Category Archives: Contracts

Contracts

How to Increase the Odds That the Loser “Really Pays”

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Richard A. Talda  by Richard A. Talda

Often, a client seeking our advice asks if they can recover their attorney’s fees in a lawsuit.  We explain that an award of attorney’s fees to a prevailing party only occurs in a few situations:  when a Federal or State law mandates an attorney fee award to the lawsuit’s winner, or when a court, in its discretion, determines that the behavior of the losing party is so egregious that punitive damages and attorney’s fees should be awarded.  We explain that the necessary “egregious behavior” needs to almost rise to the level of criminal activity before a court will even consider a request for attorney’s fees.  While most clients believe that the wrongs done to them by adverse parties are always “criminal” in the sense of being intentional and outrageous, it is rare when a court will award attorney’s fees purely based on bad business behavior.

However, clients can dramatically improve their chances to recover their attorney’s fees by providing a loser pays requirement in their contracts, agreements, purchase orders, proposals, and even in their standard terms and conditions.  These clauses are generally enforceable in court and provide a means for a wronged person to recover attorney’s fees when pursuing the adverse party for damages and compensation.

Critical to enforcement of a loser pays provision is the need to make it part of your contract or agreement.  Therefore, care must be taken in the specific language of such clauses as well as how they are disclosed and agreed to by all of the parties in a business relationship to ensure enforceability.  This is particularly true, if a loser pays clause is found in your terms and conditions.  You should consult your legal advisor as to how best to impose and ensure enforceability of such provisions against other parties with whom you do business.

Protecting Against Unfair Competition: Will Your Company’s Non-Compete Agreements Survive a Merger?

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Marc Fleischauer by Marc Fleischauer

The Ohio Supreme Court recently decided a case about non-competition agreements and the surprising effect of corporate mergers on their enforceability.  The decision changes Ohio law significantly and gives rise to urgent and specific drafting recommendations for employers.

In Acordia of Ohio, L.L.C. v. Fishel, 2012-Ohio-2297 (2012), the Court was faced with a common scenario.  “Company A” had required certain employees to sign restrictive covenants (commonly called “non-compete agreements”) prohibiting solicitation of customers and other competition against Company A for two years following termination of employment.  Company A later merged with “Company B” to form “Company AB.”  The same employees continued working for Company AB for several years after the merger, doing the same jobs with no apparent interruption.

Roughly four years after the merger, the employees quit their jobs at Company AB and joined a competing business.  According to the Court, “They soon used their contacts to recruit multiple customer accounts from [Company AB].  Within six months, 19 customers had transferred $1 million in revenue….”

Company AB sued to enforce the employees’ agreements with Company A, based on the merger and the operation of Ohio Revised Statute § 1701.82.  That statute says that a newly merged company is “vested” in the contractual rights of the original companies “without further act or deed.”  Company AB maintained that it had automatically taken on all the same contract rights originally belonging to Company A.

The Supreme Court decided that indeed Company AB could enforce the agreements as written, but it added a huge caveat that dramatically altered the effect of mergers in Ohio going forward.  The employees had only agreed not to compete with Company A; the agreements did not expressly include similar restrictions against competing with Company A’s “successors and assigns,” which would have included Company AB.  So while Company AB could technically prevent competition with the now-defunct Company A, it was powerless to prevent competition against Company AB, according to the Court.

Further, the Court held that the same merger that had transformed Company A into Company AB was itself was a “termination of employment” event, starting the clock on the employees’ two-year non-competition requirement.  By the time the employees quit Company AB and started competing, any contractual obligations they had owed to Company A had already long expired.

In the current economic climate, corporate mergers and other acquisitions are commonplace as companies seek to consolidate or otherwise change their corporate status.  Often these corporate changes have little or no practical effect on employees, who at most might see a new name on their paychecks.  But with this new Supreme Court decision, employers may be inadvertently giving away their restrictive covenant rights.  To avoid an Acordia outcome, employers should take these steps now:

  • Ensure that non-compete contracts define “company” to include “successors and assigns,” such that employees will remain contractually obligated regardless of what corporate form the employer takes in the future.
  • Draft such agreements to make clear that mere mergers or other legal changes in corporate form do not trigger the post-termination commencement of the non-compete period.
  • If you suspect that the company’s existing agreements are already susceptible to the new Acordia outcome, especially if your company has ever undergone a change in corporate structure, consider amending or rewriting existing agreements with the help of experienced employment counsel.

Ohio Supreme Court Says Noncompete Clock Begins to Run Upon Merger

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In a recent decision, the Ohio Supreme Court determined that the clock begins to run on the noncompetition prohibition in employees’ agreements at the time their employer merges with another entity, not at the time the employees ultimately separate their employment with the surviving entity, years later.

The Court’s 4-3 decision in Acordia of Ohio v. Fishel is significant and controversial. Counsel for Acordia had argued that such a finding would displace over 150 years of well established Ohio corporate law governing the surviving company’s rights to all of the assets and property (in this case employee agreements) of each constituent entity to the merger.  Additionally, at oral argument, one of the dissenting justices asked how the employee agreements at issue differed from any other contract that a constituent company may have had with its customers or suppliers that survived following a merger.

In its decision, the Court was careful to find that the agreements were in fact transferred to the surviving entity in accordance with Ohio law.  However, these agreements only prohibited the employees from competing for a period of two years following their employment with their named employer, Frederick Raugh & Company, not with any successor entity.  Moreover, the Court stated that it was significant that the agreements did not state that they would apply to the company’s “successors and assigns.”  Therefore, the Court narrowly construed  the noncompete language at issue and found  the noncompetition restriction had expired years before the employees left Acordia and took over a million dollars of business to a competitor less than six months after terminating their employment with Acordia.

The Acordia decision points out the importance of having well drafted employee agreements which cover all the bases and provide for contingencies such as  assignment or corporate restructuring.  Additionally, in the event of a merger, the surviving entity would do well to make sure that new employment agreements and restrictive covenants are signed by its employees to protect against the result reached by the lead opinion in Acordia. 

The L. A. Dodgers are Claiming it was an Error

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Merle Wilberding  by Merle Wilberding

Like the players in the baseball world, the players in the legal world want the Golden Glove Award – - going through their careers with no errors. Now it is alleged that the L.A. law firm of Bingham McCutchen LLP is being charged with an error for how it fielded the post-nuptial agreement between Frank McCourt and Jamie McCourt on the ownership of the Los Angeles Dodgers.

The evidence suggests that when the law firm partner prepared the six signed execution copies of the post-nuptial agreement, three of the copies had one set of exhibits that named Frank McCourt as the sole owner of the Dodgers, while the other three copies had a different set of exhibits that were silent on that point.

My first thought when I read this in the Wall Street Journal was, “Who would think that it was okay to delineate the ownership of a multi-million dollar asset (the Dodgers) on an exhibit, and not have it clearly described in the main body of the agreement?”

Then, even with that, how could there be two different sets of exhibits attached to the agreement?

Although post-nuptial property settlements are generally not considered a solution in Ohio, the lesson of the McCourt case would apply equally well in Ohio if it were a pre-nuptial agreement. If in doubt, legal counsel should be consulted.

Here are the discussion points:

• Should Frank McCourt pursue litigation against his law firm and thereby waive the attorney-client privilege?
• Are there evidentiary suggestions to reconcile the inconsistent exhibits?
• Could a post-nuptial agreement be valid in Ohio?
• Is this just another strike against the once-wonderful image of the Dodgers?
• Shouldn’t Gil Hodges be admitted into the Hall of Fame?

Your T&C’s (Terms & Conditions) can limit your liability, improve your chances in litigation and even save money on attorney fees

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Richard A. Talda  by Richard A. Talda

There has been a dramatic rise in legal disputes where a company’s terms and conditions (T&C’s) have been found to control its business relationships with clients, customers and vendors. A review of and appropriate revisions made to T&C’s provide an opportunity to improve your position in disputes in a variety of ways. Depending on your State’s laws, provision can be made to limit your liability, better define (and limit) warranties, require the arbitration of disputes vs. court lawsuits, allocate who pays attorney fees, set up liens in combination with UCC compliance, require that disputes be held in your backyard vs. a far flung customer’s or vendor’s location, limit remedies in the event that you are found to be at fault, etc… I encourage anyone who uses T&C’s in daily business to evaluate them and seek advice as to how an update can better protect your business.