Delaware Business Litigation Report

Chancery Denies Preliminary Injunction Based Upon Overbroad Restrictive Covenants

FP UC Holdings, LLC v. Hamilton, C.A. No. 2019-1029-JRS (Del. Ch. Mar. 27, 2020).

A party seeking a preliminary injunction must demonstrate a likelihood of success at trial. In a breach of non-compete action, this burden may not be met when economically unjustified restrictive provisions are “too broad as they would essentially prevent Defendant from operating … anywhere in the United States.”

Plaintiff, an operator of an urgent medical care business in Tennessee, sought to enjoin a former employee, Defendant Hamilton, from operating a competing business just across the Alabama border and from litigating a prior-filed Alabama case involving the parties’ relationship. The Court denied both requests.

The Court held that the non-compete clauses that Plaintiff wanted to enforce were too broad under Delaware law (the law chosen by the parties’ agreement) because the clauses purported to bar Defendant  from “directly or indirectly” owning, managing, or working in any urgent care facility “anywhere in the United States where Fast Pace currently operates or proposes to operate.” The Court found that, while such provisions may be enforced under Delaware law when they are entered into as part of a sale of a business, here Plaintiff had not established a strong enough economic interest to justify the non-compete’s geographic scope, and the Court declined to rewrite the non-compete at the preliminary injunction stage. Thus, the Court could not conclude that Plaintiff was likely to be successful on the merits, a necessary requirement for a preliminary injunction.

The Court also held that Plaintiff waited too long to enforce forum selection provisions in its agreements with Defendant. Plaintiff did not request an anti-suit injunction in its Delaware complaint, and in Alabama, Plaintiff filed a motion to dismiss and litigated Defendant’s motion for summary judgment. Given that the Alabama court had already decided both motions and dismissed some of Defendant’s contractual claims, the Court concluded an anti-suit injunction would be neither equitable nor practical.

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