Gibbons Law Alert

Gibbons Law Alert

Author: Christopher Viceconte

Delaware’s “Freedom of Contract” Approach to Non-Compete Agreements – Even Between Sophisticated Parties in the Sale-of-Business Context – Has Its Limits

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Posted in General Litigation

On March 29, 2023

Non-compete agreements have recently gained a new round of attention with the Federal Trade Commission’s (FTC) proposed rule that would effectively ban employers from imposing non-competes (albeit not in certain sale-of-business scenarios). While lawyers and businesses wait to see whether the FTC rule materializes, the nation’s most prominent business court – the Delaware Court of Chancery – recently issued two decisions demonstrating limits to its contractarian approach to restrictive covenants. Interestingly, both cases arose in the sale-of-business context, in which the court has traditionally enforced relatively broad restrictive covenants negotiated by sophisticated parties. In HighTower Holding, LLC v. Gibson (Vice Chancellor Will, Feb. 9, 2023), the court refused to enforce the parties’ Delaware governing-law provision and, instead, after performing a choice-of-law analysis, applied Alabama law to invalidate the non-compete. In Intertek Testing Services NA, Inc. v. Eastman (Vice Chancellor Will, Mar. 16, 2023), the court found a non-compete provision that prohibited the defendant from competing “anywhere in the world” to be unreasonably broad and, therefore, unenforceable. Delaware governing law provision rejected HighTower Holding, LLC v. Gibson. HighTower, a Delaware limited liability company, purchased a majority interest in an Alabama-based wealth advisory firm owned by Gibson, a licensed financial advisor, and other individuals. As part of the sale, Gibson and his former partners signed a protective agreement...

Delaware Supreme Court Gives Preclusive Effect to Federal Court Dismissal of Derivative Suit for Failure to Show Demand Futility

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Posted in General Litigation

On March 5, 2018

In its highly anticipated opinion in California State Teachers’ Retirement System v. Alvarez, the Delaware Supreme Court unanimously affirmed the dismissal of a group of Delaware shareholders’ derivative actions, holding that a previous dismissal by a federal court for failure to plead demand futility precluded other shareholders from pursuing additional derivative actions so long as the other shareholders were adequately represented in the earlier suit. Following the New York Times 2012 exposure of Wal-Mart executives’ alleged mishandling of bribery allegations, Wal-Mart shareholders brought derivative suits in the Western District of Arkansas and the Delaware Court of Chancery. In May 2015, the Arkansas court dismissed the case before it, because the shareholders had failed to adequately plead demand futility. Prompted by the Arkansas dismissal, the Delaware Court of Chancery initially dismissed the Delaware action, but, after some ping-ponging back and forth between the Court of Chancery and the Delaware Supreme Court, the Court of Chancery issued a supplemental opinion, recommending that the Supreme Court adopt a rule proposed in EZCORP Inc. Consulting Agreement Deriv. Litig., which held that constitutional Due Process permits a derivative suit to have a preclusive effect on a subsequent derivative suit only if the plaintiff in the first suit has been authorized by the corporation to pursue the litigation, either by express authorization...

Delaware Supreme Court Clarifies Reach of Personal Jurisdiction Over Nonresident Directors and Officers of Delaware Corporations Under 10 Del. C. § 3114

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Posted in General Litigation

On March 10, 2016

The Delaware Supreme Court, in Marc Hazout v. Tsang Mun Ting, No. 353, 2015 (Feb. 26, 2016) (Strine, C.J.), held that the reach of personal jurisdiction under 10 Del. C. § 3114 over nonresident officers and directors of Delaware corporations, contrary to Court of Chancery precedent, is not limited to claims by stockholders against such officers and directors for breach of fiduciary duty. Rather, under the plain language of the statute, a nonresident officer or director of a Delaware corporation, by virtue of accepting and holding office, has consented to personal jurisdiction in Delaware, subject to the requirements of due process, in two classes of cases: (i) “all civil actions or proceedings brought in this State, by or on behalf of, or against such corporation, in which such officer [or director] is a necessary or proper party”; or (ii) “any action or proceeding against such officer [or director] in violation of a duty in such capacity.”

Business Organizations Seeking Quick and Inexpensive Resolutions of Business Disputes Need to Know About Delaware’s Rapid Arbitration Act

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Posted in General Litigation

On June 1, 2015

Arbitration is supposed to achieve quick, fair, and inexpensive resolutions of business disputes. But, seemingly more often than not, arbitration fails to fulfill its promise due to expensive and time-consuming pre-hearing discovery, lengthy hearings, and spiraling judicial review of arbitral awards. The Delaware Rapid Arbitration Act, which became effective on May 4, 2015, is Delaware’s unique and cutting-edge effort to offer a new brand of arbitration designed to achieve the original promise of quick and efficient justice.

Retroactive Effect Given to Delaware Statute Authorizing Up to 20-Year Statute of Limitations for Certain Breach of Contract Actions

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Posted in General Litigation

On March 16, 2015

The Delaware Court of Chancery, in Bear Stearns Mortgage Funding Trust 2006-SL1 v. EMC Mortgage LLC, C.A. No. 7701-VCL (Del. Ch. Jan. 12, 2015) (Laster, V.C.), held that the recently enacted 10 Del. C. § 8106(c), which authorizes parties to a written contract involving at least $100,000 to agree to a statute of limitations of up to 20 years, should be applied retroactively to the plaintiff’s breach of representation and warranty claims filed almost six years after the closing of the underlying transaction.

Service of Discovery Also Subject to New Deadline in Delaware Federal Court

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Posted in Intellectual Property / Legislation Updates / Patent

On October 21, 2014

We previously posted on the new deadline of 6:00 p.m. Eastern Time for all filings other than initial pleadings in the U.S. District Court for the District of Delaware. On October 15, 2014, Chief Judge Leonard Stark of the District of Delaware issued a letter addressing certain questions about the new rule. Chief Judge Stark reiterated that filings and service must be completed by 6:00 p.m. Eastern Time, and further indicated that this rule applies to all filing and service deadlines — including service of discovery materials — in every case in the District of Delaware, other than initial pleadings or those cases in Bankruptcy Court.

Put Away that Midnight Oil: New Rule in the District of Delaware

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Posted in Intellectual Property / Legislation Updates / Patent

On October 14, 2014

On October 2, 2014, Chief Judge Leonard Stark of the U.S. District Court for the District of Delaware announced a new deadline of 6:00 p.m. Eastern Time for all filings other than initial pleadings. As of October 16, 2014, “[a]side from initial pleadings, all electronic transmissions of documents (including, but not limited to, motions, briefs, appendices, and discovery responses) must be completed by 6:00 p.m. Eastern Time, in order to be considered timely filed and served that day.” Initial pleadings which are filed before midnight will still be considered timely.

Delaware Enacts Legislation Authorizing 20-Year Statute of Limitations for Certain Breach of Contract Actions

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Posted in General Litigation

On September 22, 2014

Delaware has recently enacted legislation authorizing parties to a written contract involving at least $100,000 to agree to a statute of limitations of up to 20 years for actions based on that contract. The amendment to 10 Del. C. § 8106, embodied in new subsection (c), gives parties to a written contract the freedom to agree to a limitations period longer than the typical three or four years from accrual of the cause of action, without the need to resort to Delaware’s technical requirements for a contract under seal. The synopsis to the legislation explains that examples of the limitations period to be stated in the contract include, without limitation, (i) a specific period of time, (ii) a period of time defined by reference to the occurrence of another event, another document or agreement or another statutory period, and (iii) an indefinite period of time.

Delaware Adopts Less-Stringent Approach to Authentication of Social Media Evidence: The Jury, and Not the Trial Judge, Ultimately Decides

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Posted in General Litigation

On April 2, 2014

In a recent decision, the Delaware Supreme Court held a proponent of social media evidence may authenticate that evidence using the same forms of verification available under Delaware Rule of Evidence 901 to authenticate any other type of evidence, including witness testimony, corroborative circumstances, distinctive characteristics, or descriptions and explanations of the technical process or system that generated the evidence in question. In Parker v. State of Delaware, Delaware’s high court held that the trial judge may admit a social media post when there is evidence sufficient to support a finding by a reasonable juror that the proffered evidence is what its proponent claims it to be, leaving the jury to decide whether to accept or reject the evidence.

New Patent Case Scheduling Order Seeks to Achieve Efficiencies in Delaware

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Posted in Patent

On March 26, 2014

This week, United States District Judge Sue L. Robinson issued a new Patent Case Scheduling Order dictating how patent cases will proceed in Her Honor’s Court. The District of Delaware is second only to the Eastern District of Texas in the number of patent cases filed; both of which have nearly three times the number of patent cases as the third busiest district, the Central District of California. In order to help streamline the hundreds of patent cases assigned to Her Honor, Judge Robinson issued a new Patent Case Scheduling Order, requiring the identification of key issues earlier in the case, which should improve overall case efficiencies.

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