Covenants Not to Compete in Georgia

Transcription

1 Covenants Not to Compete in Georgia How to avoid the pitfalls of noncompete agreements what you don t know could hurt you. Conversion Thomas J. Gallo Barnes & Thornburg LLP Prominence in Buckhead 3475 Piedmont Road, N.E., Suite 1700 Atlanta, Georgia (404) October 18,

2 CONVERSION Conversion is the wrongful possession of the employer s property in defiance of its rights. Under Georgia law, conversion is defined as the taking of another s right to some property or use or possession of someone s property, or other interference with that property, without the owner s consent and without lawful justification. Maryland Casualty Insurance Company v. Welchel, 257 Ga. 259, 261, 356 S.E.2d 877, 880 (1987). For a plaintiff to succeed on a claim for conversion, it must show: (1) proof of title to the property in the plaintiff; (2) right of possession in the plaintiff; (3) possession by the defendants; (4) demand for possession; (5) refusal to surrender; and (6) value to the property. See, City of College Park v. Sheraton Savannah Corp., 235 Ga. App. 561, 563, 509 S.E.2d 371 (1998); Johnson v. First Union National Bank, 255 Ga. App. 819, 823, 567 S.E.2d 44, 48 (2002);Rome Healthcare LLC v. Peach Healthcare Sys., 264 Ga. App. 265, 590 S.E.2d 235 (2003); Metzger v. Americredit Financial Services, 273 Ga. App. 453, 454, 615 S.E. 2d 120 (2005); B&F System, Inc. v. LeBlanc, 2011 WL (M.D. Ga. 2011). Conversion does not apply to intangible property interests, but applies to discrete physical things. S. Cellular Telecom v. Banks, 431 S.E.2d 115, 208 Ga. App. 286 (Ga. App. 1993). For example, in Faircloth v. A.L. Williams, 206 Ga. App. 764, 426 S.E.2d 601 (Ga. App. 1992), the Georgia Court of Appeals refused to reverse summary judgment for the defendant on a claim alleging conversion of unpaid commissions, on the ground that it was not a discrete physical asset. Unless the money allegedly converted is specific and identifiable, generally, money is not subject to a civil action for conversion. Taylor v. Powertel, Inc., 551 S.E.2d 765 (Ga. App. 2001).

3 In Internal Medicine Alliance, LLC v. Budell, 290 Ga. App. 231, 659 S.E.2d 668 (Ga. App. 2008), the Court of Appeals reversed a judgment of conversion in favor of a physician who had contributed capital to a newly-founded LLC. Budell claimed that his co-worker had refused to repay his capital contribution after the parties had agreed to terminate their relationship. The Court of Appeals concluded that the capital contribution had not been entrusted for a designated purpose and was then misused by the co-member physician. A conversion claim is not viable where there is nothing more than the defendant s failure to pay, citing LaRoche Industries v. AIG Risk Management, 959 Fed. 2d 189, (11th Cir. 1992). In ULQ, v. Medler, 293 Ga. App. 176, 666 S.E.2d 713 (Ga. App. 2008), Medler sued the LLC for breach of fiduciary duty and conversion arising from termination as an officer of the LLC and resulting forced sale of his interest. 1 The Court of Appeals held that an LLC does not have a fiduciary duty to its members. Having concluded that the LLC breached no fiduciary duty, the Court of Appeal dismissed the conversion claim arising from the forced sale of his interest. The Court concluded that a conversion tort claim cannot arise solely from an alleged breach of a contractual duty. In Sampson v. Haywire Ventures, Inc., 293 Ga. App. 779, 668 S.E. 2d 286 (Ga. App. 2008), a former director of Haywire was liable for conversion where he instructed a Haywire customer to pay a company owned solely by him for services that had been rendered by Haywire. Sampson had sent the customer a Haywire invoice, but later replaced it with his company s invoice with different payment instructions. 1 The Court of Appeals also held that non-managing members of an LLC have no fiduciary duties to the LLC, absent contrary provisions in the operating agreement or articles of incorporation. ULQ v. Medler, 666 S.E.2d at

4 Where there is conversion of a document in which intangible rights are merged, the damages include the value of such rights. Decatur Auto Ctr., Inc. v. Wachovia Bank, N.A., 276 Ga. 817, 583 S.E.2d 6 (Ga. App. 2003). A claim of conversion, under Georgia law, requires the defendant to exercise dominion over the plaintiff s property in defiance of its rights. See, King v. Crain-Daly Volkswagen, Inc., 207 Ga.App. 583, 428 S.E.2d 586 (1993). Merely because a former employee retains a company computer for a period of time after leaving employment does not mean he is liable for conversion. A demand must be made for the property and he must have refused to surrender it. In Trotman v. Volociteach Project Management, LLC, 2011 WL (Ga. App. 2011), a former employee was found liable for conversion of training materials he took from his employer in violation of a confidentiality agreement. The Court of Appeals held that the confidentiality agreement was evidence of the employer s attempt to remain in exclusive control and possession of its confidential materials. This is wholly consistent with the conversion claim because it shows that Trotman s retention and use of the materials was unauthorized: The very essence of conversion is that the [defendant s] act of dominion is wrongfully asserted. Habel v. Tavormina, 266 Ga. App. 613, 615, 597 S.E.2d 645 (2004). The Georgia Trade Secrets Act provides that it supersedes conflicting tort, restitutionary, and other laws of this state providing civil remedies for misappropriation of a trade secret. O.C.G.A (a). See, Tronitec, Inc. v. Shealey, 249 Ga. App. 442, 547 S.E.2d 749, 755 (Ga. App. 2001) (Affirming dismissal of conversion and theft claims where they were limited to trade secrets); Penalty Kick Management Ltd. v. Coca Cola Co., 318 F.3d 1284 (11 th Cir. 2003)(Conversion claim superseded by GTSA where misappropriated information was a trade secret); PHA Lighting Design, Inc. v. Kosheluk, 2010 WL (N.D. Ga. 4

5 (2010)(Conversion claim superseded by GTSA where misappropriated information was not a trade secret; Summary judgment entered in favor of the defendant on the GTSA claims); B&F System, Inc v. LeBlanc, 2011 WL (M.D. Ga. 2011)(Conversion claim superseded by GTSA where the basis for Plaintiff s conversion claim that Defendants allegedly took its proprietary information is same as its misappropriation of trade secrets claim.... ) Actions for recovery of personal property, or for damages for the conversion or destruction of the same shall be brought within four years after the right of action accrues. O.C.G.A As a general rule, a right of action for wrongful conversion accrues on the date of the conversion. Logan v. Tucker, 224 Ga. App. 404, 406, 480 S.E.2d 860, 862 (1997). The true test to determine when a cause of action accrues is to ascertain the time when the plaintiff could first have maintained her action to a successful result. Travis Pruitt & Assocs., P.C. v. Bowling, 238 Ga. App. 225, 226, 518 S.E.2d 453, 454 (1999). In Healthprime, Inc. v. Smith/Packett/Med/Com, LLC, 428 Fed. Appx. 937 (11 th Cir. 2011), the Court of Appeals affirmed dismissal of a conversion claim based on the four year statute of limitations where defendants had distributed funds, over plaintiff s objection, more than four years prior to initiation of the action. 5