Chancery Acknowledges Non-Competes Treated More Skeptically in Recent Decisions

The case Sunder Energy, LLC v. Jackson, C.A. No. 2023-0988-JTL relates to non-compete covenants contained in an LLC operating agreement.   In November, the Court of Chancery denied a preliminary injunction enforcing the covenants.    In Delaware, appeals to the Supreme Court are as-of-right, but only when a case is fully decided — a party appealing a preliminary injunction denial is almost always told to wait, unless the trial court “certifies” an immediate appeal.  The Sunder Energy plaintiff asked the trial court to do just that, and late last month, Vice Chancellor Laster took the rare step of granting certification.

In his 35-page opinion explaining why he was certifying the appeal, the Vice Chancellor addressed, among other points, the plaintiff’s argument that “over the past few years, there has been a growing trend that disfavors restrictive covenant litigation in the Court of Chancery.”

That recent trend has been visible on this blog — last year, we discussed a case where the Court refused to apply Delaware law despite a contractual choice-of-law clause in a covenant when the covenant was contrary to fundamental policy of the state of employment, and another where the Court refused to ‘blue pencil’  an overly-broad covenant into a narrower, more reasonable one.

The Vice Chancellor acknowledged that the plaintiff’s “impression is not unfounded,” and agreed that the decisions of the last decade have shown greater skepticism towards non-compete covenants than the older cases, though reckoning the difference as only “a matter of degree.”  While explaining that the trend against covenants was not itself a a major factor in his decision to certify immediate appeal, the Vice Chancellor agreed that the Delaware Supreme Court’s review would be important and clarifying.

The Delaware Supreme Court gives ‘great weight’ to a trial court’s certification for an immediate appeal, and is often attentive to questions the trial court specifically identifies as needing the higher court’s guidance.  Sunder Energy is likely to give us the authoritative word on non-competes in Delaware.  Watch this space — we will keep you informed on the Supreme Court’s decision whether to accept the immediate appeal, and of any subsequent decision.


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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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