11th Circuit Finds Marsh & McLennan's Noncompete Agreement Unenforceable

The 11th Circuit has upheld an executive's right to escape a noncompete agreement he signed while working for insurance giant Marsh & McLennan Companies Inc. In affirming the district court's declaratory judgment that the agreement was unenforceable under Georgia law, the panel effectively rendered the agreement unenforceable around the country. That part of the decision is particularly important, say attorneys, because Georgia's noncompete law is one of the toughest on employers.

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A federal appeals court has upheld an executive’s right to escape a noncompete agreement he signed while working for insurance giant Marsh & McLennan Companies Inc. A three-judge panel of the 11th U.S. Circuit Court of Appeals ruled on Friday that U.S. District Court Judge B. Avant Edenfield was correct to declare the agreement — which barred the executive from working for former Marsh clients that came to him on their own — unenforceable under Georgia law. The case was brought by James B. Meathe, who was managing director for the Midwest region for Marsh USA Inc. until January 2003. According to court documents, Meathe made $725,000 in salary and bonuses in 2003, plus between $2 million and $10 million in Marsh stock. A month after leaving the company, Meathe joined Savannah, Ga.-based Palmer & Cay, a direct competitor of Marsh. (Palmer & Cay on Tuesday announced it was being acquired by Wachovia Corp.) Meathe and Palmer & Cay sued Marsh to get two noncompete agreements declared invalid. Marsh countersued, claiming that Meathe violated the agreements by raiding Marsh for employees and clients and disclosing confidential business information. The 11th Circuit held invalid the agreement barring unsolicited business but said Edenfield must review the other agreement again. The stakes of the case are high, beyond what happens to Meathe. Lawyers familiar with noncompete agreements said the 11th Circuit decision was significant because it says Edenfield’s declaratory judgment making the agreement unenforceable is applicable around the country. Palmer & Cay v. Marsh & McLennan Companies, No. 16248 (11th Cir. April 1, 2005). That part of the decision is particularly important because Georgia law is one of the toughest on employers who make employees sign noncompete agreements. Unlike in other states, Georgia courts subject noncompete agreements to strict scrutiny and, if an illegal section is found, throw out the entire agreement instead of just the problem area. Now that Georgia rulings are applicable around the country, said William A. Clineburg Jr. of King & Spalding, disputes about noncompete agreements will result in the proverbial “race to the courthouse.” “Unless you have a noncompete [agreement] that is squeaky clean under Georgia law,” said Clineburg, who was not involved with the case, “you need to get to some other court first.” Winburn, Lewis & Stolz’s Irwin W. Stolz Jr., a former Georgia Court of Appeals judge who has represented many employees in noncompete disputes, said he found the decision by 11th Circuit Judge Stanley F. Birch Jr. “a lovely piece of work.” Stolz said he liked Birch’s treatment of a 2003 decision of the 11th Circuit, Keener v. Convergyus Corp., 342 F.3d 1264. Coincidentally, Keener also dealt with a ruling by Edenfield and was handled at the 11th Circuit by Birch. In Keener, Birch held that Edenfield had abused his discretion by issuing an injunction against enforcing a noncompete agreement. Edenfield had found the agreement invalid under Georgia law, even though the agreement specified that disputes would be settled under Ohio law. But in the Marsh case, Birch pointed out a critical distinction between injunctions and declaratory judgments. Injunctions amount to imposing state policy that cannot cross state boundaries, Birch wrote, but declaratory judgments are state court rulings that should be respected around the country under the Full Faith and Credit Clause of the U.S. Constitution. “This rule applies even if the rendering state’s judgment is based on public policy offensive to the enforcing state,” wrote Birch, who was joined by Judge Rosemary Barkett and Senior Judge Emmett Ripley Cox. As such, Birch concluded, Keener — which had said injunctions could not be applied across state boundaries — did not say declaratory judgments could not be applied across state lines. “ Keener did not mean what it was taken to mean,” explained the lawyer for Meathe and Palmer & Cay, John M. Tatum of Hunter, Maclean, Exley & Dunn. Kathleen Horne of Savannah’s Inglesby, Falligant, Horne, Courington & Chisholm, represented Marsh. She said neither she nor company representatives could discuss the case because local court rules prevented them from doing so.

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