Freeman Industrial Products, L.L.C. v. Armor Metal Group Acquisitions, Inc.
193 Ohio App. 3d 438
| Ohio Ct. App. | 2011Background
- Freemans sold VIP assets to Victory Delaware under an Asset Purchase Agreement for $6,249,715 and signed restrictive covenants (noncompete, non-solicit, confidentiality, and relationships).
- Batavia lease: Victory Delaware agreed to a 12-year lease totaling about $6.65 million, included in APA Schedule 1.3(i) and Exhibit C, to support VIP operations and the covenants.
- Freemans remained employed initially; they later terminated in July 2008 and reaffirmed the covenants in termination agreements, while Dale pursued other employment and Bonnie stayed home.
- Victory Delaware dissolved in 2010, transferred assets to a trustee, defaulted on the Batavia lease, and left the Freemans exposed to a multi-million-dollar personal liability.
- Armor Metal acquired Victory Delaware’s IP, including the Freemans’ covenants, for $30,000, and sought a preliminary injunction against the Freemans and others for covenant breaches.
- Trial court granted the injunction; on appeal, the court held the Freemans and counterclaim defendants were not bound by the covenants, vacating the injunction and reversing the judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the covenants enforceable against Freemans under the APA? | Freemans: covenants are integral to APA and survive VD breach. | Armor Metal: covenants bind Freemans regardless of VD breach and assignment status. | Not enforceable; covenants not binding on Freemans. |
| Are Batavia lease terms divisible from the APA so a breach does not excuse covenants? | Lease and covenants were an integrated single package driving the deal. | Terms could be severed; covenants survive independently. | Not divisible; integrated terms. |
| Was VD’s breach of the Batavia lease a material breach excusing performance of covenants? | Breach undermines consideration and excusing covenants. | Materiality depends on contract terms and remedial options. | Material breach found supporting non-enforceability. |
| Did the termination agreements supersede the APA’s assignability and covenants? | Termination agreements do not supersede APA; assignment could be limited but covenants remain under APA. | Termination agreements supersede or alter rights, including assignability. | Termination agreements did not supersede APA; covenants not assignable to Armor Metal. |
Key Cases Cited
- Procter & Gamble Co. v. Stoneham, 140 Ohio App.3d 260 (Ohio 2000) (injunction standard and four-factor analysis)
- Ohio Edn. Assn. v. Lopez, 2010-Ohio-5079 (Ohio 2010) (Restatement-based material breach considerations)