MANAGED HEALTH CARE ASSOCIATES, INC., MHCA ACQUISITION INC., d/b/a MHA/MedEcon v. RONALD KETHAN , EAST TEXAS REGIONAL COOPERATIVE , d/b/a First Choice Cooperative

1
RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2000 FED App. 0143P (6th Cir.)
File Name: 00a0143p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
M ANAGED HEALTH C ARE
ASSOCIATES, INC., MHCA
ACQUISITION INC., d/b/a
MHA/MedEcon,
Plaintiffs-Appellants,
v.
R ONALD KETHAN , EAST
TEXAS R EGIONAL
C OOPERATIVE , d/b/a First
Choice Cooperative,
Defendants-Appellees.
;>

1
No. 99-5444
Appeal from the United States District Court
for the Western District of Kentucky at Louisville.
No. 99-00066—Jennifer B. Coffman, District Judge.
Argued: March 10, 2000
Decided and Filed: April 21, 2000
Before: WELLFORD, SILER, and GILMAN, Circuit
Judges.

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2 Managed Health Care
Associates, et al. v. Kethan, et al.
No. 99-5444
_________________
COUNSEL
ARGUED: William J. Hunter, Jr., MIDDLETON &
REUTLINGER, Louisville, Kentucky, for Appellants. James
D. Cockrum, BROWN, TODD & HEYBURN, Louisville,
Kentucky, for Appellees. ON BRIEF: William J. Hunter,
Jr., Thomas P. O’Brien, III, Dennis D. Murrell,
MIDDLETON & REUTLINGER, Louisville, Kentucky,
Daniel L. Abrams, Louis M. Solomon, SWIDLER, BERLIN,
SHEREFF & FRIEDMAN, New York, New York, for
Appellants. James D. Cockrum, Charles M. Pritchett, Jr.,
BROWN, TODD & HEYBURN, Louisville, Kentucky,
R. Gregg Hovious, TACHAU, MADDOX, HOVIOUS &
DICKENS, Louisville, Kentucky, for Appellees.
GILMAN, J., delivered the opinion of the court, in which
SILER, J., joined. WELLFORD, J. (pp.14-15), delivered a
separate dissenting opinion.
_________________
OPINION
_________________
RONALD LEE GILMAN, Circuit Judge. Managed Health
Care Associates, Inc. and MHCA Acquisition, Inc., d/b/a
MHA/MedEcon (collectively MHA), commenced an action
in state court against Ronald Kethan (Kethan) and East Texas
Regional Cooperative, d/b/a First Choice Cooperative (First
Choice). MHA sought a preliminary injunction to prevent
Kethan from violating the noncompetition clause that he had
signed when employed by MedEcon Services, Inc.
(MedEcon), MHA’s predecessor. After Kethan and First
Choice removed the case to federal court based on diversity
of citizenship, the district court held that the noncompetition
agreement was enforceable only by MedEcon, and that it was
not assignable by MedEcon to MHA without Kethan’s
consent. It therefore denied MHA’s request for a preliminary
No. 99-5444 Managed Health Care
Associates, et al. v. Kethan, et al.
15
issue (and certainly not to the issue I would certify to that
Court). Pertinent to the issue was the unpublished decisions
of the Kentucky trial court and the Court of Appeals which
noted no controlling Kentucky authority on the question of
necessity of consent to a purported assignment by the
employee.
I dissent, accordingly, in favor of certification under the
circumstances.

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14 Managed Health Care
Associates, et al. v. Kethan, et al.
No. 99-5444
_________________
DISSENT
_________________
HARRY W. WELLFORD, Circuit Judge, dissenting. This
is a difficult case and my brothers would reverse and remand
to the district court for further proceedings. I respectfully
differ. I am persuaded that the best course, in light of the
uncertainties that exist in this area of the law in Kentucky, is
to certify this legal question to the Kentucky Supreme Court:
Is the non-competition agreement in this case between
MedEcon and its employee, Kethan, assignable to the
plaintiff company (a third party), in the absence of
Kethan’s consent?
I do not agree with the majority opinion that the district
court “held that non-competition clauses are not assignable in
Kentucky.” Rather, the essence of the district judge’s holding
was this:
[T]he non-compete agreement and the confidentiality
clause applied only to MedEcon and . . ., under W. R.
Grace, they were not assignable to MedEcon to MHA
without the employee’s consent. Reinforcing this notion
is the Kethan/MedEcon agreement’s inclusion of a
requirement that all contract modifications must be
written. No such writing occurred here; thus, MedEcon
did not assign the covenant to compete or confidentiality
clause to MHA.
(emphasis added.)
The majority holds that “a non-competition clause is
assignable in Kentucky.” It adds that “[t]here is only one case
in Kentucky that addresses this issue,” Choate v. Koorsen
Protective Servs., Inc., 929 S.W.2d 184 (Ky. 1996). We are
in agreement that this particular Kentucky Supreme Court
decision did not determine the answer to the assignability
No. 99-5444 Managed Health Care
Associates, et al. v. Kethan, et al.
3
injunction and dissolved the temporary restraining order that
MHA had obtained in state court. For the reasons set forth
below, we REVERSE the decision of the district court and
REMAND the case for further proceedings consistent with
this opinion.
I. BACKGROUND
A. Procedural history
On January 5, 1999, MHA commenced an action against
Kethan and First Choice in the Circuit Court of Jefferson
County, Kentucky. MHA sought and obtained a restraining
order, enjoining Kethan from violating the noncompetition
clause that was part of his employment agreement with
MedEcon.
On February 2, 1999, Kethan and First Choice removed the
action to the United States District Court for the Western
District of Kentucky. Kethan and First Choice then moved to
dissolve the restraining order that MHA had obtained in state
court and opposed MHA’s motion for a preliminary
injunction. On March 4, 1999, the district court dissolved the
restraining order and denied MHA’s request for a preliminary
injunction. In late March of 1999, MHA filed this timely
appeal.
B. Factual background
On December 27, 1991, Kethan signed an employment
agreement with MedEcon, a group purchasing organization
(GPO) for hospitals with its principal place of business in
Kentucky. GPOs contract for the purchase of a vast array of
products for use by member healthcare facilities. They also
enter into agreements directly with suppliers to allow member
facilities to purchase the products at reduced prices, thereby
providing a substantial savings of both time and money for
their members. GPOs also engage in bulk purchasing in order
to provide their members even greater discounts.

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4 Managed Health Care
Associates, et al. v. Kethan, et al.
No. 99-5444
From 1992 through 1996, Kethan worked as a salesman and
an agreement administrator for MedEcon. Kethan’s job
responsibilities included meeting with various representatives
from hospitals and encouraging them to use the products
covered by MedEcon’s agreements. He contacted numerous
representatives in Texas and Oklahoma on MedEcon’s behalf.
During this period, Kethan had the opportunity to develop
strong business relationships with MedEcon’s customers,
including First Choice. Kethan eventually became the
agreement administrator for the First Choice account.
In June of 1998, MHA, which is also a GPO, began
negotiations with MedEcon for the acquisition of MedEcon’s
assets. On September 9, 1998, most of MedEcon’s assets
were purchased by MHA. Included in those assets was
Kethan’s employment agreement. Neither MedEcon nor
MHA obtained Kethan’s written consent to the assignment.
Following the transaction, Kethan continued to be an at-will
employee, performing the same job, receiving the same salary
and benefits, and reporting to the same supervisor.
Twenty days after the sale of MedEcon’s assets to MHA,
Kethan gave thirty-days’ notice of his resignation. Two days
after Kethan tendered his resignation notice, First Choice
ceased using MHA/MedEcon for group purchasing services.
When the thirty days had passed from Kethan’s resignation
notice, he commenced employment with First Choice.
Shortly thereafter, MHA brought suit seeking to enforce
Kethan’s noncompetition agreement with MedEcon.
The noncompetition clause provides as follows:
Employee, during the term of this agreement and for a
period of two (2) years after the termination thereof, will
not do, directly or indirectly, for himself or herself or as
an agent of, or on behalf of, or in conjunction with, any
person, trust, firm, partnership, corporation, or business
organization other than the Company (“Other Firm”), nor
will he or she, directly or indirectly, cause or permit any
No. 99-5444 Managed Health Care
Associates, et al. v. Kethan, et al.
13
Kethan’s reliance on the statement was unreasonable in light
of the contractual requirement that all modifications have to
be in writing. Aside from the fact that there appears to be no
consideration for Irene’s alleged promise, this is exactly the
type of claim that the non-modification clause was designed
to prevent. Accordingly, Kethan’s reliance argument is
unavailing.
E. The district court must balance the equities
Although we have concluded that the district court erred in
dismissing MHA’s motion for a preliminary injunction based
on the legal issues regarding assignability, this leaves
unresolved the factual issues that must be considered. These
issues include (1) the likelihood of success on the merits, (2)
the irreparable harm that could result if the injunction is not
issued, (3) the impact on the public interest, and (4) the
possibility of substantial harm to others. See In re Eagle-
Picher Industries, Inc., 963 F.2d 855, 859-60 (6th Cir. 1992).
Kethan and First Choice strenuously argue that the district
court did not abuse its discretion in refusing to grant the
preliminary injunction because MHA cannot show any
damages and, in any event, could be adequately compensated
by a monetary award. These issues will need to be resolved
by the district court on remand.
III. CONCLUSION
For all of the reasons set forth above, we REVERSE the
decision of the district court and REMAND the case for
further proceedings consistent with this opinion.

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12 Managed Health Care
Associates, et al. v. Kethan, et al.
No. 99-5444
Kethan’s and First Choice’s final argument is based on this
circuit’s decision in W.R. Grace & Co. v. Hargadine, 392
F.2d 9 (6th Cir. 1968), which arguably held that
noncompetition clauses are not assignable under Ohio law.
In the first place, Grace is distinguishable from the facts of
the present case because the court was interpreting Ohio law
as opposed to Kentucky law. Second, the holding in Grace
with respect to assignability is ambiguous at best. The district
court’s decision in Grace actually supports MHA’s position,
because it held that the new employer had the right to enforce
the covenant against the employee for the specified term of
two years. Id. at 19. But because the two-year covenant had
ended in April of 1962 due to a prior corporate change,
however, and because Grace did not acquire ownership until
May of 1964, the district court held that the two-year ban had
already lapsed. Id. This court affirmed the district court’s
decision but, in dicta, stated that noncompetition clauses were
not assignable under Ohio law. Id at 20. Because Grace was
interpreting Ohio law and because the basis for the court’s
decision is unclear, we find that the case is not determinative
in resolving the present action.
Based on the opinions of the lower Kentucky courts in
Choate, the majority rule from the other states that have
addressed the issue, and the additional reasons set forth
above, we believe that the Kentucky Supreme Court would
conclude that noncompetition clauses are assignable.
Consequently, we reverse the district court on this point.
D. Kethan could not reasonably rely on Larry Irene’s
statements
Kethan and First Choice next argue that even if the
noncompetition clause was properly assigned to MHA, MHA
waived its contractual rights or is now estopped from
asserting its contractual rights because its president Larry
Irene allegedly told Kethan that MHA would not enforce the
clause against him. MHA argues that Irene never made such
a statement to Kethan. Even if Irene did so state, however,
No. 99-5444 Managed Health Care
Associates, et al. v. Kethan, et al.
5
Other Firm in which he or she has a proprietary or
financial interest, or of which he or she is a director,
officer, employee, shareholder, partner, or representative,
to do any of the following[:]
a. solicit or cause any past, present or future (up to the
time of the termination of employment) customers (or
members) of the Company or of any of the existing or
future subsidiaries or affiliates of the Company
(“Subsidiaries or Affiliates”) to transfer all or part of
their business from the Company or the Subsidiaries or
Affiliates or render competitive services to any such
customers (or members).
b. induce or attempt to influence any existing or future
employee of the Company or any of the Subsidiaries or
Affiliates to leave such employment; and
c. engage in any of the kinds of business activities in
which the Company or any of the Subsidiaries or
Affiliates have been or is now engaged within the States
of Texas, Kansas, Nebraska, Oklahoma, Colorado, Idaho,
Arizona, Wyoming, and Missouri.
In addition to the noncompetition clause, the agreement
contained a provision requiring that any modifications be in
writing and signed by both parties. The agreement also
provided that any disputes were to be governed by Kentucky
law. No clause in the contract, however, directly addressed
the issue of whether Kethan’s contract could be assigned.
The district court concluded that the assignment of
Kethan’s contract was a modification. Because any
modification had to be in writing, and there was no such
writing, the district court held that Kethan was no longer
bound by the noncompetition clause. The district court also
held that noncompetition clauses are not assignable under
Kentucky law.

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6 Managed Health Care
Associates, et al. v. Kethan, et al.
No. 99-5444
II. ANALYSIS
A. Standard of review
Although this court reviews a challenge to a district court’s
decision regarding preliminary injunctions for abuse of
discretion, see Sandison v. Michigan High School Athletic
Ass’n, 64 F.3d 1026, 1030 (6th Cir. 1995), the two key issues
in this case are questions of law dealing with assignments
under Kentucky law. Neither issue has been directly
addressed by the Supreme Court of Kentucky. “When the
district court construes a contract, such interpretation is a
question of law and reviewable de novo by the appellate
court.” F.D.I.C. v. Aetna Cas. and Sur. Co., 903 F.2d 1073,
1077 (6th Cir. 1990). Our role in this diversity of citizenship
case “is to make [the] best prediction, even in the absence of
direct state court precedent, of what the Kentucky Supreme
Court would do if it were confronted with this question.”
Welsh v. United States, 844 F.2d 1239, 1245 (6th Cir. 1988).
B. An assignment does not modify the underlying terms
of an employment contract
Provision fourteen of Kethan’s employment agreement with
MedEcon provides that “[n]o waiver, alteration, or
modification of any of the provisions of this Agreement shall
be valid unless in writing and signed by both of the parties
hereto.” The first key issue thus becomes whether
MedEcon’s assignment of Kethan’s employment agreement
was a modification of the terms of his contract.
Kentucky courts have not yet addressed the issue of
whether the assignment of an employment contract modifies
the underlying terms of the contract. The Second Circuit,
however, has rejected the notion that an assignment modifies
the underlying terms of a contract:
The fact that the Agreement also provided that its terms
could not be waived or altered without the written
consent of the bank did not justify a departure from the
No. 99-5444 Managed Health Care
Associates, et al. v. Kethan, et al.
11
type of employee for whom noncompetition clauses were
designed. See Central, 622 S.W.2d at 685-86.
Kethan and First Choice respond by arguing that a personal
services contract cannot be assigned. A personal services
contract, however, requires that one of the parties be bound to
render personal services. See generally Kenneth D. Corwin,
Ltd. v. Missouri Medical Service, 684 S.W.2d 598, 600 (Mo.
Ct. App. 1985) (“[T]he duty to perform is not assignable
without the consent of both parties.”). In contrast, a
noncompetition clause only requires that one of the parties
abstain from certain activities. See generally Equifax Servs.,
Inc. v. Hitz, 905 F.2d 1355, 1361 (10th Cir. 1990)
(“Although an employee’s duty to perform under an
employment contract generally is not delegable, . . . the right
to enforce a covenant not to compete generally is assignable
in connection with the sale of a business.”) (citation omitted);
In re Andrews, 80 F.3d 906, 912 (4th Cir. 1996) (“Although
the Thirteenth Amendment prohibits a court from specifically
enforcing a personal service contract, an agreement not to
compete is specifically enforceable if it is reasonable.”).
Here, Kethan was an at-will employee who was free to resign
at any time. Consequently, the noncompetition clause does
not require any affirmative action on the part of Kethan, and
is thus assignable.
Kethan and First Choice further argue that the management
style and “character” changed when MHA purchased the
assets of MedEcon. This, however, is irrelevant to the issue
of whether the noncompetition clause is assignable because
the clause was not tied to the management style or “character”
of MedEcon. In fact, MedEcon could have changed its
management at any time, and Kethan would have still been
bound by the noncompetition clause. Similarly, management
would have changed exactly as it did if MHA had purchased
the stock of MedEcon rather than its assets and, as previously
noted, Kethan would have had no basis to complain.

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10 Managed Health Care
Associates, et al. v. Kethan, et al.
No. 99-5444
In addition to opinions from the lower courts of Kentucky,
this court may use the rule adopted by most of the
jurisdictions that have addressed the assignability issue as
persuasive authority in determining how the Kentucky
Supreme Court would likely decide the question. See Kurczi,
113 F.3d at 1429. With respect to the assignability of
noncompetition clauses, “[a] majority of courts permit the
successor to enforce the employee’s restrictive covenant as an
assignee of the original covenantee (the original employer) .”
6 R ICHARD A . LORD , W ILLISTON ON C ONTRACTS § 13:13
(4th ed. 1995).
MHA also correctly points out that if it had purchased the
stock of MedEcon rather than its assets, MedEcon would have
remained in existence and continued to be Kethan’s employer.
Because no assignment would have been necessary under
such circumstances, Kethan would have had no basis to even
question the enforceability of the noncompetition clause.
Allowing Kethan to avoid his obligations under the
circumstances of this case simply because MHA decided to
structure the transaction as a purchase of assets rather than
stock would exalt form over substance.
The policy behind enforcing noncompetition clauses is to
protect businesses against employees resigning and taking
valued clients with them. See Central Adjustment Bureau,
Inc. v. Ingram Associates, 622 S.W.2d 681, 685-86 (Ky. Ct.
App. 1981). In this case, while working for MedEcon,
Kethan had access to MedEcon’s customer lists. He
eventually became First Choice’s primary advisor. Because
of that, Kethan developed a special business relationship with
First Choice. Shortly after First Choice decided to end its
business relationship with MHA/MedEcon, Kethan ceased
working for MHA and commenced working for First Choice.
The reason that Kethan was able to develop his unique
business relationship with First Choice, and later go to work
for it, was because MedEcon employed him and placed him
in charge of the First Choice account. He is thus precisely the
No. 99-5444 Managed Health Care
Associates, et al. v. Kethan, et al.
7
general New York rule . . . that a parol assignment of a
debt, claim, or chose in action is valid. An assignment
does not modify the terms of the underlying contract. It
is a separate agreement between the assignor and
assignee which merely transfers the assignor’s contract
rights, leaving them in full force and effect as to the party
charged. Insofar as an assignment touches on the
obligations of the other party to the underlying contract,
the assignee simply moves into the shoes of the assignor.
Citibank, N.A. v. Tele/Resources, Inc., 724 F.2d 266, 268-69
(2d Cir. 1983) (citations omitted); accord, Ametex Fabrics,
Inc. v. Just In Materials, Inc., 140 F.3d 101, 107 (2d Cir.
1998) (noting that it is “elementary” that assignments do not
modify the underlying terms of a contract). Those cases
correctly recognize that assignments and modifications are
completely different concepts, and that assignability is not
impacted by “boilerplate” modification provisions.
Based on the reasoning of Citibank and Ametex, we
conclude that the terms of Kethan’s employment were not
modified by the assignment of his contract and the
substitution of MHA for MedEcon. Following the
assignment, Kethan’s contractual rights and duties as an
employee did not change. The only thing that changed was
the entity now entitled to enforce the terms and conditions
that Kethan had previously agreed to when he entered into his
employment agreement. Accordingly, we hold that the
district court erred when it concluded that the assignment of
Kethan’s employment contract modified the terms of his
agreement.
C. A noncompetition clause is assignable in Kentucky
Under Kentucky law, it has long been recognized “that a
contract is generally assignable, unless forbidden by public
policy or the contract itself, or its provisions are such as to
show that one of the parties reposes a personal confidence in
the other, which he would have been unwilling to repose in

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8 Managed Health Care
Associates, et al. v. Kethan, et al.
No. 99-5444
any other person.” Pulaski Stave Co. v. Miller’s Creek
Lumber Co., 128 S.W. 96, 101 (Ky. 1910) (citation omitted).
Kentucky courts have also acknowledged that noncompetition
clauses play a critical role in business and are favored as long
as they are reasonable in geographic scope and duration. See
Central Adjustment Bureau, Inc. v. Ingram Associates, 622
S.W.2d 681, 685-86 (Ky. Ct. App. 1981) (noting that the only
protection for highly specialized businesses against
employees resigning and taking their clients away are
noncompetition clauses); Lareau v. O’Nan, 355 S.W.2d 679,
681 (Ky. 1962) (“[T]he policy of this state is to enforce
[noncompetition clauses] unless very serious inequities would
result.”); Borg-Warner Protective Services, Corp. v.
Guardsmark, Inc., 946 F.Supp. 495, 501 (E.D. Ky. 1996)
(distinguishing Calhoun v. Everman, 242 S.W.2d 100 (Ky.
1951), by noting that “the more modern cases, including those
in Kentucky, place more emphasis on the employer’s
investment in the employee and have evolved an approach
balancing the importance of that factor against the hardship to
the employee and the public interest”).
The second key issue in the present case, however, is not
the general enforceability of a noncompetition clause, but
whether such a clause is assignable under Kentucky law.
There is only one case in Kentucky that addresses this issue.
In Choate v. Koorsen Protective Servs., Inc., 929 S.W.2d 184
(Ky. 1996), an employee was subject to a noncompetition
clause that was silent as to whether it could be assigned. The
assets of the company were later sold, and the seller assigned
the noncompetition clause to the purchaser. Choate, the
employee, argued that the clause was unenforceable because
he did not expressly consent to the assignment. The Jefferson
County Circuit Court rejected this argument and issued an
injunction enforcing the noncompetition clause. This
decision was affirmed by the Kentucky Court of Appeals.
By the time the case reached the Kentucky Supreme Court,
the one-year noncompetition clause had expired by its own
terms. Because the issue was then moot, the Kentucky
No. 99-5444 Managed Health Care
Associates, et al. v. Kethan, et al.
9
Supreme Court declined to address it. Consequently, the only
Kentucky authority on point, as enunciated by both the trial
and the appellate courts in Choate, recognizes that
noncompetition clauses may be assigned as part of the sale of
a business’s assets. “Where a state appellate court has
resolved an issue to which the high court has not spoken, we
will normally treat [those] decisions . . . as authoritative
absent a strong showing that the state’s highest court would
decide the issue differently.” Kurczi v. Eli Lilly & Co., 113
F.3d 1426, 1429 (6th Cir. 1997) (citation and internal
quotation marks omitted). We find no such strong showing,
or indeed any showing at all, in the case before us.
But Kethan and First Choice argue that Choate is
distinguishable because the trial court did not enforce the
noncompetition clause until the original employer had been
joined as a plaintiff. We find this argument unpersuasive,
however, because the circuit court in Choate found that all
contractual rights to Choate’s noncompetition clause were
transferred from Sexton, Choate’s original employer, to
Koorsen, and held that “Koorsen [has] the right to enforce the
covenant not to compete against Choate” without any
reference to Sexton. Consequently, the fact that Sexton was
joined as a party plaintiff had no effect on the circuit court’s
analysis or holding.
Kethan and First Choice also argue that the unpublished
decisions of the Jefferson County Circuit Court and the
Kentucky Court of Appeals cannot be considered because
Rule 76.28(4)(c) of the Kentucky Rules of Civil Procedure
provides that unpublished decisions cannot be cited as
authority. This Kentucky procedural rule, however, is not
controlling in the case before us. See Miller v. Davis, 507
F.2d 308, 313 (6th Cir. 1974) (noting that federal courts may
use their own procedural rules in diversity cases). Instead,
Sixth Circuit Rule 28(g) is the relevant authority, and it does
not preclude this court from considering the persuasive
reasoning of unpublished cases.

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