≡ Menu

Recent cases: State requirements, not just intentions; calendar follow-ups; be sure everyone who must sign, does

State requirements, not just intentions

In an Oklahoma case, DXP hired Grubb as an executive. His employment agreement stated that he and DXP intended to set up a new company, of which Grubb would own 10% and have the right to require DXP to buy him out at a price pegged to the value of the company’s business. But the employment agreement didn’t require DXP to form the new company.

Grubb and DXP grew the business but DXP never did form a new company. When Grubb asked DXP to buy out his interest in (what was supposed to be) the new company, DXP refused to do so because there was no new company.

The district court granted summary judgment in favor of DXP on Grubb’s claim for breach of contract. The Tenth Circuit reversed and remanded, on grounds that there was a triable issue whether DXP had breached the implied covenant of good faith and fair dealing. See Grubb v. DXP Enterprises, INC., No. 22-5073, slip op. (10th Cir. Oct. 30, 2023).

Lessons: It would have been better for Grubb:

1.  if Grubb’s employment agreement had required the formation of a new company, not merely stated an intention; and

2.  if Grubb had calendared a follow-up reminder to check on the formation of the new company — as the saying goes (from the nuclear Navy), “you get what you INspect, not what you EXpect.”

Caution: The implied covenant of good faith and fair dealing does not apply uniformly in all jurisdictions — for example, Texas law does not impose a general duty of good faith and fair dealing in contractual relationships; as explained by the Fifth Circuit, such a duty arises only in specific, limited circumstances.1

Be sure everyone who needs to sign, does 

Alabama’s supreme court affirmed summary judgment that an employee’s noncompetition covenant — set forth in a separate, later-signed addendum to the employment agreement — was unenforceable because it was not signed by the employer, whereas a state statute required signature by all parties because of the competition-restraining nature of the agreement. See Amanda Howard Real Estate, LLC v. Lee, No. 1210193, slip op. (Ala. June 30, 2023) (included in today’s Justia update).

  1. See Hux v. Southern Methodist University, 819 F.3d 776, 781-82 (5th Cir. 2016) (affirming dismissal of former student’s tort claim against professor); Subaru of America, Inc. v. David McDavid Nissan, Inc., 84 S.W.3d 212 (Tex. 2002): “A common-law duty of good faith and fair dealing does not exist in all contractual relationships. Rather, the duty arises only when a contract creates or governs a special relationship between the parties.” (Cleaned up, citations omitted.) ↩︎
{ 0 comments… add one }

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.