L & W Insurance Inc. v. Harrington, (Del. Ch., March 12, 2007), read opinion here. In this Chancery Court action, the Court denied a Motion for Preliminary Injunction to enforce non-solicitation covenants contained in an employment contract due to the prior material breach by the former employer seeking enforcement. It is notable that there was no clause in the agreement that prohibited post-termination competition, as opposed to post-termination solicitation of former clients.
The procedural timing is illustrative and provides insight into how these matters are scheduled often times in Chancery Court where injunctive relief is sought. The complaint was filed on February 9. On February 13 the Court heard argument on a Motion for TRO. Although that motion was denied, the Court allowed for expedited scheduling to consider a preliminary injunction request. The Court heard argument on that Motion for Preliminary Injunction on February 21.
The context of the request for injunctive relief, in light of a mandatory arbitration clause, was whether there would be a likelihood of success on the claims that would be presented to arbitration. The 33-page decision includes helpful descriptions of the prerequisites for obtaining injunctive relief in the context of mandatory arbitration.
The Court noted that because the underlining dispute was subject to mandatory arbitration “the analysis of the merits of the underlying claims may be more limited and requires the party to establish a reasonable probability that its arbitration position is sound and that it will be irreparably injured in the interim before the arbitration is concluded."
The Court found that the former employer materially breached the Employment Agreement by withholding certain commissions from the paycheck of the former employee, prior to the employee’s resignation, and therefore, was not entitled to enforcement of the agreement that it breached.