Court Grants Reconsideration in Acordia LLC v. Fishel.

Update: On October 11, 2012, the Supreme Court of Ohio reversed its original decision in this case.  Read the analysis of the new merit decision here.

On July 25, 2012, the Supreme Court of Ohio granted reconsideration in the case of Acordia of Ohio, LLC. v. Fishel. Previously, the high court had held in the merit decision that a non-compete agreement signed by employees of a company that changes form or is merged out of existence passes by operation of law to the new company, but because of the language in this particular agreement, the non-compete agreements had expired as to all the employees involved in this case. Thus, the successor company could not enforce the agreement after the merger as if it had stepped into the shoes of the original company.

The vote to reconsider the case was 6-1, with Justice Pfeifer dissenting.  That is interesting because the merit decision was a 4-3 decision, with Justice Pfeifer concurring in judgment only. It is also interesting that this case has no syllabus, which should make reconsideration easier.

Motions for reconsideration are seldom granted. They are supposed to call the Court’s attention to an obvious error in its decision or raise an issue for consideration that was either not considered at all or was not fully considered by the Court when it should have been. It is definitely not just to re-hash the same old stuff.

In the briefs requesting reconsideration of this case, Acordia urged the Court to adopt Justice O’Donnell’s dissenting opinion. O’Donnell would have accepted the proposition of law proposed by Acordia, which is that a noncompete agreement is an asset of the company that passes by operation of law in a merger to the surviving entity, and is enforceable by the new entity as if it were a signatory to the original agreement.

In its motion for reconsideration, Acordia wrote “the lead opinion has rewritten the Ohio merger statutes, misinterpreted the General Assembly’s clear intent and abandoned century old precedents governing statutory mergers….it abandons the predictable and consistent complementary principles of corporate law: (1) a merger is not an assignment; and (2) the surviving company is a continuation of the constituent companies in a new shell.”  Acordia argued that the majority opinion had repudiated the fundamental principle of corporate continuity, which will cause uncertainty for both businesses and employees.

Acordia had heavy fire-power in its request for reconsideration.  The Ohio Chamber of Commerce and a number of other businesses also filed for reconsideration as amici in support of Acordia.  Here’s the flavor of their position:

“The heart of this case is a simple question: when a lawyer drafts a competition agreement for a corporate client, does the lawyer need to include “successors and assigns” language or not… [S]ince this Court issued its decision in this case, the Internet has been filled with advice and reminders to lawyers to include such language when drafting all their employment agreements and other corporate contracts.”

These business amici argued that if the Court were “writing on a blank slate” it might very well be fair to require all corporations to include “successors and assigns” language in their contracts in order for them to be enforceable by the successor company in the case of a merger. BUT under the Ohio constitution it is the legislature, not the Court that has the power to establish and modify state law AND the legislature has made it very clear that such language is not necessary when a corporation goes through a statutory merger.

One of my colleagues at the University of Cincinnati College of Law, Sean K. Mangan, joined by Professor John A. Barrett Jr. of the University of Toledo College of Law, also filed an amicus brief in support of reconsideration. Both teach in the field of transactional law. Both stated their sole interest in the case “is the consistency of the law governing mergers in Ohio.” They argued that the lead opinion has abandoned a fundamental principle of Ohio merger law, which is that the “the constituent entity becomes part of the surviving entity, with the latter acquiring all rights of the former by operation of law,” but that now, “a merger under Ohio [law] results in the cessation, not continuation, of the constituent companies” with dire consequences for both employers and employees, set forth in specifics the brief.

As I previously indicated, I was a paid appellate consultant for Acordia on this case, but I had nothing to do with the reconsideration motions.

Fishel and the other employees involved in this case of course opposed the motion for reconsideration, making three points: that Acordia did nothing but re-argue its merit brief, that the lead opinion was correct, and that “the parade of horribles that appellant claims will result from the lead opinion is animated only by appellant’s mischaracterization of the lead opinion’s holding.”

When a motion for reconsideration is granted, the Court can go in a new direction. Here’s an example. In 2006, in State ex rel. Gross v. Indus. Comm., the Supreme Court of Ohio denied workers’ compensation benefits to a sixteen year old Kentucky Fried Chicken employee who had burned himself severely when he tried to clean the pressure cookers with boiling water despite having been warned several times not to do this by his supervisor, by fellow employees, and by a safety rule in the employee handbook. The Court found that Gross’ disregard of safety rules and warnings constituted a voluntary abandonment of his job, and thus he was not entitled to his workers’ compensation benefits.  But the Court, apparently concerned that its decision reintroduced fault into the fault-free workers’ compensation system, granted reconsideration in the case, and then reversed itself less than a year later. While acknowledging that KFC was justified in firing Gross, the Court found that his termination letter established that his discharge was related to his workplace injury, and was thus involuntary, entitling him to benefits.

I don’t know if the high court in Acordia will do the same kind of 180 it did in the Gross case. But there is precedent for that.

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