Restrictive Covenant Enforcement, Blue-Penciling, and Founder-Investor Disputes in a Private Equity Home Healthcare Acquisition

Business Law and Estate Planning Controversies

Restrictive Covenant Enforcement, Blue-Penciling, and Founder-Investor Disputes in a Private Equity Home Healthcare Acquisition

Prepared March 15, 2026

Court: Court of Chancery of Delaware

Date: March 10, 2026

Citation: Caring People Holdco, LLC, et al. v. Shalom (Steven) East & Jennifer Devine, et al., No. CV 2024-0125-SEM, 2026 WL 678954 (Del. Ch. Mar. 10, 2026)

Summary of Relevant Facts

Shalom (Steven) East founded Caring People in 1998 as a small employment agency for nannies, growing it into a multi-state home healthcare provider generating over $30 million in revenue. In 2017, Silver Oak CP, LLC acquired a controlling interest for $30.25 million; East received $11.3 million in cash and retained approximately 40% ownership. The Purchase and Contribution Agreement (PCA) imposed non-compete, non-solicit, and confidentiality covenants on East for two years post-employment. An Avior/COD carve-out protected East's separate technology platform business.

Jennifer Devine, Caring People's top sales representative ($25 million in annual sales), signed a Business Protection Agreement (BPA) with a New York entity and later received incentive units under a separate Incentive Unit Agreement (IUA) with identical restrictive covenants.

After the relationship between East and Silver Oak deteriorated, East stepped down as CEO and established competing ventures (Polaris, Beacon) that obtained home healthcare licenses. He solicited Devine and another key employee, Feder, to join these ventures. Caring People's sales force declined from 57 to 18 representatives.

Procedural Background

Plaintiffs filed a nine-count verified complaint with motions to expedite and for a preliminary injunction. After reassignment, a four-day trial was held from January 20-23, 2026. The magistrate issued the memorandum opinion on March 10, 2026.

Main Controversies

1. Whether the PCA's non-compete clause, covering all of the United States, was enforceable when Caring People operated in only six states, and whether the Court should exercise its blue-penciling discretion to narrow the geographic scope.

2. Whether the Devine BPA, governed by New York law, met New York's stricter enforceability standards for non-compete and non-solicit agreements, which require temporal and geographic limitations reasonably necessary to protect legitimate business interests.

3. Whether East's activities with Polaris, Beacon, and COD fell within the Avior/COD carve-out or constituted direct competition with Caring People in violation of the restrictive covenants.

4. Whether fiduciary duty claims were precluded by the Holdco Agreement's waiver of fiduciary duties where the underlying conduct was already addressed in related contractual agreements.

Positions of the Parties

Plaintiffs argued that East systematically breached his non-compete, non-solicit, and confidentiality obligations by establishing competing ventures, soliciting key employees, and sharing confidential documents. They sought $12.4 million in lost profits based on their expert's analysis.

East argued the non-compete was facially overbroad (covering the entire U.S.), that his activities fell within the Avior/COD carve-out, that no direct solicitation occurred, and that Plaintiffs' damages theory improperly attributed all revenue decline to his and Devine's departure. Devine argued the BPA was unenforceable under New York's stricter standards.

Court's Holding

The Court largely ruled for Plaintiffs. East breached the PCA's non-compete (blue-penciled to six states), non-solicit, and confidentiality provisions, and the Holdco Agreement's confidentiality provision. Devine breached the IUA's non-solicit provision, but the BPA was unenforceable under New York law. The fiduciary duty claim was rejected as duplicative of contract claims. East tortiously interfered with Plaintiffs' contracts with Devine and Feder. Silver Oak breached the Holdco distribution obligation ($355,000). Total damages of $4.304 million were awarded (3/4 to East, 1/4 to Devine).

Key Reasoning and Analysis

On blue-penciling, the Court found equal bargaining power (East was represented by counsel, the covenant was specifically negotiated, and $30.25 million changed hands), satisfying Delaware's requirements for judicial modification. Narrowed to six states, the non-compete was reasonable. The Avior/COD carve-out did not protect East's Polaris and Beacon ventures, which directly provided home healthcare services rather than merely operating a technology platform.

On Devine's BPA, the Court applied New York's stricter standard and found the definition of prohibited conduct vague and the only consideration being continued employment, which New York disfavors. However, the Devine IUA—with explicit terms, valuable incentive unit consideration, and defined scope—was enforceable.

On fiduciary duties, the Holdco Agreement's Section 6.6(c) waived fiduciary duties except for fraud, intentional misconduct, or breach of Related Agreements. Since the alleged conduct was addressed contractually, no independent fiduciary duty claim was available.

On damages, the Court reduced the expert's $12.4 million figure to $4.304 million, limiting recovery to New York and New Jersey markets and awarding only half of identified lost profits to account for other factors contributing to revenue decline.

Significance and Takeaways

This decision exemplifies Delaware's balanced approach to restrictive covenants in PE acquisitions: blue-penciling is available where provisions were specifically negotiated at arm's length, but geographic scope must align with actual business operations. The contrast between the unenforceable New York BPA and the enforceable Delaware IUA highlights the importance of choice-of-law provisions. The rejection of fiduciary duty claims where conduct is addressed contractually confirms that LLC agreement waivers are enforced as written. The damages reduction underscores judicial skepticism of damages models that attribute all revenue decline to a single cause.