonable. Under Georgia

law, those employers who draft restrictive covenants that

are definite and reasonable in scope will have them

enforced. See, e.g., Smith v. HBT, Inc., 213 Ga. App. 560,

445 S.E.2d 315 (1994). Those who get greedy and over-

reach will not have their covenants enforced. The burden

is placed properly upon the employer to be reasonable

and to avoid drafting illegal and punitive covenants.

Under any level of scrutiny, Georgia’s law prohibiting

“blue penciling” of illegal restrictive covenants in

employment agreements “fits” the policy that the classi-

fication serves.

In summary, Hogan has no constitutionally protected

interest in the enforcement of illegal covenants in a pri-

vate contract. The covenants are void from inception.

cei

15

Moreover, the rationale supporting Georgia law is obvi-

ously reasonable and calculated to protect a legitimate

state interest in competition. The alleged classification

satisfies any requirements imposed by the Constitution,

and Hogan's challenge to it om constitutional grounds is

an exercise in futility.

b. Hogan Has Not Been Denied Equal Protec-

tion of the Law

For the same reasons, Hogan’s equal protection claim

lacks merit. Hogan has not shown that it is a member of a

suspect class, or that any fundamental right has been

impacted. Therefore, the constitutional test of an alleged

illegal economic classification is whether it has any con-

ceivable relationship to any legitimate state interest. Wil-

liamson v. Lee Optical Company, 348 U.S. 483, 75 S. Ct. 461,

99 L.Ed. 563 (1955).

The analysis is virtually the same as above, and will

not be repeated in detail here. Suffice it to say that the

Georgia Constitution is hostile to restraints on competi-

tion. The restrictive covenants at issue here are unrea-

sonably vague and overbroad, and therefore void and

unenforceable. Since this Contract did not involve the

sale of a business, Georgia courts will not “blue penci)”

the covenants to make them enforceable. The reason: to

prevent the in terrorem effect. If “blue penciling” were

allowed, employers like Hogan would get away with

using illegal covenants to stifle competition, in contra-

vention of public policy, and then rely upon the courts to

pare them down and enforce them. Rita Personnel, 191

S.E.2d at 81.

16

In summary, Georgia law is reasonably calculated to

protect a legitimate state interest grounded in the Georgia

constitution. It does not violate due process or the equal

protection clause of the U.S. Constitution. Thus, this

Court should deny Hogan's petition and put a merciful

end to this seemingly endless litigation.

¢

CONCLUSION

For the foregoing reasons, this Court should deny

Hogan’s Petition for Writ of Certiorari, and award

Respondents their costs and attorney fees.

Respectfully submitted,

Davip L. Moss

Counsel of Record

Suite 1300, First Tennessee Bank

Building

701 Market Street

Chattanooga, Tennessee 37402

(423) 756-4050

Attorney for Respondents

North Georgia Orthopaedics, P.C.

and Joseph A Martino, M.D.