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Lenders reach $20 million breach of contract settlement

Capital One Financial Corp. and BankUnited Inc. have reached a settlement in the amount of $20 million regarding a breach of contract dispute. Capital One alleged breach of contract by BankUnited's Chairman and CEO, as well as its Vice Chairman, regarding non-compete agreements signed back in 2007.

Under the settlement agreement, BankUnited will now be prevented from opening branches up in New York, New Jersey, or Connecticut until Jan. 31, 2013, when the non-compete provisions expire.

Further, BankUnited is also barred from soliciting customers of Capital One until Jan. 31, 2013. It is also reported that the company must operate Herald National Bank as an entirely separate entity until that time.

In the meantime, neither executive nor BankUnited may open a bank branch in New Jersey and the three state metropolitan area. Under the settlement, however, neither of the BankUnited executives admitted to any actual breach of contract or wrongdoing on their parts.

The breach of contract dispute apparently erupted in June 2011, when BankUnited (based in Florida) made the move to buy Herald National -- something that would allow them to enter the New York area market. A month later, Capital One alleged breach of contract by the two BankUnited executives, who had previously worked for Capital One. They had apparently signed non-compete agreements which prohibited them from competing with their former company for a period of five years.

Ironically, the original non-compete agreements would have reportedly ended in August of this year. BankUnited was not originally a party to the federal lawsuit, but sought to join the settlement, presumably to protect its top executives. Its participation was pending approval of the U.S. District judge hearing the breach of contract claim.

The executives apparently received restricted Capital One shares of $24 million and $18 million. The shares vested immediately upon execution of the non-compete agreements that were at issue in the current litigation.

Many employers require new employees to agree to a non-competition agreement when they are hired into a position. However, the agreement doesn't usually take effect unless the employee leaves the company. Non-compete agreements are beneficial for employers for several reasons. The agreement can protect companies' trade secrets, prevent the pursuit of customers if an employee leaves and for financial institutions like the ones in this case, it can prevent direct competition between two similar business entities in close proximity to one another.

Source: Bloomberg, "Capital One Settles With BankUnited, CEO Kanas for $20M," Dakin Campbell, June 19, 2012

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