Kodiak Building Partners, LLC v. Philip D. Adams

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
KODIAK BUILDING PARTNERS, LLC, )
)
Plaintiff, )
)
v. ) C.A. No. 2022-0311-MTZ
)
PHILIP D. ADAMS, )
)
Defendant. )

MEMORANDUM OPINION
Date Submitted: September 26, 2022
Date Decided: October 6, 2022

Steven J. Fineman, Travis S. Hunter, Alexandra M. Ewing, Dorronda R. Bordley,
RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware, Attorneys for
Plaintiff Kodiak Building Partners, LLC.

Andrew L. Cole, Michael E. Fitzpatrick, COLE SCHOTZ P.C., Wilmington,
Delaware; Brian P. Matthews, COLE SCHOTZ P.C., Hackensack, New Jersey,
Attorneys for Defendant Philip D. Adams.

ZURN, Vice Chancellor.
 The plaintiff in this matter seeks to enforce a restrictive covenant agreement

against the defendant, its former employee. The plaintiff’s business model is

purchasing and then operating smaller companies in the construction industry; to

date, the plaintiff has acquired companies that produce roof trusses and lumber,

drywall, steel construction supplies, and kitchen interiors. The defendant is a former

employee and stockholder of a roof truss company the plaintiff acquired. In

conjunction with the acquisition, the plaintiff entered into a restrictive covenant

agreement with each target stockholder. The restrictive covenant agreement

included noncompetition, nonsolicitation, and confidentiality covenants. It also

included provisions purporting to waive the target stockholders’ rights to contest the

reasonableness of the restrictive covenants.

A few months after the acquisition, the defendant resigned and began work at

a different nearby roof truss and lumber business. The plaintiff sued the defendant

for breach of the restrictive covenant agreement, and sought a preliminary

injunction.

For the reasons explained below, I conclude the restrictive covenant

agreement’s waiver provision does not preclude this Court from reviewing the

restrictive covenants for reasonableness; the restrictive covenants protecting all the

plaintiff’s business lines are unenforceable because they are broader than the

plaintiff’s legitimate business interest in the purchased assets; and the alleged

1
breaches of other provisions of the agreement do not support injunctive relief. The

plaintiff’s motion for a preliminary injunction is denied.

I. BACKGROUND1
For nearly seventeen years, Defendant Philip D. Adams was a general

manager of a truss manufacturer, Northwest Building Components, Inc.

(“Northwest”), a Washington corporation.2 Northwest has a single location in

Rathdrum, Idaho, at which it “manufacture[s] and sell[s] and deliver[s] roof trusses

and other building materials, mostly lumber-based building products,” including

“anything that could go with a truss or a framing package and new construction.”3

1
I draw the following facts from the Verified Amended Complaint For Injunctive Relief,
the documents attached and integral to it, and all evidence currently in the record. Docket
Item (“D.I.”) 90 [hereinafter “Am. Compl.”]. See, e.g., AffiniPay, LLC v. West, 2021 WL
4262225, at *1 (Del. Ch. Sept. 17, 2021); Cantor Fitzgerald, L.P. v. Cantor, 724 A.2d 571,
579 (Del. Ch. 1998). Citations in the form of “OB —” refer to Plaintiff’s Opening Brief
in Support of Its Motion for a Preliminary Injunction, available at D.I. 83. Citations in the
form of “AB —” refer to Defendant’s Answering Brief in Opposition to Plaintiff’s Motion
Seeking a Preliminary Injunction, available at D.I. 92. Citations in the form of “RB —”
refer to Plaintiff’s Reply Brief in Support of Its Motion for a Preliminary Injunction,
available at D.I. 98.
Adams was deposed. OB Ex. 2, Deposition Transcript of Philip D. Adams
[hereinafter “Adams Dep.”]. He also filed an affidavit in support of his answering brief.
D.I. 92. Except on routine or undisputed matters, I have discounted Adams’s affidavit and
relied on the deposition testimony and contemporaneous documents. In re Del Monte
Foods Co. S’holders Litig., 25 A.3d 813, 819 & n.1 (Del. Ch. 2011) (citing In re W. Nat.
Corp. S’holders Litig., 2000 WL 710192, at *19 (Del. Ch. May 22, 2000), and Cont’l Ins.
Co. v. Rutledge & Co., 750 A.2d 1219, 1232 (Del. Ch. 2000), and Chesapeake Corp. v.
Shore, 771 A.2d 293, 302 & n.7 (Del. Ch. 2000)).
2
Adams Dep. 32–33; OB Ex. 1 at KODIAK_00001326 [hereinafter “SPA”].
3
Adams Dep. 36; OB Ex. 6, Deposition Transcript of Jeffrey Smith on Behalf of Kodiak
Building Partners, LLC at 5–6 [hereinafter “Kodiak Dep.”].
2
It does not supply lumber.4 Adams’s duties as general manager included overseeing

the day-to-day operations and “the overall performance of the business unit,” such

as scheduling and handling certain customer accounts.5 Adams reported to

Northwest’s president, who primarily handled purchasing equipment and business

expansion.6 He earned approximately $84,000 in annual base compensation plus an

approximately $45,000 bonus.7 Northwest’s customers are primarily located “within

30 to 60 minutes of [its] location.”8

Plaintiff Kodiak Building Partners, LLC (“Kodiak”) is a Delaware limited

liability company.9 Over the course of several years, Kodiak has acquired at least

nineteen wholly-owned subsidiaries around the country through which it operates

four business lines: (i) lumber and building materials, which may or may not include

roof trusses, depending on the location; (ii) gypsum, which includes drywall, steel

studs, and related supplies; (iii) construction supplies, which are primarily steel,

4
Adams Dep. 206.
5
Id. at 33–34; OB Ex 4, Deposition Transcript of Gregg Leslie, at 50 [hereinafter “Leslie
Dep.”].
6
Adams Dep. 35–38.
7
Id. at 361–62.
8
Kodiak Dep. 7.
9
SPA at KODIAK_00001326.
3
rebar, and structural steel; and (iv) kitchen interiors, which is primarily kitchen

appliances, and some flooring, cabinets, and countertops.10

On June 1, 2020 (the “Closing”), Kodiak entered into a stock purchase

agreement (the “SPA”) with Northwest and Mandere Construction, Inc. (“MCI”)

(the “Acquisition”).11 MCI is an Idaho corporation that sells, manufactures, and

delivers roof trusses.12 Through the Acquisition, Kodiak acquired Northwest and

MCI’s “Company Capital Stock” and “all of the assets, properties, rights, licenses,

interests, Customer Deposits, Contracts and business, of every kind and description,

wherever located, real, personal or mixed, tangible or intangible, owned, held or

used by [Northwest or MCI] or in the conduct of [Northwest or MCI’s] business (the

‘Purchased Assets’).”13 The Purchased Assets included Northwest’s goodwill and

Adams’s 8.33% interest in Northwest.14

10
AB Ex. 2, Plaintiff’s Second Supplemental Responses and Objections to Defendant’s
Expedited Interrogatories and Requests for Production of Documents, at Responses and
Supplemental Responses #3, #26 [hereinafter “Kodiak’s Second Supplemental Discovery
Responses”] (listing nineteen different business entities, and their aliases and locations, as
applicable); Kodiak Dep. 20–24; see also id. at 18–20, 39 (describing Kodiak’s corporate
structure as it pertains to the “Company Group”).
11
See generally SPA.
12
Kodiak’s Second Supplemental Discovery Responses at Response #3; Kodiak Dep. 20
(comparing MCI’s business to Northwest’s); Leslie Dep. 18–19 (describing MCI’s
relationship to Northwest as “horizontal integration”).
13
SPA § 2.01.
14
Kodiak Dep. 50–51; Adams Dep. 45.
4
 In connection with the Acquisition, Kodiak entered into a restrictive covenant

agreement (“RCA”) with Adams and the three other Northwest stockholders,

including MCI’s sole owner, from whom Kodiak purchased Northwest and MCI.15

The RCA includes the following restrictive covenants: “Non-Competition”; “Non-

Solicitation”; “Confidentiality”; “Non-Interference”; and “Non-Disparagement.”16

The RCA applies to Adams “for a period of 30 months” from the Closing.17 The

RCA also includes language providing that Adams acknowledged the

reasonableness and necessity of the restrictive covenants, and that he waived any

issue of reasonableness as a defense.18

On October 11, 2021, Adams resigned from Northwest.19 On December 27,

Adams joined Builders FirstSource, Inc. (“BFS”) as its general manager.20 His first

day was January 11, 2022.21 BFS supplies building materials such as lumber, roof

15
OB Ex. 7 at Preamble [hereinafter “RCA”] (defining “Covered Parties” as Adams, John
Mandere, Matthew M. Johnson, and Greggory O. Leslie); SPA at KODIAK_00001326
(defining “Sellers” as Adams, John Mandere, Matthew M. Johnson, and Greggory O.
Leslie); Leslie Dep. 17, 21, 50 (testifying Northwest and MCI were both Mandere’s
companies and Leslie, Adams, Johnson, and Mandere were each Northwest stockholders
who sold to Kodiak); OB Ex 5, Deposition Transcript of Matthew Johnson, at 15–17, 23,
28, 32 (same).
16
RCA §§ 1–5.
17
Id. § 1.
18
Id. §§ 6, 8.
19
Am. Compl. ¶ 24; Adams Dep. 49, 211.
20
Adams Dep. 175–76, 203; OB Ex. 24 at BFS_000006.
21
Adams Dep. 176.
5
trusses, and I-joists, and provides design services for roof trusses.22 BFS has two

facilities in Spokane, Washington; the location at which Adams works is

approximately twenty-four miles away from Northwest.23 Its truss business is

national.24 On March 17, Northwest (by then a Kodiak affiliate) learned that it “lost

[a] job to Phil [Adams].”25 Later that same day, Kodiak and Northwest caused their

counsel to send cease-and-desist letters to BFS and Adams “remind[ing] [Adams] of

[his] obligations under the [RCA].”26

On April 5, Kodiak filed its Verified Complaint for Injunctive Relief (the

“Complaint”).27 Kodiak also moved for a preliminary injunction and expedited

proceedings.28 On April 27, Adams moved to dismiss the Complaint or to stay the

case.29 On July 6, I denied Adams’s motion to dismiss.30 On July 18, Adams

22
Id. at 65, 205–06.
23
Id. at 65, 67.
24
Id. at 65.
25
OB Ex. 36 at KODIAK_00000031; Am. Compl. ¶¶ 34–35.
26
OB Ex. 38 at ADAMS0000419; Am. Compl. ¶ 37.
27
D.I. 1.
28
D.I. 2; D.I. 3.
29
D.I. 15; D.I. 16.
30
D.I. 38.
6
answered the Complaint.31 The parties then briefed Kodiak’s motion for preliminary

injunction (the “Motion”).32

While the parties were briefing the Motion, Kodiak filed a Verified Amended

Complaint for Injunctive Relief (the “Amended Complaint”), and Adams

answered.33 Counts I and II respectively allege Adams breached RCA Section 1, the

noncompete covenant, and Section 2, the nonsolicitation covenant.34 Kodiak seeks

injunctive relief in connection with Counts I and II.35 Count III alleges Adams

breached RCA Section 9 by failing to give Kodiak notice that he undertook new

material business activity related to the “Business.”36 Count IV alleges Adams

generally breached the RCA.37 Kodiak seeks damages in an amount to be

determined at trial in connection with Counts III and IV.38 On September 26, I heard

argument on the Motion.39

31
D.I. 43.
32
OB; AB; RB.
33
Am. Compl.; D.I. 97; D.I. 100 [hereinafter “Am. Ans.”].
34
Am. Compl. ¶¶ 40–56.
35
Id. ¶¶ 48, 56.
36
Id. ¶¶ 57–62.
37
Id. ¶¶ 63–67.
38
Id. ¶¶ 62, 67.
39
D.I. 101.
7
 II. ANALYSIS

“This Court has broad discretion to grant or deny a preliminary injunction.”40

To obtain a preliminary injunction, the movant must demonstrate: (i) a reasonable

probability of success on the merits; (ii) a threat of irreparable injury if an injunction

is not granted; and (iii) that the balance of the equities favors the issuance of an

injunction.41 But a preliminary injunction “is not granted lightly,” and “the moving

party bears a considerable burden in establishing each of these necessary elements.

Nevertheless, while some showing is required as to each element, there is no

steadfast formula for the relative weight each of these three factors deserves.”42

A. Kodiak Has Not Shown That It Has A Reasonable Likelihood Of
Success On The Merits On Counts I And II Because RCA Sections
1 And 2 Are Unenforceable.
A party showing a “reasonable probability” of success must demonstrate that

it will prove by a preponderance of the evidence that “it is more likely than not

40
Fletcher Int’l, Ltd. v. ION Geophysical Corp., 2010 WL 1223782, at *3 (Del. Ch.
Mar. 24, 2010) (citing Data Gen. Corp. v. Digit. Comput. Controls, Inc., 297 A.2d 437,
439 (Del. 1972)).
41
Pell v. Kill, 135 A.3d 764, 783 (Del. Ch. 2016) (citing Revlon, Inc. v. MacAndrews &
Forbes Hldgs., Inc., 506 A.2d 173, 179 (Del. 1986)).
42
Fletcher Int’l, 2010 WL 1223782, at *3 (alterations and internal quotation marks
omitted) (quoting La. Mun. Police Empls.’ Ret. Sys. v. Crawford, 918 A.2d 1172, 1185
(Del. Ch. 2007), and Alpha Builders, Inc. v. Sullivan, 2004 WL 2694917, at *3 (Del. Ch.
Nov. 5, 2004)).
8
entitled to relief.”43 Here, Kodiak must demonstrate Adams has more likely than not

breached an enforceable restrictive covenant. Delaware courts do not mechanically

enforce noncompetition or nonsolicitation agreements.44 “[A]greements not to

compete must be closely scrutinized as restrictive of trade.”45 Delaware courts

“carefully review” noncompete and nonsolicit provisions to ensure that they “(1)

[are] reasonable in geographic scope and temporal duration, (2) advance a legitimate

economic interest of the party seeking its enforcement, and (3) survive a balancing

of the equities.”46 “Delaware courts have favored the public interest of competition

in their review of noncompetition agreements.”47 Generally, covenants not to

compete in the context of a business sale are subject to a “less searching” inquiry

than if the covenant “had been contained in an employment contract.”48 Where

43
C & J Energy Servs., Inc. v. City of Miami Gen. Empls., 107 A.3d 1049, 1067 (Del. 2014)
(internal quotation marks omitted) (quoting Mitchell Lane Publ’rs, Inc., v. Rasemas, 2014
WL 4925150, at *3 (Del. Ch. 2014)); Cantor Fitzgerald, 724 A.2d at 579.
44
E.g., FP UC Hldgs., LLC v. Hamilton, 2020 WL 1492783, at *6 (Del. Ch. Mar. 27, 2020)
(citing McCann Surveyors, Inc. v. Evans, 611 A.2d 1, 3 (Del. Ch. 1987)).
45
Faw, Casson & Co. v. Cranston, 375 A.2d 463, 466 (Del. Ch. 1977).
46
FP UC Hldgs., 2020 WL 1492783, at *6 (internal quotation marks omitted) (quoting
Lyons Ins. Agency, Inc. v. Wilson, 2018 WL 4677606, at *5 (Del. Ch. Sept. 28, 2018)).
47
Elite Cleaning Co., Inc. v. Capel, 2006 WL 1565161, at *4 (Del. Ch. June 2, 2005) (citing
Tristate Courier & Carriage, Inc. v. Berryman, 2004 WL 835886, at *15 (Del. Ch.
Apr. 15, 2004)).
48
Tristate Courier, 2004 WL 835886, at *10.
9
noncompete or nonsolicit covenants are unreasonable in part, Delaware courts are

hesitant to “blue pencil” such agreements to make them reasonable.49

The RCA’s language stating its restrictive covenants are reasonable, and

waiving a defense that they are not, does not preclude this Court from performing

the reasonableness analysis our law mandates. Kodiak cannot rely on those

provisions to evade review and establish a reasonable probability of success on the

merits. After analyzing the contract’s reasonableness under the common law test, I

49
Kodiak asserts that “this Court is free under Delaware law to blue pencil the [RCA] as it
deems appropriate.” RB at 15 n.8 (citing Norton Petroleum Corp. v. Cameron, 1998 WL
118198, at * 3 (Del. Ch. Mar. 5, 1998), and RCA § 10 (consenting that the RCA “may be
judicially reformed, revised, modified, or partially enforced in any proceeding brought by
[Kodiak] to enforce [the RCA]”). “While, in some circumstances, a court may use its
discretion to blue pencil an overly broad non-compete to make its restrictions more
reasonable, this court has also exercised its discretion in equity not to allow an employer
to ‘back away from an overly broad covenant by proposing to enforce it to a lesser extent
than written.’” FP UC Hldgs., 2020 WL 1492783, at *8 (footnotes omitted) (citing
Knowles-Zeswitz Music, Inc. v. Cara, 260 A.2d 171, 175 (Del. Ch. 1969), and then quoting
Del. Elevator, Inc. v. Williams, 2011 WL 1005181, at *10 (Del. Ch. Mar. 16, 2011)); see
Del. Elevator, 2011 WL 1005181, at *11 (explaining that disparate bargaining power
between employers and employees “lead[s] [the Court] to conclude that when a restrictive
covenant is unreasonable, the [C]ourt should strike the provision in its entirety” instead of
blue penciling restrictive covenants to create a “no-lose” situation for employers (citations
omitted)); see also Charles A. Sullivan, The Puzzling Persistence of Unenforceable
Contract Terms, 70 OHIO ST. L.J. 1127, 1151 (2009) (“[I]t seems likely that many
[overbroad non-compete agreements], perhaps most, reflect the incentives the law has
created for employers: ask for as much as possible, with the expectation that you will get
at least what you’re entitled to should the matter go to court.”); Griffin Toronjo
Pivateau, Putting the Blue Pencil Down: An Argument for Specificity in Noncompete
Agreements, 86 NEB. L. REV. 672, 689–94 (2008) (arguing courts’ willingness to modify
non-competes creates confusion, encourages employers to overreach, and encourages
litigation “by building a degree of uncertainty into every employment agreement”); cf. C
& J Energy, 107 A.3d at 1054 (“To blue-pencil a contract . . . is not an appropriate exercise
of equitable authority in a preliminary injunction order.”).
10
find the RCA’s restrictive covenants in Sections 1 and 2 are unreasonable, and

consequently unenforceable. Accordingly, Kodiak has failed to demonstrate a

reasonable likelihood of success on the merits of Counts I and II.

1. RCA Section 6’s Stipulation And Section 8’s Waiver Are
Against Public Policy.

I first address Kodiak’s assertion that the parties contracted to entirely avoid

this Court’s evaluation of the RCA’s reasonableness. The RCA contains two

provisions, Sections 6 and 8, that purport to waive Adams’s ability to challenge the

reasonableness of the covenants:

Remedies. Each Covered Party acknowledges it has carefully read and
considered all terms and conditions of this Agreement, including the
restraints contained in Sections 1 through 5, and agrees without
reservation that each restraint contained in this Agreement is necessary
for the reasonable and proper protection of the goodwill, Confidential
Information, trade secrets and other legitimate interests of [Kodiak],
other members of the Company Group and the Business; and that each
and every one of the restraints is reasonable in respect to subject matter,
length of time, scope of activity and geographic area . . . .
...

11
 Reasonableness. Each Covered Party expressly acknowledges that this
Agreement is reasonable and valid in all respects and irrevocably
waives (and irrevocably agrees not to raise) as a defense any issue of
reasonableness (including the reasonableness of the activity
restrictions, Territory or the duration and scope of this Agreement) in
any proceeding to enforce any provision of this Agreement, the
intention of the Parties being to provide for the legitimate and
reasonable protection of the interests of [Kodiak] and other members of
the Company Group.50

Kodiak asserts Sections 6 and 8 prohibit Adams from contesting the reasonableness

and validity of the RCA. Adams argues a waiver of the right to contest a restrictive

covenant’s validity violates public policy, as it seeks to avoid the Court’s policy-

based review of that restrictive covenant.

Neither Adams nor I could find language stating that this Court will consider

the enforceability of a noncompete provision even where the employee has

stipulated to its reasonableness. Neither Kodiak nor I could find any case explicitly

upholding a contractual waiver of the right to contest reasonableness of a

noncompete.51 The Grant Agreements in FP UC Holdings, LLC v. Hamilton had

50
RCA §§ 6, 8 (emphasis omitted).
51
Kodiak offers thin authority in support of enforcing such waiver language in a restrictive
covenant agreement. In Bridgeport Tank Trucks, LLC v. Smith, the Court shared initial
thoughts on the reasonable likelihood of success on the merits in a preliminary injunction
analysis. C.A. No. 7935-VCG, at 80 (Del. Ch. Jan. 28, 2013) (TRANSCRIPT) (“So I think
with respect to success on the merits, showing a breach of the [noncompete provision in
the] agreement and the enforceability—oh, and I should say there was also a contractual
obligation not to challenge enforceability, which was also agreed to and supported by
consideration.”). In Revolution Retail Systems, LLC v. Sentinel Technologies, Inc., the
Court considered a seller’s agreement that a noncompete provision in a “business-to-

12
such a stipulation, and Vice Chancellor Slights proceeded to consider the three

restrictive covenants’ reasonableness anyway.52 Section 10 of those agreements

provided:

Acknowledgments By the Grantee. The Grantee acknowledges that the
promises and restrictive covenants that the Grantee is providing in this
Agreement are reasonable with respect to period, geographical area and
scope and are necessary for the protection of the Business (including
the Company’s and its Subsidiaries’ goodwill).53

Vice Chancellor Slights still held the plaintiff to its burden of proving the

reasonableness of the covenants and declined to blue pencil the agreements when

the plaintiff fell short.54

business sale of securities” was “reasonable in all respects” and “necessary” to protect each
parties’ securities and goodwill as evidence that the restrictive covenants were enforceable.
2015 WL 6611601, at *8, *10 (Del. Ch. Oct. 30, 2015). Revolution does not stand for the
proposition that such language obviates the enforceability analysis, which the Court
performed. Id. at *10. In Hills Stores Co. v. Bozic, the Court found the plaintiffs waived
the first Unocal prong by “waiv[ing] their right to challenge the validity of” the board’s
decision to enter into executive compensation agreements—a distinguishable context not
laden with the policy considerations surrounding restrictive covenants. 769 A.2d 88, 107
(Del. Ch. 2000). Finally, the Delaware Supreme Court recently found the petitioners
agreed to waive their appraisal rights in a stockholder agreement—another distinguishable
context. Manti Hldgs., LLC v. Authentix Acq. Co., 261 A.3d 1199, 1207–08 (Del. 2021).
52
2020 WL 1492783, at *3 & n.11.
53
Plaintiffs’ Opening Brief in Support of Their Motion for Preliminary Injunction at Ex.
5, Form of Class P-1 Unit Grant Agreement § 10, FP UC Hldgs., LLC v. Hamilton, C.A.
No. 2019-1029-JRS (Del. Ch. Feb. 24, 2020), D.I. 64; Plaintiffs’ Opening Brief in Support
of Their Motion for Preliminary Injunction at Ex. 6, Form of Class P-2 Unit Grant
Agreement § 10, FP UC Hldgs., LLC v. Hamilton, C.A. No. 2019-1029-JRS (Del. Ch. Feb.
24, 2020), D.I. 64. The Court may take judicial notice of court records. Del. R. Evid.
202(d)(1)(C).
54
FP UC Hldgs., 2020 WL 1492783, at *8.
13
 Lacking dispositive authority, Kodiak appeals to this Court’s contractarian

nature, arguing that Adams willingly entered the RCA, agreed to these provisions,

and should be held to his bargain.55 “This contractarian view has its limits when

such enforcement is inimical to public policy, however. In certain limited

circumstances, our courts will decline to enforce contractual obligations, no matter

how clear or sincerely intended when entered.”56 Courts can discount contractual

waivers of defenses when public policy demands it.57

Public policy requires Delaware courts to evaluate noncompetition and

nonsolicitation contracts holistically, carefully, and nonmechanically, with an eye

towards reasonableness, equity, and the advancement of legitimate business

interests.58 Sections 6 and 8 purport to waive two of those three standards: whether

the RCA’s covenants are (i) reasonable and (ii) necessary to protect the legitimate

55
OB at 34–41.
56
Lyons Ins. Agency, Inc. v. Wark, 2020 WL 429114, at *1 (Del. Ch. Jan. 28, 2020).
57
See, e.g., Choice Hotels Int’l, Inc. v. Columbus-Hunt Park DR. BNK Invs., L.L.C., 2009
WL 3335332, at *8 (Del. Ch. Oct. 15, 2009) (“Similar policy concerns could enable Klein
to pursue his defense to the [pledge and security agreement] based on his claim that the
[master development agreement] and related agreements are the product of intentional
fraud, notwithstanding the alleged waiver.”); Abry P’rs V, L.P. v. F & W Acq. LLC, 891
A.2d 1032, 1060 (Del. Ch. 2006) (“As § 195 of the Restatement reflects, however, courts
have generally refused to go further and allow a contractual waiver of the buyer’s right to
sue on the basis that a contractually-represented fact was false as a result of the seller’s
reckless or intentional conduct. Abundant case law to this effect exists.” (collecting
cases)).
58
E.g., Symbiont.io, Inc. v. Ipreo Hldgs., LLC, 2021 WL 3575709, at *26 (Del. Ch.
Aug. 13, 2021); FP UC Hldgs., 2020 WL 1492783, at *6.
14
business interests of Kodiak and its subsidiaries and affiliates, together defined as

the “Company Group.”59

In my view, an employee’s promise not to challenge the reasonableness of his

restrictive covenants cannot circumvent this Court’s mandate to review those

covenants for reasonableness. Even if Adams had not briefed his position that the

RCA was unenforceable, I would still have to comply with Delaware law and review

the RCA for compliance with public policy before enforcing it with an injunction.60

This Court does not skip over applying a common law test simply because one party

stipulates the test is not necessary.61

Further, mechanical submission to an employee’s promise not to challenge a

restrictive covenant would fly in the face of the public policy that compels review

of that covenant. When evaluating enforceability, Delaware courts are tasked with

balancing the interests of the public in striking down “artificial obstacles to

59
RCA at Recitals (defining “Company Group”); id. §§ 6, 8.
60
See Del. Elevator, 2011 WL 1005181, at *11 (explaining that Delaware law “requir[es]
a careful analysis of reasonableness before enforcing a non-compete”).
61
Supra notes 52–54 and accompanying text; see also AM Gen. Hldgs. LLC v. The Renco
Grp., Inc., 2015 WL 9487922, at *3 (Del. Ch. Dec. 29, 2015) (noting a stipulation to
irreparable harm cannot operate to “impair the Court’s exercise of its well-established
discretionary role in the context of assessing the reasonableness of interim injunctive
relief”); Totta v. CCSB Fin. Corp., 2022 WL 1751741, at *14 (Del. Ch. May 31, 2022)
(rejecting the defendant’s argument that a contractual provision in its charter “forecloses
judicial review for legal validity and under otherwise applicable equitable standards and
requires the court to evaluate the determination under the business judgment rule”), cert.
denied, 2022 WL 4087800 (Del. Ch. Sept. 7, 2022).
15
competition,”62 the interests of people’s “natural right to follow any trade or

profession anywhere [they] please[] and in any lawful manner,”63 and the “important

interests of commercial enterprises.”64 Delaware law also contemplates denying

injunctive enforcement of an overbroad restrictive covenant because of the power

dynamic between an employer and employee at the time of signing.65 Another term

62
Hammermill Paper Co. v. Palese, 1983 WL 19786, at *4 (Del. Ch. June 14, 1983) (“A
contract designed solely for the purpose of restraining competition and unrelated to any
employment agreement between the parties could amount to an illegal restraint on trade.
In such circumstances, the public would be injured as a result of the artificial obstacles to
open competition. In situations where the interests of the public would be damaged by
upholding a post-employment non-competition agreement, the agreement could be deemed
invalid under Delaware law.” (citing 54 Am. Jur. 2d Monopolies, Restraints of Trade, and
Unfair Trade Practices § 514 at 961 (1971), and Knowles-Zeswitz, 260 A.2d at 175)).
63
Faw, Casson & Co., 375 A.2d at 468 (internal quotation marks and citations omitted).
64
McCann, 611 A.2d at 3 (“Because the specific enforcement of such covenants involve
important interests of commercial enterprises and of individuals seeking to support
themselves and their families financially, and because, in that setting, the court is asked to
exercise its distinctively equitable powers, each such case requires a careful evaluation of
the specific facts and circumstances presented.”).
65
Del. Elevator, 2011 WL 1005181, at *11 (“It is trite and naive to suggest that low to
mid-level employees freely agree to restrictive covenants. Disparities in resources,
bargaining power, and access to information undercut that overly simplistic notion—
except for senior managers and top-dog executives where the shoe is on the other foot and
different agency concerns arise. The employer is a repeat player with strong incentives to
invest in legal services, to devise an advantageous non-compete, and to insist that
employees sign. For the employer, the marginal costs of imposing a non-compete are low.
For a low-to mid-level employee, the calculus is different. When presented with a non-
compete, the employee must hire a lawyer to review the document, then attempt to
negotiate its terms. In a competitive environment, the employer may simply look
elsewhere. Or in the optimistic days of an initial employment courtship, the employee may
simply sign. Later on, if a dispute arises, the employer will be better able to fund the costs
of enforcement, including litigation, and can benefit from economies of scale. The
departing employee faces not only the costs of litigation, but the difficulties the non-
compete creates for a new employer who could be brought into the dispute. The law

16
in that same contract, by which the employee mouths that the restrictive covenant is

reasonable, is subject to those same policy concerns and that same power dynamic.

Mechanically enforcing additional language describing the covenants as reasonable

would insulate the covenants from judicial review, gutting the work Delaware courts

are charged with doing to effectuate the public policy of this State.

I conclude Sections 6 and 8 of the RCA are ineffective to preclude or

circumvent the requisite judicial scrutiny of noncompete provisions before they can

be enforced. I turn to that well-settled analysis.66

2. RCA Sections 1 And 2 Do Not Advance A Legitimate
Business Interest.

“A non-competition agreement will only be enforced to protect the legitimate

economic interests of the employer. Interests which the law has recognized as

legitimate include protection of employer goodwill and protection of employer

confidential information from misuse.”67 In the context of a sale of a business, the

recognizes these concerns by requiring a careful analysis of reasonableness before
enforcing a non-compete.” (internal citations omitted)). While these concerns are more
cogent in an employment agreement than in the sale of a business, they still undergird this
Court’s reasonableness review of all restrictive covenants.
66
See, e.g., Kan-Di-Ki, LLC v. Suer, 2015 WL 4503210, at *19 (Del. Ch. July 22, 2015).
Adams does not dispute that the RCA meets the general contract requirements of offer,
acceptance, and consideration so, I limit my inquiry to the disputed factors. Id.
67
Pfuhl, 1992 WL 345465, at *12.
17
acquirer has a legitimate economic interest with regard to the assets and information

it acquired in the sale.68

RCA Sections 1 through 5 enumerate five restrictive covenants.69 Sections 1

and 2 provide, in pertinent part:

68
See, e.g., Concord Steel, Inc. v. Wilm. Steel Processing Co., 2009 WL 3161643, at *14
(Del. Ch. Sept. 30, 2009) (“Moreover, if an injunction is not granted, the competition
Concord would face from WSP would impair the goodwill Concord purchased in the
APA.”), aff’d, 7 A.3d 486 (Del. 2010); id. at *15 (“[A]n injunction would advance
Concord’s economic interests, as it would give Concord an opportunity to exploit the assets
it purchased from WSP . . . .”); Vitalink Pharmacy Servs., Inc. v. Grancare, Inc., 1997 WL
458494, at *11 (Del. Ch. Aug. 7, 1997) (“The Non–Competition Agreement is reasonably
limited in time, and is also reasonably calculated to protect the value and goodwill of the
purchased asset (TeamCare).”); Pfuhl, 1992 WL 345465, at *12 (“Interests which the law
has recognized as legitimate include protection of employer goodwill and protection of
employer confidential information from misuse.”); FP UC Hldgs., 2020 WL 1492783, at
*7 (“Given the vast geographic scope of the non-compete, Fast Pace must demonstrate it
is protecting a particularly strong economic interest to persuade the Court that the non-
compete is enforceable.”); cf. Kan-Di-Ki, 2015 WL 4503210, at *18 (“California law
generally does enforce non-competition agreements that were executed in connection with
the sale of the goodwill of a business.” (citing Cal. Bus. & Prof. Code § 16601)).
69
RCA §§ 1–5.
18
 Non-Competition. . . . Adams . . . for a period of 30 months beginning
on the date hereof (as applicable, the “Restricted Period”), agrees not
to . . . anywhere in the states of Idaho and Washington, and within a
100 mile radius of any other location outside of those states in which
[Northwest, MCI,] or any member of the Company Group have sold
products or provided services within the 12 months prior to Closing (the
“Territory”), own, manage, operate, control, or participate in the
ownership, management, operation or control of, or carry on, be
engaged in, permit his, her or its name to be used in connection with,
have any financial or other interest in or be otherwise commercially
involved in (including as a lender or a donor), any endeavor, activity
or business which is similar to or is in competition with the Business
or any part of it, or provide any service to any business or Person
engaged in the Business . . . .

Non-Solicitation. Each of the Covered Parties, during the Restricted
Period, agrees not to, . . . directly or indirectly . . . : (c) except on behalf
of [Northwest, MCI], [Kodiak] or any other member of the Company
Group, induce, canvass, solicit procure or accept the business of, or
assist in the inducement, canvassing or soliciting, procurement of or
acceptance of the business of, any Person that is or was (i) a customer
or client or prospective client or customer of [Northwest, MCI],
[Kodiak] or any other member of the Company Group during the
applicable Restricted Period or (ii) a client or customer or prospective
client or customer of the Business at any time within 12 months prior
to the Closing for purposes of providing products or services to such
customers that are competitive with the products or services provided
by [Northwest, MCI], [Kodiak], any other member of the Company
Group, or the Business as of any such time.70

RCA Section 3 defines “Confidential Information” as:

70
Id. §§ 1–2 (emphasis added).
19
 information regarding [Kodiak], [Northwest, MCI], any other member
of the Company Group, the Business or the Purchased Assets in each
case to the extent it is not generally available to the public, including
but not limited to, the following: (1) information regarding [Kodiak]’s,
[Northwest’s, MCI]’s, any other member of the Company Group’s,
the Business’[s] or the Purchased Assets’ operations, assets, liabilities,
plans, prospects, affairs or financial condition; (2) information
regarding [Kodiak]’s, [Northwest’s, MCI]’s, any other member of the
Company Group’s or the Business’[s] pricing, sales, merchandising,
marketing, capital expenditures, costs, joint ventures, business alliances
or purchasing; (3) customer lists or other information regarding
[Kodiak]’s, [Northwest’s, MCI]’s, any other member of the Company
Group’s or the Business’[s] current or prospective customers; (4)
information regarding [Kodiak]’s, [Northwest’s, MCI]’s, any other
member of the Company Group’s or the Business’[s] vendors,
suppliers, distributors or other business partners; (5) forecasts,
projections, budgets and business plans regarding [Kodiak],
[Northwest, MCI], any other member of the Company Group or the
Business; (6) [Kodiak]’s, [Northwest’s, MCI]’s, any other member of
the Company Group’s or the Business’[s] trade secrets and proprietary
information and any of the Purchased Assets constituting the same; and
(7) [Kodiak]’s, [Northwest’s, MCI]’s, any other member of the
Company Group’s or the Business’[s] website designs, website
content, proposed domain names and databases and any Purchased
Assets constituting the same.71
Importantly, the RCA defines the “Business” as “manufacturing, marketing,

selling, distributing, installing and/or delivering of trusses; roof, floor and stair

components; framing; siding and other building materials and supplies, and

providing services with respect thereto, including design, engineering, turn-key

solutions, project management and trade coordination services.”72 “‘Company

71
Id. § 3 (emphasis added).
72
Id. at Recitals (defining “Business”).
20
Group’ means Kodiak Building Partners Inc., a Delaware corporation, [Kodiak], and

each of their respective subsidiaries and Affiliates, all of which are engaged in a

competitive industry related to the Business.”73

When Kodiak purchased Northwest, it purchased Northwest’s assets,

including its goodwill.74 As explained, Delaware law recognizes Kodiak has a

legitimate economic interest in protecting what it purchased from Northwest, MCI,

and their investors, including Adams.

But Kodiak goes further: too far. Kodiak argues that it has a legitimate

interest in protecting not only Northwest and MCI’s goodwill, but also that of

Kodiak, other members of the Company Group, and the Business. Delaware law

has not affirmatively recognized a legitimate business interest in protecting all the

acquirer’s preexisting goodwill that predated the acquirer’s purchase of the target.

Rather, this Court has explained that a buyer has a legitimate business interest in

asking the target’s employees to stand down from competing “in the relevant

industry” because “[t]he buyer has just paid handsomely for the business and the

broad non-compete clears the seller from the competitive space while the buyer

73
Id. (defining “Company Group”).
74
SPA § 2.01 (defining “Purchased Assets”); Kodiak Dep. 50 (“Q: So the goodwill that
Kodiak purchased in connection with its purchase of Northwest was goodwill in the market
served by Northwest, correct? A: Correct.”); id. at 51 (“Q: But what you purchased from
Mr. Adams, his interest in Northwest, is not a component part of the Kodiak Group. It was
what Mr. Adams owned in Northwest as a stand-alone company. A: It was.”). While the
RCA refers to “Purchased Assets,” it does not define the term. RCA §§ 3, 7.
21
strives to make the business he just bought successful.”75 “[T]he reality is that it is

the employer’s goodwill in a particular market which is entitled to protection.”76

Restrictive covenants in connection with the sale of a business legitimately protect

only the purchased asset’s goodwill and competitive space that its employees

developed or maintained.77 The acquirer’s valid concerns about monetizing its

purchase do not support restricting the target’s employees from competing in other

75
FP UC Hldgs., 2020 WL 1492783, at *7.
76
Kan-Di-Ki, 2015 WL 4503210, at *20 (internal quotation marks omitted) (quoting Pfuhl,
1992 WL 345465, at *12).
77
Pfuhl, 1992 WL 345465, at *12 (“Courts have long recognized that an employer has an
interest in the goodwill created by its sales representatives and other employees, which is
vulnerable to misappropriation if the employer’s former employees are allowed to solicit
its customers shortly after changing jobs.” (emphasis added) (discussing Knowles-Zeswitz,
260 A.2d at 175))); Knowles-Zeswitz, 260 A.2d at 175 (“In other words, reasonable
protection for an owner of a decentralized business is necessary because the former
employee has had an opportunity to develop economically valuable relationships with his
former employer’s customers at least where, as here, enforcement of a covenant not to
compete would not harm the public interest.” (emphasis added)); Kan-Di-Ki, 2015 WL
4503210, at *20 (“‘In other words, [DL] safeguarded its investment in [Suer] by ensuring
that he could not sell himself directly to a competitor serving [DL clients] and cut out
[DL].’ The Restrictive Covenants DL obtained therefore served a legitimate purpose for
DL, and by seeking to enforce the terms of those Covenants, DL has not exceeded the scope
of that legitimate interest.” (quoting Hough Assocs., Inc. v. Hill, 2007 WL 148751, at *14
(Del. Ch. Jan. 17, 2007))); Deloitte & Touche USA LLP v. Lamela, 2005 WL 2810719, at
*7 (Del. Ch. Oct. 21, 2005) (finding Deloitte was “likely to succeed in showing that it ha[d]
a legitimate business interest in the clients [the former employee defendant] served while
employed by Arthur Andersen” because Deloitte had “demonstrated a reasonable
probability of being able to show that it had acquired the goodwill the defendant had
created with his former clients “when Deloitte agreed to pay tens of millions of dollars to
Arthur Andersen to release Arthur Andersen’s partners, principals, directors and
employees from their restrictive covenants and to obtain licenses for certain intellectual
property”).
22
industries in which the acquirer also happened to invest. Kodiak’s legitimate

economic interest supporting a restrictive covenant binding a Northwest employee

and stockholder does not extend to goodwill and competitive space acquired in other

transactions with other Company Group members in other industry segments.

Kodiak also seeks to justify the scope of Sections 1 and 2 by pointing to the

need to protect all confidential information about the entire “Business” from

misuse.78 As defined, the “Business” includes more services than Northwest offers.79

Kodiak’s representative testified that Adams was only involved with Kodiak’s

affiliates in the “production lumber and national lumber segments, all of which

produce roof trusses in a similar fashion to Northwest.”80 Kodiak disclosed in

discovery that only six of the Company Group members, including Northwest, fell

into those segments and produced roof trusses.81

78
Kodiak has not alleged that Adams breached his confidentiality covenant in Section 3.
It alleges only that he attempted to obtain Northwest confidential information after he left.
Am. Compl. ¶ 30.
79
Compare RCA at Recitals (defining the “Business”), with Kodiak Dep. 5 (explaining
Northwest’s business).
80
Kodiak Dep. 10–11.
81
Kodiak’s Second Supplemental Discovery Responses at Response and Supplemental
Response #3 (listing American Builders Supply, Inc., Carpenter Contractors of America,
Inc., Christensen Lumber, Inc., MCI, Multi-Family Building Products, Inc. d/b/a Direct
Lumber & Door, and Northwest as members of the Company Group, among the nineteen
members listed, that had locations which “sold, manufactured or delivered any roof
trusses . . . during the period from 12 months prior to Closing through the date of [Kodiak’s]
response”); Kodiak Dep. 11 (listing “Christensen Lumber, Direct Lumber and Door,
Carpenter Contractors of America, [and] American Building Supply” as members of the

23
 Kodiak’s purchase of Northwest and its assets is separate and apart from its

transactions with other members of the Company Group.82 Kodiak has not identified

any confidential information related to its non-truss business lines that it acquired

from Northwest or to which Adams had access.83 Kodiak has not alleged that Adams

had any post-Closing relationship with any member of the Company Group except

Northwest.84 At most, Kodiak has demonstrated Adams knew Northwest’s

confidential information and certain confidential information of a limited number of

truss affiliates within the Company Group. I conclude Kodiak lacks a legitimate

economic interest to protect confidential information unrelated to truss and lumber

operations that would justify restraining Adams’s employment.

Company Group who “produce roof trusses in a similar fashion to Northwest” and other
Kodiak affiliates with whom Adams had post-Closing involvement); id. at 20 (“We have
four, call it product categories or platforms that we managed these businesses under. One
of them is lumber and building materials, which includes roof trusses. There[] [are] other
lumber businesses that do not produce trusses or any other components but are simply
lumber distributors. They may do more in hardware and things like that that Northwest or
[MCI] might not.”).
82
SPA; RCA at Recitals (defining “Company Group”).
83
Kodiak Dep. 38–39 (testifying that Kodiak’s representative did not have any awareness
that Adams had “contact with customers of non-truss producing affiliates of Kodiak”);
id. at 13 (testifying Adams would not have been involved with sales efforts at Kodiak
affiliates who did not produce roof trusses); id. at 12–13, 64, 66 (testifying any limited
access Adams would have had to financial information from non-truss Kodiak affiliates
would have only been in monthly meetings with presentations of financial summaries).
84
OB at 49 (“Indeed, Adams had key relationships with a variety of [Northwest]
customers.”); see also Kodiak Dep. 65 (“Q: And the employees and their contacts, those
would be employees of Northwest, correct? A: Primarily employees of Northwest. He
also, although he was not employed at [MCI], he had personal direct working relationships
with a number of [MCI] employees as well.”).
24
 In sum, Kodiak has a legitimate business interest in protecting the goodwill it

purchased when it bought Northwest, and the confidential information about Kodiak

operations that Adams knows or could access. But the RCA goes beyond those

legitimate business interests in restraining Adams from working in or using

confidential information for other segments of Kodiak’s business it obtained in

acquisitions of other companies. Because RCA Sections 1 and 2 cover the entire

Business and Company Group, they are overbroad and unenforceable.

3. The Scope Of RCA Sections 1 And 2 Is Unreasonable.

The RCA’s noncompetition and nonsolicitation covenants are unreasonable

in their geographic scope and scope of restricted activities because they are broader

than necessary to protect Kodiak’s legitimate economic interests. “[T]he

reasonableness of a covenant’s scope is not determined by reference to physical

distances, but by reference to the area in which a covenantee has an interest the

covenants are designed to protect.”85 If an “employee would gain from the[ir]

employment some advantage in any part of th[eir employer’s] market,” then the

employer target and the acquirer may enter into an enforceable contract prohibiting

the employee “from soliciting those customers on behalf of a competitor regardless

85
Weichert Co. of Pa. v. Young, 2007 WL 4372823, at *3 (Del. Ch. Dec. 7, 2007); accord
Pfuhl, 1992 WL 345465, at *12 (“While most judicial opinions regarding the
reasonableness of the geographic extent of employee non-competition agreements speak
in terms of physical distances, the reality is that it is the employer's goodwill in a particular
market which is entitled to protection.”).
25
of their geographic location.”86 While Delaware courts allow for a broader scope of

reasonableness in connection with a sale of a business as opposed to an employment

agreement,87 “reasonableness” is still tied to whether the scope is “essential for the

protection of the [acquirer’s] economic interests.”88

While Adams does not challenge the RCA’s temporal duration, he contends

the RCA’s geographic scope is unreasonably broad.89 The RCA draws radii around

each business in the Company Group, prohibiting Adams from competing

“anywhere in the states of Idaho and Washington, and within a 100 mile radius of

any other location outside of those states in which [Northwest, MCI] or any member

of the Company Group have sold products or provided services within the 12 months

prior to Closing.”90 He is also prohibited from soliciting customers from “any other

member of the Company Group . . . for purposes of providing products or services

to such customers that are competitive with the products or services provided by

86
Kan-Di-Ki, 2015 WL 4503210, at *20 (internal quotation marks omitted) (emphasis
added) (quoting Pfuhl, 1992 WL 345465, at *12).
87
FP UC Hldgs., 2020 WL 1492783, at *7 (“These broader restrictions make sense
following the sale of a business.”).
88
Id. at *6 (internal quotation marks omitted) (quoting Norton, 1998 WL 118198, at *3);
see also Kan-Di-Ki, 2015 WL 4503210, at *20 (“[T]he reality is that it is the employer’s
goodwill in a particular market which is entitled to protection.” (internal quotation marks
omitted) (quoting Pfuhl, 1992 WL 345465, at *12)).
89
AB at 26–30.
90
RCA § 1.
26
[Northwest, MCI], [Kodiak], any other member of the Company Group, or the

Business as of any such time.”91 These provisions are geographically overbroad.

As discussed, Kodiak’s legitimate economic interest that can support

restraining Adams’s employment is only in the goodwill and competitive space it

purchased from Northwest in the market Northwest serves.92 Further, Kodiak

alleged only that Adams had business relationships with Northwest’s customers.93

The noncompete provision is overbroad to the extent it prohibits competition in

geographic areas around subsidiaries other than Northwest, and the nonsolicit

provision is overbroad to the extent it covers customers, clients, or prospective

customers and clients of subsidiaries other than Northwest.94 Kodiak has failed to

demonstrate that the RCA’s geographic scope is essential to the protection of its

legitimate interests in Northwest.

The scope of restricted activities in the RCA’s noncompetition covenant is

also unreasonable. Section 1 prohibits Adams from

91
Id. § 2.
92
Kodiak Dep. 50–51.
93
OB at 49; see also Kodiak Dep. 32 (“Q: . . . Did Mr. Adams ever work for [MCI]? A:
I do not believe he was an employee of [MCI].”); Leslie Dep. 56 (testifying “to the best of
[his] knowledge” Adams did not “have any affiliation or responsibility with respect to
[MCI]”).
Kodiak Dep. 50–51 (testifying Kodiak purchased Northwest’s goodwill in Northwest’s
94

market); Vitalink, 1997 WL 458494, at *11.
27
 own[ing], manag[ing], operat[ing], control[ing], or participat[ing] in
the ownership, management, operation or control of, or carry[ing] on,
be[ing] engaged in, permit[ing] his, her or its name to be used in
connection with, hav[ing] any financial or other interest in or be[ing]
otherwise commercially involved in (including as a lender or a donor),
any endeavor, activity or business which is similar to or is in
competition with the Business or any part of it, or provide any service
to any business or Person engaged in the Business . . . .95

As defined by the RCA, the “Business” encompasses more than just Northwest’s

industry segment of roof trusses.96 It also includes “manufacturing, marketing,

selling, distributing, installing and/or delivering . . . floor and stair components;

framing; siding and other building materials and supplies, and providing services

with respect thereto, including design, engineering, turn-key solutions, project

management and trade coordination services.”97 Prohibiting Adams from engaging

in “any activity or business which is similar to” or competes with “the Business” is

unreasonable because the noncompetition provision is broader than necessary to

protect the goodwill Kodiak purchased from Northwest.

4. The Balance Of The Equities Favors Adams.
This Court effectively considers the equities of a restrictive covenant on a

preliminary injunction twice: first here, when considering whether the covenant is

95
RCA § 1.
96
Compare id. at Recitals (defining the “Business”), with Kodiak Dep. 5 (explaining
Northwest’s business).
97
RCA at Recitals (defining the “Business”).
28
enforceable, and then again when considering whether to enjoin an employee under

an enforceable covenant.98 “In deciding whether to specifically enforce a restraint

on future competition, this Court must carefully balance the legitimate interests of

the parties and of the public.”99 A court of equity will not enforce restrictive

covenants “if, on balance, to do so would impose an unusual hardship on a former

employee.”100 This Court “will not enforce a covenant that is more restrictive than

[the company’s] legitimate interests justify or that is oppressive to [the

employee].”101 “This same balancing, while present, is far less important where the

covenant not to compete is part of a contract for the sale of a business, rather than

an employment contract.”102

98
E.g., FP UC Hldgs., 2020 WL 1492783, at *5 (“To earn a preliminary injunction, a
plaintiff must demonstrate: (1) a reasonable probability of success on the merits, (2) that
absent preliminary injunctive relief, it faces imminent and irreparable injury and (3) that
such harm outweighs the harm that may result from the injunction, should it prove to have
been improvidently granted.” (citing C & J Energy, 107 A.3d at 1066)); id. at *6
(“Delaware courts do not ‘mechanically’ enforce non-competes. Instead, our courts
carefully review the covenants to assure they ‘(1) [are] reasonable in geographic scope and
temporal duration, (2) advance a legitimate economic interest of the party seeking its
enforcement, and (3) survive a balancing of the equities.’” (quoting Wilson, 2018 WL
4677606, at *5)).
99
Vitalink, 1997 WL 458494, at *11.
100
Norton, 1998 WL 118198, at * 3.
101
Id.
102
Gamble v. Walker, 1994 WL 384617, at *3 n.1 (Del. Ch. July 18, 1994) (citing
RESTATEMENT (FIRST) OF CONTRACTS § 515 cmt. b (Am. L. Inst. 1932)).
29
 Kodiak argues the equities weigh in its favor. First, Kodiak asserts that

Adams should be held to the contract for which it bargained, and into which Adams

willingly entered. Kodiak alleges Adams’s position as one of Kodiak’s general

managers qualifies him as a “sophisticated” “senior executive” who should be held

to his bargain.103 Further, in connection with the Acquisition, Adams received

“[a]pproximately [$]900,000” in exchange for his Northwest interests, which

Kodiak characterizes as approximately seven times Adams’s annual compensation

at the time.104 This is more than “token consideration.”105 Second, Kodiak contends

the circumstances under which Adams searched for, and found, his post-Northwest

employment, weigh against him. Following his resignation from Northwest, Adams

103
I note that the only facts that Kodiak alleges in support of its contention that Adams was
a “sophisticated” “senior executive,” who should be held to a higher standard than if he
were “unsophisticated,” is that Adams was “second in charge at Northwest,” and one of
four stockholders. Adams Dep. 38, 45; cf. Great Lakes Chem. Corp. v. Pharmacia Corp.,
788 A.2d 544, 555 (Del. Ch. 2001) (noting the different circumstances in which
“sophisticated parties, assisted by industry consultants and experienced legal counsel”
might “allocate[] their risks and obligations” in a contract as contrasted with
“unsophisticated parties” who might need “protection”); Arwood v. AW Site Servs., LLC,
2022 WL 705841, at *22 & n.227 (Del. Ch. Mar. 9, 2022) (finding the plaintiff to be an
“unsophisticated businessman” even though “he had built a large waste business” and “sold
other parts of this business before”). Kodiak has not alleged that Adams was personally
represented by counsel in connection with the Acquisition or the RCA.
104
Adams Dep. 361–62; OB at 1, 37; RB at 15, 18, 21–22.
105
FP UC Hldgs., 2020 WL 1492783, at *7–8 (finding the noncompetition covenant “likely
overbroad as a matter of Delaware law” after also determining the record lacked any
evidence that the employee “received substantial consideration” in exchange for his
agreement not to compete, and instead raised a concern he received “token consideration”).
30
considered employment as a “boat captain,” but opted not to pursue it.106 Instead,

Adams went to work for BFS, manufacturing and selling roof trusses approximately

twenty-four miles away from Northwest.107

In spite of all of that, the RCA is more restrictive than Kodiak’s legitimate

interests justify. It would be inequitable to enforce such unreasonable covenants

against Adams.108

B. Kodiak Has Not Shown That It Will Suffer Irreparable Harm In
The Absence Of A Preliminary Injunction.
Having found Kodiak is not reasonably likely to succeed on the merits of

Counts I and II because the underlying restrictive covenants are not enforceable, I

do not reach the other elements of the preliminary injunction test for those Counts.

For Kodiak to obtain a preliminary injunction, Counts III and IV must anchor the

essential irreparable harm element of the preliminary injunction test.109 Count III

alleges Adams breached RCA Section 9 “by failing to provide the contractually

106
Adams Dep. 50–54.
107
Id. at 67.
108
Vitalink, 1997 WL 458494, at *11. The inequities inherent in blue-penciling a
noncompete also counsel against enforcing only those portions of the RCA that are
supported by Kodiak’s legitimate business interests, even as Adams appears to have
violated those portions. See supra note 49.
109
Adams does not dispute that the RCA imposes at least some valid contractual
obligations. In his Amended Answer to the Verified Amended Complaint, “Adams
admit[ted] that he did not provide notice to Kodiak prior to commencing work at BFS”
under Section 9. Am. Ans. ¶¶ 6, 61.
31
required notice prior to commencing work at BFS,”110 and Count IV alleges only

that “Adams has breached the [RCA].”111 Those Counts seek only damages.112

Kodiak argues that Adams agreed that a breach of RCA Sections 1 through 5

constitutes irreparable damage,113 but Counts III and IV do not allege breaches of

those sections. Kodiak has not alleged that any damages would be unquantifiable.114

Kodiak’s counts that may present a reasonable likelihood of success on the merits

“simply do[] not support imminent, non-speculative damages that can be stemmed

only by preliminary injunctive relief.”115 Kodiak has failed to carry its burden to

show that it faces a threat of irreparable harm in the absence of a preliminary

injunction.

*****

110
Am. Compl. ¶ 61. RCA Section 9 provides: “Each Covered Party agrees that during
such Covered Party’s Restricted Period, such Covered Party will give notice to [Kodiak]
of each new material business activity such Covered Party plans to undertake that is related
to the Business, at least 30 days prior to beginning any such activity.” RCA § 9.
111
Am. Compl. ¶ 66.
112
Id. ¶¶ 62, 67.
113
OB at 53–54 (quoting RCA § 6).
114
Alpha Builders, 2004 WL 2694917, at *5.
115
Cantor Fitzgerald, 724 A.2d at 586.
32
 Kodiak has not satisfied the standard to earn a preliminary injunction.

Consequently, I need not address the third preliminary injunction element, the

balance of the equities.116

III. CONCLUSION
Kodiak’s Motion for Preliminary Injunction is DENIED.

116
See In re New Maurice J. Moyer Acad., Inc., 108 A.3d 294, 325–26 (Del. Ch. 2015)
(citing Cantor Fitzgerald, 724 A.2d at 579).
33