Background
In October 2023, Tedd Barr and two co-owners sold their interests in Converze Media Group, LLC — a direct response media purchasing company — to Genesis CMG Holdings, LLC. As part of the deal, Genesis executed subordinated promissory notes (Seller Notes) to pay Barr approximately $1.58 million (after a post-closing adjustment). On the same date, Barr signed a Restrictive Covenants Agreement (RCA) that included a four-year nationwide noncompetition clause and nonsolicitation restrictions covering Converze customers and employees. The RCA contained a critical condition in Section 22: if the Seller Notes remained unpaid one year after the October 27, 2023 effective date, the noncompetition and nonsolicitation provisions would “terminate and be of no further force or effect.”
The Seller Notes were never paid. Barr resigned from Converze in April 2025 and founded or joined Simplicity Media Group, LLC. Plaintiffs alleged that fifteen former Converze employees departed with Barr and that Barr, through Simplicity, solicited all of Converze’s remaining clients. Genesis and Converze sued Barr and Simplicity for breach of the RCA, tortious interference with contract, civil conspiracy, and breach of the implied covenant of good faith and fair dealing.
Barr moved to dismiss under Court of Chancery Rule 12(b)(6), arguing that the restrictive covenants had already terminated by operation of Section 22 before any of the alleged misconduct occurred. Notably, this Court had addressed the identical Section 22 provision in a related action involving the other Converze sellers, Genesis CMG Holdings LLC v. Phillip Yancey, et al., C.A. No. 2024-1317-SEM (Del. Ch. Feb. 26, 2026), and reached the same conclusion.
The Court’s Holding
Magistrate in Chancery David Hume, IV recommended that Defendants’ Motion to Dismiss be granted in full. The court held that Section 22 of the RCA was an unambiguous condition precedent: because the Seller Notes remained unpaid as of October 27, 2024, the noncompetition and nonsolicitation covenants terminated by their own terms before Barr’s alleged misconduct began in April 2025. Plaintiffs conceded nonpayment, and all of Barr’s alleged conduct postdated the lapse. As the court put it, Barr “could not breach what did not exist.”
Plaintiffs argued that email exchanges between the parties constituted a written modification under RCA Section 18 — specifically, that the parties had agreed to offset the Seller Notes against Barr’s Shareholder Loan from Converze. The court rejected this, consistent with prior Delaware authority holding that email correspondence does not satisfy a contractual requirement for a signed written amendment. The court also declined to apply the forfeiture-mitigation framework from Thompson Street Capital Partners IV, L.P. v. Sonova United States Hearing Instruments, LLC, 340 A.3d 1151 (Del. 2025), finding that compensation was clearly the material part of the agreed exchange and that no further factual development was needed to determine materiality as a matter of law.
Because the restrictive covenants lapsed, the tortious interference and civil conspiracy counts failed as derivative claims with no viable underlying contract to support them. The implied covenant of good faith and fair dealing claim also failed because Plaintiffs identified no gap in the RCA that the implied covenant could fill — rather, they sought to use the implied duty to revive a lapsed express obligation, which Delaware law does not permit. The equitable estoppel theory, though not formally pleaded, was separately held waived after Plaintiffs disclaimed it in their answering brief and attempted to revive it only at oral argument.
Key Takeaways
- A clear contractual condition precedent tying noncompete enforceability to payment of seller notes will be given effect as written; courts will not rewrite the bargain to excuse nonpayment when the forfeiture language is unambiguous.
- Email exchanges do not constitute a signed written modification under a contract that expressly requires amendments to be in writing and signed by both parties — even where the emails reflect apparent agreement to offset obligations.
- When restrictive covenants terminate by their own terms, dependent claims for tortious interference, civil conspiracy, and breach of the implied covenant of good faith and fair dealing necessarily fail along with the underlying contract obligation.
- Delaware courts may resolve the materiality of a condition precedent as a matter of law — without further factual development — when the contract’s forfeiture language is clear and compensation is obviously the material part of the exchange.
- Arguments abandoned in briefing are waived and cannot be resurrected at oral argument, even under a reformulated label.
Why It Matters
This decision reinforces that Delaware’s robust freedom-of-contract principles cut both ways in M&A transactions: sellers who negotiate payment-contingent noncompetes gain real protection, but buyers who fail to fund their obligations risk losing the restrictive covenants they bargained for — regardless of the seller’s subsequent competitive conduct. Deal lawyers structuring earnout or seller-note arrangements should pay close attention to automatic termination provisions in accompanying RCAs and ensure their clients understand that nonpayment, for any reason (including subordination agreement restrictions or loan offsets), may extinguish post-closing noncompete protections entirely.
The opinion also signals that Delaware courts will follow prior rulings on identical contractual language arising from the same transaction, echoing the Cardozo maxim with which the court opened its analysis. Litigants should anticipate stare decisis-like consistency across related cases involving the same deal documents, even where separate sellers and separate magistrates are involved.