350, 2024
Del.May 2, 2025Background
- Dr. Heather Barton was employed by Seaside Gastroenterology Consultants and subject to a two-year, ten-mile non-compete clause in her employment agreement, which included a $100,000 liquidated damages provision for breach.
- In early 2021, Barton gave notice of her resignation, and not long before her departure, Seaside sold its tangible assets to another company, AmSurg; Dr. Caruso, Seaside’s principal, entered new employment with AmSurg effective July 2021.
- Barton began working at a nearby competitor (Beebe Healthcare) in June 2021, within the distance and time restrictions of the non-compete.
- Seaside sued Barton for breach of the non-compete, seeking the $100,000 liquidated damages; Barton did not pay and defended on the grounds that Seaside was no longer competing when she began her new position.
- The Superior Court granted summary judgment for Barton, finding Seaside was not operating when Barton left, so the liquidated damages clause was an unenforceable penalty, not protecting any business interest.
- On appeal, the Delaware Supreme Court concluded there was a disputed fact as to whether Seaside was still operating when Barton joined the competitor, reversed summary judgment, and remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of liquidated damages provision in non-compete | Barton breached a valid, reasonable clause; damages due | No enforceable clause: Seaside was not operating, so no business interest/damages | Disputed fact if Seaside still operating; must resolve before decision |
| Whether Seaside was operating when Barton took competing job | Seaside continued operating past asset sale; Barton competed | Seaside stopped seeing patients before Barton started at Beebe | Factual dispute remains; requires remand for resolution |
| Reasonableness of liquidated damages | $100,000 reflects parties’ estimation of unascertainable damages | Amount is not contestable, but no damages possible if not competing | Clause is reasonable if tied to existing business interest |
| Whether enforcement would be a penalty or reasonable estimate | Not a penalty; based on estimable loss from competition | Pure penalty if no business operating to be harmed | Depends on factual finding about business operations |
Key Cases Cited
- Delaware Bay Surgical Servs., P.C. v. Swier, 900 A.2d 646 (Del. 2006) (discussing enforceability of liquidated damages provisions and non-compete context)
- Lee Builders, Inc. v. Wells, 103 A.2d 918 (Del. Ch. 1954) (setting reasonableness standard for liquidated damages)