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From Antitrust Law Daily, September 18, 2015

Noncompete agreement in airport concession joint venture was not an unreasonable restraint of trade

By Edward L. Puzzo, J.D.

A noncompetition agreement between the parties to an airport food concession joint venture was sufficiently limited in duration, geographic scope, and type of business restricted so as to not be an unreasonable restraint of trade under the Michigan Antitrust Reform Act, the federal district court in Detroit has ruled (Midfield Concession Enterprises, Inc. v. Areas USA, Inc., September 17, 2015, Battani, M.).

In 2007, plaintiff Midfield Concession Enterprises, an airport food concession operator, and defendant Areas USA, food provider to the travel and hospitality industry, entered into a joint venture to operate food concessions in Detroit’s Wayne County Airport. The joint venture contained a covenant not to compete. As part of litigation between the parties to the joint venture, Areas USA sought a declaratory judgment that the covenant not to compete should be set aside as an unreasonable restraint of trade.

The court explained that Michigan does not favor noncompetition agreements. State law barred nearly all such agreements until the passage of the 1985 Michigan Antitrust, which expressly permitted reasonable employment noncompetition agreements. Michigan courts have held that noncompetition agreements (other than agreements between employers and employees) are subject to the common-law rule of reason analysis. Under the standards used to evaluate the reasonableness of a covenant not to compete, Areas had to demonstrate only one of the following to prevail: (1) that Midfield was not protecting a legitimate business interest; (2) that the duration of the covenant was unreasonable; (3) that the geographic scope of the covenant was unreasonable; (4) that the covenant was injurious to the public; or (5) that the type of business restricted was unreasonable.

Legitimate business interest. Midfield asserted that it insisted on the covenant not to compete in part to prevent “confidential and sensitive” business information from being used by Areas to gain an unfair competitive advantage in future bidding opportunities. Under Michigan law, this qualifies as a legitimate business interest, the court stated.

Duration. Michigan courts have upheld durations of noncompetition agreements for periods ranging from 6 months to 5 years. In this case, according to its terms, the covenant lasted as long as the joint venture itself lasted, which was to be until the joint venture no longer had the right to operate the concessions or until the agreement was terminated for other reasons. At the time the joint venture agreement was entered into in 2007, the parties knew that the airport concessions would be up for bid in 5 to 6 years, making a noncompetition agreement for shorter than that period effectively useless. Given that fact, and given that the noncompetition agreement did not extend beyond the term of the joint venture, Areas USA failed to show that its duration is unreasonable as a matter of law, the court ruled.

Geographic scope. The geographic scope of this noncompetition agreement was limited to the Detroit Metropolitan Airport. This was not unnecessarily broad and was therefore reasonable, the court ruled.

Injurious to public. There was no assertion by Areas USA that the covenant was in any manner injurious to the public.

Type of business restricted. Whether the type of business restricted is reasonable also hinges primarily on the competitive business interests the non-compete is designed to protect, the court explained. The covenant here limited each party to bidding against each other for food and beverage concessions at the Detroit airport, but permitted each party to bid unilaterally if the other were not interested in bidding. The covenant did not preclude Areas USA from bidding on any of Midfield’s prior interests under any circumstances, but only when Midfield also intended to bid on them. The type of bidding restricted by the covenant not to compete was not unreasonable as a matter of law, the court ruled.

Given the above factors, Areas USA failed to show as a matter of law that the covenant not to compete was an unreasonable restraint of trade.

The case is Civil Action No. 2:14-cv-12174-MOB-RSW.

Attorneys: Wayne E. Walker (Williams, Williams, Rattner & Plunkett, PC) for Midfield Concession Enterprises, Inc. Arthur Thomas O'Reilly (Honigman Miller Schwartz & Cohn LLP) for Areas USA, Inc. and Areas McNamara JV, LLC.

Companies: Midfield Concession Enterprises, Inc.; Areas USA, Inc.; Areas McNamara JV, LLC.

MainStory: TopStory Antitrust MichiganNews

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