Cadwalader, Wickersham & Taft LLP
MONTH-IN-BRIEF (Mar 2023)
Business Litigation
Delaware Court of Chancery Finds Stock Purchase Agreement’s Prohibition of Sellers from Competing “Anywhere in the World” Is Unenforceable
By Jonathan M. Stemerman, Armstrong Teasdale LLP
In recent months, the Delaware Court of Chancery has increasingly viewed restrictive non-competition covenants negatively. Nevertheless, the Court has continued to enforce such non-competition clauses where the provision is related to the sale of a business and not an employment contract. In Intertek Testing Services, NA, Inc. v. Eastman, however, the Court found the purchase agreement’s restriction on a seller’s ability to compete “anywhere in the world” too broad, and the buyer’s complaint to enforce the restriction was dismissed.
Intertek Testing Services purchased a business—Alchemy Investment Holdings, Inc.—cofounded by Jeff Eastman. Eastman was Alchemy’s cofounder and CEO and was also a major stockholder. The Stock Purchase Agreement (“SPA”) prohibited each “Restricted Seller,” such as Eastman, from competing with Alchemy “anywhere in the world” for a period of five years.