FOURTH DIVISION MCFADDEN, C. J., DOYLE, P.J., and COOMER, J.
NOTICE: Motions for reconsideration must be physically received in our clerk’s office within ten days of the date of decision to be deemed timely filed. http://www.gaappeals.us/rules
March 12, 2020
In the Court of Appeals of Georgia A19A1750. FORTRESS INVESTMENT GROUP, LLC et al. v. HOLSINGER.
COOMER, Judge.
Fortress Investment Group LLC and Hybrid GP Holdings LLC (collectively,
“Appellants”) appeal from the superior court’s order granting Joel Holsinger’s motion
for an interlocutory injunction to enjoin Appellants from enforcing or threatening or
attempting to enforce the restrictive covenants arising from his employment with
Fortress. On appeal, Appellants contend that the trial court erred by granting the
preliminary injunction without weighing the evidence of Holsinger’s unclean hands;
by adopting an analysis that overlooked material provisions of the parties’ agreement;
and by entering an overbroad order. Because we agree that the injunction is overly
broad, we vacate the judgment and remand the case for the trial court to enter an order that does not prevent Fortress from pursuing remedies that do not depend on the
restrictive covenants contained in or incorporated into the employment agreement.
Viewed in the light most favorable to the ruling below,1 the evidence shows
that in 2008, Holsinger became an employee of Fortress. Fortress is an asset
management firm that provides expertise across a wide range of investment strategies
on behalf of institutional clients and private investors worldwide. When he was first
hired by Fortress, Holsinger signed an employment agreement under which he
became a managing director and manager of the Atlanta office of Fortress. Holsinger
entered a new employment agreement with Fortress dated January 15, 2010, which
superseded his earlier agreement. Under the 2010 employment agreement, Holsinger
continued to manage the Atlanta office of Fortress until he resigned in 2018.
The 2010 employment agreement includes a series of restrictive covenants,
including (1) a one-year non-compete clause (the “Non-Compete Clause”); (2) an
eighteen-month prohibition on soliciting or hiring current or former employees of
Fortress (the “Non-Recruitment Clause”); and (3) an eighteen-month prohibition on
soliciting certain investors and other entities who had done business with Fortress
1 See Srisovana v. Cambodian Buddhist Society, Inc., 269 Ga. App. 600, 600 (604 SE2d 637) (2004).
2 (the “Non-Solicitation Clause”). The 2010 employment agreement lists these
restrictive covenants in a section titled “Protective Covenants,” and includes a
provision (the “Tolling Clause”) stating that “The temporal duration of the Protective
Covenants shall not expire, and shall be tolled, during any period in which . . . you
are . . . in violation of any of such Protective Covenants, and all such restrictions shall
automatically be extended by the period of . . . your violation of any such
restrictions.”
The 2010 employment agreement notes that Holsinger was granted interests in
Hybrid as part of his compensation for his work as a Fortress employee. Hybrid’s
limited liability agreement contains a “Duty of Loyalty” provision (the “Duty of
Loyalty Clause”) that, in relevant part, imposes on Holsinger and other Hybrid
members a “duty and obligation . . . to refrain from competing with any member of
the Credit Funds Group in the conduct of its business before the dissolution of
[Hybrid].” The “Credit Funds Group” includes Fortress, investment funds or entities
associated directly or indirectly with Fortress, and a host of affiliates. The Duty of
Loyalty Clause does not expire with the termination of a member’s employment with
Fortress, but purportedly applies until the dissolution of Hybrid, which can occur only
with the consent of Hybrid’s managing member. Moreover, a member, such as
3 Holsinger, cannot voluntarily resign or withdraw from Hybrid prior to dissolution
unless Hybrid’s managing member allows it.
Holsinger’s 2010 employment agreement expressly incorporates the Duty of
Loyalty Clause as follows: “all restrictions and covenants contained in the Hybrid
Documents (including without limitation, the ‘Duty of Loyalty’ as defined therein)
are hereby incorporated by reference into this Letter Agreement.” Holsinger resigned
from Fortress in March 2018. At that time, his vested Hybrid interests were valued
at approximately $30 million. After resigning from Fortress, Holsinger met with
several other firms regarding future employment, including an asset management firm
named Ares Operations LLC. In-house counsel for Fortress sent Ares letters in June
and November 2018, alleging Holsinger had violated his restrictive covenants and
threatening to sue Ares for facilitating those alleged breaches if Ares hired him.
Fortress followed with another letter to Ares on December 17, 2018. Unlike the
previous two letters, this one was sent by outside counsel for Fortress. The December
17, 2018 letter accused Holsinger of breaching his restrictive covenants and
threatened “that Ares will compound its exposure even further if it consummates the
hiring of Mr. Holsinger.” Eighteen days later, Holsinger filed suit in Fulton County
Superior Court seeking (1) a declaration that the restrictive covenants described
4 above are invalid and unenforceable and (2) injunctive relief barring Appellants from
enforcing or threatening to enforce the restrictive covenants. On January 16, 2019,
Holsinger sought an interlocutory injunction barring Appellants from “enforcing or
threatening or attempting to enforce restrictive covenants arising from his
employment with Fortress[.]” On February 5, 2019, Fortress filed an “emergency
motion” asking the superior court to compel Holsinger to submit his electronic
devices for forensic imaging and to return allegedly confidential information. The
superior court found no emergency and denied the motion.
On February 19, 2019, Appellants filed their memorandum in opposition to
Holsinger’s motion for an interlocutory injunction. The same day, before Appellants
filed their memorandum, Hybrid’s managing member repurchased Holsinger’s vested
interests in Hybrid, based on his allegedly disloyal conduct. In their memorandum,
Appellants argued that, as a result of Hybrid’s purchase of Holsinger’s interest in
Hybrid, Holsinger was no longer a member of Hybrid and no longer subject to the
Duty of Loyalty Clause. Consequently, according to Appellants, the question of
whether the Duty of Loyalty Clause was enforceable was thus moot. After a hearing,
the superior court granted Holsinger’s motion.
5 “[A] trial court has broad discretion to decide whether to grant or deny a
request for an interlocutory injunction. We will not disturb the result reached below
unless we find a manifest abuse of discretion, a total lack of evidence to support that
ruling, or an erroneous interpretation of the law.” Srisovana, 269 Ga. App. at 601
(citations and punctuation omitted).
1. Appellants contend that the trial court erred in refusing to consider the
unrefuted evidence of Holsinger’s unclean hands. We disagree. The trial court
specifically addressed Appellants’ unclean hands argument in its order granting
Holsinger’s motion, finding that Appellants’ “unclean hands defense does not justify
refusing to enjoin prospective enforcement of the restrictive covenants[.]” .
“Unclean hands” is a shorthand reference to OCGA § 23-1-10, which states, “He who would have equity must do equity and must give effect to all equitable rights of the other party respecting the subject matter of the action.” OCGA § 23-1-10 embodies both the “unclean hands” doctrine and the concept that one will not be permitted to take advantage of his own wrong. However, relief is precluded only if the inequity so infects the cause of action that to entertain it would be violative of conscience. The inequity must relate directly to the transaction concerning which complaint is made. The rule refers to equitable rights respecting the subject-matter of the action. It does not embrace outside matters.
6 Bank of New York Mellon v. Edmondson, 344 Ga. App. 823, 826 (1) (812 SE2d 299)
(2018) (citations omitted). Appellants contend that there is unrefuted evidence that
Holsinger, while a managing director of the Atlanta office of Fortress and a member
of Hybrid, recruited subordinates to leave Fortress for Ares, a major competitor of
Fortress, downloaded valuable proprietary information belonging to Fortress to gain
an unfair competitive advantage, then concealed his wrongdoing through fraud and
deceit. Appellants argue that this is evidence of unclean hands, which bars
Holsinger’s claims for injunctive relief as a matter of law because it directly relates
to the subject matter of Holsinger’s claims –– the restrictive covenants in the
employment agreement. The trial court considered whether Holsinger had unclean
hands, but found that “Holsinger cannot have unclean hands for violating an
unenforceable covenant” and that “even if Holsinger violated his duties under a
Confidentiality Agreement or solicited parties to leave while he was still employed,
that would not render post-termination restraints on solicitation and recruitment
enforceable going forward, if those restraints violate Georgia law and policy.”
Appellants argue that the trial court should not have even reached the question
of whether the restrictive covenants in the employment agreement were enforceable
because unclean hands is a threshold issue that must be decided before the merits of
7 the case are reached. However, to determine whether unclean hands bars injunctive
relief, a trial court must first determine whether the party seeking injunctive relief has
unclean hands. See, e.g., Bishop Eddie Long Ministries, Inc. v. Dillard, 272 Ga. App.
894, 901 (2) (613 SE2d 673) (2005) (Where plaintiffs did not have easement rights
authorizing them to plug up a dam or harvest trees, trial court had good reason to
deny an injunction based on its finding that plaintiffs’ wrongful conduct in plugging
up the dam and harvesting trees constituted unclean hands.) Under the circumstances
of this case, the superior court acted well within its broad discretion when it
determined that Holsinger could not have unclean hands for violating an
unenforceable covenant.
In support of their argument, Appellants rely heavily on Holland Elec., Heating
& Plumbing Co. v. Holland Heating & Air Conditioning, Inc., 259 Ga. 256 (379 SE2d
404) (1989). In Holland, two businessmen, Mr. Holland and Mr. Hively, agreed that
if either party’s employment with their company was terminated, that party would not
compete within a 75-mile radius for three years. Holland, 259 Ga. at 256. When Mr.
Holland left the company and began competing with it, Mr. Hively obtained an
injunction enforcing the covenant not to compete. Id. The Supreme Court reversed
because Mr. Hively was also competing with the company, and Mr. Hively could not
8 “compete with [the company] and simultaneously invoke the power of equity to
prevent Mr. Holland and Holland Electric from doing the same thing.” Id. Holland
is not applicable to this case because, unlike the plaintiff in Holland who was seeking
to enforce a valid non-compete convenant, Holsinger is seeking to enjoin enforcement
of invalid restrictive covenants. Holsinger can’t have “unclean hands” from his failure
to abide by restrictive covenants that are unenforceable. Appellants have not cited any
case, and we have not found any case, concluding that restrictive covenants violating
Georgia public policy should be enforced because they have been violated by the
employee.
Appellants further contend that by accepting, without protest, an exit letter
from Fortress which defined the duration of the restrictive covenants, Holsinger must
be held to its terms. However, because Appellants did not make this estoppel-by-
silence argument below, it is waived on appeal. See Pfeiffer v. Ga. Dept. of Transp.,
275 Ga. 827, 829 (2) (573 SE2d 389) (2002) (“Routinely, this Court refuses to review
issues not raised in the trial court. . . . Fairness to the trial court and to the parties
demands that legal issues be asserted in the trial court.” (citations omitted)).
Furthermore, Appellants suggest that because Holsinger did not promptly file a
declaratory judgment action upon receipt of the exit letter, laches bars his claims for
9 injunctive relief. “To establish the affirmative defense of laches, [a defendant must]
come forward with evidence showing inexcusable delay and prejudice resulting
therefrom.” Harvey v. Bank One, N.A., 290 Ga. App. 55, 58 (2) (658 SE2d 824)
(2008). Appellants have made no showing of either inexcusable delay or that they
were prejudiced by Holsinger’s failure to promptly file a declaratory judgment action
upon receipt of his exit letter. “The mere lapse of time is insufficient to establish the
affirmative defense of laches.” Id. Accordingly, this claim of error is without merit.
2. Appellants next contend that the trial court erred in holding that the tolling
clause in the employment agreement invalidates all the protective covenants for lack
of defined temporal limits. The superior court held that the tolling clause violates
Georgia law because it potentially extends the duration of all of the restrictive
covenants without limit. Appellants argue that the superior court failed to consider
a clause in the employment agreement providing that if any restrictive covenant is
“held to be unenforceable by reason of it extending for too great a period of time . .
. such covenant shall be interpreted to extend only over the maximum period of time
for which it may be enforceable . . . as determined by the court making such
determination[.]” According to Appellants, this clause, which it refers to on appeal
as the “Temporal Cap,” reflects the parties’ agreement that the protective covenants
10 can never be interpreted by a Georgia court as exceeding Georgia law’s temporal
outer limits. Appellants argue that the Temporal Cap insulates from challenge the
covenants to which it applies. We disagree.
Appellants contend that in Burson v. Milton Hall Surgical Assoc., LLC, 343
Ga. App. 159, 163 (1) (a) (806 SE2d 239) (2017), we analyzed and approved a similar
clause, because “the contract clearly define[d] the process by which it may be
reformed.” However, in Burson, the provision in question simply allowed the parties
to review the geographical scope of a restrictive covenant “from time to time” and to
modify that scope “only by written amendment to this Agreement.” Burson, 343 Ga.
App. at 162 (1) (a). The provision in Burson did not require a court to reform an
overbroad covenant to comply with applicable law.
“With regard to employment contracts, Georgia law now generally permits the
enforcement of contracts that restrict competition during the term of a restrictive
covenant, so long as such restrictions are reasonable in time, geographic area, and
scope of prohibited activities, subject to certain limitations[.]” Burson, 343 Ga. App.
at 160 (citations and punctuation omitted).
Any restrictive covenant not in compliance with the provisions of [OCGA Title 13, Chapter 8, Article 4] is void and unenforceable;
11 provided, however, that a court may modify a covenant that is otherwise void and unenforceable so long as the modification does not render the covenant more restrictive with regard to the employee than as originally drafted by the parties.
OCGA § 13-8-53 (d). The current statutory provisions governing enforcement of
restrictive covenants in employment contracts “became effective May 11, 2011, and
apply to contracts entered into on and after May 11, 2011, and shall not apply in
actions determining the enforceability of restrictive covenants entered into before
such date.” Burson, 343 Ga. App. at 160 (citations and punctuation omitted).
Contracts entered into before May 11, 2011, must be analyzed under the law of
restrictive covenants as it existed before that date. See Holton v. Physician Oncology
Svcs., LP, 292 Ga. 864, 870 (3) n. 4 (742 SE2d 702) (2013). Holsinger’s 2010
employment agreement with Fortress was entered into before May 11, 2011. “Under
the prior law, courts could not modify void and unenforceable covenants.” Burson,
343 Ga. App. at 161. And before May 11, 2011, Georgia “[did] not follow the ‘blue
pencil’ doctrine of severability in construing employment contracts.” Dent Wizard
Intl. Corp. v. Brown, 272 Ga. App. 553, 556 (2) (612 SE2d 873) (2005). “There can
be no ‘blue pencil theory’ of severability of covenants not to compete even where
there is a severability clause[.]” Lane Co. v. Taylor, 174 Ga. App. 356, 358 (2) (330
12 SE2d 112) (1985) (physical precedent only). Here, Appellants argue that the
Temporal Cap required the trial court to go beyond simple severance and reform any
overbroad covenants to comply with applicable law. Because Georgia law prior to
May 11, 2011, did not allow courts to modify void and unenforceable covenants, the
trial court was not required to apply the Temporal Cap to reform the tolling provision
to comply with Georgia law. See Burson, 343 Ga. App. at 161. Consequently, the trial
court did not err in holding that the tolling clause in the employment agreement
invalidates all the protective covenants for lack of defined temporal limits.
3. Because of our conclusion in Division 2, we need not address Appellants’
other arguments regarding the validity of the non-recruitment clause and the non-
solicitation clause.
4. Next, Appellants contend that the trial court erred in holding that the Duty
of Loyalty Clause was incorporated into the 2010 employment agreement and then
applying pre-May 11, 2011 law to those issues. We disagree.
The 2010 employment agreement explicitly incorporates the Duty of Loyalty
Clause as follows: “all restrictions and covenants contained in the Hybrid Documents
(including, without limitation, the ‘Duty of Loyalty’ as defined therein) are hereby
incorporated by reference in this Letter Agreement upon your execution of such
13 documentation.” Appellants argue that the trial court erred by finding that the 2010
employment agreement incorporates that Duty of Loyalty Clause “as a Protective
Covenant.” However, substance, not label, determines whether a contract provision
is a restraint of trade. See, e.g., Atlanta Bread Co. Intl., Inc. v. Lupton-Smith, 285 Ga.
587, 589 (2) (679 SE2d 722) (2009) (treating a “loyalty provision” as a restrictive
covenant; “Such restraints, no matter the nomenclature assigned to them, are
disfavored in this state as a matter of public policy.”). In substance, the Duty of
Loyalty Clause is a covenant not to compete – it imposes a “duty . . . to refrain from
competing with any member of the Credit Funds Group in the conduct of its
business[.]” Furthermore, the 2010 employment agreement defines “Protective
Covenants” to include not only the covenants appearing in the “Protective
Covenants” section, but also those that are “otherwise incorporated into” the 2010
employment agreement.
Appellants contend that even if the 2010 employment agreement incorporated
the Duty of Loyalty Clause, the trial court erred in applying pre-May 11, 2011 law to
issues involving that clause. Because Appellants make this argument for the first time
on appeal, “the contention must be deemed to have been waived.” Trop, Inc. v. City
of Brookhaven, 296 Ga. 85, 90 (3) (764 SE2d 398) (2014). Appellants contend that
14 they did not waive this argument because they addressed the impact of the Georgia
Restrictive Covenants Act in their brief filed in the superior court. However,
Appellants did not argue below that the superior court should analyze the Duty of
Loyalty Clause under the Georgia Restrictive Covenants Act. Appellants made a
different argument below –– in response to Holsinger’s argument that granting the
interlocutory injunction would not disserve the public interest, Appellants argued
that, even though the underlying changes to Georgia law set forth in the Georgia
Restrictive Covenants Act are not retroactive, the enactment of the Georgia
Restrictive Covenants Act shows that Georgia public policy no longer disfavors
restrictive covenants.
5. Next, Appellants contend that the trial court erred by holding that the New
York forum selection clause was invalid. We disagree.
Choice-of-law and forum-selection clauses may be invalid if enforcement
would contravene Georgia public policy. Bunker Hill Intl., Ltd. v. Nationsbuilder Ins.
Svcs., Inc., 309 Ga. App. 503, 506 (710 SE2d 662) (2011). “[I]f a party can show both
that a restrictive covenant violates Georgia public policy and that a court in the
selected forum likely would find the restrictive covenant enforceable, a compelling
reason exists to avoid the contractual forum selection clause.” Carson v. Obor
15 Holding Co., LLC, 318 Ga. App. 645, 648 (734 SE2d 477) (2012). Appellants argue
that Holsinger failed to present sufficient evidence from which the trial court could
conclude that a New York court would apply law that conflicts with Georgia policy.
Furthermore, Appellants argue that even if a New York court did apply New York
law, litigating the case in New York is appropriate because New York law and
Georgia law post-Georgia Restrictive Covenants Act are consistent. The 2010
employment agreement selects New York law, and, as the superior court found, a
New York court would likely honor the New York choice-of-law provision under its
“substantial relationship” test. New York permits its courts “to sever and grant partial
enforcement of an overbroad employee restrictive covenant.” BDO Seidman v.
Hirshberg, 712 NE2d 1220, 1226 (N. Y. 1999). Thus, enforcing the New York
forum-selection clause would contravene Georgia’s strong public policy against blue-
penciling employment contracts entered into before May 11, 2011. See Bunker Hill,
309 Ga. App. at 506. Accordingly, the superior court did not err in holding that the
New York forum selection clause was invalid.
6. Because of our conclusion in Division 5, we need not address Appellants’
argument that the injunction order incorrectly held that Fortress waived its right to
invoke the New York forum-selection clause.
16 7. Next, Appellants contend that the injunction is overbroad because it ruled
on moot issues. We do not agree. Appellants argue that the enforceability of the Non-
Compete Clause became moot when they stated in a brief to the trial court that they
would not “seek to enjoin or prevent Holsinger from accepting employment
elsewhere.” Courts applying Georgia law have rejected similar tactics, holding that
“[i]t does not matter that the Defendants have stated that they will not seek to enforce
[an overbroad] covenant not to compete.” Moorad v. Affordable Interior Systems,
LLC, No. 1:11-CV-2580-RWS, 2012 WL 162289, at *5 (III) (N.D. Ga. Jan. 18,
2012). Under those circumstances, the overbroad covenant “still exists and facially
restrains trade.” Id. Appellants similarly argue that the enforceability of the Duty of
Loyalty Clause is moot because, once Hybrid’s managing member repurchased
Holsinger’s vested interests in Hybrid, Holsinger was no longer subject to that clause.
However, because the 2010 employment agreement incorporated the Duty of Loyalty
Clause, the validity of that clause remained at issue for purposes of assessing other
restrictive covenants in the 2010 employment agreement. See Dent Wizard, 272 Ga.
App. at 556 (2) (because one restrictive covenant in an employment agreement was
unenforceable, other restrictive covenants in the same agreement were also
unenforceable).
17 8. Appellants also argue that the injunction is overbroad because it is not
limited to conduct in Georgia. However, Appellants did not argue below that any
injunction should be limited to conduct in Georgia. Accordingly, Appellants failed
to preserve this issue for review. See Pfeiffer, 275 Ga. at 829 (2).
9. Finally, Appellants argue that the injunction is overbroad because it bars
remedies not tied to the restrictive covenants. Appellants contend that the injunction
is overbroad because it impermissibly prohibits them from enforcing their rights in
ways that are not tied to the restrictive covenants. Specifically, Appellants argue that
the order seems to prevent Appellants from pursuing their counterclaims for breach
of fiduciary duty, conversion, and computer theft and computer trespass. We agree.
Although the superior court may have not have intended to prevent Fortress from
pursuing counterclaims that do not depend on the restrictive covenants, including
fiduciary duty claims, the the order may be construed as doing so and is, therefore,
overly broad. In particular, the final sentence of the order states: “This prohibition
includes, without limitation, bringing a lawsuit or otherwise threatening to impose
damages or any other form of liability upon Holsinger or any other person or entity,
including an entity employing Holsinger.” Accordingly, on remand, the superior court
must limit the scope of the injunction so that it does not prevent Fortress from
18 pursuing counterclaims that do not depend on the restrictive covenants contained in
or incorporated into the employment agreement.
Judgment vacated and case remanded with direction. McFadden, C. J., and
Doyle, P. J., concur.