The Acordia of Ohio v. Fishel case has taken an unexpected turn, as the Ohio Supreme Court has granted a request for reconsideration of its May 24, 2012 decision in which it refused to enforce a non-compete in the context of a corporate merger or reorganization because of the perceived shortcomings in the language of the non-competes before it. Former Appellate Judge Marianna Brown Bettman has a very thorough and excellent post of this highly unusual decision in her Legally Speaking Ohio Blog, which closely monitors proceedings before the Ohio Supreme Court.
For those not familiar with the decision, the Acordia case involved an effort by a company to enforce a non-compete against several former employees who had signed covenants not to compete with a corporate predecessor. However, the non-competes in question did not specifically include language or provisions making clear that assignees or corporate affiliates were covered by the non-compete. The trial court, the First Appellate District (the court of appeals for Hamilton County, which includes Cincinnati) and ultimately the Ohio Supreme Court, all applied the specific language of the non-compete and found the failure to include language that applied the non-compete to assignees, successors or affiliates doomed its enforcement. Acordia had relied on an Ohio statute that provided that by operation of law all assets of the merged company transfer to the acquiring or new company.
The decision has apparently caused great consternation in the business community. Judge Bettman notes that Acordia had “heavy fire-power” in support of its request for reconsideration, as the Ohio Chamber of Commerce and a number of other businesses filed for reconsideration as amici in support of Acordia. She quotes the following language: “The heart of this case is a simple question: when a lawyer drafts a competition agreement for a corporate client, does the lawyer need to include “successors and assigns” language or not… [S]ince this Court issued its decision in this case, the Internet has been filled with advice and reminders to lawyers to include such language when drafting all their employment agreements and other corporate contracts.”
According to Judge Bettman, these business amici emphasized that this is not a mere matter of contract law but, rather that, under the Ohio constitution, it is the General Assembly, not the Supreme Court, that has the power to establish and modify state law and the General Assembly has made it clear that such language is not necessary when a corporation goes through a statutory merger.
The vote to reconsider was 6 to 1, which is intriguing because Acordia was a 4 to 3 decision. It will be interesting to see if any of the justices who voted with the majority are seriously considering changing their vote. Frankly, I am genuinely surprised by this development and I now believe that the Supreme Court may reverse itself and apply the majority rule permitting the transfer of non-competes after a merger or reorganization. I will keep you posted on any further rulings and developments in this important case.