Covenant, Shmovenant? Ten-Year Nationwide Non-Compete In Asset Purchase Agreement Forms The Basis For Tortious Interference With Contract Claim

Author:Ms Erin Cornell Horton
Profession:Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
 
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Once again we are reminded that covenants not to compete given in connection with the sale of a business are an entirely different species from the employment kind. Last week, in Oros & Busch Application Technologies, Inc. v. Terra Renewal Services, Inc., a federal district court in Missouri refused to dismiss an asset buyer's claim for tortious interference with an asset purchase agreement's non-compete provision on the grounds of unenforceability even though the covenant restricted the seller from certain activities for a ten-year period.

The federal court found that the non-compete was not necessarily unenforceable even though it extended for ten years and throughout the entire United States, because, unlike a non-compete in an employment agreement, this non-compete was negotiated between a buyer and seller on equal footing and in exchange for the purchase price of the company - including the sale of the goodwill — and assumption of its debt.

Environmental clean-up company Oros & Busch Application Technologies, Inc. ("Oros & Busch") sought to break into the southwestern Missouri and northern Arkansas markets, which its competitor Terra Renewal Services, Inc. ("Terra") had long dominated. Key to its plan was the purchase of the goodwill of Clear Creek Environmental, Inc. ("Clear Creek"), a failing and indebted company owned by former Terra employees Charles Golden and Gabriel Timby. As part of the asset purchase, Oros & Busch agreed to pay $399,000 for Clear Creek's assets and to pay down Clear Creek's debt. In exchange, Golden and Timby agreed to work for Oros & Busch, using their...

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