Confusion Reigns In Alabama Sale-of-Business Non-Compete Dispute (Martin v. Battistella)

For some reason, doctors and veterinarians seem to be aggressive litigants in the context of non-compete agreements. The disputes permeate not only the employment context, but also when one of these professionals sells his or her business.

In a "sale-of-business" scenario, non-compete agreements are not cloaked with unequal bargaining positions. When a buyer purchases intangibles or goodwill, a non-compete with respect to certain business or clients can sometimes be implied. More often, however, the non-compete is set forth in the purchase agreement. In addition, longer restrictive periods and more flexibility in terms of scope (both for geography and type of activity) are permitted as necessary to effecutate the integrity of the deal.

The rules in Alabama, however, are a little different. Alabama is one of those states which has a statute governing non-compete agreements. Section 8-1-1(a) of the Alabama Code purports to bar contracts by which anyone is "restrained from exercising a lawful profession, trade or business." The statute creates an exception for employment and sale-of-business non-compete agreements, but does not mention the term "professionals." Alabama courts have, therefore, read the two provisions together as barring non-competes for professionals in the sale-of-business context.

In a recent case involving veterinarians, the court proceeded to hold that a declaratory judgment action against the seller was premature and not ripe because no damage had yet occurred as a result of the veterinary practice she commenced within the non-compete period. The court's decision is curious, because it would have been far easier to hold simply that a veterinarian cannot be subject to a non-compete - as prior case law clearly said. Instead, the court analyzed whether the buyer's payment for goodwill had been impacted, and it concluded there was no evidence yet of any damages.

Apparently, the buyer did not pursue an injunction. That remedy was not discussed in the appeal.

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Court: Supreme Court of Alabama
Opinion Date: 11/26/08
Cite: Martin v. Batistella, 2008 Ala. LEXIS 248 (Ala. Nov. 26, 2008)
Favors: Employee/Seller of Business
Law: Alabama