Sunder Energy, LLC v. Tyler Jackson ( 2023 )

EFiled: Dec 22 2023 08:00AM EST
Transaction ID 71679732
Case No. 2023-0988-JTL
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
SUNDER ENERGY, LLC, )
)
Plaintiff, )
)
v. ) C.A. No. 2023-0988-JTL
)
TYLER JACKSON, FREEDOM FOREVER )
LLC, BRETT BOUCHY, CHAD TOWNER, )
FREEDOM SOLAR PROS, LLC, and SOLAR )
PROS LLC, )
)
Defendants. )
MEMORANDUM OPINION CERTIFYING INTERLOCUTORY APPEAL
Date Submitted: December 14, 2023
Date Decided: December 22, 2023
Raymond J. DiCamillo, Chad M. Shandler, Steven J. Fineman, Kelly E. Farnan,
Kevin M. Gallagher, Christine D. Haynes, Alexander M. Krischik, Sara M. Metzler,
RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Joshua Berman,
Jackson Herndon, Paul C. Gross, Ben Nicholson, Michael H. Rover, PAUL
HASTINGS LLP, New York, New York; Attorneys for Plaintiff Sunder Energy, LLC.
Timothy R. Dudderar, Aaron R. Sims, Abraham C. Schneider, POTTER ANDERSON
& CORROON LLP, Wilmington, Delaware; Maureen M. Stewart, FOLEY &
LARDNER LLP, Tampa, Florida; Jordan C. Bledsoe, Tyler Dever, Bryce W. Talbot
FOLEY & LARDNER LLP, Salt Lake City, Utah; Attorneys for Defendant Tyler
Jackson.
Paul J. Lockwood, Jenness E. Parker, Jessica R. Kunz, Matthew R. Conrad, Eric M.
Holleran, Mallory V. Phillips, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP,
Wilmington, Delaware; Karen Hoffman Lent, Evan R. Kreiner, SKADDEN, ARPS,
SLATE, MEAGHER & FLOM LLP, New York, New York; Attorneys for Defendants
Freedom Forever LLC, Brett Bouchy, Chad Towner, and Freedom Solar Pros, LLC.
LASTER, V.C.
Sunder Energy, LLC (“Sunder”) moved for a preliminary injunction to enforce
restrictive covenants in its limited liability company agreement against Tyler
Jackson. Sunder also sought a preliminary injunction against Freedom Forever LLC,
Solar Pros LLC, Freedom Solar Pros LLC, Brett Bouchy, and Chad Towner
(collectively, the “Freedom Defendants”) on the theory that the Freedom Defendants
tortiously interfered with the restrictions binding Jackson.
I issued an opinion denying Sunder’s motion (the “Injunction Decision”).
Although technically a denial of a preliminary injunction, that opinion ruled on key
issues as a matter of law. It is more akin to a decision that dismissed the bulk of
Sunder’s claims.
Sunder has filed an application to certify the Injunction Decision for
interlocutory appeal (the “Application” or “App.”). Ordinarily, a ruling on a
preliminary injunction is not suitable for interlocutory appeal. An opinion granting a
motion to dismiss, by contrast, results in a final judgment that can be appealed
immediately.
Without an appeal, this case will move forward with the rulings in the
Injunction Decision operating as law of the case. The limited nature of the remaining
issues will constrain the breadth of fact and expert discovery and the scope of the
trial. Any post-trial factual findings and legal rulings will be restricted to the
remaining issues, as will any remedy (if Sunder prevails). The case will unfold very
differently than if Sunder could pursue the claims the Injunction Decision rejected.
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After entry of a final judgment, Sunder can challenge all of the errors it thinks
I made, including the rulings in the Injunction Decision. While I would like to think
that I got the Injunction Decision right, I have enough humility and experience to
understand that the legal disputes that this case presents involve issues where
reasonable minds can disagree. That is why the case was filed in the first place, and
why the parties are willing to spend large sums to litigate it. If the answers were
clear, Sunder would not have sued, or the case would have settled.
Consequently, there is always risk that the Delaware Supreme Court will
disagree with my rulings. And for purposes of this case, there is a substantial
difference between learning the definitive answers on key legal issues now versus
later. If the Delaware Supreme Court disagrees with my rulings at the end of the
case, everyone has to go back to square one. The scope of the lawsuit will expand
dramatically. A complete do-over will be required.
By contrast, if the Delaware Supreme Court hears an appeal now, then the
parties and I can implement the high court’s views. True, that means the justices
would hear an appeal before a final judgment, but they are likely to hear an appeal
on the same issues in any event, and if they hear the appeal now, then there is no
risk that they will have to revisit those issues later. Their legal rulings will be
binding.
This decision therefore grants the Application. Ultimately, only the Delaware
Supreme Court can determine whether to entertain the interlocutory appeal. My
recommendation, however, is to hear the appeal now rather than later.
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I. FACTUAL BACKGROUND
The facts are drawn from the Injunction Decision and matters subject to
judicial notice. In the interest of brevity, this decision provides only a summary of the
underlying facts.
A. Sunder’s Beginnings
Sunder is a solar sales dealer organized as a Delaware limited liability
company. Sunder currently operates in at least forty-seven states.
Sunder’s sole business involves securing agreements with residential
customers to install solar systems for their homes. Once an agreement is signed,
Sunder hands the job over to an installer. Until September 2023, Sunder acted as an
exclusive dealer for Freedom, a leading installer led by Towner and Bouchy.
Seven sales leaders from a different solar sales dealer founded Sunder in 2019.
The co-founders agreed on an equity split. Eric Nielsen and Max Britton were the
most senior sales leaders and received 60%. The other five—including Jackson—were
more junior and received 8% each. With that understanding, the co-founders formed
Sunder as a Delaware LLC. They also executed a five-year exclusive dealer
agreement with Freedom.
B. The LLC Agreement
In fall 2019, Nielsen and Britton engaged a law firm to draft a written LLC
agreement for Sunder. The other co-founders were not involved in the process. The
law firm was representing all of the co-founders in pending litigation brought by their
former employer. All of the co-founders regarded the firm as their counsel.
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When the draft was ready, Nielsen and Britton went to the law firm’s offices
and received a briefing about what the dense language of the lengthy draft agreement
meant. The other co-founders were not invited, and no one explained the agreement
to them.
The agreement dramatically changed the ownership structure of Sunder and
radically altered its internal governance. Most significantly for this case, Article XIII
added broad restrictive covenants.
Nielsen and Britton sprung the agreement on the minority members on New
Year’s Eve. Addressing the minority members as “Partners,” Nielsen wrote:
Max [Britton] and I have executed our portion of the Sunder Operating
Agreement today and a copy for your review is attached. I will be
sending each of you a couple of documents via docusign momentarily.
The first one contains your grant of shares and the second one is a
joinder agreement that will formally add each of you to the Operating
Agreement. If you are married, your spouse will also be sent a spousal
consent form. Please let Max or me know if you have any questions.
Lastly, the attorney’s [sic] highly recommend completing these
documents by the end of tonight, but we don’t expect any of you to sign
something if you are uncomfortable with it or if you need more
clarification from the attorney’s [sic] on something. Please let me know
if you have any questions.
Happy New Year!
The New Year’s email did not provide any indication that the agreement gutted the
minority members’ rights. The New Year’s email did not suggest in any way that the
minority members could not rely on Nielsen and Britton—their “Partners”—as
fiduciaries. Nothing suggested that the minority members needed to go into
adversarial, arms’-length bargaining mode and negotiate vigorously for themselves.
All of the minority members quickly returned their signature pages.
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Nielsen and Britton went further in 2021, when they proposed amendments to
the agreement. That time, they did not even send a copy to the minority members.
They simply circulated an email saying that the amendment would add a member
and that there were no substantive changes. That was not true: The amendment
expanded the geographic scope of the restrictive covenants, making them more
onerous.
C. The Sunder-Freedom Relationship Blossoms, Then Deteriorates.
From 2019 until the start of 2023, Sunder thrived. Sunder grew into one of
Freedom’s “super-dealers,” generating over 25% of its sales. Jackson’s responsibilities
at Sunder grew with the company. By 2022, Jackson had been given the title of Vice
President and had nearly half of Sunder’s sales force reporting to him directly or
indirectly. He became the highest paid sales leader at Sunder, earning a total of $4.8
million in compensation over four years. Over the same period, he received a total of
$1.2 million in profit distributions.
In 2021 and 2022, however, Nielsen and Britton made a series of business
decisions that caused Sunder to encounter difficulties. Those decisions affected
Sunder’s relationship with Freedom and with its own sales force.
One issue was an effort to boost Sunder’s profitability by artificially increasing
the installation cost of the project over Freedom’s quote then pocketing the difference.
As a practical matter, the padded installation cost lowered the portion of the project
price on which Sunder paid commissions and overrides, so it took money way from
Sunder’s sales force. Sunder’s sales representatives eventually discovered that
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Sunder had secretly changed its calculations. Not surprisingly, the revelation
generated feelings of betrayal and distrust.
Another issue was whether Sunder would continue working with Freedom. The
initial five-year dealer agreement would expire in 2024, and a new agreement would
need to be negotiated. Freedom had been an essential part of Sunder’s success, and
its sales force knew Freedom’s products and valued Freedom’s industry-leading
ability to install systems quickly. But another exclusive, multi-year deal with
Freedom would limit Nielsen and Britton’s alternatives. When asked about Sunder’s
future direction, Nielsen said that they prioritized working with Freedom, but they
would not rule out the possibility that Sunder would go in a different direction.
D. The Attraction Of Solar Pros
By early 2023, the combination of the artificial price floor and the uncertainty
about whether Sunder would continue with Freedom were topics of discussion and
debate among Sunder’s sales force, and particularly its sales leadership. The sales
leaders began questioning whether they should stay with Sunder or move to another
Freedom dealer.
One attractive option was Solar Pros, a rapidly expanding dealer that was
affiliated with Bouchy, one of Freedom’s principals. Solar Pros did not have an
artificial pricing floor and paid significantly higher commissions.
Jackson was one of the sales leaders who explored the possibility of moving to
Solar Pros. Immediately after that meeting, Jackson asked Sunder’s CFO for copies
of all of the agreements he had signed with Sunder, evidencing that he was thinking
about leaving.
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After learning that he was bound by restrictive covenants, Jackson felt that
his best option was to attempt to preserve the Sunder-Freedom relationship and keep
his sales force together. He tried to facilitate meetings between Sunder and Freedom.
He also tried to convince his sales leaders not to leave for Solar Pros. But he kept in
touch with Solar Pros.
During the same period, Nielsen and Britton were keeping their options open
regarding Sunder’s relationship with Freedom. In June and July 2023, they began
having meetings with other solar installers. In August 2023, they hired counsel to
evaluate Sunder’s rights under the dealer agreement with Freedom.
Sunder’s sales leaders knew what Nielsen and Britton were doing, and they
became even more concerned. In early September 2023, Clayton Granch decided to
leave Sunder for Solar Pros and take his teams with him. Granch was one of Jackson’s
direct reports.
E. The Las Vegas Meeting
The principals of Sunder and Freedom met in Las Vegas on September 14,
2023. During the meeting, Freedom offered to pay $10 million in exchange for
Sunder’s agreement to release Jackson from his restrictive covenants and to facilitate
the transfer of “his group” to Solar Pros. The parties did not reach an agreement, but
they also did not seem that far apart.
After learning that the meeting went well, Jackson circulated a list of Sunder
personnel to three of his direct reports. The list was an initial effort to identify who
would join him at Solar Pros. Within days after the Las Vegas meeting, Jackson’s
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direct reports and their teams began leaving for Solar Pros. Jackson also worked hard
to recruit members of his team to go to Solar Pros.
Sunder and Freedom did not reach a deal. Instead, on September 22, 2023,
Jackson signed an independent consulting agreement with an affiliate of Freedom
and Solar Pros. Four hours later, Jackson resigned from Sunder.
F. This Litigation
On September 29, 2023, Sunder filed this action. Based on the detailed
allegations in Sunder’s verified pleading, I issued an ex parte temporary restraining
order. That order was intended to preserve the status quo pending a hearing on
whether to renew or lift the order, which would take place on or before October 18.
On October 6, I issued an order to show cause interpreting the ex parte temporary
restraining order in a manner favorable to Sunder.
The parties briefed whether the court should allow the TRO to expire or renew
it. The defendants also moved to dismiss the case in favor of arbitration. On October
11, 2023, I renewed the TRO and denied the motion to dismiss.
Over the following month, the parties engaged in expedited discovery. A
hearing on Sunder’s motion for a preliminary injunction took place on Friday,
November 17, 2023. On the following Wednesday, I issued the Injunction Decision.
II. LEGAL ANALYSIS
Supreme Court Rule 42 governs the certification of an interlocutory appeal.
“[T]he purpose of Rule 42 is to prevent wasteful piecemeal litigation from
overwhelming the docket of the Supreme Court.” Stein v. Blankfein, 2019 WL
3311227, at *1 (Del. Ch. July 23, 2019).
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Rule 42 states that “[n]o interlocutory appeal will be certified by the trial court
or accepted by this Court unless the order of the trial court decides a substantial issue
of material importance that merits appellate review before a final judgment.” Supr.
Ct. R. 42(b)(i). If the “substantial issue” requirement is met, then the trial court will
analyze whether “there are substantial benefits that will outweigh the certain costs
that accompany an interlocutory appeal.” Supr. Ct. R. 42(b)(ii). The rule identifies
eight factors relevant to the assessment. Supr. Ct. R. 42(b)(iii)(A)–(H).
A. A Substantial Issue Of Material Importance
“The ‘substantial issue’ requirement is met when an interlocutory order
decides a main question of law which relates to the merits of the case, and not to
collateral matters.” Sprint Nextel Corp. v. iPCS, Inc., 2008 WL 2861717, at *1 (Del.
Ch. July 22, 2008); accord Castaldo v. Pittsburgh–Des Moines Steel Co., 301 A.2d 87,
87 (Del. 1973). The Injunction Decision made legal rulings that meet the substantial
issue requirement.
1. The Validity Of The Restrictive Covenants Under Delaware Law
The Injunction Decision ruled that Sunder could not rely on the restrictive
covenants because they were unreasonably broad as a matter of law. The Injunction
Decision also refused to blue-pencil the restrictive covenants. Both rulings addressed
substantial issues.
The Injunction Decision is an interlocutory ruling, but it is law of the case at
the trial level. Based on those rulings, the defendants likely could move for summary
judgment in their favor on those points. For those issues, the Injunction Decision is
akin to the granting of a motion to dismiss.
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Admittedly, the rulings on the restrictive covenants do not dispose of the case
as a whole. The Injunction Decision acknowledged that Sunder likely could plead
viable claims against Jackson based on his pre-resignation activities. Those
remaining claims, however, would only cover a portion of the conduct that Sunder
wants to challenge.
By ruling on those legal issues, the Injunction Decision decided the principal
questions at issue in favor of the defendants. Those rulings meet the substantial issue
requirement and, to that extent, are suitable for interlocutory review.
2. The Validity Of The Restrictive Covenants Under The LLC Act
The Injunction Decision held that Sunder could not rely on the restrictive
covenants because they were invalid under the Delaware Limited Liability Company
Act (the “LLC Act”) and the common law governing fiduciary duties. That ruling
addressed a substantial issue as well.
Like the rulings on the scope of the restrictive covenants, the fiduciary duty
ruling is akin to a decision granting a motion to dismiss. By holding that the
restrictive covenants could not be enforced, the Injunction Decision decided one of the
principal questions at issue in favor of the defendants.
That ruling warrants interlocutory review even without Sunder’s attempt to
paint it as procedurally improper. Sunder trumpets that the court ruled on those
issues “even though (i) it had not yet ruled on Jackson’s Motion for Leave to assert
these counterclaims and defenses and (ii) Sunder (and the Court) had learned of the
fiduciary duty defense for the first time a few days prior to the hearing.” App. ¶ 20
(footnote omitted). Jackson’s motion for leave addressed whether he could assert
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affirmative claims for breach of fiduciary duty. Whether that motion was granted did
not affect Jackson’s ability to raise the fiduciary duty issues as a defense. In expedited
litigation, parties often raise arguments during injunction briefing that have not been
fully spelled out in the pleadings. Ever since the Delaware courts adopted versions of
the federal rules of civil procedure, pleadings have served a notice function. See In re
McDonald’s Corp. S’holder Deriv. Litig., 289 A.3d 343, 375–76 (Del. Ch. 2023); HOMF
II Inv. Corp. v. Altenberg, 2020 WL 2529806, at *26, 36 (Del. Ch. May 19, 2020), aff’d,
263 A.3d 1013 (Del. 2021). A complaint is not a straitjacket. Jackson properly raised
his fiduciary duty defense.
In a footnote, Sunder points out that I referred to Jackson’s invocation of
Nielsen and Britton’s breaches of fiduciary duty “as an affirmative defense” and
states that this characterization was “not correct at the time of the Decision.” Id. ¶
21 n.3. Jackson had raised an unclean hands defense in his answer, and unclean
hands can be a vehicle for asserting a defense based on breach of fiduciary duty or
fraud. See, e.g., Ray v. Williams, 2020 WL 1542028, at *38 (Del. Ch. Mar. 31, 2020)
(unclean hands based on fiduciary breach); In re Rural/Metro Corp. S’holders Litig.,
102 A.3d 205, 237 (Del. Ch. 2014) (unclean hands based on fraud). In any event, the
asserted breach of fiduciary duty was a defense that Jackson had raised affirmatively
and on which Jackson would bear the burden of proof.
The fact that Jackson had not formally spelled out a defense based on breach
of fiduciary duty thus did not prevent him from arguing that the Nielsen and Britton’s
breach of duty rendered the restrictive covenants unenforceable such that Sunder
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was not entitled to a preliminary injunction. Jackson had identified unclean hands
as a defense in his answer, and he diligently pursued that defense by seeking
discovery and moving to compel the production of documents related to that defense.
See Dkt. 127. Jackson fairly presented the defense for purposes of the injunction
application.
Jackson agrees that the validity of the restrictive covenants under the LLC Act
presents a substantial issue but argues against interlocutory review because of the
potential for further factual development. In support of that argument, he cites
emails identified after the issuance of the Injunction Decision, which he says makes
the fiduciary duty defense stronger. That may be so, but at least two issues of law can
be addressed now. The first is whether Nielsen and Britton owed fiduciary duties to
their fellow members in a member-managed LLC when asking them to approve the
first written operating agreement for the entity, after having operated informally for
months under a de facto operating agreement based on the LLC Act and oral
understandings. The second is whether the New Year’s email, standing alone, was
sufficient to put the minority members on notice of their need to negotiate at arm’s
length. If Sunder prevails on either point, then the fiduciary defense fails.
The breach of fiduciary duty defense therefore presents a substantial issue. To
that extent, it is suitable for interlocutory review.
3. The Tortious Interference Claim Under Utah Law
The Injunction Decision ruled that Utah law governed Sunder’s tortious
interference claim and that Sunder could not prevail against the Freedom Defendants
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as a matter of law. In reaching that decision, the Injunction Decision decided a
substantial issue suitable for interlocutory review.
Ordinarily, a choice-of-law ruling does not warrant interlocutory review. E.g.,
Pivotal Payments Direct Corp. v. Planet Payment, Inc., 247 A.3d 688, 2021 WL
754850, at *1–2 (Del. Feb. 23, 2021) (ORDER). In this case, however, the choice-of-
law ruling is dispositive because of the strictures of Utah law. Based on that ruling,
the Freedom Defendants likely could move for summary judgment in their favor on
Sunder’s claims. The Injunction Decision effectively ruled on the merits of Sunder’s
claim against the Freedom Defendants, thereby addressing the merits of the case and
making the issue appropriate for interlocutory review.
4. The Policy Issue Raised By Including Restrictive Covenants in
Internal Governance Documents
Although Sunder has identified three substantial issues for appeal, an
additional argument misses the mark. When discussing the Injunction Decision,
Sunder points to a section in the introduction in which I described a multi-year trend
involving parties’ efforts to enforce restrictive covenants in the Delaware Court of
Chancery (the “Policy Excerpt”). Reproduced in full, the Policy Excerpt stated:
Sunder maintains that Jackson is bound by restrictive covenants.
He received Incentive Units in Sunder, and the attorneys who drafted
Sunder’s LLC agreement embedded in its terms a set of restrictive
covenants (the “Covenants”) that bind any holder of Incentive Units. The
Covenants consist of:
• A restriction prohibiting the holder from engaging in any
competitive activity (the “Competition Restriction”);
• A restriction prohibiting the holder from soliciting Sunder’s
employees and independent contractors (the “Personnel
Restriction”);
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• A restriction prohibiting the holder from soliciting, selling to,
accepting any business from, or engaging in any business
relationship with any of Sunder’s customers (the “Customer
Restriction”); and
• A restriction prohibiting the holder from inducing, influencing,
causing, advising, or encouraging any Sunder stakeholder to
terminate its relationship with Sunder (the “Stakeholder
Restriction”).
The LLC agreement also imposes an expansive restriction on the use of
Sunder’s confidential information, broadly defined.
Each Covenant applies not only to the holder of the Incentive Unit
but also to that person’s “Affiliates,” defined to include the holder’s
spouse, parents, siblings, and descendants, both natural and adopted.
The Covenants thus purport to bind Jackson’s wife and children. The
Covenants apply during the period when the holder owns the Incentive
Units and for two years afterward. A holder has no ability to transfer
the Incentive Units, but Sunder can repurchase them for zero dollars if
the holder is terminated or leaves other than for good reason. Because
Sunder can decide not to repurchase the Incentive Units, the Covenants
could be perpetual.
The Incentive Units are a form of incentive compensation.
Jurisdictions other than Delaware have a significant interest in how
businesses compensate employees and independent contractors and the
extent to which businesses can attach restrictive covenants to those
arrangements. Sunder has its headquarters in Utah, which has an
obvious interest in that subject and has passed legislation to regulate it.
Jackson lives in Texas, which has an interest in the extent to which its
citizens can earn a living. Freedom has its headquarters in California,
and Solar Pros has its headquarters in Nevada, so those jurisdictions
have interests as well.
But Sunder filed suit here—in Delaware—because Sunder is a
Delaware LLC and its lawyers deployed the now widespread legal
technology of inserting restrictive covenants into an internal governance
document. Businesses and their lawyers do that so they can invoke
Delaware’s contractarian regime and argue that it should override how
other jurisdictions regulate restrictive covenants.
That legal technology calls on the Delaware courts to adjudicate
post-employment disputes for the country and potentially the world. In
the past five years alone, the Court of Chancery has issued written
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decisions addressing disputes over restrictive covenants for businesses
operating in Hong Kong,1 Italy,2 Alabama,3 Arizona,4 California,5
Colorado,6 Idaho,7 Illinois,8 Louisiana,9 Nebraska,10 New Jersey,11 New
York,12 Oklahoma,13 and Texas.14 Only two businesses operated in
1 Ainslie v. Cantor Fitzgerald, L.P., 2023 WL 106924 (Del. Ch. Jan. 4, 2023).
2 AlixPartners, LLP v. Mori, 2022 WL 1111404 (Del. Ch. Apr. 14, 2022); AlixPartners,
LLP v. Mori, 2019 WL 6327325 (Del. Ch. Nov. 26, 2019).
3 HighTower Hldg., LLC v. Gibson, 2023 WL 1856651 (Del. Ch. Feb. 9, 2023); FP UC
Hldgs., LLC v. Hamilton, 2020 WL 1492783 (Del. Ch. Mar. 27, 2020).
4 Dunn v. FastMed Urgent Care, P.C., 2019 WL 4131010 (Del. Ch. Aug. 30, 2019).
5 Gener8, LLC v. Castanon, 2023 WL 6381635 (Del. Ch. Sept. 29, 2023); Sorrento
Therapeutics, Inc. v. Mack, 2023 WL 5670689 (Del. Ch. Sept. 1, 2023); UBEO Hldgs., LLC v.
Drakulic, 2021 WL 1716966 (Del. Ch. Apr. 30, 2021); Focus Fin. P’rs, LLC v. Holsopple, 250
A.3d 939 (Del. Ch. 2020); Focus Fin. P’rs, LLC v. Holsopple, 241 A.3d 784 (Del. Ch. 2020);
NuVasive, Inc. v. Miles, 2020 WL 5106554 (Del. Ch. Aug. 31, 2020); NuVasive, Inc. v. Miles,
2019 WL 4010814 (Del. Ch. Aug. 26, 2019); NuVasive, Inc. v. Miles, 2018 WL 4677607 (Del.
Ch. Sept. 28, 2018).
6 Mountain W. Series of Lockton Cos., LLC v. Alliant Ins. Servs., Inc., 2019 WL
2536104 (Del. Ch. June 20, 2019).
7 Kodiak Bldg. P’rs, LLC v. Adams, 2022 WL 5240507 (Del. Ch. Oct. 6, 2022).
8 Centurion Serv. Gp., LLC v. Wilensky, 2023 WL 5624156 (Del. Ch. Aug. 31, 2023).
9 AG Res. Hldgs, LLC v. Terral, 2021 WL 486831 (Del. Ch. Feb. 10, 2021).
10 Cabela’s LLC v. Wellman, 2018 WL 5309954 (Del. Ch. Oct. 26, 2018).
11 CelestialRX Invs., LLC v. Krivulka, 2019 WL 1396764 (Del. Ch. Mar. 27, 2019).
12 Intertek Testing Servs. NA, Inc. v. Eastman, 2023 WL 2544236 (Del. Ch. Mar. 16,
2023); Badger Hldg. LLC v. Kirsch, 2018 WL 4709563 (Del. Ch. Oct. 1, 2018).
13 Parks v. Horizon Hldgs., LLC, 2022 WL 2821337 (Del. Ch. July 20, 2022).
14 U.S. Legal Support, Inc. v. Lucido, 2021 WL 4940823 (Del. Ch. Oct. 22, 2021).
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Delaware, one of which filed two cases.15 That list excludes transcript
rulings.
For Delaware courts to address these matters is problematic
because the Delaware franchise depends on other states deferring to
Delaware law to govern the internal affairs of the entities that Delaware
charters. Delaware risks jeopardizing that deference if Delaware
accommodates efforts to use the internal governance documents of its
entities to override the law of other states on issues of great importance
to them.16
For Delaware courts to address these matters is unsustainable
because the Court of Chancery will never have sufficient resources to
adjudicate restrictive covenant cases for Delaware entities throughout
the world. The court’s core role is to resolve internal governance disputes
for Delaware entities. To Delaware’s good fortune, the number of its
entities has grown year over year. At the end of 2017, the starting point
for the five-year lookback that this decision has used, Delaware had
chartered more than 1.3 million entities.17 At the end of 2022, there were
over 1.9 million, reflecting aggregate growth of 46% and compound
annual growth of nearly 8%. At that rate, the number of Delaware
entities should easily crest 2 million in 2023.18 Because some number of
entities have disputes each year, more Delaware entities means more
disputes. It thus should come as no surprise that the court’s expansion
from five to seven constitutional judges in 2018 was not a permanent fix.
It enabled the court to meet 2018 demand, not future demand.
For the Court of Chancery to entertain restrictive covenant cases
from far and wide diverts the court’s attention from its core mission. And
it generates considerably more work. As this case shows, restrictive
covenant cases often start with an emergency application for a
15 Lyons Ins. Agency, Inc. v. Wark, 2020 WL 429114 (Del. Ch. Jan. 28, 2020); Lyons
Ins. Agency, Inc. v. Wilson, 2018 WL 4677606 (Del. Ch. Sept. 28, 2018); Physiotherapy Corp.
v. Moncure, 2018 WL 1256492 (Del. Ch. Mar. 12, 2018).
16 See Diedenhofen-Lennartz v. Diedenhofen, 931 A.2d 439, 451–52 (Del. Ch. 2007) (“If
we expect that other sovereigns will respect our state’s overriding interest in the
interpretation and enforcement of our entity laws, we must show reciprocal respect.”).
17Del. Div. of Corps., 2017 Annual Report, https://corp.delaware.gov/stats/2017-
annual-report/ (last visited Nov. 20, 2023).
18 Del. Div. of Corps., 2022 Annual Report, https://corp.delaware.gov/stats/ (last visited
Nov. 20, 2023).
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temporary restraining order, followed by a highly expedited motion for
a preliminary injunction. Rulings on those preliminary matters do not
end the case, which can continue to a trial on requests for permanent
injunctive relief and damages. The factual issues are difficult because
they frequently involve assertions about surreptitious activity and
betrayal, and the discovery disputes regularly involve questions about
spoliation. The legal questions are equally complex because they require
determining what law applies, parsing dense contractual clauses, and
balancing competing interests.
A solution needs to be found, and the market is unlikely to provide
it. This is an area where Delaware’s interests and the interests of its bar
as a whole conflict with the individual interests of clients and their
lawyers. For any single business, it makes sense for a lawyer to advise
the client to embed restrictive covenants in an internal governance
document. And for any single business faced with a dispute over those
restrictions, it makes sense for a lawyer to advise the client to file a
lawsuit in the Court of Chancery. In the aggregate, that is a recipe for a
tragedy of the commons.
A judicial solution is also unlikely, because judges decide specific
cases. Doubtless there are many combinations of fixes involving choice
of law, personal jurisdiction, and subject matter jurisdiction that could
address this burgeoning problem. But a cure requires the involvement
of policymakers beyond the courts.
Injunction Decision at 1–6.
Three days later, on November 25, 2023, I posted the Policy Excerpt—but not
any other part of the Injunction Decision—to my Linked-In account. I introduced the
Policy Excerpt with the following explanation:
Thanks to a now widespread legal technology, the Court of Chancery is
being asked to hear restrictive covenant cases brought by Delaware
companies doing business around the country and the world. As
described in this short excerpt from a recent decision, that trend is both
problematic and unsustainable. Finding a solution likely requires the
involvement of policymakers outside the courts. The issue cuts across
multiple areas of the law. Although entity law and the internal affairs
doctrine enable the technology to function, its effects implicate
employment law, conflicts of law, horizontal federalism, and civil
procedure. Hopefully some of the great minds out there can come up
with answers that could help the court prioritize its core mission of
17
resolving internal governance disputes for Delaware entities, while
reducing the extent to which the court’s judicial resources are devoted
to restrictive covenant cases that courts in other jurisdictions can hear
just as (if not more) efficiently and effectively.
Dkt. 209, Ex. 1.
One week after that, on December 2, 2023, I posted a follow-up piece on my
Linked-In account. I noted that after my earlier post, “I saw Professor John Coyle’s
post about his work on statutes that invalidate choice of law clauses and choice of
forum clauses. He reports that Delaware already has two of the former and three of
the latter.” Id., Ex. 2. Using ideas from Professor Coyle’s work, I suggested high level
amendments to 6 Del. C. § 2707 that could provide one method of limiting the
restrictive covenant trend. Id.
Those comments did not come out of the blue. I began speaking about the
trends identified in the Policy Excerpt in 2020. In a decision from that year, I
described what I saw as a developing issue:
Delaware court have confronted with increasing frequency situations in
which parties have attempted to use choice-of-law provisions selecting
Delaware law to bypass the substantive law of sister states. In this
court, the conflicts most often involve agreements containing restrictive
covenants. This court has also confronted a conflict between agreements
selecting Delaware’s contractarian regime and the substantive law of a
foreign jurisdiction. Other Delaware courts have confronted similar
issues in other contexts. Because Delaware’s role as a chartering
jurisdiction depends on other states deferring to the application of
Delaware law to the internal affairs of entities, the increasing frequency
with which parties use Delaware law to create conflicts with the
substantive law of other jurisdictions raises significant public policy
issues for this state.19
19 Focus Fin. P’rs, LLC v. Holsopple, 241 A.3d 784, 802 n.4 (Del. Ch. 2020) (citations
omitted).
18
In a decision issued the following month, I flagged similar concerns.20
The flow of restrictive covenant cases continued—even grew. So the following
year, I identified the issue again in a transcript ruling.21
In 2022, Professor Ann Lipton blogged about the trend.22 She later included a
reference to the transcript ruling in an article detailing concerns about the expanding
scope of the internal affairs doctrine.23 But no one else seemed to notice.
And still the cases came, prompting me to revisit the trend in another
transcript ruling.24 I also believe I mentioned the trend at conferences when
discussing the court’s heavy workload, but I cannot offer any citations to support my
recollection.
When the Sunder decision implicated the same issue, I elevated the Policy
Excerpt to its position in the introduction. I also posted that section of the decision to
my Linked-In account. With the exception of Professor Lipton, my earlier efforts to
20 See Focus Fin. P’rs, LLC v. Holsopple, 250 A.3d 939, 956–57 (Del. Ch. 2020).
21 Strategic Funding Source Hldgs. LLC v. Kirincic, C.A. No. 2021-0107-JTL, at 43–
44 (Del. Ch. Sept. 22, 2021) (TRANSCRIPT).
22Ann M. Lipton, New Challenges to the Internal Affairs Doctrine, The CLS Blue Sky
Blog (Dec. 19, 2022), https://clsbluesky.law.columbia.edu/2022/12/19/new-challenges-to-the-
internal-affairs-doctrine/.
23 See Ann Lipton, Inside Out (or, One State to Rule them All): New Challenges to the
Internal Affairs Doctrine, 58 Wake Forest L. Rev. 321 (2023); see also Mohsen Manesh, The
Corporate Contract and the Internal Affairs Doctrine, 71 Am. U. L. Rev. 501, 529–44 (2021).
See Iqvia Inc. v. Chalfant, C.A. No. 2022-1194-JTL (Del. Ch. Oct. 19, 2023)
24
(TRANSCRIPT).
19
raise awareness about the issue did not seem to have worked. I was trying again, and
admittedly attempting to use a louder voice.
Sunder never states clearly why it believes the Policy Excerpt and my Linked-
In posts are pertinent to the Application. Several possibilities exist.
One is that Sunder seeks to use the Policy Excerpt and my Linked-In posts to
highlight the importance of the restrictive covenant issues for interlocutory appeal,
hoping to distinguish its application from a run of the mill request. To that end,
Sunder seems at times to suggest that the Injunction Decision decided a substantial
issue because it is an example of the larger trend I have discussed.25 But the fact that
a larger trend has policy implications does not mean that a ruling in one particular
case has significance. The restrictive covenant trend is problematic and
unsustainable because of the volume of cases as a whole. If there were few restrictive
covenant cases, then the effect on the court’s workload would be marginal, and there
would be minimal risk of other jurisdictions becoming concerned about Delaware
courts treading on their police powers by determining whether to enforce restrictive
25 App. ¶ 8 (“Giving additional context to the importance of the Decision is that [sic]
fact that, since issuing the Decision, this Court has twice commented publicly that the trend
of ‘restrictive covenant cases brought by Delaware companies doing business around the
country and the world’ is ‘both problematic and unsustainable.’ Sunder respectfully submits
that, under the present state of the law, the Court of Chancery is the only clear forum for the
adjudication of disputes like this, despite a growing trend that appears to disfavor restrictive
covenant litigation in the Court of Chancery. However, Sunder also respects and
acknowledges this Court’s perspective that the Court of Chancery faces a substantial docket,
including restrictive covenant cases. The point is, this Court has issued an important
Decision, and that Decision is worthy of the attention of the Delaware Supreme Court as soon
as possible, without the need to wait until the end of a full trial (and before further restrictive
covenant lawsuits are filed).”).
20
covenants within their borders. The Injunction Decision is an individual case. The
Policy Excerpt does not make the case-specific issues it raises more or less significant.
A more cynical possibility is that Sunder cited the Policy Excerpt and Linked-
In posts to imply that my views on the larger policy issue biased my decision.26 I
26 For example, Sunder says:
The Court found it “problematic” that cases like this one are brought in
Delaware, however, and expressed that it would be “unsustainable” for the
Court of Chancery to preside over cases like this, where a Delaware entity
chose to include restrictive covenants in its operating agreement. The Court
then held that Sunder could not enforce its Operating Agreement because it
credited Jackson’s allegations (which Mr. Jackson is currently seeking leave to
assert) that Sunder’s CEO and President breached their fiduciary duties by not
explaining the Operating Agreement’s terms to him.
App. ¶ 4 (citation omitted). The word “then” does a lot of work here. The Injunction Decision
did not rely on the Policy Excerpt when analyzing the validity of the restrictive covenants,
and thirty-three pages separated the Policy Excerpt (which ended on page 6) from the section
titled “Lack of Enforceability Due To Breach of Duty” (which started on page 40). The latter
did not depend on the former.
Sunder later appears to seek the same post hoc ergo propter hoc inference. In
paragraphs 17 and 18 of its application, Sunder refers to the Policy Excerpt. In paragraph
19, Sunder sates, “[t]he Decision denied the PI Motion and its accompanying order dissolved
the Renewed TRO.” Id. ¶ 4. One did not lead to the other.
Sunder elsewhere says,
Sunder respectfully submits that Delaware courts—at least absent legislative
action, or a confirmation of the Decision—are the right place to adjudicate
these disputes. If that is not the case, however, and this Court’s indication that
LLCs like Sunder should not enforce their rights in the Court of Chancery,
then it serves Sunder, all Delaware LLCs, and the Court of Chancery itself to
have a clear pronouncement to that effect.
Id. ¶ 7. That is why the Policy Excerpt observed that “a cure requires the involvement of
policymakers beyond the courts,” and that is why the Injunction Decision stated that even
though the case might have been filed elsewhere, it was filed in Delaware and needed to be
decided. Injunction Decision at 6–7.
Along similar lines, Sunder states, “Sunder respectfully disagrees that it is
problematic to litigate a case like this before the Court of Chancery and respectfully submits
21
assume that was not Sunder’s intent, but to avoid any doubt, I will address it: The
views I expressed in the Policy Excerpt and Linked-In posts did not bias my
consideration of the issues Sunder presented. As I said in the Injunction Decision,
“[i]n an ideal world, this case would have been filed in Utah, Nevada, or Texas. But
the case is here, and it must be decided.” Injunction Decision at 7. I proceeded to
decide the case on its merits, not as part of a larger, policy-driven push to limit the
restrictive covenant cases brought in the Court of Chancery. Indeed, in my view, “a
cure requires the involvement of policymakers beyond the courts.” Id. at 6. This is not
an area where I think judges—and particularly not trial judges—can help
themselves.
Of course, I could be suffering from false consciousness. Looking to outward
signals, my approach to this case does not suggest a bias against Sunder’s positions.
I granted Sunder’s application for a TRO and its motion to expedite the case. Dkts.
10 & 11. I issued an order to show cause interpreting the TRO in a manner favorable
to Sunder. Dkt. 22. I denied a motion to send Sunder’s claims to arbitration. Dkt. 49.
I renewed the TRO over the defendants’ strong objections. Dkt. 52. I also set bond for
Sunder at a comparatively modest level and required only partial security because I
did not want a high bond to foreclose Sunder’s ability to proceed. Dkt. 114. If I were
that the Decision provides the Supreme Court with an opportunity to weigh in on the
important policy considerations surrounding restrictive covenant cases.” App. ¶ 27. The
Injunction Decision acknowledges that for any single company and counsel, it makes sense
to recommend proceeding as Sunder did. The result of those rational decisions in the
aggregate is what generates a tragedy of the commons. That is the issue that the Policy
Excerpt flagged, and that is why after identifying that issue, I decided the application.
22
biased against Sunder’s arguments, I did a poor job implementing those biases. And
if I wanted to rid myself of the case, I blew it by not dismissing the complaint in favor
of arbitration. Perhaps Sunder imagines that I did all that so I could work five long
days—including over a weekend—to issue a big opinion containing the Policy
Excerpt. There was no such plan.
An even more cynical possibility is that Sunder cited my Linked-In posts to
imply a deeper charge of judicial impropriety. Again, I assume that was not Sunder’s
intent, and I address the possibility only to remove any doubt. Canon 4 permits a
judge to engage in “activities to improve the law, the legal system, and the
administration of justice.”27 That canon does not expressly address social media posts,
but it says that “[a] judge may speak, write, lecture, teach, and participate in other
activities concerning the law, the legal system, and the administration of justice
(including projects directed to the drafting of legislation).”28 I included the Policy
Excerpt to identify a need—in my opinion—“to improve the law, the legal system, and
the administration of justice.” I posted the Policy Excerpt after concluding that the
post would fall within the category of writing concerning the law, the legal system,
and the administration of justice. I reached the same conclusion about my second
Linked-In post, which also related at a high level to the drafting of legislation.29
27 Delaware Judges’ Code of Judicial Conduct, Canon 4.
28 Id.
29 When I posted to my Linked-In account, I was careful only to reference the policy
issues. See Delaware Judges’ Code of Judicial Conduct, Canon 3, commentary (6) (“A judge
23
The Linked-In posts seem no different to me than the comments that my
colleagues and I often provide at conferences about our workload, including the types
of cases that contribute to it and possible solutions. The posts brought my comments
to a larger audience than a Practicing Law Institute seminar, an American Bar
Association event, or the Tulane Conference, but the content was the same. If I were
to write a law review article and say the same things, I do not think anyone would
complain. The medium may be different, but the canon operates similarly.
The Policy Excerpt and the Linked-In posts therefore do not demonstrate that
the Injunction Decision addressed a substantial issue suitable for appeal. The
Injunction Decision meets that test, but because of the rulings it made.
B. Whether The Issues Merit Appellate Review Before A Final Judgment
A ruling addressing a substantial issue is a necessary but not sufficient
condition for the certification of an interlocutory appeal. The trial court’s ruling also
must “merit[] appellate review before a final judgment.” Supr. Ct. R. 42(b)(i). The
Delaware Supreme Court has counseled that “[i]nterlocutory appeals should be
exceptional, not routine, because they disrupt the normal procession of litigation,
cause delay, and can threaten to exhaust scarce party and judicial resources.” Supr.
Ct. R. 42(b)(ii). When analyzing whether an issue merits appellate review before a
final judgment, Rule 42(b)(iii) instructs trial courts to consider eight factors. Sunder
relies on three.
should abstain from public comment on the merits of a pending or impending proceeding in
any court.”).
24
1. Whether Review Would Serve Considerations Of Justice
Sunder’s application succeeds by relying on the catchall eighth factor, which
asks whether “[r]eview of the interlocutory order may serve considerations of justice.”
Supr. Ct. R. 42(b)(iii)(H). In addressing this factor, I acknowledge that “the grant or
denial of a preliminary injunction is, itself, highly discretionary and where, as here,
the denial of injunctive relief is based on a finding that the plaintiff has failed the
burden of proving ultimate success, review [under Rule 42] is rarely granted.” Wilm.
Sav. Fund Soc’y, FSB v. Covell, 577 A.2d 756, 1990 WL 84687, at *1 (Del. May 16,
1990) (ORDER). Because injunction decisions are not ordinarily suitable for
interlocutory review, my reliance on the eighth factor requires some explanation.
As discussed previously, the rulings in the Injunction Decision effectively
rejected both Sunder’s right to enforce its restrictive covenants against Jackson and
its ability to sue the Freedom Defendants for tortious interference. Those rulings are
akin to a decision granting a motion to dismiss, which results in a final judgment that
gives rise to an immediate appeal.
The Injunction Decision did not reject all of Sunder’s claims, and Sunder could
continue to trial on theories limited to Jackson’s pre-resignation conduct. That
litigation, however, would be very different than the case Sunder wants to pursue.
The scope of fact and expert discovery would be narrower, the trial would be limited,
and Sunder’s potential remedies would be constrained.
The Injunction Decision is therefore more like a Rule 12(b)(6) decision that
dismisses the bulk of a case, but permits one comparatively narrow claim to proceed.
In that setting, entry of a partial final judgment under Rule 54(b) likely would be
25
warranted. That rule states that “[w]hen more than 1 claim for relief is presented in
an action, … the Court may direct the entry of a final judgment upon 1 or more but
fewer than all of the claims or parties only upon an express determination that there
is not just reason for delay and upon an express direction for the entry of judgment.”
When a motion to dismiss has resolved the bulk of the case, it is at least worth
considering entry of a partial final judgment under Rule 54(b), rather than litigating
the case to the end before the plaintiff can appeal. If the proceedings on the remaining
claims are comparatively focused and distinct, then moving forward with the case
makes more sense. But if an appeal at the end of the case would require a complete
do-over, then entry of a partial final judgment could well be warranted.
The current posture of this case thus resembles a scenario in which a court has
granted a motion to dismiss that disposes of the bulk of the claims, but where
litigation on the remaining claims necessarily overlaps with the dismissed claims. To
pick somewhat arbitrary percentages, if the case Sunder hoped to pursue
encompassed 100% of the factual, expert, and legal issues, then what remains will
involve perhaps 20%. Litigating that case will be costly, and yet if the Delaware
Supreme Court were to reverse the rulings in the Injunction Decision after a final
judgment, then everyone will have to start over for a complete re-do.
There is a significant benefit to an appeal now. Receiving the Delaware
Supreme Court’s views on the legal issues will establish the shape of the case for
purposes of discovery and trial, enabling the parties and me to proceed in conformity
with those views. Having final answers on those legal questions negates the risk that
26
the parties and I could expend significant efforts litigating the case through a post-
trial decision, only for the justices to hold that Sunders’ claims for breach of the
restrictive covenants should have gone forward because legal issues were outcome-
determinative on key defenses.30
Although that means the Delaware Supreme Court would hear the appeal now,
the high court will likely have to hear an appeal on these issues in any event. Sunder
is not likely to go away. They previously rejected a $10 million offer from Freedom to
release Jackson from his restrictive covenants and transition his team. They have
maintained that Jackson’s actions are causing them irreparable harm. They seem
committed to pushing the case to the end, meaning that the justices will likely have
to address the issues raised by the Injunction Decision at some point. If the justices
entertain the appeal now, then their effort will not be wasted, because those rulings
will be law of the case.
My experience with the Stream TV litigation informs my view on how
considerations of justice affect the timing of the appeal. There, as here, I denied a
preliminary injunction application, which in that case allowed a transaction to
cbetween a debtor and its secured creditor.31 No one sought interlocutory review. For
over a year, the case continued at my level, with the creditor-buyer operating the
30 E.g., Boardwalk Pipeline P’rs, LP v. Bandera Master Fund LP, 288 A.3d 1083, 1088
(Del. 2022) (reversing lengthy post-trial decision following multi-year litigation based on two
issues of law); Oxbow Carbon & Mins. Holdings, Inc. v. Crestview-Oxbow Acquisition, LLC,
202 A.3d 482, 502 (Del. 2019) (reversing lengthy post-trial decision in multi-year litigation
based on issue of law).
31 See Stream TV Networks, Inc. v. SeeCubic, Inc., 250 A.3d 1016 (Del. Ch. 2020).
27
assets and investing in the business. After replacing counsel, the plaintiff moved for
partial summary judgment, resulting in a Rule 54(b) order and an appeal.32 After
another six months, the Delaware Supreme Court reversed on one point of law, which
was sufficient to render the transaction agreement void.33 That reversal triggered an
avalanche of complex issues, including how to rescind the transaction and unwind
nearly two years’ of operational decisions, along with efforts by the company’s secured
creditors to obviate that result. On remand, I confronted a series of expedited
motions, and I appointed a receiver to get a handle on the factual complexities.34 The
32 See Stream TV Networks, Inc. v. SeeCubic, Inc., 2021 WL 5816820 (Del. Ch. Dec. 8,
2021), rev’d in part, vacated in part, 279 A.3d 323 (Del. 2022).
33 Stream TV Networks, Inc. v. SeeCubic, Inc., 279 A.3d 323 (Del. 2022).
34 E.g., Hawk Inv. Hldgs., Ltd. v. Mediatainment, Inc., 2023 WL 3099122 (Del. Ch.
Apr. 26, 2023) (ORDER) (order granting motion to dismiss); Stream TV Networks, Inc. v.
Seecubic, Inc., 2023 WL 3099113 (Del. Ch. Apr. 26, 2023) (ORDER) (order denying motion to
dismiss); Stream TV Networks, Inc. v. Seecubic, Inc., 2023 WL 3099112 (Del. Ch. Apr. 26,
2023) (ORDER) (order denying motion to intervene); Hawk Inv. Hldgs. Ltd. v. Stream TV
Networks, Inc., 2023 WL 1963091 (Del. Ch. Feb. 10, 2023) (ORDER) (order granting motion
to file amended complaint); Hawk Inv. Hldgs. Ltd. v. Stream TV Networks, Inc., 2023 WL
1816922 (Del. Ch. Feb. 4, 2023) (ORDER) (order granting motion to set cash bond); Hawk
Inv. Hldgs. Ltd. v. Stream TV Networks, Inc., 2022 WL 17661578 (Del. Ch. Dec. 14, 2022)
(ORDER) (order denying motion for reargument); Hawk Inv. Hldgs. Ltd. v. Stream TV
Networks, Inc., 2022 WL 17258460 (Del. Ch. Nov. 29, 2022) (memorandum opinion granting
partial summary judgment); In re Stream TV Networks, Inc. Omnibus Agr. Litig., 2022 WL
16860930 (Del. Ch. Nov. 9, 2022) (ORDER) (order granting motion to intervene); Hawk Inv.
Hldgs. Ltd. v. Stream TV Networks, Inc., 2022 WL 16860942 (Del. Ch. Nov. 9, 2022) (ORDER)
(order denying motion to compel); Hawk Inv. Hldgs. Ltd. v. Stream TV Networks, Inc., 2022
WL 12615549 (Del. Ch. Oct. 20, 2022) (ORDER) (status quo order); Stream TV Networks, Inc.
v. Seecubic, Inc., 2022 WL 11388785 (Del. Ch. Oct. 19, 2022) (ORDER) (order denying motion
for contempt); In re Stream TV Networks, Inc., 2022 WL 10029844, at *1 (Del. Ch. Oct. 14,
2022) (ORDER) (order addressing motion for clarification); In re Stream TV Networks, Inc.
Omnibus Agr. Litig., 283 A.3d 1183 (Del. Ch. 2022) (opinion imposing sanction for contempt);
In re Stream TV Networks, Inc. Omnibus Agr. Litig., 2022 WL 4989617 (Del. Ch. Oct. 3, 2022)
(ORDER) (order denying emergency motion to enforce order); In re Stream TV Networks, Inc.
Omnibus Agr. Litig., 2022 WL 4772886 (Del. Ch. Sep. 30, 2022) (ORDER) (order denying
application for mandatory injunction); Stream TV Networks, Inc. v. Seecubic, Inc., 2022 WL
28dispute eventually shifted to the bankruptcy court, where (to my knowledge) it
continues.35
If only I had known about my error shortly after denying the preliminary
injunction, so much work and so many headaches might have been avoided. Sadly, no
one sought an appeal at that time, so there was no vehicle for obtaining timely insight
into the Delaware Supreme Court’s views. Here, Sunder seeks that insight. My
experience in the Stream TV case suggests that having those views will be highly
beneficial such that considerations of justice warrant interlocutory review.
2. Whether Decisions Of The Trial Courts Conflict
Another factor that Sunder cites weakly supports interlocutory review. Rule
42 calls on a trial court to consider whether “[t]he decisions of the trial courts are
conflicting upon the question of law.” Supr. Ct. R. 42(b)(iii)(B). Sunder argues that
“[o]ver the past few years, there has been a growing trend that disfavors restrictive
4398448 (Del. Ch. Sep. 22, 2022) (ORDER) (order denying application for special master);
Stream TV Networks, Inc. v. Seecubic, Inc., 2022 WL 4356510 (Del. Ch. Sep. 16, 2022)
(ORDER) (order denying application to modify temporary restraining order); Stream TV
Networks, Inc. v. Seecubic, Inc., 2022 WL 4356514 (Del. Ch. Sep. 16, 2022) (ORDER) (order
granting motion for costs); In re Stream TV Networks, Inc. Omnibus Agr. Litig., 2022 WL
4491925 (Del. Ch. Sept. 28, 2022) (memorandum opinion declining to modify partial final
judgment); Stream TV Networks, Inc. v. Seecubic, Inc., 2022 WL 3283863 (Del. Ch. Aug. 10,
2022) (ORDER) (order granting motion for partial final judgment implementing Delaware
Supreme Court decision); Stream TV Networks, Inc. v. Seecubic, Inc., 2022 WL 3227785 (Del.
Ch. Aug. 9, 2022) (ORDER) (order granting motion for temporary restraining order); Stream
TV Networks, Inc. v. Seecubic, Inc., 2022 WL 2902646 (Del. Ch. July 20, 2022) (ORDER)
(order granting status quo order); Stream TV Networks, Inc. v. SeeCubic, Inc., 2022 WL
17970594 (Del. Ch. July 5, 2022) (ORDER) (order granting motion to amend).
35 The Delaware Supreme Court’s decision also prompted the General Assembly to
amend the Delaware General Corporation Law. See 2023 Del. Laws ch. 98 (2023) (S.B. 114)
(amending 8 Del. C. § 272).
29
covenant litigation in the Court of Chancery.”36 Sunder posits that this “stands in
contrast to prior longstanding Delaware case law that was less reluctant to blue
pencil restrictive covenants.”37 Sunder argues that the Delaware Supreme Court
should have the ability to weigh in on this question.
Sunder has not pointed to any direct conflicts between trial-level decisions.
Candidly, however, there is a sense in which Delaware decisions over the past decade
have paid greater attention to the real-world effects of restrictive covenants, the
bargaining dynamics in which they arise, and the incentives employers have to
include ever more favorable provisions in their form agreements. There has also been
a growing societal understanding regarding the implications of restrictive covenants
which has led to more jurisdictions limiting their use, as well as federal initiatives.
From a big picture standpoint, it does seem like more recent Delaware decisions have
been less likely to enforce the full scope of restrictive covenants and related provisions
designed to protect them from challenge (such as stipulations as to reasonableness
and blue-penciling requirements). The difference is a matter of degree, because prior
decisions considered these factors as well.38 The difference also may stem from the
36 App. ¶ 36. In addition to the Injunction Decision, Sunder cites Centurion Services
Gp., LLC v. Wilensky (Del. Ch. Aug. 31, 2023), and Ainslie v. Cantor Fitzgerald, L.P., 2023
WL 106924 (Del. Ch. Jan. 4, 2023).
37 App. ¶ 36. Sunder cites Del. Express Shuttle, Inc. v. Older, 2002 WL 31458243, at
*11-13 (Del. Ch. Oct. 23, 2002); RHIS, Inc. v. Boyce, 2001 WL 1192203, at *1 (Del. Ch. Sept.
26, 2001); Norton Petroleum Corp. v. Cameron, 1998 WL 118198, at *3 (Del. Ch. Mar. 5, 1998).
38 See, e.g., Del. Elevator, Inc. v. Williams, 2011 WL 1005181, at *10–11 (Del. Ch. Mar.
16, 2011); Elite Cleaning Co., Inc. v. Capel, 2006 WL 1565161, at *4 (Del. Ch. June 2, 2006);
TriState Courier & Carriage, Inc. v. Berryman, 2004 WL 835886, at *15 (Del. Ch. Apr. 15,
2004).
30
fact that the provisions have simply become more onerous over time. But at a high-
level, Sunder’s impression is not unfounded.
If the Delaware Supreme Court wants this court to afford less significance to
context, defer to provisions designed to protect covenants from challenge, enforce
broad restrictive covenants as written, and generally prioritize contract law over
equity in this setting, then it would be helpful to know that. But because the Delaware
Supreme Court could provide that guidance just as easily in an appeal from a final
judgment, this factor only weakly supports the Application. What warrants
interlocutory appeal in this case is that when the justices provide guidance makes a
difference, not whether they provide guidance.
3. Whether Review May Terminate The Litigation
A final factor that Sunder cites does not support interlocutory review. Rule 42
asks the trial court to consider whether “[r]eview of the interlocutory order may
terminate the litigation.” Supr. Ct. R. 42(b)(iii)(G). According to Sunder, “if the Court
reverses the Decision and finds that Sunder’s contract claims are valid, there would
be little need to continue the litigation, as the Court has already found that Sunder
has proven that Jackson violated both Covenants.” App. ¶ 41. Not so.
If the Delaware Supreme Court were to reverse the Injunction Decision and
uphold the full breadth of the restrictive covenants, then there are numerous issues
that remain to be litigated. True, the restrictive covenants are sufficiently expansive
that Jackson would be in breach. But the Delaware Supreme Court’s ruling would
not be enough to trigger the issuance of a preliminary injunction, much less a
permanent injunction or an award of damages. The issue of causation looms large,
31
and the balancing of the hardships has not yet been addressed. The parties have done
nothing on the damages front.
Thus, rather than there being “little need to continue the litigation,” the case
would go on, and there would still be a lot to do. This factor therefore does not favor
certifying an interlocutory appeal.
C. The Balancing
As a final step, Rule 42 directs the trial court to engage in balancing:
After considering [the eight] factors and its own assessment of the most
efficient and just schedule to resolve the case, the trial court should
identify whether and why the likely benefits of interlocutory review
outweigh the probable costs, such that interlocutory review is in the
interests of justice. If the balance is uncertain, the trial court should
refuse to certify the interlocutory appeal.
Supr. Ct. R. 42(b)(iii). There must be “substantial benefits that will outweigh the
certain costs that accompany an interlocutory appeal.” Id.In this case, the balancing supports interlocutory review. Although the
Injunction Decision denied a request for preliminary relief, the posture of the case is
more analogous to a ruling dismissing the bulk of a plaintiff’s claims where a court
would enter a partial final judgment under Court of Chancery Rule 54(b). Admittedly,
certifying an interlocutory appeal and entering partial final judgments are different
things, but they both facilitate an early appeal. The same considerations that would
warrant entry of a partial final judgment support granting the Application.39
39 Using a trial court’s power to manage its docket, I likely could maneuver this case
into a posture where I could enter final judgments under Rule 54(b). “Delaware trial courts
have inherent power to control their dockets.” Solow v. Aspect Res., LLC, 46 A.3d 1074, 1075
(Del. 2012). That authority includes determining how to proceed for the “orderly adjudication
32
As discussed previously, an interlocutory appeal is preferable at this stage
because it will generate substantial benefits for the parties and the trial court, while
the costs of an appeal are likely to be incurred regardless. With definitive answers on
key legal issues, the parties and the trial court can determine the scope of the case
going forward. While an appeal on those issues is likely in any event, if that appeal
happens at the end of the case, then reversal will require a complete do-over. If the
appeal happens now, then the case can be litigated in conformity with the Delaware
Supreme Court’s rulings.
III. CONCLUSION
Ultimately, whether to permit an interlocutory appeal lies in the discretion of
the Delaware Supreme Court. The justices’ views, not mine, determine whether
of claims.” Unbound P’rs Ltd. P’ship v. Invoy Hldgs. Inc., 251 A.3d 1016, 1030 (Del. Super.
2021) (cleaned up). Rule 1 instructs the members of this court that the rules “shall be
construed, administered, and employed by the Court and the parties, to secure the just,
speedy and inexpensive determination of every proceeding.” Ct. Ch. R. 1. Commenting on the
sibling federal rule, a leading treatise states that “[t]here probably is no provision in the
federal rules that is more important than this mandate. It reflects the spirit in which the
rules were conceived and written, and in which they should be interpreted.” 4 Charles Alan
Wright, Arthur R. Miller & Adam N. Steinman, Federal Practice and Procedure § 1029 (4th
ed.), Westlaw (database updated Apr. 2023). Court of Chancery Rule 16(a) similarly
contemplates that a court may take steps to “formulat[e] and simplif[y] ... the issues” and to
address “[s]uch other matters as may aid in the disposition of the action.” Id. 16(a)(1), (5).
The same authoritative treatise explains that “case management [is] an express goal of
pretrial procedure.” 6A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal
Practice and Procedure § 1521 (3d ed.), Westlaw (database updated Apr. 2023). To that end,
the Advisory Committee’s note to the federal rule emphasizes the need for “a process of
judicial management that embraces the entire pretrial phase.” Fed. R. Civ. P. 16 advisory
committee’s note to 1983 amendment. The commentary recognizes that “[t]he timing of any
attempt at issue formulation is a matter of judicial discretion.” Id. Exercising this authority,
I could direct either or both sides to file and brief motions for summary judgment that could
result in orders suitable for entry under Rule 54(b). The purpose of doing that would be to set
up an appeal (which the Delaware Supreme Court still could reject). It seems more
transparent to grant the Application and recommend acceptance of an interlocutory appeal.
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Sunder’s request will be granted. This court’s role under Rule 42 is to make a
recommendation. In this case, my recommendation is for the Delaware Supreme
Court to accept the interlocutory appeal.
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