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Banking & Finance Law Report

Ohio Supreme Court Reconsiders Acordia and Partially Reverses Itself

Posted in Corporate Law

Bankers and other financial institution executives may find it of interest that the Ohio Supreme Court recently granted a motion for reconsideration in a widely-reported, much-criticized decision concerning the enforcement of non-competition agreements, a subject that is almost always of interest. 

Essentially, in the first case the Court reasoned that a successor to a corporate merger could not enforce a  contract that pre-existed the merger.  Such reasoning came as a surprise to many observers.  The new decision is Acordia of Ohio, L.L.C. v. Fishel, 2012-Ohio-4648. A summary of the Court’s decision can be found here.

The Court now stated that it had previously – and erroneously – mis-read Ohio precedent regarding the legal effect of a corporate merger.

Here’s an excerpt:

"Upon further consideration, we now recognize that the lead opinion’s reading of Morris [v. Investors Life Insurance Co.] was incomplete. While Morris does state that the absorbed company ceases to exist as a separate business entity, the opinion does not state that the absorbed company is completely erased from existence. Instead, the absorbed company becomes a part of the resulting company following merger. The merged company has the ability to enforce noncompete agreements as if the resulting company had stepped into the shoes of the absorbed company. It follows that omission of any ‘successors or assigns" language in the employees’ noncompete agreements in this case does not prevent the L.L.C. from enforcing the noncompete agreements.

While we now hold that the L.L.C. may enforce the noncompete agreements as if it had stepped into each original contracting company’s shoes, we agree with Justice Cuppa’s assertion in his dissent in Acordia I that even though the agreements transfer to the L.L.C. by operation of law, the transfer does not ‘foreclose appropriate relief to the parties to the noncompete agreement under traditional principles of law that regulate and govern noncompete agreements.’ … In other words, the employees still may challenge the continued validity of the noncompete agreements based on whether the agreements are reasonable and whether the numerous mergers in this case created additional obligations or duties so that the agreements should not be enforced on their original terms.

The language in Acordia I stating that the L.L.C. could not enforce the employees’ noncompete agreements as if it had stepped into the original contracting company’s shoes or that the agreements must contain ‘successors and assigns’ language in order for the L.L.C. to enforce the agreements was erroneous. We hold that the L.L.C. may enforce the noncompete agreements as if it had stepped into the shoes of the original contracting companies, provided that the noncompete agreements are reasonable under the circumstances of this case. We accordingly reverse the judgment of the court of appeals and remand this cause to the trial court so that it may determine the reasonableness of the noncompete agreements." (Emphasis supplied.)