ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Friday, July 13, 2018

How does a "deemed effective" date affect a non-compete?

A recent case out of New York, Niznick v. Sybron Canada Holdings, Inc., 650726/2018, illustrates how ambiguity can crop up anywhere, sometimes no matter how careful you are; it's difficult to plan for every eventuality. 

The parties had a contract that included a non-competition clause that prohibited competition for five years after Niznick ceased to own any units in the company. Sybron tried to exercise an option to purchase Niznick's units in the company in 2014, but Niznick disputed the validity of Sybron's actions, and the parties engaged in litigation. Eventually, a court concluded that Sybron was permitted to exercise the option and that Niznick's ownership interest terminated as of the 2014 date when Sybron had attempted to exercise its option. After this decision, in 2017, the parties entered into a purchase and sale agreement "deemed to be effective as if the transfer" had occurred in 2014. Niznick also asserted that, therefore, the non-competition clause would expire in 2019--five years after the 2014 date. Sybron contested that reading. 

The parties' previous contracts had referred to the non-compete as "a material part of the consideration" of the agreement. The court, therefore, did not allow Niznick's attempt to minimize its importance. The purchase and sale agreement executed in 2017 stated that Niznick "is the owner" of the units in question (emphasis added). The "deemed to be effective" date was not considered to alter the language of the non-compete, which stated that it would commence when Niznick ceased to own units, which did not happen until the 2017 purchase and sale agreement, regardless of the "deemed effective" date. 

At the time of drafting the non-compete, it was probably thought that it would be pretty clear when Niznick ceased to own the units. Sybron probably did not anticipate that they would have a dispute about the operative date this way. 

 

https://lawprofessors.typepad.com/contractsprof_blog/2018/07/how-does-a-deemed-effective-date-affect-a-non-compete.html

Conferences, Recent Cases, True Contracts | Permalink

Comments

Post a comment

If you do not complete your comment within 15 minutes, it will be lost. For longer comments, you may want to draft them in Word or another program and then copy them into this comment box.