Delaware Business Litigation Report

Court of Chancery Finds No Violation of an Enforceable Covenant Not To Compete

American Homepatient, Inc. v. Collier, C.A. No. 274-N, 2006 WL 1134170 (Del. Ch. Apr. 19, 2006). Plaintiff alleged that a former employee of plaintiff breached a confidentiality and non-compete agreement (the "Non-Compete"), that the former employee and his new employer both breached a related settlement agreement (the "Settlement" and collectively with the Non-Compete, the "Agreements"), and that the new employer tortiously interfered with the Non-Compete and prospective business relations. Plaintiff sought damages and injunctive relief. The court concluded that while the Agreements were enforceable, they were not breached by defendants and there was no tortious interference.

Plaintiff is in the business of providing medical equipment and services for individuals' home use. Plaintiff's ex-employee initially worked as a respiratory therapist for plaintiff, but eventually became an account executive. In that capacity, he was hired away by a competitor of plaintiff. Suit was brought to enforce the Non-Compete and the Settlement was entered into as a result. The Settlement purported to allow the ex-employee to work only as a respiratory therapist at his new company, but kept in-force the remaining terms of the Non-Compete. In Delaware, an enforceable covenant not to compete must (1) meet general contract law requirements, (2) be reasonable in scope and duration, both geographically and temporally, (3) advance a legitimate economic interest of the party enforcing the covenant, and (4) survive a balance of the equities. The court held that the Non-Compete here, the scope of which was one year and a radius of fifty miles, met all those requirements; however, there was not sufficient evidence to find that the Non-Compete was violated, as the actions complained of fit within the types of activities permitted under the Settlement. The lack of any breach of contract rendered the claim for tortious interference of contract moot, as contract breach is an essential element; and the court also rejected plaintiff's claim of interference with prospective business relations as without merit. 

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