Facts
- EarthCam, Inc., headquartered in New Jersey, developed remote-camera technology and services used on construction projects.
- OxBlue Corporation, headquartered in Georgia, competed with EarthCam in the same market.
- EarthCam alleged that OxBlue sought to obtain EarthCam’s confidential business and technical information through improper means.
- Richard Hermann worked for EarthCam entirely in New Jersey and resided in New Jersey during his employment.
- Hermann’s employment agreement with EarthCam contained noncompetition and nonsolicitation provisions and included a choice-of-law clause selecting New Jersey law.
- After leaving EarthCam, Hermann began working for OxBlue and allegedly solicited EarthCam customers.
- EarthCam sued OxBlue and Hermann in the U.S. District Court for the Northern District of Georgia; as to Hermann, EarthCam asserted a breach-of-contract claim based on the restrictive covenants.
- Hermann moved to dismiss, arguing Georgia law governed the enforceability of the restrictive covenants and that, under Georgia law, the covenants were unenforceable.
- EarthCam argued that refusing to apply the contract’s New Jersey choice-of-law clause and instead applying Georgia law would violate EarthCam’s federal due-process rights.
Issues
- Whether applying Georgia law, rather than the contract’s New Jersey choice-of-law clause, to determine enforceability of Hermann’s restrictive covenants would violate EarthCam’s due-process rights.
- Whether Georgia’s conflicts rules and public policy permitted the court to apply Georgia law to the restrictive covenants despite the New Jersey choice-of-law provision.
- If Georgia law applied, whether EarthCam stated a viable breach-of-contract claim against Hermann based on the noncompetition and nonsolicitation provisions.
Decision
- The court applied Georgia law to the restrictive covenants despite the New Jersey choice-of-law clause.
- The court rejected EarthCam’s argument that applying Georgia law would violate due process, concluding Georgia had sufficient contacts with the dispute so that applying Georgia law was not arbitrary or fundamentally unfair.
- Applying Georgia law, the court treated the restrictive covenants as unenforceable and dismissed EarthCam’s breach-of-contract claim against Hermann to the extent it depended on those covenants.
Legal Principles
- A forum may apply its own law consistent with due process when the forum has significant contacts with the parties and the dispute such that the choice of law is not arbitrary or fundamentally unfair.
- A contractual choice-of-law clause is not always controlling; under the forum’s conflicts principles, a court may decline to apply the chosen law when doing so would conflict with the forum state’s strong public policy.
- Under Georgia law (as applied in this case), restrictive covenants in employment agreements are subject to strict limits; if a covenant is unenforceable as a matter of law, a breach claim based on that covenant may be dismissed at the pleading stage.
Conclusion
EarthCam sued its former New Jersey employee, Hermann, in Georgia for breaching restrictive covenants that selected New Jersey law, but the federal court in the Northern District of Georgia applied Georgia law, held that doing so did not violate due process because Georgia had sufficient connections to the dispute, and dismissed the contract claim insofar as it relied on restrictive covenants unenforceable under Georgia law.