Curtis J. Crowther, left, and Trevor L. Bradley, right, of Robinson+Cole. Courtesy photos
On March 16, in Intertek Testing Services v. Jeff Eastman, C.A. No. 2022-0853-LWW, the Delaware Court of Chancery determined for the second time in recent months that a restrictive covenant entered into in connection with the sale of a business was not enforceable. We previously wrote back in October 2022 about the Delaware Court of Chancery’s decision in Kodiak Building Partners v. Philip D. Adams, C.A. No. 2022-0311-MTZ (Oct. 6, 2022). In that case, Vice Chancellor Morgan Zurn found that a restrictive covenant entered into in connection with an asset purchase agreement was unenforceable due to it being geographically overbroad. Vice Chancellor Zurn also declined to “blue-pencil” the restrictive covenant to narrow its scope to make it enforceable.
There is now clearly an unwillingness in Delaware’s Court of Chancery to enforce restrictive covenants in the M&A context, which had historically been friendly to restrictive covenants entered into in the sale of a business and regularly enforced such covenants with little fuss.
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