96 F.4th 977
7th Cir.2024Background
- Robert Rutledge worked as a Plant Manager at LKQ Corporation, a national automotive parts supplier, and participated in LKQ’s Restricted Stock Unit (RSU) program, receiving significant stock awards subject to forfeiture-for-competition provisions governed by Delaware law.
- Rutledge also executed separate Confidentiality, Non-Competition, and Non-Solicitation Agreements (Restrictive Covenant Agreements) governed by Illinois law.
- After resigning from LKQ, Rutledge immediately began working for Fenix Parts, a direct competitor, violating the non-compete restrictions.
- LKQ sued Rutledge for breach of both sets of agreements and unjust enrichment, seeking injunctive relief and to claw back proceeds from Rutledge’s stock sales.
- The district court held that the RSU forfeiture provision should be reviewed for reasonableness and that both it and the Restrictive Covenant Agreements were overbroad and unenforceable; LKQ’s unjust enrichment claim was dismissed as barred by the existence of a contract.
- On appeal, the enforceability of the Delaware-law forfeiture-for-competition provision came to the forefront, especially in light of a recent Delaware Supreme Court decision, Cantor Fitzgerald v. Ainslie, affecting the legal standard applied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held/Disposition |
|---|---|---|---|
| 1. Enforceability of RSU forfeiture- | Rutledge must forfeit stock proceeds for joining | Provision is an unreasonable restraint on | Certified question to Delaware Supreme Court; district court affirmed |
| for-competition provision (Delaware) | competitor as agreed in Delaware-governed RSUs | trade; should be reviewed for reasonableness | pending guidance on applicable legal standard |
| 2. Validity of Restrictive Covenant | Rutledge breached by working for a competitor | Provision is overbroad, unreasonable | Restrictive Covenant unenforceable under Illinois law; summary judgment |
| Agreements (Illinois) | within imposed time and geographic scope | restraint barring work "in any capacity" | for Rutledge affirmed |
| 3. Unjust Enrichment claim | Should be available as alternative to contract | Barred because contract governs conduct | Dismissed; cannot plead unjust enrichment where an express contract |
| claims | governs parties' relationship |
Key Cases Cited
- Reliable Fire Equip. Co. v. Arredondo, 965 N.E.2d 393 (Ill. 2011) (outlines Illinois law's reasonableness standard for restrictive covenants)
- Cambridge Eng’g, Inc. v. Mercury Partners 90 BI, Inc., 879 N.E.2d 512 (Ill. App. Ct. 2007) (overbroad non-compete provisions are not enforceable)
- Karimi v. 410 N. Wabash Venture, LLC, 952 N.E.2d 1278 (Ill. App. Ct. 2011) (unjust enrichment not available where an express contract covers the dispute)
- Liautaud v. Liautaud, 221 F.3d 981 (7th Cir. 2000) (restrictive covenants reviewed carefully under Illinois law)