Successor Companies’ Rights To Seek Injunctive Relief Enforcing A Noncompetition Agreement In Texas Non-Compete Cases

We are blogging on “Non-competes, Trade Secrets, Fiduciary Duties, and the Inevitable Disclosure Doctrine.” Mark Oberti has prepared a detailed paper on all of these issues, which can be found here.

In Dittmer v. Source EDP, Texas, Inc., 595 S.W.2d 877, 881 (Tex. Civ. App.–Dallas 1980, no writ), the Dallas Court of Appeals found that the trial court had not erred in inferring that the plaintiff corporation was the successor-in-interest to the company that had entered the non-compete agreement with the defendant-employee. The district court entered an injunction in the successor’s favor enforcing its predecessor’s non-compete agreement, and the appeals court affirmed on that issue.

There is a limitation, however: Specifically, Texas courts have held that when a business is sold and the covenant not to compete is assigned to the purchaser, the reasonable geographic restriction must be “no larger than to protect the business sold.” Williams v. Powell Elec. Mfg. Co., 508 S.W.2d 665, 668 (Tex. Civ. App.–Houston [14th Dist.] 1974, no writ) (citing Barrett v. Curtis, 407 S.W.2d 359 (Tex. Civ. App.–Dallas 1966, no writ)). In M-I LLC v. Stelly, 733 F. Supp. 2d 759, 795 (S.D. Tex. 2010), Judge Keith Ellison reiterated and applied this rule.

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