Hampden Superior Court Refuses to Enforce Non-Competition Agreement Because Asset-Purchase Agreement Breached

When a plaintiff tries to enforce a non-competition agreement, sometimes the defendant will argue that the non-compete should not be enforced because the plaintiff has breached another agreement between the parties. If true, this argument will often work to defeat a request for “equitable relief”—a plaintiff’s request for a preliminary injunction preventing the defendant from working for a competitor, for example—because “he who seeks equity must do equity.”

Ultimately, though, whether a non-compete is enforced at trial sometimes hinges on whether the other agreement and the non-compete are really one agreement, even though they’re separate documents. Judge Jeffrey Kinder of the Hampden County Superior Court recently refused to enforce a non-compete after a trial because the plaintiff breached an asset-purchase agreement with the defendants. See Ace Precision, Inc. v. FHP Associates Inc., No. 09-1084 (Mass. Super. Feb. 24, 2012). The asset-purchase agreement required the plaintiff not to be “in default” of the asset-purchase agreement before the non-compete could be enforced. In particular, the asset-purchase agreement stated that “[t]he shareholders of the SELLER agree to enter into a non-compete agreement with the BUYER providing that so long as BUYER is not in default of this Agreement, the shareholders will not directly or indirectly own and operate a company that directly competes with the business being sold hereunder for 2 years from the date of closing.” (Emphasis added.) When Judge Kinder found that the plaintiff was “in default” of the asset-purchase agreement because the plaintiff failed to pay royalties, he concluded that the non-compete was unenforceable.

The same issue can arise in the employment context, sometimes with a different result. For example, in Intertek Testing Services NA, Inc. v. Dash, 13 Mass. L. Rptr. 530 (Mass. Super. 2001), another Superior Court case, the defendant had an employment agreement and a non-compete with his employer, but he received a separate payment for entering into the non-compete. When the employer breached the employment agreement, the non-compete was still enforceable because it was completely separate from the employment agreement. So employers should fulfill their obligations to their employees or make sure that non-competes are separate from other agreements with their employees before trying to enforce non-competes.      

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