Breach of Restrictive Covenant-Unjust Enrichment

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7^th Circuit Court of Appeals

Case Name: LKQ Corporation v. Robert Rutledge

Case No.: 23-2330

Officials: Scudder, St. Eve, and Lee, Circuit Judges.

Focus: Breach of Restrictive Covenant-Unjust Enrichment

LKQ Corporation sued its former Plant Manager, Robert Rutledge, who left the company to work for a competing firm. LKQ aimed to recoup profits Rutledge gained from multiple stock sales over several years, citing a forfeiture-for-competition clause in their Restricted Stock Unit Agreements.

The central legal question pertains to the extent of Delaware law’s application concerning forfeiture-for-competition clauses. These clauses mandate that ex-employees relinquish certain benefits upon joining a competitor. A recent decision by the Delaware Supreme Court established that such provisions are not subject to a reasonableness assessment. However, the Seventh Circuit questioned whether this ruling extends beyond highly sophisticated parties.

While affirming the lower court’s ruling in Rutledge’s favor regarding breach of the Restrictive Covenant Agreements and unjust enrichment claims, the court recognized the complexity of the Delaware law issue. Consequently, it opted to submit queries to the Delaware Supreme Court for clarification. Specifically, the certified questions seek clarification on whether the Delaware Supreme Court’s decision regarding forfeiture-for-competition clauses applies beyond the realm of limited partnerships and, if not, the criteria governing its application.

Decided 03/15/24

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