In Navair v. IFR Americas, the Tenth Circuit reversed the district court’s grant of summary judgment to defendants, holding that an extension of time to a distribution agreement should be for a reasonable time even if no specific term is agreed upon by the parties.
Plaintiff Navair, Inc. was the exclusive Canadian distributor for IFR, a military communications equipment manufacturer. Under a long-running series of distribution agreements, when Navair would find a buyer for IFR equipment, IFR would agree to sell the equipment to Navair at a discount, and Navair could then resell the equipment for a profit. In other words, Navair would enter into a purchase and sale agreement with a customer on reliance of a below-fair market value price from IFR and sell the equipment at fair market value to its own customer. But after almost 30 years of this relationship, IFR told Navair that it would not renew their relationship, based in part on allegations that Navair was in violation of its noncompetition clause. Rather than immediately terminating their distribution agreement, however, the parties entered into two open-ended extensions.
Navair and the Canadian Government entered into a purchase and sale contract for IFR equipment a few months after termination of the Navair—IFR agreement. It was unclear if this contract occurred within the extension period, but the district court concluded that it did not. The Tenth Circuit disagreed. Because the parties had agreed to an extension, it reasoned, even though they had not set a specific time for the extension to end, the extension would be in effect for “a reasonable time.”
This case bears noting for two reasons. First, violations of a non-compete, particularly in a business-to-business context, can have other ramifications than simply an injunction or potential damages. Second, companies should be sure that the terms of their agreements are clear and that all essential terms of the contract (including expiration) is clearly conveyed to the opposing party. From the tenor of the Court’s language in remanding the case, it sounds like IFR will learn an expensive lesson.