An important consideration when buying a business, whether via a stock purchase agreement or an asset purchase agreement, is whether the seller will take the sale proceeds and start a new, competing business. Typically, the seller would have a competitive advantage in competition with the new buyer of the business, due to such matters as customer goodwill, positive name recognition in the industry, and know-how concerning the operation of the business. Accordingly, many buyers of businesses will demand a non-compete covenant to bar the seller (or his agents) from competing against the buyer within a reasonable geographic scope and time-period. Florida law is deferential to such non-compete covenants in the context of a business purchase. Peter Mavrick is a Miami business litigation attorney, and represents clients in business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.
Florida law, at Section 542.335(1)(d)(3), Florida Statutes, states in pertinent part:
“In the case of a restrictive covenant sought to be enforced against the seller of all or a part of:
a court shall presume reasonable in time any restraint 3 years or less in duration and shall presume unreasonable in time any restraint more than 7 years in duration.” Florida courts provide great deference to restrictive covenants enforced by buyers of businesses. The Supreme Court of Florida in W. Shore Rest. Corp. v. Turk, 101 So.2d 123 (Fla. 1958), quoting prior precedent in Wilson v. Pigue, 10 So.2d 561 (Fla. 1942), explained that the “purchaser of the good will of a business and its goods is entitled not only to the protection of customers and patrons, but to enter the field of competition unhampered by the adverse influence of the seller.” In Massari v. Salciccia, 136 So. 522 (1931), the Supreme Court of Florida explained that parties to the sale of a business are free to enter agreements “which have for their object the removal of a rival and competitor in a business.”
In this vein, Florida’s Fourth District Court of Appeal in USI Insurance Services of Florida, Inc. v. Pettineo, 987 So.2d 763 (Fla. 4th DCA 2008), ruled in favor of the buyer of an insurance agency seeking enforcement of a non-compete covenant. The buyer filed a motion for entry of a temporary injunction against the seller of the business, to bar the seller from competing against the business that the buyer had purchased. The non-compete provision prohibited the seller from participating in, “without limitation, the providing of (i) insurance agency and brokerage, and related insurance services … (ii) managed care consulting services and related legal assistance; (iii) human resource and employee compensation consulting services and related legal assistance; and (iv) any insurance or financial services relating to any of the foregoing.” The appellate court reversed the trial court’s denial of the business purchaser’s motion for a temporary injunction, and instead mandated that the trial court enter a temporary injunction in favor of the purchaser. USI Insurance Services stated in pertinent part: “We emphasize the important distinction between a non-compete provision in an asset purchase agreement and one that is incidental to an employment agreement. In the former, the non-compete provision is part and parcel of the sale of the business. In the latter, it is an incidental condition of employment … As a purchaser of the assets and goodwill of a business, the buyer has a legitimate business interest in preventing the seller from servicing even former clients who are currently not seeking a policy large enough to meet the new minimum dollar amount established by the buyer.”
Peter Mavrick is a Miami business litigation lawyer, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.