Opinion ID: 2139960
Heading Depth: 1
Heading Rank: 9

Heading: Effect of Merger

Text: Pearson and Midlands argue that A & A's rights under the non solicitation agreement were not assignable and that therefore, Aon had no right to enforce the agreement. Aon argues, and the district court held, that it acquired the right to enforce the agreement by operation of law as a result of the 1997 merger. The record includes documents pertaining to the merger which were received without objection. The Agreement and Plan of Merger expressly states that it is to be governed by the law of the State of Maryland, specifically the General Corporation Law of the State of Maryland. The receipt of this evidence placed Pearson on notice that Maryland law governed the merger, and we therefore take judicial notice of the law of that state. [9] The merger agreement specifically provides that the [m]erger shall have the effects set forth in Section 3-114 of the [Maryland statutes]. Under that statute, the assets of each party to the merger transfer to, vest in, and devolve on the successor without further act or deed. [10] Assets in this context are defined as any tangible, intangible, real, or personal property or other assets, including goodwill and franchises. [11] Although no reported Maryland decision has applied these statutes to the question presented here, other state courts applying similar statutory language have concluded that a covenant not to compete is an asset which is transferred to and vests in the surviving entity of a merger by operation of law. [12] In UARCO Inc. v. Lam, [13] the applicable Hawaii statute provided that after a statutory merger, the surviving corporation possessed `all of the rights, privileges, immunities, and franchises.' The court held that under this statute, a successor corporation could enforce a noncompetition agreement entered into by the corporation acquired by merger. The court reasoned that although such agreements were not assignable under Hawaii law, the enforcement right of the successor corporation passed by operation of law. Similarly, in Corporate Exp. Office Products v. Phillips, [14] the applicable statute provided that after a merger, `[t]he title to all real estate and other property, or any interest therein, owned by each corporation party to the merger is vested in the surviving corporation without reversion or impairment.' Based on this language, the court concluded: [T]he surviving corporation in a merger assumes the right to enforce a noncompete agreement entered into with an employee of the merged corporation by operation of law, and no assignment is necessary. This is because in a merger, the two corporations in essence unite into a single corporate existence. [15] Likewise, in Alexander & Alexander, Inc. v. Koelz, [16] the court reasoned that after a statutory merger, the surviving corporation succeeded to all the rights and liabilities of the preceding corporation under the applicable statutes, and thus the survivor could enforce a noncompetition agreement. Pearson urges that we follow the reasoning of Smith, Bell & Hauck v. Cullins. [17] In that case, the Supreme Court of Vermont held that the purchaser of the assets of an insurance agency could not enforce an agreement not to compete between the former owner and an employee. A Vermont statute provided that in the event of a transfer of assets by sale, merger, or consolidation of different corporate entities, the acquiring corporation shall possess all the rights, privileges and benefits of the original corporation properly exercisable under the laws of [Vermont]. [18] The court reasoned that because the agreement was personal to the original parties, it was incapable of effective assignment and therefore not properly exercisable by the new owner under Vermont law. We are not persuaded by this reasoning, primarily because the Vermont statute differs substantially from the Maryland statute which governs the effect of the corporate merger by which Aon acquired A & A. We agree with those cases which hold, under statutes similar to Maryland's, that a covenant not to compete is an asset of a corporation which passes by operation of law to a successor corporation as the result of a merger, regardless of whether the agreement would otherwise be assignable. Accordingly, by virtue of the merger, Aon succeeded to A & A's right to enforce its nonsolicitation agreement with Pearson.