Coface Collections North America Inc. v. William Newton
430 F. App'x 162
3rd Cir.2011Background
- Coface, a Delaware corporation, acquired Newton & Associates’ assets under an Asset Purchase Agreement that included a five-year non-compete and other restrictive covenants, with Delaware law governing the agreement.
- Newton, former Coface President, left in 2008 and formed his own consulting business, then started Newton Clark in January 2011, allegedly violating the covenants.
- Coface sought a preliminary injunction to enforce the non-compete, arguing it would be irreparably harmed absent relief.
- Newton admitted the parties chose Delaware law to govern the agreement and that the non-compete would be enforceable under Delaware law, creating a basis for injunctive relief if applicable.
- The District Court held Delaware law applied under the agreement’s choice-of-law clause and granted the preliminary injunction; Newton appealed to the Third Circuit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Which law governs the non-compete clause? | Coface: Delaware law governs per §11.5; enforceable non-compete. | Newton: Louisiana law should govern due to contacts and policy. | Delaware law applies; choice-of-law clause enforced. |
| Is Coface likely to succeed on the merits on the non-compete claim? | Coface: Delaware law would enforce the non-compete, supporting likelihood of success. | Newton: Louisiana law would render the non-compete unenforceable. | Yes; Coface likely to succeed under Delaware law. |
| Do Restatement §187 exceptions to enforce choice-of-law apply? | Coface: No exceptional basis to override Delaware choice. | Newton: Louisiana has greater interest; exceptions may apply. | No; neither §187(2)(a) nor §187(2)(b) applies; enforce Delaware law. |
| Would Louisiana policy override the contract’s Delaware-law choice? | Coface: No fundamental public policy in Louisiana overrides Delaware choice. | Newton: Louisiana policy could override due to interests and policy. | Not met; Delaware law controls. |
Key Cases Cited
- Abry Partners V, L.P. v. F & W Acquisition LLP, 891 A.2d 1032 (Del. Ch. 2006) (strong framework for enforcing party-chosen law and public policy restraint)
- Total Holdings USA, Inc. v. Curran Composites, Inc., 999 A.2d 873 (Del. Ch. 2009) (Delaware adherence to §187 choice-of-law framework)
- Zimmer, Inc. v. Sharpe, 651 F. Supp. 2d 840 (N.D. La. 2009) (public policy considerations in enforcing covenants in other states)
- MedX Inc. of Fla. v. Ranger, 780 F. Supp. 398 (E.D. La. 1991) (enforcement of contractual covenants under foreign law)
- McTernan v. City of York, 577 F.3d 521 (3d Cir. 2009) (standard for preliminary injunctions: likelihood of success, irreparable harm, balance of equities, public interest)
- Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941) (fed courts apply forum state choice-of-law rules)