$40 Million In Sale of Business Held Sufficient Consideration for Non-Compete
A federal court in Minnesota has rebuffed a plea by the founders of medical device company Rochester Medical to invalidate five year non-competes they signed in connection with the sale of their business to C.R. Bard, Inc. Conway v. C.R. Bard, Inc. (D. Minn. Feb. 12, 2015). Plaintiffs argued that the non-competes were invalid for lack of consideration because the per-share price they received for their stock, $20, was the same as the per-share stock received by other shareholders who did not have non-competes. A U.S. District Judge in the District of Minnesota dismissed the lawsuit. It noted that C.R. Bard was not wiling to purchase the company at the agreed upon price without the non-competes and therefore at least a portion of the price per share reflected consideration for the restrictions. That Plaintiffs received only “part” of this consideration, it held, was immaterial. (The Court noted that Plaintiffs were possibly paid as much as $40 million in the transaction, and certainly over $10 million.)
The court’s dictum that the “amount of consideration received by the Conways is immaterial as long as they received some consideration” may be misleading, however. Minnesota Courts will not necessarily enforce a non-compete entered into for token consideration (the mythological peppercorn) and may inquire into the adequacy of consideration in certain circumstances.
The Court noted that the Plaintiffs mentioned “blue penciling” in their moving papers, but not in their complaint, and held that the complaint did not “come close to adequately pleading a blue pencil claim.” The take away, at least in this Court, is that if a plaintiff seeks blue-penciling, he or she must specifically ask for this relief in the complaint.