March 04, 2026|Franchise Frontlines
March 4, 2026 | Court of Chancery of Delaware | Unpublished Opinion — Not Reported in Atl. Rptr. (2026 WL 599148)
Executive Summary
In an unpublished Final Report issued under Court of Chancery Rule 144, Magistrate in Chancery Hume, IV of the Court of Chancery of Delaware recommended dismissing a suit to enforce restrictive covenants that a national restoration contractor had obtained when it acquired a regional Tennessee competitor. Plaintiff BluSky Restoration Contractors, LLC alleged that former owner-executives John David Robbins and Christopher J. Popwell breached the non-competition, non-solicitation, confidentiality, and return-of-materials provisions contained in a 2019 equity purchase agreement, contemporaneous employment agreements, and later parent-company incentive-unit agreements when they resigned in 2024 and launched a competing restoration business; BluSky sought a preliminary injunction and, alternatively, damages. Robbins and Popwell moved to dismiss under Rule 12(b)(6), arguing that every covenant was unenforceable because its geographic, temporal, and substantive scope — including its sweep of undefined “affiliates” — reached far beyond the regional business BluSky actually purchased. Addressing the motion to dismiss first, the magistrate agreed on this record that the covenants were overbroad and unenforceable, declined to “blue pencil” them to a reasonable core, and — because BluSky could not then show a reasonable probability of success on the merits — recommended that the preliminary injunction be denied and the motion to dismiss be granted on all counts.
Relevant Background
BluSky Restoration Contractors, LLC is a national restoration contractor that describes itself as having locations “coast to coast,” operating 60 corporate and regional offices across 27 states and providing mitigation, construction, renovation, general contracting, environmental, roofing, and catastrophe-response services. John David Robbins and Christopher J. Popwell co-founded Sharp, Robbins & Popwell, LLC (SRP), a Tennessee-based restoration and mitigation business, where they served as vice presidents overseeing operations, finances, and strategy. On December 20, 2019, BluSky acquired SRP through an Equity Purchase Agreement (EPA) for a price described as in the “tens of millions,” and integrated SRP into its national platform. The EPA contained non-competition and non-solicitation covenants binding Robbins and Popwell.
That same day, Robbins and Popwell each signed Employment Agreements (EAs) with BluSky — Robbins as a Senior Vice President and Popwell as a Regional Vice President — at annual salaries of $300,000 plus the opportunity to earn bonuses. The EAs contained their own non-competition, non-solicitation, and confidentiality provisions. In 2022, after the defendants had worked for BluSky for nearly five years, BluSky’s parent, KPSKY, granted them incentive units (396 to Robbins and 795 to Popwell) under agreements that included a separate Restrictive Covenants Agreement (RCA) covering non-competition, non-solicitation, confidentiality, and return of materials.
Robbins and Popwell resigned in September 2024 and, on or about October 3, 2024, formed Midsouth Property Maintenance, LLC (MPM), a Tennessee company offering restoration services similar to BluSky’s; the complaint alleged they had retained thousands of BluSky files. BluSky filed a verified amended complaint asserting six breach-of-contract counts — one against each defendant under the EPA, the EAs, and the RCAs — and moved for a preliminary injunction, while the defendants moved to dismiss under Rule 12(b)(6). At oral argument, BluSky conceded that the restrictive covenants had lapsed and that it could therefore no longer obtain injunctive relief.
Decision
Taking the well-pleaded allegations as true under the Rule 12(b)(6) “reasonable conceivability” standard, the magistrate declined to enforce the covenants mechanically, subjecting them to heightened scrutiny as agreements “restrictive of trade.” Delaware requires each covenant to (1) be reasonable in temporal and geographic scope, (2) advance the enforcing party’s legitimate economic interest, and (3) survive a balancing of the equities. Because the EPA covenants arose from the purchase of a business, the magistrate applied the “less searching inquiry” Delaware affords sale-of-business restraints, but stressed that even a relatively broad sale covenant “must be tailored to the competitive space reached by the seller and serve the buyer’s legitimate economic interests.”
On this record, the magistrate found the geographic reach fatal. SRP was a regional, Tennessee-based business, yet the EPA barred competition “anywhere in the world” for five years, and the EA and RCA covenants swept at least nationwide and beyond. A buyer’s legitimate interest, the report reasoned, extends only to the goodwill and “competitive space” of the acquired company — not the acquirer’s own far larger footprint — so a worldwide ban reaching “beyond even BluSky’s nationwide business footprint” could not stand. The magistrate rejected BluSky’s contention that it could simultaneously claim the leniency of the sale-of-business context and the broader reach of a standalone employment relationship, observing that “BluSky cannot have it both ways.” The defendants’ contractual acknowledgment that the restraints were reasonable did not bind the court, which had “shunned perfunctory acceptance of these arrangements.”
The magistrate also condemned the covenants’ substantive breadth. The undefined sweep of “affiliates” extended the restraints to upstream and downstream corporate entities — and, as written, even to the defendants’ children — capturing conduct with no connection to the purchased goodwill and creating the risk, flagged in Delaware precedent, that “a restrained party could unknowingly breach the covenant.” The non-solicitation provisions were independently overbroad because they barred any “attempt to induce” employees or “attempt to persuade” customers — language the court found “fatally overbroad” for reaching noncompetitive conduct. The confidentiality and return-of-materials provisions fared no better: the magistrate analyzed them under the restrictive-covenant framework, rejecting BluSky’s argument (drawn from Martin Marietta) that a confidentiality clause is merely an ordinary contract, and found them substantively unbounded and lacking any temporal limit.
Balancing the equities, the magistrate concluded that the “tens of millions” BluSky paid compensated the defendants for SRP’s regional goodwill, not for a nationwide or worldwide restraint, and that the pleaded facts did not show adequate consideration for the later incentive-unit covenants. The report declined to “blue pencil” the provisions to a reasonable core, reasoning that judicial rewriting 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.” With every covenant unenforceable, BluSky could not show a reasonable probability of success on the merits, and the magistrate recommended denying the preliminary injunction and granting the motion to dismiss on all counts in a Final Report under Rule 144.
Looking Forward
Although this is an unpublished magistrate’s report in a sale-of-business and employment dispute — not a franchise case — its reasoning may inform how courts approach the restrictive covenants that pervade franchise agreements, area-development agreements, and franchisor acquisitions of franchisee operations. Franchisors and branded systems draft non-competes, non-solicits, and confidentiality clauses as a matter of course, and Delaware’s Court of Chancery remains an influential forum whose covenant analysis courts elsewhere may find persuasive. The decision is a useful, cautionary reminder that a covenant’s enforceability can turn less on the conduct it targets than on how carefully its scope was drafted.
The central defense-side lesson is calibration to the protectable interest. The report’s core objection was that BluSky defined its restraints by reference to its own national enterprise rather than the regional business it actually acquired. A franchisor negotiating a covenant against a departing multi-unit operator, a selling franchisee, or a covered executive could face similar skepticism if the geography tracks the entire brand’s footprint rather than the territory the covered party actually served, or if duration and territory are not tailored to one another. Systems reviewing their templates may wish to tie geographic scope and duration to the specific unit, territory, or goodwill genuinely at stake, and to treat a counterparty’s boilerplate “reasonableness” acknowledgment as no substitute for a defensible scope, since this court gave that acknowledgment no weight.
Two further drafting cautions stand out. First, expansive defined terms — “affiliate,” “Company Parties,” “Restricted Business” — that reach unrelated corporate entities (or, here, family members) may hand a court a ready basis to condemn an entire covenant as overbroad; precisely defining covered parties may better protect the interest actually at risk. Second, the magistrate’s refusal to blue-pencil is a warning against drafting aggressively in reliance on judicial rescue: in a jurisdiction that declines to narrow overbroad restraints, an overbroad covenant can be an unenforceable one, with no protection salvaged. None of these points is controlling outside this record, but franchisors and employers may find this report a helpful prompt to test each restrictive covenant against the specific competitive footprint it is meant to protect — before a court does.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case. It was drafted with the assistance of an artificial intelligence system. AI systems can make mistakes, including in describing legal authority. Readers should independently confirm any legal authority before relying on it.
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