Acuity Brands Lighting, Inc. v. Bickley et al
Filing
202
MEMORANDUM OPINION & ORDER: 1. Defendants Shane Bickley and Michael Robinson's Motion for Summary Judgment 120 is hereby GRANTED as to Count I (breach of the non-solicitation provision), Count III (breach of the non-disclosure provision), Cou nt IV (breach of the noncompetition provision) and Count V (tortious interference with business relations) and DENIED as to Count II (breach of the return of property provision) and Count VI (violation of the Kentucky Uniform Trade Secrets Act); 2. D efendant Delta T Corporation's Motion for Summary Judgment 121 is hereby GRANTED as to Count VII (tortious interference with contractual relations); 3. Delta T Corporation is hereby DISMISSED as a party to this action, as the Court has adjudic ated the sole claim against it; and 4. The remaining parties to this action shall file a Joint Notice of available pretrial and trial dates within twenty (20) days of the date of entry of this Order. Signed by Judge David L. Bunning on 3/24/2016.(LC)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
AT LEXINGTON
CIVIL ACTION NO. 13-366-DLB-REW
ACUITY BRANDS, INC., et al.
vs.
PLAINTIFFS
MEMORANDUM OPINION AND ORDER
SHANE BICKLEY, et al.
DEFENDANTS
*******************
I.
Introduction
Plaintiff Acuity Brands Lighting, Inc. (“Acuity Lighting”), together with its parent
company, Plaintiff Acuity Brands, Inc. (“Acuity Brands”), initiated this civil action against two
of its former employees, Defendants Shane Bickley and Michael Robinson. Plaintiffs allege
that Bickley and Robinson breached several restrictive covenants embedded in a Stock
Notification and Award Agreement, tortiously interfered with business relations and violated
the Kentucky Uniform Trade Secrets Act (“KUTSA”). Plaintiffs also claim that Bickley and
Robinson’s current employer, Defendant Delta T Corporation, doing business as Big Ass
Fan Company (“Big Ass Fans”), tortiously interfered with contractual relations. Bickley,
Robinson and Big Ass Fans now move for summary judgment, arguing that Plaintiffs have
failed to prove various elements of each claim. The Court has jurisdiction over this matter
pursuant to 28 U.S.C. § 1332.
II.
Factual and Procedural Background
Acuity Lighting is a Georgia-based corporation that manufactures lighting solutions
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for use in a variety of indoor and outdoor settings. (Doc. # 67 at 4). It is the sole source
of revenue for its publicly-traded parent company, Acuity Brands. (Id.). Acuity Lighting
generates some revenue from national accounts;1 however, it focuses on selling its
products to independent sales agents who represent other lighting companies. (Docs. #
120-8, 120-15, 123-3 and 168-3 at 5-6). These lighting companies sell Acuity Lighting’s
products to other middlemen distributors, rather than end-user customers. (Docs. # 120-8
and 120-15).
Acuity Lighting employs several Regional Sales Vice Presidents (“RSVPs”), who are
responsible for cultivating relationships with these agents, recommending product pricing
and setting agency sales targets in their assigned regions. (Doc. # 12). Simply put, the
RSVPs drive the sale of Acuity Lighting’s products. (Docs. # 120-15 and 120-16). Bickley
served as the RSVP for Acuity Lighting’s South Central Region (which includes Texas,
Oklahoma, Arkansas, Louisiana, Mississippi and New Mexico) from April 2010 to March
2013. (Docs. # 120-15 and 168-5 at 43). Robinson served as the RSVP for Acuity
Lighting’s Midwest Region (composed of Kentucky, Ohio, Indiana, Michigan, Illinois,
Wisconsin and the city of St. Louis, Missouri) from January 2011 to May 2013. (Docs. #
120-16 and 168-2 at 29, 53).
Each year, Acuity Brands awards shares of its stock to key Acuity Lighting
employees, including RSVPs. (Doc. # 170-13 at 3). As consideration for these awards,
employees must execute a Stock Notification and Award Agreement using Acuity Brand’s
electronic acceptance software. (Doc. # 120-2 at 5). In Fall of 2012, Acuity Brands
1) Acuity Lighting’s national accounts structure involves either a direct sale to the end-user or a sale
to a local agency servicing the end-user. (Doc. # 123-3 at 34 and 168-3 at 6-7).
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awarded Bickley 420 restricted shares of common stock. (Docs. # 120-2 and 168-7 at 10).
Robinson received 560 restricted shares of common stock around the same time.2 (Docs.
# 120-3 and 168-2 at 33). Both men electronically executed a copy of the Agreement,
which imposed several post-employment restrictive covenants pertaining to non-solicitation,
non-competition and confidentiality on them. (Docs. # 120-2 and 120-3). These covenants
were all set forth in Exhibit A, entitled “Confidentiality, Inventions, Non-Solicitation and NonCompetition Provisions,” which was attached and incorporated by reference into the
Agreement itself.3 (Doc. # 120-2 at 5-8). The Agreement also included a return of property
clause, which required departing employees to promptly return all company property to
Acuity Lighting.4 (Id.).
In the early months of 2013, a national recruitment firm contacted Bickley about an
employment opportunity at Big Ass Fans, a Kentucky-based company that manufactures
and sells low-speed high-volume fans. (Doc. # 120-15 at 1). Bickley pursued the
opportunity and received an offer of employment from Big Ass Fans. (Id.). He told
2) In 2011, Bickley and Robinson received similar stock awards, and in return, they executed
almost identical Stock Notification and Award Agreements. (Docs. # 120-2 and 120-3). The only
substantive difference between the 2011 and 2012 Agreements is the term of the non-compete
covenant. (Doc. # 67-1). The 2011 Agreement imposes a two-year term, while the 2012
Agreement imposes a one-year term. (Id.; Doc. # 120-2). The parties agree that the 2012
Agreement is at issue in this lawsuit. (Docs. # 120-1 at 1 and 168 at 3-5).
3) Specifically, the Agreement states that the stock award is “conditioned upon Grantee’s
acceptance of the terms of this Agreement and Exhibits A and B, as evidenced by Grantee’s
execution of this Agreement or by Grantee’s electronic acceptance of the Agreement in a manner
and during the time period allowed by the Company.” (Doc. # 120-2 at 5).
4) Although this is the Stock Notification and Award Agreement is the only one referenced in
Plaintiffs’ Third Amended Complaint, the record indicates that Acuity Lighting also required its
employees to sign a Confidentiality, Inventions and Non-Solicitation Agreement as part of its annual
ethics training. (Doc. # 168-8 at 10-15). As its very name suggests, this Agreement also imposed
restrictive covenants on employees. (Doc. # 168-8 at 21-26). Bickley and Robinson admit that they
went through such training. (Docs. # 168-8 at 10-15 and 168-9 at 8-10).
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Robinson, his friend and colleague, about the offer. (Doc. # 168-2 at 15). Robinson, a
Kentucky native who was unhappy with his current role at Acuity Lighting, asked Bickley
to recommend him for the position if he declined the offer. (Id.). Bickley promised to do
so, but ultimately accepted the offer. (Id.).
Around this time, Big Ass Fans’s Director of Human Resources, Scott Nielsen, asked
Bickley whether Acuity Lighting had imposed any post-employment restrictive covenants
on him. (Docs. # 168-8 at 16 and 168-11 at 7). Bickley admitted that he was subject to
restrictive covenants. (Id.). However, he told Nielsen that the covenants, as he understood
them, simply precluded him from working with certain lighting companies. (Id.). He also
stated that his wife, an attorney, had examined the covenants and did not believe that his
employment with Big Ass Fans would run afoul of them. Nielsen did not actually review a
copy of the Stock Notification and Award Agreement at that time. (Id.).
In March 2013, Bickley voluntarily terminated his employment with Acuity Lighting.
(Doc. # 120-15 at 3-4). He returned the company cell phone and laptop to the Human
Resources Department. (Id.). However, he failed to return a flash drive, which contained
PowerPoint presentations for Acuity Lighting clients. (Id.). According to Bickley, he did not
purposefully retain the flash drive; he simply forgot to include it with the rest of the items
returned. (Id.).
Bickley assumed the Vice President of Sales position at Big Ass Fans and began
supervising a 150 person inside sales force. (Doc. # 120-15 at 3). He did not have any
profit and loss responsibility or pricing control. (Id.). Although Big Ass Fans was exploring
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opportunities in the lighting industry at that time,5 Bickley was only responsible for the sale
of fans. (Id.). However, a month into his employment, Big Ass Fans’s CEO, Carey Smith,
asked Bickley to go to a lighting trade show. (Doc. # 168-5 at 15-16). He also got invited
to meetings with Business Development Manager Tom Greinke and Engineer Isaac
Fedyniak, who were spearheading Big Ass Fans’s efforts to enter the lighting industry. (Id.
at 12).
About a month later, Robinson contacted Bickley about employment opportunities
at Big Ass Fans. (Doc. # 168-2 at 16-20). Bickley told Robinson to send him a copy of his
resume and promised to forward it to the Human Resources Department. (Id.). Robinson
did so, and by early April, he had an interview with Big Ass Fans. (Id. at 68-70). The day
before the interview, Robinson emailed Bickley and asked him for information about his
interviewers, Scott Nielsen and Big Ass Fans Manager Ed Quinn. (Id. at 17-18). Bickley
sent him charts detailing Big Ass Fans’s organizational structure. (Id.). The next day,
Robinson interviewed with Nielsen and Quinn, then had lunch with them. (Id. at 24). The
record indicates that Nielsen and Quinn invited Bickley to both of these events, but he was
not able to attend. (Id. at 71). That day, Bickley texted Robinson a picture of a hat with a
Big Ass Fans logo on it. (Doc. # 168-7 at 19, 68-69). The caption said “Got you a hat.”
(Id.). He later informed Robinson that Big Ass Fans wanted to interview him again. (Id.).
Bickley coordinated the interview with Nielsen and Robinson via email. (Id.).
5) The record indicates that Big Ass Fans “began exploring the potential for selling energy efficient
lights to its end-user fan customers in 2011.” (Doc. # 123-2 at 3). According to both Bickley and
Big Ass Fans’ in-house counsel, Joseph Miller, a special sales group worked on lighting sales until
the launch of the Big Ass High Bay LED in early 2014. (Id.; Doc. # 120-15 at 3-4).
5
Before Robinson’s second interview, he and Bickley exchanged text messages,
expressing excitement about the prospect of working together again:
Shane:
Looking forward to Monday, buddy.
Mike:
Can’t wait to see how the announcement goes Monday.
We are all in Conyers later in the week for a Mark Black
mtg. On the 2014 plans.
Shane:
If we offer you a deal Tuesday, you won’t have to go :-)
Mike:
Don’t tease me!
Shane:
Get ready – assuming all goes well Monday, we’ll look
to do something pretty quickly!
(Doc. # 168-7 at 54).
On Monday, Robinson met with Nielsen, Smith and Big Ass Fans’s International
Sales Manager, Paul Lauritzen. (Doc. # 168-2 at 24-25). Bickley also attended the
interview. (Doc. # 168-7 at 20). He sent Robinson a text saying “Great job!” afterwards.
(Id. at 54). Bickley and Robinson met for dinner with their spouses that night. (Id. at 20).
The next morning, Bickley sent Robinson another text message: “Scott will be reaching out
to you soon – start figuring out what makes sense $ wise to make a move, we’ll go from
there!” (Id.). The two men exchanged more text messages over the next few days,
criticizing some of Acuity Lighting’s new hires and discussing Robinson’s potential
departure. (Id. at 51).
Robinson received a formal employment offer from Big Ass Fans in May of 2013.
(Doc. # 168-2 at 12). He accepted the offer and informed Acuity Lighting that he was
voluntarily terminating his employment. (Id. at 39). Robinson had a significant amount of
personal information stored on his Acuity Lighting laptop, so before returning it to the
6
company, he saved the entire contents on an external hard drive. (Id. at 45-46). Robinson
insists that he was not trying retain any sensitive information about Acuity Lighting. (Id.).
One week later, Robinson started working at Big Ass Fans. (Doc. # 120-16 at 1). He was
primarily responsible for building a bid-specification/new construction channel for the
company. (Id.).
Shortly thereafter, Acuity Lighting’s Human Resources Manager, Chad Sheffield,
reviewed the contents of the cell phone Robinson returned. (Doc. # 168-3 at 10-11, 14-15).
He discovered the text messages sent to and from Bickley about the interview process and
wondered whether these communications violated their restrictive covenants. (Id. at 1415). Sheffield promptly contacted Acuity Lighting’s in-house counsel, Frank Whitaker,
about the issue. (Id.; Doc. # 168-1 at 12). Whitaker sent a “cease and desist” letter,
complete with copies of the Stock Notification and Award Agreement, to Big Ass Fans’ inhouse counsel, Joseph Miller. (Docs. # 120-4 at 8 and 120-24). When Miller received the
letter, he reviewed the covenants and asked Bickley and Robinson about their
communications. (Doc. # 168-10 at 5-9). Both men told Miller that Robinson had reached
out to Bickley about employment. (Id.). Miller instructed them both to refer any future
employment inquiries to the Human Resources Department. (Id.). Miller then convened
a conference call with Whitaker and stated that Bickley and Robinson had not violated their
covenants. (Id.; Doc. # 120-4 at 8-10).
Meanwhile, Sheffield also relayed his concerns to Acuity Lighting’s Senior Vice
President of Sales and Marketing, Geoffrey Marlow, who had already heard rumors about
Big Ass Fans from several of the company’s agents. (Docs. # 168-3 at 10-11, 14-15 and
168-4 at 13-14). While some of these agents simply thought that Big Ass Fans wanted to
7
sell fans through their agency, others got the impression that Big Ass Fans was trying to
establish a lighting division. (Doc. # 168-4 at 14-17). Marlow soon discovered that
Robinson had approved Big Ass Fans as an Acuity Lighting distributor prior to his
departure. (Id.). Big Ass Fans had also placed a large order of I-Beam LED lights, one of
Acuity Lighting’s most popular products, on behalf of a Canadian customer.
(Id.).
Moreover, Big Ass Fans was trying to negotiate a private labeling arrangement that would
allow it to resell I-Beam LEDs bearing its logo. (Id.). Acuity Lighting immediately placed
a hold on the order and requested a conference call with Big Ass Fans. (Id. at 17-20).
In June of 2013, Whitaker spoke with Miller and Smith. (Doc. # 168-1 at 21-22). As
CEO of Big Ass Fans, Smith assured Whitaker that the company would continue selling
fans, but had no plans to compete with Acuity Lighting. (Id.). He also stated that he would
not allow Bickley to work on any lighting-related projects, nor would he permit Bickley or
Robinson to communicate with Acuity Lighting employees about employment opportunities.
(Id.). With these assurances in mind, Acuity Lighting released Big Ass Fans’s order. (Doc.
# 168-4 at 20-25).
This incident inspired Big Ass Fans to consider manufacturing a light themselves.
(Doc. # 120-5 at 3). They came up with the Big Ass High Bay LED, which is very similar
to Acuity Lighting’s I-Beam in terms of form and function. (Id.). Big Ass Fans even crafted
an ad, which showed the I-Beam6 being crushed by a pickup truck while the Big Ass High
Bay supported its weight. (Doc. # 168-20). However, Big Ass Fans intended to sell their
6) The ad does not identify the crushed light as the I-Beam. (Doc. # 170-4 at 3). It is simply labeled
as the “Leading LED Brand.” (Id.). However, testimony from Bickley and Fedyniak confirms that
it is indeed the I-Beam. (Doc. # 170-8 at 3).
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light in the renovation/retrofit market, not the new construction market that Acuity Lighting
targeted. (Doc. # 120-11 at 3).
Around this time, Bickley contacted another Acuity Lighting employee, Jonathan
Archer, about an employment opportunity at Big Ass Fans.7 (Doc. # 168-13 at 4).
According to Archer, Bickley reached out to him because he knew that Archer was
frustrated about some recent changes at Acuity Lighting. (Id.). Bickley instructed Archer
to submit a resume. (Id.). Once Archer did so, Bickley explained that he would not be able
to discuss the issue further, but he expected someone from Human Resources to contact
Archer. (Id.). However, Archer did not hear from Big Ass Fans about an interview. (Id.).
In August of 2013, Smith invited Bickley to participate in an interview of Acuity
Lighting’s Vice President of Marketing David Grimm. (Doc. # 168-8 at 6). Bickley sat in on
the interview, but did not ask any questions. (Id.). That same month, Jay Dantzler, one of
Acuity Lighting’s Regional Sales Managers, contacted Bickley about possible employment
opportunities with Big Ass Fans in the Dallas area. (Doc. # 168-6 at 14). Bickley promised
to put Dantzler in touch with Jayne Jarvis, who worked in Human Resources. (Id.).
Dantzler interviewed with Jarvis via phone, then sent Bickley an email thanking him for his
assistance. (Id. at 37-38). Bickley responded that the interview went well and that Big Ass
Fans wanted to schedule another interview in Kentucky. (Id.). Once the interview was
scheduled, Bickley emailed Dantzler and told him who would be picking him up from the
7) The record also suggests that Bickley communicated with John Kirkhoff, another Acuity Lighting
employee, about possible employment opportunities at Big Ass Fans. (Doc. # 168-12 at 9-11).
Kirkhoff does not recall who initiated the conversation or when it took place, but he sent Bickley his
resume with the understanding that Bickley would forward it to Human Resources. (Id.). Bickley
told Kirkhoff that Big Ass Fans was interested in him, but Kirkhoff ultimately accepted employment
elsewhere. (Id.).
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airport and taking him to dinner that night. (Doc. # 168-7 at 70). He also said, “Time
permitting, Mike and I will take you tomorrow to lunch. I’ll drop you back at the airport.”
(Id.).
On the day of the interview, Dantzler spoke with Bickley for about ten minutes when
he arrived. (Doc. # 168-6 at 25-27). Afterwards, Robinson took him to lunch, then Bickley
took him to the airport. (Id. at 27). Soon after, Dantzler asked Jarvis if she could send him
contact information for his interviewers because he wanted to write them a thank you note.
(Doc. # 168-7 at 72). Jarvis asked him to contact Bickley for it. (Id.). Dantzler did so, and
Bickley promptly sent him the requested information. (Id.). Bickley also sent Dantzler a
video clip from an episode of America’s Got Talent, which featured a Big Ass Fan in the
background. (Doc. # 168-6 at 29-30, 44).
In September 2013, Dantzler received and accepted an employment offer from Big
Ass Fans. (Id. at 31). Bickley was copied on several emails between Dantzler and Jarvis
discussing the details of the offer. (Id. at 42). He resigned from Acuity Lighting and turned
in his electronic devices.8 (Id.).
Sheffield reviewed the devices and discovered
correspondence between Bickley and Dantzler. (Doc. # 168-3 at 17). This discovery
prompted Acuity Lighting to file the instant action against Bickley, Robinson and Big Ass
Fans. (Id.; Doc. # 1).
Just before Acuity Lighting filed suit, Bickley informed Archer that there was another
job opening at Big Ass Fans and that Human Resources would contact him. (Doc. # 168-
8) On March 21, 2014, Acuity Lighting sued Dantzler separately in the District Court of Dallas
County, Texas for breach of contract (specifically, the return of property, non-disclosure and trade
secret provisions) and violations of the Texas Uniform Trade Secrets Act. (Doc. # 25). The current
status of that lawsuit is unknown.
10
13 at 7). Jarvis did connect with Archer on LinkedIn. (Id. at 16). However, once Acuity
Lighting filed this suit, Miller instructed her to cease contact with Archer. (Doc. # 168-11
at 20-21).
As discovery proceeded in this action, Big Ass Fans continued to prepare for the
launch of its High Bay LED. (Doc. # 120-5 at 3-4). Although a special sales group had
handled lighting sales in the past, Big Ass Fans decided to reassign lighting to the general
sales team, overseen by Bickley. (Id.; Doc. # 168-5 at 22). Accordingly, in December
2013, Bickley began attending meetings about lighting sales strategies. (Doc. # 168-5 at
22-24). Chief among Bickley’s strategies was the Trial Installation Program, or “TIP,” which
offered existing customers a trial installation of the High Bay LED.
(Id.).
Bickley
accompanied his team members on sales calls during this time and provided feedback
about the TIP campaign to Smith. (Id. at 24-29). Bickley also sought Robinson’s advice
on some of these matters. (Id. at 30-31). Some of Acuity Lighting’s agents, who had
contracted with Big Ass Fans to sell fans, recall that Bickley and Robinson contacted them
during this time and asked them if they were interested in selling the High Bay LED on
commission. (Docs. # 168-21 at 4 and 168-22 at 4-8). Both agents declined these offers.
(Id.). In February of 2014, Big Ass Fans finally began manufacturing its High Bay LED.
(Doc. # 120-5 at 3-4).
Meanwhile, Miller asked Bickley and Robinson to give him the flash drive and
external hard drive that they had retained from Acuity Lighting. (Doc. # 120-26 at 4). Both
men did as instructed, and Miller gave the items to defense counsel, who arranged for a
forensic computer expert to examine both storage devices, as well as the computers that
both men used at Big Ass Fans. (Id.). According to Miller, the examination revealed that
11
nothing on Robinson’s external hard drive had been transferred to his work computer. (Id.).
Bickley’s work computer had only one Acuity Brands presentation, which he had allegedly
retrieved from the investor relations link on Acuity Brands’ website. (Id.).
Acuity Lighting also retained a forensic computer expert to examine the devices.9
(Doc. # 142-9). Although Bickley and Robinson insist that they did not access any
documents pertaining to Acuity Lighting, let alone disclose them to Big Ass Fans, Plaintiffs
argue that the forensic examination results support the opposite conclusion. (Docs. # 12015 and 120-16). According to Sheffield, the forensic examination revealed that Bickley had
accessed a number of documents on the flash drive after leaving Acuity Lighting’s
employment. (Docs. # 168-3 at 23-24 and 168-16). Acuity Lighting’s Vice President of
Global Business Development, Anthony Gineris, testified that some of the documents
contained proprietary information. (Doc. # 122-8 at 5-10). However, he did not know
whether these documents were among those allegedly accessed by Bickley. (Id.).
Bickley continued to supervise the general sales force at Big Ass Fans until May of
2014, when he became the Lighting Sales Manager. (Doc. # 120-15 at 3). Lighting
accounted for less than 10% of the sales made by his team from February to May. (Id.).
Most of these sales were made in the retrofit market, rather than the new construction
market. (Id.).
More than fifteen months after the filing of this action, the parties completed their
discovery efforts. (Doc. # 86). Defendants Bickley, Robinson and Big Ass Fans then filed
9) Neither Plaintiffs nor Defendants have filed the actual results of these forensic examinations in
the record. The Court has only secondhand testimony and invoices at its disposal. (Docs. # 12026 at 4 and 142-9).
12
Motions for Summary Judgment, which are fully briefed and ripe for the Court’s review.
(Docs. # 120, 121, 168, 179 and 182).
III.
Analysis
A.
Standard of Review
Summary judgment is appropriate when there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P.
56(a). If there is a dispute over facts that might affect the outcome of the case under
governing law, then entry of summary judgment is precluded. Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986). The moving party has the ultimate burden of persuading
the court that there are no disputed material facts and that he is entitled to judgment as a
matter of law. Id. Once a party files a properly supported motion for summary judgment
by either affirmatively negating an essential element of the non-moving party’s claim or
establishing an affirmative defense, “the adverse party must set forth specific facts showing
that there is a genuine issue for trial.” Id. at 250. “The mere existence of a scintilla of
evidence in support of the [non-moving party’s] position will be insufficient; there must be
evidence on which the jury could reasonably find for the [non-moving party].” Id. at 252.
B.
Contract-Based Claims
1. Choice of Law
“It is a well-accepted principle that a federal court in a diversity case must apply the
conflict of law rules of the state in which it sits.” Banek Inc. v. Yogurt Ventures U.S.A., Inc.,
6 F.3d 357, 361 (6th Cir. 1993) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487,
490 (1941)). However, courts “only need[ ] to go through the choice of law analysis when
13
a conflict occurs between two states’ laws.” Asher v. Unarco Material Handling, Inc., 737
F. Supp. 2d 662, 667 (E.D. Ky. 2010).
At first blush, this case does not seem to require a choice of law analysis. After all,
the Stock Award and Notification Agreement specifically states that “[t]he validity,
interpretation, construction, and performance of this Agreement and Exhibit A shall be
governed by the laws of the state of Georgia without giving effect to the conflicts of laws
principles thereof.” (Doc. # 120-2 at 7). Both parties have presumed that this provision is
effective and that Georgia law applies to this litigation. (Docs. # 120-1, 121-1 and 168).
However, the law does not necessarily lead to this result.
Plaintiffs filed this diversity action in the Eastern District of Kentucky, and so, the
Court must apply Kentucky’s conflict of law rules. Kentucky courts “are very egocentric
[and] protective concerning choice of law questions.” Paine v. La Quinta Motor Inns, Inc.,
736 S.W.2d 355, 357 (Ky. Ct. App. 1987), overruled on other grounds by Oliver v. Schultz,
885 S.W.2d 699 (Ky. 1994). “[I]t is apparent that Kentucky applies its own law unless there
are overwhelming interests to the contrary.” Harris Corp. v. Comair, Inc., 712 F.2d 1069,
1071 (6th Cir. 1983). Moreover, Kentucky courts have given little weight to contractual
choice of law provisions. See Wells Fargo Fin. Leasing, Inc. v. Griffin, 970 F. Supp. 2d
700, 709-10 (W.D. Ky. 2013). Thus, it is possible that Kentucky law could apply to this
dispute instead of Georgia law.
Because Kentucky law is much more accepting of post-employment restrictive
covenants than Georgia law, the Court believes that there is indeed a conflict necessitating
this choice of law analysis. Compare Hammons v. Big Sandy Claims Serv., Inc., 567
14
S.W.2d 313, 315 (Ky. Ct. App. 1978) (approving the use of the “blue pencil” rule10 and
observing that restrictive covenants are a valid business tool, enforceable so long as they
are not unlimited as to both time and space or unlimited as to space but not time) with
Trujillo v. Great S. Equip. Sales, LLC, 657 S.E.2d 581, 583 (Ct. App. Ga. 2008) (stating that
the “blue pencil” rule does not apply to contracts involving post-employment restrictive
covenants, which must be “strictly limited as to time, territorial effect, capacity in which the
employee is prohibited from competing, and as to overall reasonableness”).
Kentucky courts utilize different choice of law tests for contract cases and tort cases.
Saleba v. Schrand, 300 S.W.3d 177, 181 (Ky. 2009). In contract cases, Kentucky courts
apply the “most significant contacts” test, set forth in § 188 of the Restatement (Second)
of Conflict of Laws.11 Id. Specifically, § 188(1) provides that “[t]he rights and duties of the
10) The “blue pencil” doctrine is “[a] judicial standard for deciding whether to invalidate the whole
contract or only the offending words.” Black’s Law Dictionary 183 (8th ed. 2004). “If this standard
applies, then only the offending words are invalidated if it would be possible to delete them simply
by running a blue pencil through them, as opposed to changing, adding or rearranging the words.”
Curtis 1000, Inc. v. Martin, 197 F. App’x 412, 420 n. 2 (6th Cir. 2006) (internal quotations omitted).
Case law suggests that Kentucky may be particularly generous with its application of the blue pencil
doctrine. Kegel v. Tillotson, 297 S.W.3d 908, 913 (Ky. Ct. App. 2009) (stating that the blue pencil
rule “empower[s it] to reform or amend restrictions in a non-compete clause if the initial restrictions
are overly broad or burdensome”).This is very different from Georgia’s approach, and underlines
the importance of the choice of law analysis in this case.
11) Section 188 is explicitly titled “Law Governing in Absence of Effective Choice by the Parties.”
However, “[t]he Kentucky Supreme Court has applied this test even where the contract at issue
contains a choice of law clause.” Papa Johns Int’l, Inc. v. Pizza Magia Int’l, LLC, Civ. A. No. 3:00CV-548-H, 2001 WL 1789379, at *2 (W.D. Ky. May 10, 2001) (citing Breeding v. Mass. Indem. &
Life Ins. Co., 633 S.W.2d 717, 717-18 (Ky. 1982)). The Sixth Circuit has cautioned the Kentucky
Supreme Court against “precluding parties from making a reasonable and binding choice as to the
law that will govern their contractual relationship.” Wallace Hardware Co., Inc. v. Abrams, 223 F.3d
382, 391 (6th Cir. 2000). In Wallace Hardware, the Sixth Circuit “ultimately predicted that Kentucky
would apply § 187 [Law of the State Chosen by the Parties] rather than § 188 when faced with a
contractual choice of law provision” and reversed the district court’s decision applying § 188. Wells
Fargo Fin. Leasing, Inc. v. Griffin, 970 F. Supp. 2d 700, 709 (W.D. Ky. 2013) (discussing the
implications of Wallace Hardware). However, “[r]ecent decisions by Kentucky’s highest court have
shown this prediction to be mistaken, and, in stead, have affirmed the application of § 188's most-
15
parties with respect to an issue in contract are determined by the local law of the state
which, with respect to that issue, has the most significant relationship to the transaction and
the parties under the principles stated in § 6.” Courts should consider the following factors
in determining which state has the most significant relationship to the transaction: (1) the
place of contracting; (2) the place of negotiation of the contract; (3) the location of the
subject matter of the contract; (4) the place of performance; and (5) the domicile,
residence, nationality, place of incorporation and business of the parties. See Restatement
(Second) of Conflict of Laws, § 188(2)(a)-(e).
“[T]he place of contracting is the place where occurred the last act necessary, under
the forum’s rules of offer and acceptance, to give the contract binding effect.” Restatement
(Second) of Conflict of Laws § 188, cmt. e. In this case, the contract at issue is the Stock
Notification and Award Agreement, and the last act necessary to give it binding effect would
be execution by Bickley and Robinson. Both men electronically executed the Agreement
using Acuity’s acceptance software, but there is no record of where this actually occurred.
Accordingly, the Court will presume that each man executed the Agreement in the state
where they lived and worked. At that time, Bickley resided in Georgia and Robinson lived
in Kentucky, so this factor supports the application of either state’s law.12
The state where
significant-relationship test, even where the parties have expressly agreed to have their contractual
rights and duties governed by a particular state’s laws.” Id. (citing Schrand, 300 S.W.3d at 181;
Schnuerle v. Insight Commc’n Co., 376 S.W.3d 561, 566-67 (Ky. 2012)). For these reasons, the
Court will apply § 188's most significant relationship test, regardless of the Agreement’s choice of
law provision.
12) Although both Bickley and Robinson traveled frequently while employed at Acuity Lighting, there
is no evidence in the record to suggest that they executed the Agreement while traveling. (Docs.
# 120-15 and 120-16). Even if that proved to be the case, “[s]tanding alone, the place of
contracting is a relatively insignificant contact.” Restatement (Second) of Conflict of Laws § 188,
cmt. e.
16
the parties negotiate and agree on the terms of their contract “has an obvious interest in
the conduct of the negotiations and in the agreement reached.” Id. However, these
contacts are “of less importance when there is no one single place of negotiation and
agreement, as, for example, when the parties do not meet but rather conduct their
negotiation from separate states by mail or telephone.” Id. The record suggests that there
was not much negotiation involved in the formation of the Agreement. Acuity Brands
awarded shares of stock to Acuity Lighting employees so that they would be further
invested in the company’s success. (Doc. # 120-2). According to Bickley and Robinson,
employees routinely accepted such awards, without asking any questions, by a certain
date. (Docs. # 168-2 at 35 and 168-7 at 15-19). Robinson testified that he felt that he
would be “rais[ing] a red flag” if he did not sign the Agreement because “nobody’s never
not signed one of these.” (Id.). For these reasons, Bickley and Robinson consented to the
terms of the Agreement via electronic software, which leads the Court once again to
Georgia and Kentucky law. (Docs. # 120-2 and 120-3).
Typically, “[t]he state where performance is to occur under a contract has an obvious
interest in the nature of the performance and in the party who is to perform.” Id. However,
this factor bears relatively little weight when the place of performance is either uncertain
or unknown at the time of contracting. Id. Such is the case here. Bickley and Robinson
actually promised to refrain from competing with Acuity Lighting, soliciting its employees,
and disclosing its trade secrets when they left its employ. (Docs. # 120-2 and 120-3).
Thus, Bickley and Robinson were expected to perform wherever they next worked.
Although that place turned out to be Kentucky, it could just as easily have been another
state. At the time that Bickley and Robinson executed their Agreements, neither they nor
17
Acuity Lighting had any idea where or when performance would occur.13 Thus, this factor
leans only slightly in favor of applying Kentucky law.
The situs question is significant “[w]hen the contract deals with a specific physical
thing, such as land or a chattel, or affords protection against a localized risk, such as the
dishonesty of an employee in a fixed place of employment.” Id. This case does not
present either of those situations. The Agreement does not pertain to land or chattel, nor
does it afford protection against a localized risk. Rather, it seeks to protect Acuity Lighting
against competition or solicitation by its former employees–risks that could arise in any
number of locations, unknown at the time of contracting. Accordingly, the Court will treat
this factor as neutral.
Finally, the significance of residence or domicile “depends largely upon the issue
involved and upon the extent to which they are grouped with other contacts.” Id. For
example, “[t]he fact that one of the parties is domiciled or does business in a particular
state assumes greater importance when combined with other contacts, such as that this
state is the place of contracting or of performance or the place where the other party to the
contract is domiciled or does business.” Id. Here, Bickley resided in Georgia and Robinson
lived in Kentucky when they executed the Agreement. (Docs. # 120-15 and 120-16). Both
men now reside in Kentucky. (Id.). Acuity Lighting had, and continues to have, its principal
13) The record reflects that the headhunting agency first contacted Bickley in November of 2012.
(Doc. # 120-15 at 1). He executed the Agreement on December 1, 2012. (Doc. # 120-2 at 3).
Although Bickley may have been interested in the Big Ass Fans opportunity at that point, he could
not have known with any certainty that Kentucky would be the place of performance for these postemployment restrictive covenants.
18
place of business in Georgia.14 (Doc. # 67 at 1). This factor also points toward the
application of either Kentucky or Georgia law.
After considering these five factors, the Court still lacks a clear answer to the choice
of law question. The first, second and fifth factors support the application of either
Kentucky or Georgia law. Although these factors slightly favor the application of Georgia
law, due to the fact that Bickley lived and worked there at the time of contracting, the third
factor slightly weighs in favor of Kentucky law. The fourth factor is not implicated. Thus,
in deciding between Georgia and Kentucky law, the Court must carefully consider which
one best serves the principles that underlie § 188.
These principles, enumerated in the Restatement (Second) of Conflict of Laws §
6(2), include: (a) the needs of the interstate and international systems; (b) the relevant
policies of the forum; (c) the relevant policies of other interested states and the relative
interests of those states in the determination of the particular issue; (d) the protection of
justified expectations; (e) the basic policies underlying the particular field of law; (f)
certainty, predictability and uniformity of result; and (g) ease in the determination and
application of the law to be applied. Wells Fargo, 970 F. Supp.2d at 710. “When using this
framework, [courts] ‘must balance principles, policies, factors, weights, and emphases to
reach a result, the derivation of which, in all honesty, does not proceed with mathematical
precision.” Id. (quoting Int’l Ins. Co. v. Stonewall Ins. Co., 86 F.3d 601, 606 (6th Cir. 1996)).
14) Acuity Brands is incorporated under the laws of Delaware. (Doc. # 67 at 1). However, “a
corporation’s principal place of business is a more important contact than the place of incorporation,
and this is particularly true in situations where the corporation does little, or no, business in the
latter state.” Restatement (Second) of Conflict of Laws § 188, cmt. e. Such is the case here.
19
As the Restatement itself observes, any solution will likely require some give-andtake between states. § 6, cmt. d. “In formulating rules of choice of law, a state should have
regard for the needs and policies of other states and of the community of states.” Id. Even
Kentucky law, with its egocentric twist on choice of law rules, acknowledges that there are
situations in which its laws should not be applied. Harris, 712 F.2d at 1071.
The Court believes that this is such a situation. While Kentucky certainly has a
general interest in protecting its citizens against suit, Georgia’s interests are more specific.
This case centers upon the enforceability of several restrictive covenants. Unlike Kentucky,
Georgia has formulated very stringent policies about this area of the law, and it certainly
has an interest in seeing those policies applied to an Agreement that had significant ties
to the state at the time of execution.
This result also protects justified expectations and promotes uniformity. In this case,
the parties expected that Georgia law would apply to this dispute because the Agreement
contains a choice of law provision. Although Kentucky law does not give effect to such
provisions, many states do. It is easy to imagine a scenario in which a group of Acuity
Lighting employees execute the same Stock Notification Award and Agreement, then seek
employment elsewhere. While some of these employees may be bound by the restrictive
covenants contained in the Agreement, others may not be, simply because their new state
has more favorable choice of law rules. This result would not only be confusing, it would
be unjust. Accordingly, the Court will apply Georgia law to the instant dispute.
2.
Applicability of the Restrictive Covenants
“[T]he construction of a contract is a question of law for the court.” Bd. of Comm’rs
of Crisp Cnty. v. City Comm’rs of City of Cordele, 727 S.E.2d 524, 526-27 (Ga. Ct. App.
20
2012). The first step in construing a contract is “to decide whether the language of the
contract is clear and unambiguous.” Id. at 527. “If so, the contract is enforced according
to its plain terms, and the contract alone is looked to for meaning.” Id.
Defendants argue that the restrictive covenants at issue do not apply to the activities
of Bickley, Robinson and Dantzler. (Doc. # 120-1 at 15). These covenants discuss the
departing employee’s interactions with “the Company,” but do not define that term. (Doc.
# 120-2 at 8-15). However, the Agreement itself defines “the Company” as Acuity Brands,
Inc. (Id. at 4). Thus, Defendants conclude that these covenants only prohibit Bickley and
Robinson from soliciting employees of Acuity Brands, Inc. and competing with that entity.
Because Plaintiffs allege, inter alia, that Bickley and Robinson solicited Acuity Lighting
employees and competed with Acuity Lighting, Defendants conclude that the restrictive
covenants are not implicated in this litigation.
Although the Agreement initially defines “the Company” as Acuity Brands, Inc., the
Terms and Conditions section further states:
(a)
Restrictions
....
(ii)
Except for death, Disability or Change in Control, as set forth
below, if the Grantee remains employed by the Company, the
Restricted Stock shall vest pursuant to the schedule set forth
above. For purposes of this Agreement, employment with a
subsidiary of the Company shall be considered employment
with the Company.
(Doc. # 120-2 at 5) (emphasis added). Acuity Lighting is a subsidiary of Acuity Brands, Inc.
(Doc. # 10). This language clearly indicates that the restrictive covenants are also
supposed to protect Acuity Brands’s subsidiary, Acuity Lighting. Therefore, the Court must
enforce the contract according to its plain terms and find that the restrictive covenants
21
apply to the alleged conduct of Bickley, Robinson and Dantzler vis a vis Acuity Lighting.15
3.
Enforceability of the Restrictive Covenants
Georgia law recognizes four basic types of restrictive covenants: non-competition,
non-solicitation of customers, non-recruitment of employees and non-disclosure of
confidential information. Albany Bone & Joint Clinic, P.C. v. Hajek, 612 S.E.2d 509, 512
(Ct. App. Ga. 2005). “A characteristic shared by each of these provisions is a prohibition,
or at the very least a limitation, placed by one party on the other party’s future business
activities.” Id. (emphasis in original).
Georgia law subjects restrictive covenants “to three levels of judicial scrutiny: ‘strict
scrutiny, which applies to employment contracts; middle or lesser scrutiny, which applies
to professional partnership agreements; and much less scrutiny, which applies to sale of
business agreements.’” Am. Control Sys., Inc. v. Boyce, 694 S.E.2d 141, 144 (Ct. App. Ga.
2010). “Restrictive covenants that are ancillary to an employment contract are subject to
strict scrutiny and will be voided by Georgia courts if they impose an unreasonable restraint
on trade.” Trujillo, 657 S.E.2d at 583-84; see also Albany Bone & Joint Clinic, 612 S.E.2d
at 512 (explaining that such restrictive covenants “exist to protect the employer’s interest
in property, confidential information, customer goodwill, business relationships, and other
economic advantages the employer has earned for the business over the years”).
15) Even if this language is ambiguous, and the Court does not believe that it is, Defendants’
proposed interpretation of the Agreement would lead to a nonsensical result. The restrictive
covenants are clearly intended to protect the lighting business. Acuity Brands does not
manufacture lights; it merely serves as the parent company for Acuity Lighting. Thus, if the
restrictive covenants were limited to Acuity Brands, they would completely fail to achieve their
intended purpose.
22
Applying strict scrutiny, a restrictive covenant in an employment contract will be
considered overbroad unless: “(1) the restraint is reasonable; (2) founded upon valuable
consideration; (3) is reasonably necessary to protect the party in whose favor it is imposed;
and (4) does not unduly prejudice the interests of public.” Dent Wizard Intl. Corp. v. Brown,
612 S.E.2d 873, 876 (Ct. App. Ga. 2005).
“Whether the restraint imposed by the
employment contract is reasonable is a question of law for determination by the court,
which considers the nature and extent of the trade or business, the situation of the parties,
and all other circumstances.” Id. If a provision is found to be overbroad, Georgia courts
will not enforce it. Id.
“[I]n restrictive covenant cases strictly scrutinized as employment contracts, Georgia
does not employ the ‘blue pencil’ doctrine of severability.” Advance Tech. Consultants, Inc.
v. Roadtrac, LLC, 551 S.E.2d 735, 737 (Ct. App. Ga. 2001). This doctrine permits courts
to “cross[ ] out, as with a blue pencil, those provisions which render a covenant
overbroad[,]” and therefore, unenforceable. Ga. Employment Law § 2:11 (4th ed.). Absent
such a rule, Georgia courts have repeatedly held that if one covenant in an agreement is
unenforceable, then all are. See, e.g., Advance Tech. Consultants, 551 S.E.2d at 737.
a.
Breach of Contract (Non-Disclosure of Trade Secrets and
Confidential Information Clause) Claim Against Bickley
and Robinson
“The validity of a non-disclosure provision depends upon its reasonableness,” which
depends upon two factors: “(1) whether the employer is attempting to protect confidential
information relating to the business, such as trade secrets, methods of operation, names
of customers, personnel data, and so on; and (2) whether the restraint is reasonably related
to the protection of the information.” Holland Ins. Grp., LLC v. Senior Life Ins. Co., 766
23
S.E.2d 187, 192 (Ct. App. Ga. 2014) (internal citations omitted). “A non-disclosure clause
with no time limit is unenforceable as to information that is not a trade secret.” Id. (internal
citations omitted); see also Carson v. Obor Holding Co., LLC, 734 S.E.2d 477, 481 (Ct.
App. Ga. 2012) (“The fact that this clause purports to bind Carson ‘in perpetuity,’ together
with its failure to define ‘confidential information,’ renders it overly broad and therefore
unenforceable under Georgia law.”); Pregler v. C&Z, Inc., 575 S.E.2d 915, 917 (striking
down a non-disclosure clause that prohibited an employee from disclosing any “Proprietary
Information” for an unlimited period of time).
In this case, the Trade Secrets and Confidential Information clause provides as
follows:
Grantee agrees that he/she shall protect the Protected Parties’ Trade Secrets
(as defined in Section 1(b) above) and Confidential Information (as defined
in Section 1(a) above) and shall not disclose to any person or entity, or
otherwise use or disseminate, except in connection with the performance of
his/her duties for the Company, any Trade Secrets or Confidential
Information; provided, however, that Grantee may make disclosures required
by a valid order or subpoena issued by a court or administrative agency of
competent jurisdiction, in which event Grantee will promptly notify the
Protected Parties of such order or subpoena to provide the Protected Parties
an opportunity to protect their interests. Grantee’s obligations under this
Section 2(b) have applied throughout his/her active employment, shall
continue after the Date of Termination, and shall survive any expiration or
termination of this Agreement, so long as the information or material remains
Confidential Information or a Trade Secret, as applicable.
(Doc. # 120-2 at 12) (emphasis added).
According to Section 1(b), “Trade Secrets” has the meaning set forth under Georgia
Law, O.C.G.A. §§ 10-1-760, et seq.” (Id. at 9). The term “Confidential Information”
includes:
24
data and information relating to the Company’s Business;16 disclosed to
Grantee or of which Grantee became aware as a consequence of Grantee’s
relationship with the Company; having value to the Company; not generally
known to the competitors of the Company; and which includes trade secrets,
methods of operation, names of customers, price lists, financial information
and projections, route books, personnel data, and similar information. For
purposes of this Agreement, subject to the foregoing and according to
terminology commonly used by the Company, the Company’s Confidential
Information shall include, but not be limited to, information pertaining to: (1)
Business Opportunities (as defined below); (2) data and compilations of data
relating to the Company’s Business (as defined in Exhibit A); (3) compilations
of information about ,and communications and agreements with, customers
and potential customers of the Company; (4) computer software, hardware,
network and internet technology utilized, modified or enhanced by the
Company or by Grantee in furtherance of Grantee’s duties with the
Company; (5) compilations of data concerning Company products, services,
customers, and end users including but not limited to compilations
concerning projected sales, new project timelines, inventory reports, sales,
and cost and expense reports; (6) compilations of information about the
Company’s employees and independent contracting consultants; (7) the
Company’s financial information, including, without limitation, amounts
charged to customers and amounts charged to the Company by its vendors,
suppliers, and service providers; (8) proposals submitted to the Company’s
customers, potential customers, wholesalers, distributors, vendors, suppliers
and service providers; (9) the Company’s marketing strategies and
compilations of marketing data; (10) compilations of data or information
concerning, and communications and agreements with, vendors, suppliers
16) The “Company’s Business is defined as “the design, manufacture and/or sale of one or more
of the following and any related products and/or services: lighting fixtures and systems, lighting
control components and systems (including but not limited to dimmers, switches, relays,
programmable lighting controllers, sensors, timers, and range extenders for lighting and energy
management and other purposes), building management and/or control systems, emergency
lighting fixture and systems (including but not limited to exit signs, emergency light units, inverters,
back-up power battery packs, and combinations thereof), batter powered and/or photovoltaic
lighting fixtures, electric lighting track units, hardware for mounting and hanging electrical lighting
fixtures, aluminum, steel and fiberglass fixture poles for electric lighting, light fixture lenses, sound
and electromagnetic wave receivers and transmitters, flexible and modular wiring systems and
components (namely, flexible branch circuits, attachment plugs, receptacles, connectors and
fittings), light emitting diode (LED) lamps, daylighting systems including but not limited to prismatic
skylighting and related controls, organic LED products and technology, medical and patient care
lighting devices and systems, and any wired or wireless communications and monitoring hardware
or software related to any of the above. This shall not include any product or service of the
Company if the Company is no longer in the business of providing such product or service to its
customers at the relevant time of enforcement.” (Id. at 9-10).
25
and licensors to the Company and other sources of technology, products,
services or components used in the Company’s Business; (11) any
information concerning services requested and services performed on behalf
of customers of the Company, including planned products or services; and
(12) the Company’s research and development records and data.
Confidential Information also includes any summary, extract or analysis of
such information together with information that has been received or
disclosed to the Company by any third party as to which the Company has
an obligation to treat as confidential.
(Id. at 8-9).
However, the Agreement states that the term “Confidential Information” does not
include:
(A)
Information generally available to the public other than
as a result of improper disclosure by Grantee;
(B)
Information that becomes available to Grantee from a
source other than the Company (provided Grantee has
no knowledge that such information was obtained from
a source in breach of a duty to the Company);
(C)
Information disclosed pursuant to law, regulations or
pursuant to a subpoena, court order or legal process;
and/or
(D)
Information obtained in filings with the Securities and
Exchange Commission.
(Id.).
This clause does define “Trade Secrets” and “Confidential Information” separately.
However, it prohibits an employee from disclosing either type of data for an unlimited period
of time. As the case law states, employers are not required to put a time limit on nondisclosure of trade secrets, but they must place a time limitation on all other information
that is not a trade secret. Plaintiffs failed to do that here, rendering the non-disclosure
provision overly broad, and therefore, unenforceable. Because this breach of contract
26
claim cannot survive in the absence of an enforceable non-disclosure provision,
Defendants are entitled to summary judgment.
b.
Breach of Contract (Non-Competition Clause) Claim
Against Bickley
Non-competition clauses “must be strictly limited as to time, territorial effect, capacity
in which the employee is prohibited from competing, and as to overall reasonableness.”
Dent Wizard, 612 S.E.2d at 876 (internal quotations omitted). In scrutinizing the territorial
effect limitations, Georgia courts have “‘accept[ed] as prima facie valid a territory where the
employee worked and the employer does business.’” Id. (quoting Hulcher Servs. v. R.J.
Corman R.R. Co., 543 S.E.2d 461, 466 (Ga. Ct. App. 2000). However, “a territory that is
only where the employer does business but the employee did not work is overly broad on
its face, absent strong justification for such protection, other than the desire not to compete
with the former employee.” Hulcher, 543 S.E.2d at 466 (invalidating a non-compete clause
that restricted a former employee from working in several states, even though he worked
for his former employer “only in a limited area of such states where the railroads were
located”); Dent Wizard, 612 S.E.2d at 876 (striking down a non-compete clause that
contained a four-county territorial restriction, when the former employee did not work in all
of those counties).
The Non-Competition clause at issue in this case provides as follows:
In the event that Grantee,
(i)
voluntarily resigns from the Company;
(ii)
is Terminated for Cause (as defined above), or
(iii)
declines to sign a Confidential Severance Agreement and
Release offered by the Company in the event of a termination
27
for any reason other than a Termination for Cause (including,
for example, as a result of a position elimination)
Grantee acknowledges and agrees that during his/her employment, and for
twelve (12) months after the Date of Termination, he/she has not and will not,
directly or indirectly, engage in, provide, or perform any Employee Services17
on behalf of any person or entity (or, if organized into divisions or units, any
distinct division or operating unit) in the Territory that derives revenue from
providing goods or services substantially similar to those which comprise the
Company’s Business. Notwithstanding the foregoing, if the Company
terminates Grantee’s employment for any reason other than a Termination
for Cause (including, for example, as a result of a position elimination), and
Grantee elects to sign a Confidential Severance Agreement and Release
offered by the Company, the period covered by this non-competition
covenant will be reduced to either, (i) the time within which severance
payments are scheduled to be paid to Grantee under such agreement, or (ii)
if severance is paid to Grantee in a lump sum, the number of weeks of
Grantee’s then-current regular salary are used to calculate such lump sum
payment; provided, however, that the restrictive period calculated hereunder
may not, in any event, exceed twelve (12) months following the Date of
Termination.
(Id. at 12-13).
The “Territory” is generally defined as the United States. (Id. at 10). The only
justification for applying the non-compete provision to such a broad area is found within the
Agreement itself:
Grantee acknowledges that the Company is licensed to do business and in
fact does business in all fifty states in the United States. Grantee further
acknowledges that the services she/he has performed on behalf of the
Company are at a senior level and are not limited in their territorial scope to
any particular city, state, or region, but instead affect the Company’s activity
within the entire United States. Specifically, Grantee provides Employee
Services on the Company’s behalf throughout the United States, meets with
Company agents and distributors, develops products and/or contacts
throughout the country, and otherwise engages in his/her work on behalf of
the Company at a national level. Accordingly, Grantee agrees that these
17) “Employee Services” refers to “the duties and services of the type conducted, authorized,
offered, or provided by the Grantee in his/her capacity as an employee on behalf of the Company
within twelve (12) months prior to the Date of Termination.” (Id. at 10).
28
restrictions are reasonable and necessary to protect the Confidential
Information, trade secrets, business relationships, and goodwill of the
Company.
(Id.).
It is true that Acuity Lighting does business throughout the United States. However,
Bickley and Robinson were each responsible for sales in a particular region, so it stands
to reason that they provided most of their services in their respective regions and made
most of their contacts there. The record does not indicate that Bickley or Robinson had
anything more than occasional interaction with other regions. This fact, standing alone,
does not automatically justify the imposition of a nationwide non-compete to protect Acuity
Lighting’s trade secrets, business relationships and goodwill. When scrutinized carefully,
this broad statement expresses little more than Acuity Lighting’s desire to avoid competition
by their former employees in the Territory, which is an insufficient justification under
Georgia law. See Hulcher, 543 S.E.2d at 466.
Moreover, this clause totally fails to strike the necessary balance between “the
employee’s right to earn a living and ability to determine with certainty the geographic area
boundaries in which post-employment activities are restricted” against “the employer’s
interest in customer relationships that its former employee established for the employer and
its right to protect itself from the risk that the former employee might use such relationships
to unfairly appropriate the employers’s existing customers.” Id. Because the non-compete
clause is overbroad and unenforceable, Defendants are entitled to summary judgment on
this breach of contract claim as well.18
18) In addition to damages, Plaintiffs seek injunctive relief against Bickley. (Doc. # 67).
Specifically, they hope to enjoin him from competing with Acuity Lighting in his new role at Big Ass
29
c.
Breach of Contract (Non-Solicitation of Customers,
Employees and Agents Clause) Claim Against Bickley and
Robinson
As the Court explained above, Georgia law does not apply the “blue pencil” doctrine
in restrictive covenant cases subject to strict scrutiny. Advance Tech. Consultants, 551
S.E.2d at 737. Thus, although there is nothing patently overbroad about the clauses
relating to the non-solicitation of customers, employees and agents, the Court cannot
enforce them because they are part of the same Agreement as the unenforceable nondisclosure and non-competition provisions. Stated simply, “Georgia law is clear that if one
of them is unenforceable, then they are all unenforceable.” Id. Defendants are therefore
entitled to summary judgment on these breach of contract claims.19
3.
Breach of Contract (Return of Property Clause)
“The elements for a breach of contract claim in Georgia are the (1) breach and the
(2) resultant damages (3) to the party who has the right to complain about the contract
being broken. Dewrell Sacks, LLP v. Chicago Title Ins. Co., 749 S.E.2d 802, 806 (Ct. App.
Ga. 2013).
The Return of Property Clause states:
On or before Date of Termination, Grantee agrees to deliver promptly to the
Company all files, customer lists, management reports, memoranda,
Fans. (Id.). Because the non-compete is overbroad and unenforceable, they are not entitled to
such relief.
19) Plaintiffs argue that Bickley and Robinson were also bound to observe these restrictive
covenants because they were embedded in the Confidentiality, Inventions and Non-Solicitation
Agreement, which was provided in connection with annual ethics training. (Doc. # 168-8 at 21-26).
Although this Agreement includes similar restrictive covenants, several of the substantive provisions
differ. (Id.). Because of these differences, and because Plaintiffs’ case centers on the Stock
Notification and Award Agreement, the Court will not separately analyze the restrictive covenants
embedded in the Confidentiality, Inventions and Non-Solicitation Agreement.
30
research, Company forms, financial data and reports and other documents
(including all such data and documents in electronic form) of the Protected
Parties, supplied to or created by him/her in connection with his/her
employment hereunder (including all copies of the foregoing) in his/her
possession or control, and all of the Company’s equipment and other
materials in his/her possession or control. Grantee’s obligations under this
Section 2(c) shall survive any expiration or termination of this Agreement.
(Doc. # 120-2 at 12).20
Bickley and Robinson admit that they retained a flash drive and an external hard
drive, respectively, with Acuity Lighting data on it. (Docs. # 120-15 and 120-16). In light
of this testimony, Defendants concede that “there may be a genuine issue of material fact
as to whether the inadvertent actions of [Bickley and Robinson] breached those provisions.”
(Doc. # 120-1 at 32). Nevertheless, Defendants argue that they are entitled to summary
judgment on this claim because Plaintiffs have no proof of damages resulting from the
alleged breach. (Id.). In support of this proposition, Defendants point to Bickley and
Robinson’s testimony that they never accessed or disclosed the data after leaving Acuity
Lighting’s employment. (Docs. # 120-15 and 120-16).
According to Plaintiffs, their forensic computer expert found that Bickley and
Robinson accessed many of the documents on the flash drive and/or external hard drive.
((Docs. # 168-3 at 23-24 and 168-16). Although it is unclear from the record whether
Bickley and Robinson accessed documents containing confidential information, many of
the documents on those devices did contain confidential information. (Doc. # 170-6). Given
the timing between the alleged access of these documents and the launch of the Big Ass
20) In their briefing, Defendants lumped this provision in with the restrictive covenants discussed
above. However, it is not truly a restrictive covenant because it does not prohibit the employee from
conducting certain post-employment activities. For this reason, the Court will examine it separately.
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High Bay LED, and drawing all inferences in favor of Plaintiffs, one could conclude that
there is a causal connection between the alleged breach and Plaintiffs’ flagging sales.
Even so, Defendants insist that there is insufficient proof of damages relating to this
claim. In support of this proposition, Defendants point out that Plaintiffs initially sought
damages for: (1) any and all dilution and/or devaluation of the lighting market (and the
corresponding dilution and/or devaluation of Acuity’s share of that market) caused by [Big
Ass Fans’s] attempted entrance into the market using proprietary Acuity data to undercut
Acuity prices; (2) any and all lost profits resulting from [Big Ass Fans’s] use of proprietary
Acuity data to sell any of its lighting products; and (3) any and all cost savings accrued by
[Big Ass Fans] as a result of the misappropriation and use of Plaintiffs’ data. (Doc. # ).
However, Defendants claim that Plaintiffs “have not purported to produce any
documentation of a devaluation in its market share, any cost savings by [Big Ass Fans], or
any loss of profits resulting from use of Acuity’s proprietary data by [Big Ass Fans].” (Doc.
# 120-1 at 36).
Defendants have raised this issue once before, in briefing their Motion to Exclude
(Doc. # 107). However, Judge Wier declined to exclude these particular items of damages
due to insufficient briefing on the issues. Because the briefing is similarly inadequate in
Defendants’ Motions for Summary Judgment, the Court finds that summary judgment is
inappropriate at this juncture.
B.
Tort-Based Claims
1.
Choice of Law
As the Court explained above, a choice of law analysis is only necessary when there
is a conflict between two states’ laws. Asher, 737 F. Supp. 2d at 667. Although the
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elements of the two torts at issue here–tortious interference with contractual relations and
tortious interference with business relations–are stated in different terms, they are
substantively the same under Kentucky and Georgia law. Compare Snow Pallet, Inc. v.
Monticello Banking Co., 367 S.W.3d 1, 5-6 (Ky. Ct. App. 2012) with Kirkland v. Tamplin,
645 S.E.2d 653, 655-56 (Ct. App. Ga. 2007). Absent such a conflict, Kentucky law
applies.21 See Asher, 737 F. Supp. 2d at 668, n. 1 (“[T]he Sixth Circuit has been clear that
if no conflict exists and a state has a presumption for applying its own law, its own law will
apply. Kentucky indeed has such a presumption for applying its own law[.]”). Accordingly,
the Court will apply Kentucky law to Plaintiffs’ claims for tortious interference with
contractual relations and tortious interference with business relations.22
2.
Tortious Interference with Contractual Relations Claim Against
Big Ass Fans
Tortious interference with a contract requires proof of the following elements: (1) the
existence of a contract; (2) knowledge of the contract; (3) that defendant intended to cause
a breach of the contract; (4) that the defendant’s actions did indeed cause a breach; (5)
that damages resulted to plaintiff; and (6) that the defendant had no privilege or justification
to excuse its conduct.” Snow Pallet, Inc., 367 S.W.3d at 5-6.
21) If there was such a conflict, Kentucky law would still likely apply to these tort claims. As the
Court has already explained, a federal court sitting in diversity applies the choice of law rules of the
forum state. Banek, 6 F.3d at 361. In tort cases, Kentucky applies the “significant contacts” test.
Foster v. Leggett, 484 S.W.2d 827, 829 (Ky. 1972). This test requires courts to apply Kentucky law
“if there are significant contacts – not necessarily the most significant contacts – with Kentucky.”
Id. (also noting Kentucky’s “egocentric” approach to choice of law questions). This case certainly
has significant contacts with Kentucky. Both Bickley and Robinson live in Kentucky, and Big Ass
Fans is a Kentucky-based corporation. (Doc. # 67). Moreover, at least some of the tortious
conduct allegedly occurred in Kentucky. (Id.).
22) The parties appear to have reached the same conclusion, as they too relied on Kentucky law
in briefing their tortious interference claims.
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Plaintiffs allege that Big Ass Fans tortiously interfered with the restrictive covenants
incorporated in the Agreement. However, the Court has already found that these restrictive
covenants are overly broad and unenforceable. That being the case, Plaintiffs cannot
sustain their claim for tortious interference with contractual relations.
See Smith v.
Caterpillar, Inc., Civ. A. No. , 2007 WL 98892, at *4 (E.D. Ky. Jan. 8, 2007) (citing CMI, Inc.
v. Intoximeters, Inc., 918 F. Supp. 1068, 1079 (W.D. Ky. 1995)) (explaining that a plaintiff
must prove the existence of a valid contract in order to recover for tortious interference).
Defendants are therefore entitled to summary judgment on this claim.
3.
Tortious Interference with Business Relations Claim Against
Bickley and Robinson
Tortious interference with a prospective business advantage does not require the
existence of a contract. Snow Pallet, 367 S.W.3d at 5. Rather, it requires proof of the
following elements: (1) the existence of a valid business relationship or expectancy; (2) that
defendant was aware of this relationship or expectancy; (3) that defendant intentionally
interfered; (4) that the motive behind the interference was improper; (4) causation; and (6)
special damages. Id. at 5-6.
“Special damages” are essentially “pecuniary damages.” CMI, Inc., 918 F. Supp.
at 1081. This element requires the plaintiff to “prove that it actually suffered damages as
a result of [the defendant’s] actions.” Ventas, Inc. v. Health Care Prop. Investors, Inc., 635
F. Supp. 2d 612, 624 (W.D. Ky. 2009) (internal quotations omitted). If the plaintiff fails to
produce evidence of special damages, summary judgment is appropriate on the claim for
tortious interference with business relations. Id.; see also Canning v. Poole, Civ. A. No. 1016-JBC, 2012 WL 5198453, at *4 (E.D. Ky. Oct. 18, 2012).
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According to Plaintiffs’ Third Amended Complaint, the damages suffered include “the
substantial cost required to identify, recruit, and train replacements for Robinson and
Dantzler.” (Doc. # 67 at 29). However, evidence of those damages has been excluded due
to Plaintiffs’ failure to comply with applicable discovery rules.23 (Doc. # 200). Because
Plaintiffs will not be able to introduce evidence of its damages, they will not be able to prove
special damages, which is one of the elements of their claim. Therefore, Defendants are
entitled to summary judgment on this claim.
C.
Statutory Claims
1.
Violations of the Kentucky Uniform Trade Secrets Act24
The Kentucky Uniform Trade Secrets Act provides in pertinent part:
(1)
Except to the extent that a material and prejudicial change of position
prior to acquiring knowledge or reason to know of misappropriation
renders a monetary recovery inequitable, a complainant shall be
entitled to recover damages for misappropriation. Damages may
include both the actual loss caused by misappropriation and the unjust
enrichment caused by misappropriation that is not taken into account
in computing actual loss. In lieu of damages measured by other
methods, the damages caused by misappropriation may be measured
by imposition of liability for a reasonable royalty for a
misappropriator’s unauthorized disclosure or use of a trade secret.
(2)
If willful and malicious misappropriation exists, the court may award
exemplary damages in an amount not exceeding twice any award
made under subsection (1).
23) Plaintiffs also claim to have suffered “substantial injury due to Defendants’ unlawful solicitation,
including the loss of its two employees and the corresponding investment of time, energy, and
training [Acuity Lighting] put into them.” (Doc. # 67 at 28). However, Plaintiffs have never
attempted to quantify and support those damages, so the Court will focus solely on the damages
that Plaintiffs did attempt to establish, albeit belatedly.
24) Plaintiffs pled this claim as a violation of the Kentucky Uniform Trade Secrets Act, presumably
because most of the allegedly improper conduct occurred in Kentucky. (Doc. # 67 at 29-33). In any
event, a choice of law analysis is not necessary as to this claim because Georgia has also adopted
the Uniform Trade Secrets Act. See O.C.G.A. § 10-1-760, et seq.
35
Ky. Rev. Stat. Ann. § 365.884.
The Act defines “misappropriation” as:
(a)
Acquisition of a trade secret of another by a person who knows or has
reason to know that the trade secret25 was acquired by improper
means;26 or
(b)
Disclosure or use of a trade secret of another without express or
implied consent by a person who:
1.
Used improper means to acquire knowledge of the trade
secret; or
2.
At the time of disclosure or use, knew or had reason to know
that his knowledge of the trade secret was:
a.
b.
Acquired under circumstances giving rise to a duty to
maintain its secrecy or limit its use; or
c.
3.
Derived from or through a person who had utilized
improper means to acquire it;
Derived from or through a person who owed a duty to
the person seeking relief to maintain its secrecy or limit
its use; or
Before a material change in his position, knew or had reason
to know that it was a trade secret and that knowledge of it had
25) “‘Trade secret’ means information, including a formula, pattern, compilation, program, data,
device, method, technique, or process, that:
(a) Derives independent economic value, actual or potential, from not being generally known
to, and not being readily ascertainable by proper means by, other persons who can obtain
economic value from its disclosure or use, and
(b) Is the subject of efforts that are reasonable under the circumstances to maintain its
secrecy.
Ky. Rev. Stat. Ann. § 365.880(4).
26) “‘Improper means’ includes theft bribery, misrepresentation, breach or inducement of a breach
of a duty to maintain secrecy, or espionage through electronic or other means.” Ky. Rev. Stat. Ann.
§ 365.880(1).
36
been acquired by mistake or accident.27
Ky. Rev. Stat. Ann. 365.880(2).
This claim bears resemblance to Plaintiffs’ claim for breach of the return of property
provision, in that it focuses on whether Bickley and Robinson obtained and accessed
sensitive information on their devices, then disclosed it to Big Ass Fans. As the Court has
already observed, there is a genuine issue of material fact on each of those issues.
Moreover, a reasonable juror could conclude, based on the timing between the alleged
access of these documents and the launch of the Big Ass High Bay LED, that there is a
causal connection between the alleged breach and Plaintiffs’ damages. For these reasons,
Defendants are not entitled to summary judgment on this claim.
IV.
Conclusion
Accordingly, for the reasons stated herein,
IT IS ORDERED as follows:
(1)
Defendants Shane Bickley and Michael Robinson’s Motion for Summary
Judgment (Doc. # 120) is hereby GRANTED as to Count I (breach of the non-solicitation
provision), Count III (breach of the non-disclosure provision), Count IV (breach of the noncompetition provision) and Count V (tortious interference with business relations) and
DENIED as to Count II (breach of the return of property provision) and Count VI (violation
27) A close examination of this statute raises two interesting questions. First, does the information
allegedly accessed by Bickley and Robinson constitute a trade secret, as that term is defined in
KUTSA? Second, in the absence of an enforceable non-disclosure clause, do Bickley and
Robinson owe any such duty to Plaintiffs? Because these issues have not been sufficiently
developed in the record, the Court will simply assume, without deciding, that some of the allegedly
accessed information includes trade secrets and that Bickley and Robinson still owe a duty to
Acuity Lighting. Even so, there is nonetheless a genuine issue of material fact as to whether
Bickley and Robinson misappropriated those trade secrets in violation of KUTSA.
37
of the Kentucky Uniform Trade Secrets Act);
(2)
Defendant Delta T Corporation’s Motion for Summary Judgment (Doc. # 121)
is hereby GRANTED as to Count VII (tortious interference with contractual relations);
(3)
Delta T Corporation is hereby DISMISSED as a party to this action, as the
Court has adjudicated the sole claim against it; and
(4)
The remaining parties to this action shall file a Joint Notice of available pre-
trial and trial dates within twenty (20) days of the date of entry of this Order.
This 24th day of March, 2016.
G:\DATA\Opinions\Lexington\13-366 MOO Granting MSJ in Part.wpd
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