Companies engaged in business transactions governed by Delaware law should be mindful of the scope being established by these cases when drafting restrictive covenant provisions.
Continuing its trend of striking down overbroad restrictive covenants in the sale-of-business context, the Delaware Court of Chancery on March 4, 2026, struck down a worldwide noncompetition provision that expanded far beyond the seller’s regional footprint in BluSky Restoration Contractors, LLC v. Robbins & Popwell (Del. Ch. C.A. No. 2025-0726-DH). BluSky, like Intertek Testing Services NA, Inc. v. Eastman, 2023 WL 2544236 (Del. Ch. Mar. 16, 2023) before it and Kodiak Building Partners, LLC v. Adams, 2022 WL 5240507 (Del. Ch. Oct. 6, 2022) before that, is another example of the court closely scrutinizing restrictive covenants under the sale-of-business standard to determine whether they go beyond the legitimate business interests of the buyer in protecting the business sold. Consistent with its predecessors, Kodiak and Intertek, the court refused to “blue pencil” or otherwise reform the overbroad restrictive covenants in BluSky. Companies engaged in business transactions governed by Delaware law should be mindful of the scope being established by these cases when drafting restrictive covenant provisions.
BluSky, a national restoration contractor, acquired a company co-founded by the individually named defendants—the seller parties John David Robbins and Chris Popwell—in December 2019. In connection with the sale and integration process, the seller parties signed an equity purchase agreement, employment agreements and incentive unit agreements with BluSky’s parent company. Each contract contained restrictive covenant provisions.
A few years after the acquisition, the seller parties resigned to launch their own competing venture. BluSky sued them for breach of their obligations under the various restrictive covenant provisions and moved for a preliminary injunction seeking to enjoin Robbins and Popwell from using certain allegedly misappropriated BluSky confidential materials, soliciting BluSky customers and employees, and competing unfairly with BluSky. The seller parties moved to dismiss, arguing the covenants were unenforceable.
The seller parties argued that the restrictive covenants were unenforceable because they failed to protect any legitimate business interest and because they were overbroad geographically, temporally and substantively in scope. BluSky maintained the covenants were reasonable, not as broad as defendants argued and that any overbreadth could be salvaged through blue penciling.
The court granted the seller parties’ motion to dismiss and denied BluSky’s motion for preliminary injunction, holding that the restrictive covenants were unenforceable. The court found the five-year, worldwide noncompete and nonsolicits in the purchase agreement far more expansive that the purchased entity’s regional footprint, and thus lacking appropriate geographic limits. The court also found that the restrictive covenants were substantively overbroad by prohibiting “attempts” to “induce” or “persuade” customers or employees and including “affiliates” in the coverage of the provisions. Thus, the court held, the restrictive covenants exceeded BluSky’s legitimate business interests in the acquired entity’s goodwill and business footprint.
BluSky urged the court to blue pencil the overbroad restrictive covenants. The court declined to do so, stating, “[i]f I blue pencil these provisions, it would eliminate the goal—requiring parties to draft restrictions specifically tailored to the parties’ circumstances and legitimate business interests.” The court added the risk in blue penciling is that it would “incentivize future parties to compose restrictions without appropriate accuracy and precision, certain in the belief that the Court would be a safety net for any overreach.”
What This Means for Buyers
Delaware courts continue to closely scrutinize restrictive covenants—even in the sale-of-business context—that, in the court’s estimation, exceed the legitimate business interests of the acquirer. Although none of these cases impose a bright-line, one-size-fits-all rule in the sale of a business context, following Kodiak, Intertek and now BluSky, buyers should be aware that—absent distinguishing or extenuating circumstances—the Court of Chancery is not keen on enforcing covenants seeking to restrict competition beyond the geographic scope of the acquired entity. Moreover, the majority of the vice chancellors on the Delaware Court of Chancery remain reluctant to blue pencil or otherwise reform restrictive covenants in many circumstances, and instead prefer placing the burden on drafters to narrowly tailor restrictions to the relevant competitive space that serve the buyer’s legitimate economic interests.
Buyers and sellers should consult with counsel to review and tailor the restrictive covenants in the sale-of-business agreements.
For More Information
If you have any questions about this Alert, please contact Shannon Hampton Sutherland, Lawrence H. Pockers, Brandon Harper, any of the attorneys in our Trade Secrets and Non-Compete Group or the attorney in the firm with whom you are regularly in contact.
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