A Non-Compete Agreement—Not Including An Arbitration Clause—Superseded An Earlier Signed Dispute Resolution Agreement—Including An Arbitration Clause, So The Court Did Not Compel The Parties To Arbitrate Their Disputes - Arbitration & Dispute Resolution

Abstract

An Ohio federal court found that, although a non-compete agreement provided an option to arbitrate a dispute, a later non-compete agreement with no requirement to arbitrate superseded the first agreement, so the parties were not required to arbitrate their disputes but could litigate them in court.

Background

Axcess, whose parent company is CNG Financial, employed an individual named Brichler. During Brichler's time at Axcess, he executed several non-compete agreements because his position-Chief Technology Officer (CTO)-provided him access to sensitive information.

In 2020, Brichler executed a first set of agreements-a Non-Compete Agreement ("2020 NCA") and a Dispute Resolution Agreement ("2020 DRA"). The 2020 NCA, among other things, prohibited Brichler from obtaining employment with Axcess' competitors. In addition, the 2020 NCA referenced the 2020 DRA, which governed avenues for arbitration and mediation. More specifically, the 2020 DRA empowered either Axcess or Brichler to force arbitration or mediation for any statutory, tort, contractual, or equitable claims.

In 2021, Brichler executed another Non-Compete Agreement ("2021 NCA"), which, unlike the 2020 NCA, did not reference any dispute resolution agreement. More specifically, the parties agreed that (1) any dispute related to breach of the terms of the 2021 NCA would exclusively be litigated in a state or federal court of competent jurisdiction, (2) Axcess would be entitled to obtain a restraining order or other equitable relief from any court of competent jurisdiction to restrain any breach of the 2021 NCA, and (3) the 2021 NCA contained all agreements between the parties and replaced all previously signed agreements.

Shortly after signing the 2021 NCA, Brichler left Axcess to join Lendy-a competitor. Axcess filed a motion for a preliminary injunction alleging Brichler violated the 2021 NCA. Relying on the 2020 DRA, Brichler filed a motion to compel arbitration and dismiss the action.

The CNG Financial Decision

The central issue was whether the parties had a valid agreement in the 2021 NCA to arbitrate the dispute. In analyzing a contract dispute involving several agreements, courts look to the intent of the parties to ascertain whether an earlier agreement can be rejected in favor of a subsequent agreement. In particular, the court will look to all the agreements to determine if the last agreement was a complete or integrated agreement. An agreement may be complete or integrated when it contains a merger clause, which indicates the parties' intention that (1) the agreement be complete in the subject matters agreed upon and (2) addresses how the subject matters agreed upon would be enforced.

Here, the court found that the 2021 NCA contained an acknowledgment that Axcess could obtain an injunction from a court of competent jurisdiction to restrain any breach of the terms of the agreement by Brichler. Furthermore, the 2021 NCA stated that any dispute among the parties related to compliance with or breach of any terms of the agreement would be exclusively litigated in a state or federal court of competent jurisdiction. As such, although the 2020 DRA provided the parties with the option to pursue arbitration for a dispute, the 2021 NCA did not reference any other agreements addressing dispute resolution, nor did it contain any terms related to arbitration. Thus, the court concluded that the 2021 NCA was complete and superseded the 2020 DRA because it addressed the relevant subject matter of the dispute and contained no arbitration clause.

Brichler argued the 2021 NCA did not supersede the 2020 DRA because the 2021 NCA contained only one provision addressing how any dispute could be exclusively litigated in a state or federal court. And according to Brichler, that single provision was merely an exclusive venue clause that applied only if the avenues in the 2020 DRA had been exhausted. The court, however, rejected that argument because (1) the 2021 NCA contained more than one provision covering enforcement of its terms, and (2), more importantly, the specific provision Brichler alluded to states "any dispute," which the court found left no room for disputes having failed arbitration. The court also noted that the terms "any dispute" is "litigated" in the 2021 NCA would have overridden the 2020 DRA on their own. Nonetheless, the court restated that the 2021 NCA was a complete agreement superseding the 2020 DRA and NCA.

Brichler also argued that the 2021 NCA agreement should have stated "any dispute shall be exclusively resolved by litigation" if the parties intended it to supersede the 2020 agreements. However, the court rejected that argument because the 2021 NCA did not need to reach that level of specificity to supersede the 2020 DRA and NCA. In the court's view, the 2021 NCA only needed to contain (1) all the subject matters that the parties' agreed to and (2) how those subject matters would be enforced.

Brichler further argued that subjects contained in the 2021 NCA were different from the 2020 DRA, and, as such, the 2021 NCA did not supersede the 2020 DRA. According to Brichler the difference in subjects between the two agreements were ambiguities that the court should have presumed as favoring arbitration. The court also rejected those arguments. First, while the procedural remedy available in the 2020 DRA provided for an employee to arbitrate a non-competition agreement, and the 2021 NCA provided for Axcess to seek an injunction to enforce any dispute exclusively through litigation, the court found that both agreements covered the enforcement of the same subject matters-non-competition agreements. Second, since both agreements covered the same subjects, there were no ambiguities leading to factual disputes requiring the presumption in favor of arbitration. The court explained that during discovery, the parties did not have any factual dispute on the issue of an agreement to arbitrate; therefore, the presumption for arbitration did not apply.

Having found the 2021 NCA complete without a valid agreement to arbitrate, the court denied Brichler's motion to compel arbitration or to dismiss.

Strategy and Conclusion

Multiple agreements covering related or similar issues, may change the results intended by the individual agreements. So it can be helpful to consider integrating the agreements.

Further Information

The CNG Financial decision can be found here.

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